FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1998
---------------------------------
Commission file number 1-892
---------------------------------
THE B.F.GOODRICH COMPANY
NEW YORK 34-0252680
- ------------------------------- --------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4020 KINROSS LAKES PARKWAY, RICHFIELD, OHIO 44286-9368
- -------------------------------------------- ------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 330-659-7600
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
As of September 30, 1998, there were 74,333,324 shares of common stock
outstanding. There is only one class of common stock.
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
--------------------------------- ---------------------------------
1998 1997 1998 1997
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Sales $ 986.2 $ 870.2 $ 2,934.9 $ 2,480.9
Operating Costs and Expenses:
Cost of sales 710.1 616.4 2,126.5 1,795.7
Charge for MD-90 Contract - 35.2 - 35.2
Selling and administrative expenses 150.5 139.6 454.7 410.5
--------------- --------------- ---------------- ---------------
860.6 791.2 2,581.2 2,241.4
--------------- --------------- ---------------- ---------------
Operating income 125.6 79.0 353.7 239.5
Interest expense (20.6) (16.5) (57.7) (54.6)
Interest income 0.6 3.7 4.4 7.8
Other income (expense) - net (4.1) (2.5) (11.3) 30.4
--------------- --------------- ---------------- ---------------
Income from continuing operations before
income taxes and Trust distributions 101.5 63.7 289.1 223.1
Income tax expense (39.1) (23.6) (111.4) (83.5)
Distributions on Trust preferred
securities (2.7) (2.7) (7.9) (7.9)
--------------- --------------- ---------------- ---------------
Income from continuing operations 59.7 37.4 169.8 131.7
Income (loss) from discontinued operations - 16.8 (1.6) 84.3
Extraordinary loss on debt
extinguishment - net of taxes - (2.6) - (2.6)
--------------- --------------- ---------------- ---------------
Net Income $ 59.7 $ 51.6 $ 168.2 $ 213.4
=============== =============== ================ ===============
Earnings per share:
Basic
Continuing operations $ 0.80 $ 0.53 $ 2.31 1.86
Discontinued operations - 0.24 (0.02) 1.19
Extraordinary Item - (0.04) - (0.04)
--------------- --------------- ---------------- ---------------
Net income $ 0.80 $ 0.73 $ 2.29 $ 3.01
=============== =============== ================ ===============
Diluted
Continuing operations $ 0.80 $ 0.50 $ 2.26 $ 1.78
Discontinued operations - 0.22 (0.02) 1.13
Extraordinary Item - (0.03) - (0.03)
--------------- --------------- ---------------- ---------------
Net income $ 0.80 $ 0.69 $ 2.24 $ 2.88
=============== =============== ================ ===============
Dividends declared per common share $ 0.275 0.275 0.825 0.825
</TABLE>
See notes to condensed consolidated financial statements.
Page 2
<PAGE>
THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
--------------- --------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 43.1 $ 47.0
Accounts and notes receivable, less allowances
for doubtful receivables (September 30, 1998:
$21.7; December 31, 1997: $21.3) 639.8 532.6
Inventories 762.6 652.6
Deferred income taxes 140.2 132.4
Prepaid expenses and other assets 40.1 36.7
--------------- --------------
Total Current Assets 1,625.8 1,401.3
--------------- --------------
Property
Land, buildings and machinery and equipment 2,231.5 2,015.4
Allowances for depreciation and amortization (1,024.6) (950.3)
--------------- --------------
Total Property 1,206.9 1,065.1
--------------- --------------
Deferred Income Taxes 64.9 86.0
Prepaid Pension 136.8 148.3
Goodwill 718.1 546.2
Identifiable Intangible Assets 107.6 51.1
Other Assets 236.6 195.9
--------------- --------------
$ 4,096.7 $ 3,493.9
=============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank debt $ 82.5 $ 192.8
Accounts payable 369.3 327.6
Accrued expenses 431.6 411.3
Income taxes payable 47.8 -
Current maturities of long-term debt
and capital lease obligations 3.4 3.2
--------------- --------------
Total Current Liabilities 934.6 934.9
--------------- --------------
Long-term Debt and Capital Lease Obligations 995.0 564.3
Pension Obligations 42.2 39.6
Postretirement Benefits Other Than Pensions 346.6 343.7
Other Non-current Liabilities 93.3 65.7
Mandatorily Redeemable Preferred Securities of Trust 123.4 123.1
Shareholders' Equity
Common stock - $5 par value
Authorized 200,000,000 shares; issued 76,173,345
shares at September 30, 1998, and 73,946,160
shares at December 31, 1997 380.9 369.7
Additional capital 542.7 500.7
Income retained in the business 698.9 591.5
Accumulated other comprehensive income 4.5 (3.5)
Unearned portion of restricted stock awards - (0.7)
Common stock held in treasury, at cost (1,840,021
shares at September 30, 1998, and 1,204,022 shares
at December 31, 1997) (65.4) (35.1)
--------------- -------------
Total Shareholders' Equity 1,561.6 1,422.6
--------------- --------------
$ 4,096.7 $ 3,493.9
=============== ==============
</TABLE>
See notes to condensed consolidated financial statements.
Page 3
<PAGE>
THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
--------------------------------
1998 1997
----------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 168.2 $ 213.4
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 121.9 105.0
Deferred income taxes 12.9 21.1
Net gains on sales of businesses - (138.8)
Change in assets and liabilities, net of effects
of acquisitions and dispositions of businesses:
Receivables (13.6) (21.6)
Inventories (49.0) (5.3)
Other current assets (1.4) (2.4)
Accounts payable 9.1 (5.5)
Accrued expenses (1.7) (12.7)
Income taxes payable 49.4 22.7
Other non-current assets and liabilities (9.7) (30.3)
----------------- ------------
Net cash provided by operating activities 286.1 145.6
INVESTING ACTIVITIES
Purchases of short term investments - (3.3)
Purchases of property (134.9) (102.6)
Proceeds from sale of property 4.1 6.0
Proceeds from sale of businesses - 395.9
Payments made in connection with acquisitions,
net of cash acquired (379.8) (23.4)
----------------- ------------
Net cash (used) provided by investing activities (510.6) 272.6
FINANCING ACTIVITIES
Net decrease in short-term bank debt (113.0) (89.7)
Proceeds from issuance of long-term debt 433.0 2.2
Repayment of long-term debt and capital lease obligations (9.2) (108.4)
Cash collateral for receivable sales program - 5.0
Termination of receivable sales program (40.0) -
Proceeds from issuance of capital stock 26.0 8.9
Purchases of treasury stock (13.3) (5.1)
Dividends (55.2) (44.5)
Distributions on Trust preferred securities (7.9) (7.9)
----------------- ------------
Net cash provided (used) by financing activities 220.4 (239.5)
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 0.2 (1.6)
----------------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3.9) 177.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 47.0 103.4
----------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 43.1 $ 280.5
================= ============
Supplemental Cash Flow Information:
Income taxes paid $ 20.7 $ 93.1
================= ============
Interest paid, net of amounts capitalized $ 45.1 $ 62.7
================= ============
</TABLE>
See notes to condensed consolidated financial statements.
Page 4
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note A: BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION - The accompanying
unaudited condensed consolidated financial statements of The BFGoodrich Company
("BFGoodrich" or the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and nine month periods ended
September 30, 1998, are not necessarily indicative of the results that may be
achieved for the year ending December 31, 1998. For further information, refer
to the consolidated financial statements and footnotes included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
Note B: NEW ACCOUNTING STANDARD - The Company adopted the provisions of EITF
97-14, "Accounting for Deferred Compensation Arrangements Where Amounts Earned
are Held in a Rabbi Trust and Invested", at September 30, 1998. Adoption of EITF
97-14 resulted in the reclassification of $2.3 million of deferred compensation
liabilities to shareholder's equity as of September 30, 1998.
Note C: MERGER WITH ROHR - On December 22, 1997, BFGoodrich completed a merger
with Rohr, Inc. which was accounted for as a pooling of interests. Accordingly,
all prior period consolidated financial statements have been restated to include
the results of operations, financial position and cash flows of Rohr as though
Rohr had always been a part of BFGoodrich. As such, results for the three and
nine month periods ended September 30, 1997 combine BFGoodrich and Rohr results
for the same periods.
Note D: DISCONTINUED OPERATIONS - During the 1998 first quarter, the Company
recognized a $1.6 million after-tax charge related to a business previously
divested and reported as a discontinued operation.
Discontinued operations during the first nine months of 1997 reflect the gain on
the sale of Tremco Incorporated in February 1997 and the results of operations
and gain on the sale of the chlor-alkali and olefins business in August 1997.
- 5 -
<PAGE>
Note E: INVENTORY - Inventories included in the accompanying condensed
consolidated balance sheet consist of:
(Dollars in millions)
--------------------------------
September 30, December 31,
1998 1997
------------- ------------
FIFO or average cost
(which approximates
current costs):
Finished products $230.7 $173.4
In process 408.0 411.2
Raw materials and supplies 193.5 161.4
------ ------
832.2 746.0
Less:
Reserve to reduce certain
inventories to LIFO (54.5) (57.5)
Progress payments and advances (15.1) (35.9)
------ ------
Total $762.6 $652.6
====== ======
In-process inventories include significant deferred costs related to production,
pre-production and excess-over-average costs for long-term contracts. The
Company has pre-production inventory of $77.9 million related to design and
development costs on the 717-200 program through September 30, 1998. In
addition, the Company has excess-over-average inventory of $21.5 million
related to costs associated with the production of the flight test inventory and
the first production units. The Company estimates that it will require orders
for approximately 300 aircraft to fully recover these costs. To date, Boeing
has received orders for 55 firm and 50 options related to the 717-200 aircraft.
To the extent significantly less than 300 aircraft are ordered, it is possible
that there may be a material adverse effect on earnings in a given period.
In 1993, the Company revised its contract with Pratt & Whitney on the PW4000 for
the A300/310 and MD-11 programs. The revised contract provides that if Pratt &
Whitney accepts delivery of less than 500 units between 1993 through 2003, an
"equitable adjustment" will be made. Recent market projections on the PW4000
contract indicate that less than 500 units will be delivered. The Company has
submitted a "request for equitable adjustment" to the customer and believes it
will achieve a recovery such that there should not be a material adverse effect
on the financial position, liquidity or results of operations of the Company. If
the Company does not receive the equitable adjustment it believes it is entitled
to, it is possible that there may be a material adverse effect on earnings in a
given period. At September 30, 1998, the Company had $53.0 million of contract
costs in inventory for the PW4000 programs.
Note F: ACQUISITION - Late in March 1998, the Company acquired Freedom Chemical
Company ("Freedom Chemical"), a global manufacturer of specialty and fine
chemicals that are sold to a variety of customers who use them to enhance the
performance of their finished products, for approximately $378 million. The
purchase price allocations have been based on preliminary estimates, which may
be revised at a later date. Goodwill is being amortized using the straight-line
method over 20 years. The acquisition was recorded using the purchase method of
accounting. Its results of operations, which were not material, have been
included in the Company's results since the date of acquisition.
- 6 -
<PAGE>
Note G: DIVESTITURE - During the latter part of the second quarter of 1997, the
Company completed the sale of its Engine Electrical Systems Division, which was
part of the Sensors and Integrated Systems Group in the Aerospace segment. The
Company recorded a pretax gain of $26.4 million ($16.4 million after tax) as a
result of the sale which has been reported within other income. Divestitures
that have been reported and accounted for as discontinued operations are
discussed within Note D.
Note H: PUBLIC OFFERING OF SUBSIDIARY STOCK - In May 1997, the Company's
subsidiary, DTM Corporation ("DTM"), issued 2,852,191 shares of its authorized
but previously unissued common stock in an initial public offering ("IPO"). As a
result of the IPO, the Company's interest declined from approximately 92 percent
to approximately 50 percent (the Company did not sell any of its interest in the
IPO). The Company recognized a pretax gain of $13.7 million ($8.0 million after
tax) in accordance with the SEC's Staff Accounting Bulletin 84. The gain has
been reported within other income in the Condensed Consolidated Statement of
Income.
- 7 -
<PAGE>
NOTE I: EARNINGS PER SHARE - The computation of basic and diluted earnings per
share for income from continuing operations is as follows:
<TABLE>
<CAPTION>
(In millions, except per share amounts) Three months ended Nine months ended
September 30, September 30,
-------------------- ------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Income from continuing operations
for basic earnings per share-income
available to common shareholders $59.7 $37.4 $169.8 $131.7
Effect of dilutive securities:
Convertible Notes - .2 - .7
------ ------ ------ ------
Numerator for diluted earnings per
share - income available to common
shareholders after assumed conversions $59.7 $37.6 $169.8 $132.4
====== ====== ====== ======
Denominator:
Denominator for basic earnings per
share - weighted-average shares 74.3 70.9 73.5 70.8
------ ------ ------- ------
Effect of dilutive securities:
Stock options and warrants .5 1.9 .8 1.6
Contingent shares .1 .7 .1 .7
Convertible Notes - 1.3 .7 1.3
------ ------ ------ ------
Dilutive potential common shares .6 3.9 1.6 3.6
------ ------ ------- ------
Denominator for diluted earnings per
share - adjusted weighted-average shares
and assumed conversions 74.9 74.8 75.1 74.4
====== ====== ====== ======
Per share income from continuing operations:
Basic $ .80 $ .53 $2.31 $1.86
====== ====== ====== ======
Diluted $ . 80 $ .50 $2.26 $1.78
====== ====== ====== ======
</TABLE>
NOTE J: COMPREHENSIVE INCOME - As required, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income," in the first quarter of 1998. SFAS No. 130
established new rules for the reporting and display of comprehensive income and
its components. This standard does not impact net income or total shareholders'
equity. SFAS No. 130 requires the Company's change in its minimum pension
liability and foreign currency translation adjustment to be included in other
comprehensive income. The prior periods' financial statements have been
reclassified to conform to these requirements.
- 8 -
<PAGE>
Total comprehensive income consists of the following:
<TABLE>
<CAPTION>
(dollars in millions) Three months ended Nine months ended
September 30, September 30,
------------------ -----------------
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net Income $59.7 $51.6 $168.2 $213.4
------ ------ ------ ---=--
Other Comprehensive Income:
Cumulative unrealized translation
adjustments:
Unrealized translation adjustments
during period 8.7 (3.5) 8.0 (14.1)
Less reclassification for translation
adjustments included in net
income (net of tax) - - - 1.7
Minimum pension liability adjustment - - - 26.4
------ ------ ------ ------
Other Comprehensive Income 8.7 (3.5) 8.0 14.0
------ ------ ------ ------
Total Comprehensive Income $68.4 $48.1 $176.2 $227.4
====== ====== ====== ======
</TABLE>
Accumulated other comprehensive income consists of the following (dollars in
millions):
September 30, 1998 December 31, 1997
------------------- -----------------
Cumulative unrealized translation
adjustments $ 6.3 $(1.7)
Minimum pension liability adjustment (1.8) (1.8)
----- -----
$ 4.5 $(3.5)
====== =====
Note K: CAPITAL STOCK - During the first nine months of 1998, 992,134 shares of
authorized but previously unissued shares of common stock were issued under
employee compensation plans and 1,235,051 shares of authorized but previously
unissued shares of common stock were issued upon conversion of Rohr debentures
that were extinguished in late 1997.
Note L: INCOME TAXES - The effective tax rate for the third quarter and first
nine months of 1998 and 1997 was higher than the federal statutory rate
principally due to state and local income taxes.
- 9 -
<PAGE>
Note M: CONTINGENCIES - 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 from time to time in legal proceedings as a plaintiff
involving contract, patent protection, environmental and other matters. Gain
contingencies, if any, are recognized when they are realized.
The Company and its subsidiaries are generators of both hazardous wastes and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party ("PRP") by
the U.S. Environmental Protection Agency in connection with 43 sites, most of
which related to previously discontinued businesses and newly acquired
businesses. The Company believes it may have continuing liability with respect
to not more than 20 of these federal sites.
Significant liabilities associated with previously discontinued businesses for
the most part arise from four disposal sites. 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 three of the four sites from previously
discontinued businesses, the Company's maximum percentage share of the ultimate
remediation costs is fixed. The percentages range from approximately 12 percent
to approximately 41 percent and appropriate reserves have accordingly been
established. At the fourth site, alternate dispute resolution ("ADR") is under
way to establish the various parties' share of responsibility. The Company's
interim share is 30 percent, which the company believes will likely decrease as
the result of the ADR.
Of the four sites relating to discontinued businesses, two sites are in the
operation and maintenance phase for which costs are reasonably fixed.
Construction at a third site was begun in 1997, but problems with the remedial
design caused work to be discontinued. A modified remedial plan has been
approved by EPA and is likely to increase the overall cost of the remedy by $1.5
million to $2 million. Total site costs, even with the increased remedial costs,
are not expected to exceed $15 million for which the Company's 30 percent share
has been adequately reserved. The final site involving discontinued businesses
continues in litigation. Agreement has been reached with the government for a
changed remedy but past government costs of over $25 million continue to be an
issue. The Company has accrued for the 12 percent of the total costs that it
expects to incur.
The Company also has two active Superfund sites relating to the Aerostructures
Group (Rohr). Of these, one is a multi-hundred million-dollar site that has been
in active investigation/ remediation/litigation for over 15 years. Depending on
the outcome of an appeal of its share of the liability by the State of
California, the Company may not spend much more on this matter, but a reserve is
being retained in the event that the outcome of the appeal is negative and/or
that no settlement with the State occurs. The potentially responsible parties
seeking contribution are pursuing an action against third-party defendants. No
- 10 -
<PAGE>
receivable has been reflected for any potential contributions. The second Rohr
site is in an earlier stage, and the Company's percentage share of the total
site cost has not been finally determined. However, its contribution of waste to
the site was approximately 1 percent, and constitutes less than 2 percent of the
waste contributed by the PRP group of which it is a member. In 1996 the PRP
group entered into a Consent Decree with EPA that obligated it only to pay for
part of the remedy and obligated EPA to seek funds from other non-participating
PRPs. However, there remain some potential liabilities not fully addressed by
the Consent Decree. EPA's total estimated cost for this site to all parties is
$430 million, but the PRP group is currently only obligated to perform a portion
of the remedy with a cost estimated by EPA of $55 million. The remediation is
underway and the group anticipates being able to perform the necessary work at a
lower cost.
The Company has now completed its review of the environmental liabilities
associated with the acquisition of Freedom Chemical in March 1998. Although many
of the environmental liabilities are indemnified by Freedom's predecessors at
the various sites, there are five sites at which the Company may have exposure
in excess of $1 million each. All five sites are current or former manufacturing
sites.
At the first Freedom site, a limited fund for remediation may be available from
the former owner, but the Company anticipates incurring costs of as much as $5
million at this site. The exact amount cannot be currently determined due to the
fact that the work is still in the investigation phase. A second site is being
investigated and will be ultimately remediated under a state order. The initial
work at this site is being performed by an indemnitor, but due to the terms of
the indemnification, certain conditions that had not been identified at the time
Freedom acquired the facility may be subject to some form of cost sharing
between the Company and the indemnitor.
For the remaining three sites, although the remedial design and construction is
being conducted by an indemnitor, the Company will remain liable for a majority
of the cost for long-term operation and maintenance of the remedy which accounts
for the majority of the costs to be incurred by the Company at these sites.
The Company believes that it has adequately reserved for all of the above sites
based on currently available information. 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.
- 11 -
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
----------------------------------
COMPARISON OF THE THIRD QUARTER AND FIRST NINE MONTHS OF 1998
TO THE THIRD QUARTER AND FIRST NINE MONTHS OF 1997
--------------------------------------------------
TOTAL COMPANY
-------------
Sales during the quarter ended September 30, 1998, were $986.2 million, an
increase of $116.0 million, or 13 percent, over sales during the same period
last year. The increase is primarily a result of higher volumes in the Aerospace
Segment and acquisitions in the Performance Materials Segment. Sales for
Aerospace increased by 5 percent and for Performance Materials by 36 percent
over the 1997 third quarter.
Operating income during the third quarter of 1998 increased $46.6 million, or 59
percent, over the comparable prior year period. Excluding the impact of a
charge relating to the MD-90 contract in 1997, operating income would have
increased by $11.4 million or 10 percent over the comparable period last year.
The increase is primarily a result of higher volumes and a favorable sales mix
in the Aerospace Segment and acquisitions in the Performance Materials
Segment. Operating income for Aerospace improved by 59 percent and Performance
Materials improved by 18 percent. Operating expenses for Corporate decreased by
21 percent. The Company's operating income margin for the third quarter of 1998
was 12.7 percent, compared with 9.1 percent for the same period last year.
Sales during the first nine months of 1998 were $2.9 billion, an increase of
$454.0 million, or 18 percent, over the first nine months of 1997. The increase
in sales is attributable to increased demand in most markets served by the
Aerospace Segment and to the impact of acquisitions by the Performance Materials
Segment.
Operating income during the first nine months of 1998 increased by $114.2
million, or 48 percent, over the comparable period last year. Excluding the
impact of the MD-90 charge in 1997, operating income would have increased by
$79.0 million, or 28.8 percent. The increase reflects higher volumes and a
favorable sales mix in the Aerospace Segment and acquisitions by the Performance
Materials Segment. Corporate expenses decreased between periods by $5.9 million,
or 13 percent. Operating margins have increased to 12.1 percent during the first
nine months of 1998 as compared to 9.7 percent during the same period last year.
ACQUISITIONS
------------
On December 22, 1997, the Company completed a merger with Rohr, Inc. ("Rohr")
which was accounted for as a pooling of interests. Accordingly, all prior period
consolidated financial statements have been restated to include the results of
operations, financial position and cash flows of Rohr as though Rohr had always
been a part of the Company. As such, results for the three and nine month
periods ended September 30, 1997 combine BFGoodrich and Rohr results for the
same periods.
- 12 -
<PAGE>
The following acquisitions were recorded using the purchase method of accounting
Their results of operations, which are not material, have been included in the
Company's results since their respective dates of acquisition.
In March 1998, the Company acquired a global manufacturer of specialty and fine
chemicals that are sold to a variety of customers who use them to enhance the
performance of their finished products. Also, in July 1998, the Company acquired
a small manufacturer of textile chemicals used for fabric preparation and
finishing.
During 1997, the Company acquired five businesses (four of which were acquired
during the fourth quarter). One of the acquired businesses is a manufacturer of
data acquisition systems for satellites and other aerospace applications. A
second business manufactures diverse aerospace products for commercial and
military applications. A third business is a manufacturer of dyes, chemical
additives and durable press resins for the textiles industry. A fourth business
manufactures thermoplastic polyurethanes and is located in the United Kingdom.
The remaining acquisition is a small specialty chemicals business.
SEGMENT ANALYSIS
----------------
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
------------------------------------------------------------------------------------------------------------
(Dollars in Millions) 1998 1997 1998 1997
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Sales:
Aerospace $ 681.4 $ 646.5 $ 2,036.8 $ 1,806.1
Performance Materials 304.8 223.7 898.1 674.8
------------------------------------------------------------------------------------------------------------
Total $ 986.2 $ 870.2 $ 2,934.9 $ 2,480.9
============================================================================================================
Operating Income:
Aerospace $ 101.1 $ 63.5 $ 279.9 $ 191.8
Performance Materials 37.4 31.8 114.2 94.0
------------------------------------------------------------------------------------------------------------
Total Reportable Segments 138.5 95.3 394.1 285.8
Corporate (12.9) (16.3) (40.4) (46.3)
------------------------------------------------------------------------------------------------------------
Total $ 125.6 $ 79.0 $ 353.7 $ 239.5
============================================================================================================
</TABLE>
The Company's operations are classified into two reportable business segments:
BFGoodrich Aerospace ("Aerospace") and BFGoodrich Performance Materials
("Performance Materials"). Aerospace consists of four business groups:
Aerostructures; Landing Systems; Sensors and Integrated Systems; and
Maintenance, Repair and Overhaul ("MRO"). They serve commercial, military,
regional, business and general aviation markets.
- 13 -
<PAGE>
The Performance Materials Segment consists of three groups: Textile and
Industrial Coatings; Polymer Additives and Specialty Plastics; and Consumer
Specialties. These groups provide materials for a wide range of end use market
applications including textiles, coatings, food and beverage, personal care,
pharmaceuticals, graphic arts, industrial piping, plumbing and transportation.
The Performance Materials Segment was previously reported as the Specialty
Chemicals Segment consisting of two groups: Specialty Additives and Specialty
Plastics. During the second quarter, the Company reorganized this segment into
the three groups noted above and renamed the segment. The reorganization
facilitates the segment's rapid global expansion as well as the integration of
the Freedom Chemical Company (Freedom Chemical) acquisition. Previously reported
amounts for the segment were reclassified into the three groups noted above.
Also, because of Performance Materials acquisitions subsequent to last year's
third quarter, results adjusted to a comparable basis provide a better
indication of current operating trends. Thus, comparable results, as presented
in the ensuing discussion under the "Comparable % Change" column, are determined
by adjusting 1998 results to exclude the impact of acquisitions that were not
included in the comparable period last year.
Corporate includes general corporate administrative costs and Advanced
Technology Group research expenses. Segment operating income is total segment
revenue reduced by operating expenses identifiable with that business segment.
An expanded analysis of sales and operating income by business segment follows.
Aerospace
- ---------
<TABLE>
<CAPTION>
Sales by Group (in millions)
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 % Change 1998 1997 % Change
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aerostructures $276.3 $276.7 (.1)% $ 861.3 $ 749.2 15.0%
Landing Systems 149.6 136.5 9.6% 436.0 373.1 16.9%
Sensors and Integrated Systems* 143.8 140.4 2.4% 423.8 406.5 4.3%
MRO 111.7 92.9 20.2% 315.7 277.3 13.9%
---------------------------------------------------------------------------------------------------------------
TOTAL $681.4 $646.5 5.4% $2,036.8 $1,806.1 12.8%
===============================================================================================================
<FN>
* Excluding the impact of a divestiture during the second quarter of 1997,
sales increased by 11 percent for the nine-month period ended
September 30, 1998 as compared to the comparable period last year.
</FN>
</TABLE>
- 14 -
<PAGE>
Third Quarter 1998 Compared With Third Quarter 1997
- ---------------------------------------------------
The Aerospace Segment's increase in sales over the third quarter of 1997
reflected continued strong demand in most markets.
The Aerostructures Group's sales were flat compared with the third quarter of
last year. Sales of aftermarket spares hardware were higher than the prior year
quarter, offset by lower original-equipment ("OE") production sales. This
increase occurred across many of the group's programs, including the V2500 and
CFM56-5 engine programs that power the A319/320/321 family of aircraft, and the
MD-90 and CF6-80C2 programs. Higher OE production sales on several commercial
programs, including the V-2500 and the new 737-700 program, were offset by
weaker demand on the A340, CF6-80E1 (A330 aircraft), CF6-80C2 (B747 and B767
aircraft), RB211-535E4 (B757 aircraft), MD-11 and B737-300 programs.
The Landing Systems Group's sales growth reflects higher demand from OE
manufacturers for landing gear and wheel and brake products. The demand was
primarily for the B737, B747 and B767 programs. The establishment of a facility
in Seattle to provide fully dressed landing gears to Boeing on the 747-400
program also contributed to the revenue growth.
Higher sales by the Sensors and Integrated Systems Group over the 1997 third
quarter reflects continued increased demand by OE manufacturers for sensor
products on most major Boeing programs, as well as on other regional and
business programs such as the EMB-RJ145, Gulfstream V and Global Express
programs. The group also experienced increased aftermarket demand for sensors,
avionics and pneumatic deicer products.
The MRO Group's increase in sales from the prior year quarter reflects higher
demand for airframe and component services, particularly for nacelle maintenance
services.
First Nine Months 1998 Compared With First Nine Months 1997
- -----------------------------------------------------------
The Aerospace Segment's increase in sales over the first nine months of 1997
reflects continued strong demand in most markets.
The Aerostructures Group's increase reflects higher production sales to OE
manufacturers and higher aftermarket spares sales. Increased demand occurred in
many of the group's major commercial programs, including the V2500, the start up
of production deliveries on the 737-700 program and one-time sales on the GE90
program. These increases were partially offset by reduced deliveries on the A340
program.
Sales growth in the Landing Systems, Sensors and Integrated Systems and MRO
Groups occurred for the same reasons as the third quarter comparison.
- 15 -
<PAGE>
Operating Income by Group (in millions)
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1998 1997 % Change 1998 1997 % Change
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Aerostructures* $ 44.6 $16.9 163.9% $127.4 $ 71.1 79.2%
Landing Systems 22.8 21.1 8.1% 55.0 52.5 4.8%
Sensors and Integrated Systems**
27.2 24.7 10.1% 80.4 59.6 34.9%
MRO 6.5 .8 712.5% 17.1 8.6 98.8%
-----------------------------------------------------------------------------------------------------------------
TOTAL $101.1 $63.5 59.2% $279.9 $191.8 45.9%
==================================================================================================================
<FN>
* Operating income in the 1997 periods included a $35.2 million charge related
to the MD-90 program.
** The prior year divestiture had virtually no impact on operating income in
the first nine months of 1997.
</FN>
</TABLE>
Third Quarter 1998 Compared With Third Quarter 1997
- ---------------------------------------------------
Total Aerospace Segment operating income increased from the third quarter of
1997 (excluding the MD-90 charge in 1997), largely reflecting the impact of a
favorable sales mix and higher volumes.
Excluding the $35.2 million MD-90 charge in 1997, the Aerostructures Group's
operating income declined 14 percent over the prior year third quarter. This was
largely due to the recognition of excess nonrecurring costs on the B717-200
program and a charge related to the impairment of certain fixed assets.
The Landing Systems Group had an increase in operating income compared with the
third quarter of 1997, largely reflecting the impact of higher sales and a
favorable mix. Operating income growth, however, was constrained by higher
original-equipment strategic sales incentives and higher costs associated with
new product development programs.
The Sensors and Integrated Systems Group's operating income increase reflects
the effects of higher sales volumes, especially for higher-margin aftermarket
avionics and deicing products.
Operating income in the MRO Group increased significantly over the comparable
prior year period, reflecting higher demand for airframe and nacelle maintenance
services.
- 16 -
<PAGE>
First Nine Months 1998 Compared With First Nine Months 1997
- -----------------------------------------------------------
Total Aerospace Segment operating income increased in the first nine months of
1998 compared with the first half of 1997 (excluding the MD-90 charge in 1997),
largely reflecting the impact of higher sales volumes and a favorable sales mix.
The Aerostructures Group's operating income increased significantly over the
prior year period (excluding the MD-90 charge in 1997) as a result of higher
sales volume, particularly for higher margin aftermarket spares sales.
The Landing Systems Group's increase in operating income occurred for the same
reasons as the third quarter comparison.
The Sensors and Integrated Systems Group's operating income increase reflects
the effects of higher sales volumes and a favorable mix, especially for sensors,
avionics and deicing products.
Operating income in the MRO Group increased significantly over the comparable
prior year period, reflecting higher demand for component maintenance services.
Performance Materials
- ---------------------
<TABLE>
<CAPTION>
Sales by Group (in millions)
Three Months Ended September 30, Nine Months Ended September 30,
% Comparable % Comparable
1998 1997 Change % Change 1998 1997 Change % Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Textile and Industrial
Coatings $158.5 $100.0 58.5% (2.5)% $458.7 $302.5 51.6% 2.1%
Polymer Additives and
Specialty Plastics 103.7 102.6 1.1% .2% 322.7 309.7 4.2% 3.2%
Consumer Specialties 42.6 21.1 101.9% 6.9% 116.7 62.6 86.4% 5.6%
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL $304.8 $223.7 36.3% (0.3)% $898.1 $674.8 33.1% 2.9%
============================================================================================================================
</TABLE>
The following discussion and analysis of fluctuations in sales for the
Performance Materials Segment excludes the impact of acquisitions (see
Comparable % Change column).
Third Quarter 1998 Compared to Third Quarter 1997
- -------------------------------------------------
Sales in the Textile and Industrial Coatings Group decreased over the prior year
quarter due to extended textile mill shut-downs in the U.S. and lower export
sales of finished flock upholstery materials to Eastern Europe. The decline in
textile sales more than offset increased sales in the industrial specialties and
coatings markets during the quarter.
- 17 -
<PAGE>
Sales for the quarter in the Polymer Additives and Specialty Plastics Group were
mostly flat with the exception of a slight increase in volume in the Estane(R)
thermoplastic polyurethane and the Telene(R) DCPD monomer markets, offset by
lower prices in some markets resulting from increased competition.
The increase in sales for the Consumer Specialties Group over the third quarter
of last year was mostly attributable to strong pharmaceutical sales. Sales of
products to the personal care markets were strong enough in the Americas and in
Europe to offset weakness in the Asia-Pacific markets.
First Nine Months 1998 Compared to First Nine Months 1997
- ---------------------------------------------------------
The increase in sales for the Textile and Industrial Coatings Group for the
first nine months of 1998 as compared to 1997 was due to increased volumes in
the industrial specialties markets and higher prices and favorable product mix
in the coatings markets. These increases were more than enough to offset a
slight decrease in textile sales resulting mostly from volume shortfalls as
compared to last year.
Sales in the Polymer Additives and Specialty Plastics Group increased over the
first nine months of last year primarily as a result of improved sales to the
Estane(R) thermoplastic polyurethane markets.
The increase in sales during the first nine months of 1998 as compared to 1997
for the Consumer Specialties Group related primarily to increased volumes and
favorable mix in the personal care markets and to increased volumes in the
pharmaceutical markets.
- 18 -
<PAGE>
<TABLE>
<CAPTION>
Operating Income by Group (in millions)
Three Months Ended September 30, Nine Months Ended September 30,
% Comparable % Comparable
1998 1997 Change % Change 1998 1997 Change % Change
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Textile and Industrial
Coatings $16.3 $11.8 38.1% 5.8% $ 52.8 $36.5 44.7% 16.2%
Polymer Additives and
Specialty Plastics 14.1 14.9 (5.4)% (6.6)% 41.5 40.6 2.2% 1.8%
Consumer Specialties 7.0 5.1 37.3% 18.0% 19.9 16.9 17.8% 3.7%
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL $37.4 $31.8 17.6% 2.0% $114.2 $94.0 21.5% 7.7%
===========================================================================================================================
</TABLE>
The following discussion and analysis of fluctuations in operating income for
the Performance Materials Segment excludes the impact of acquisitions (see
Comparable % Change column).
Third Quarter 1998 Compared to Third Quarter 1997
- -------------------------------------------------
The increase in the Textile and Industrial Coatings Group's operating income
during the quarter as compared to the prior year resulted from increased pricing
and favorable raw material costs, especially in the coatings markets, slightly
offset by higher SG&A and unabsorbed manufacturing costs.
The Polymer Additives and Specialty Plastics Group's decrease in operating
income was due to pricing pressures experienced throughout the Group, partially
offset by favorable raw material pricing.
The increase in operating income between periods for the Consumer Specialties
Group was due to increased volumes and mix primarily related to the Group's
pharmaceutical markets.
First Nine Months 1998 Compared to First Nine Months 1997
- ---------------------------------------------------------
The Textile and Industrial Coatings Group's increase in operating income between
periods resulted from reduced raw material costs across most divisions, a
favorable sales mix and higher pricing.
The Polymer Additives and Specialty Plastics Group's increase in operating
income is due to higher volumes, primarily in the Telene(R) DCPD monomer market,
and reduced raw material costs.
The increase in operating income for the Consumer Specialties Group between
periods was due to increased volumes and a favorable sales mix.
- 19 -
<PAGE>
CORPORATE
---------
Third quarter 1998 Corporate expenses decreased $3.4 million to $12.9 million as
compared to the same period last year. Corporate expenses decreased by $5.9
million for the nine month period ended September 30, 1998 as compared to the
corresponding period in the previous year. The decreases are largely
attributable to reduced costs associated with the Company's long-term incentive
plan.
INTEREST INCOME/EXPENSE-NET
---------------------------
Interest expense-net increased by $7.2 million to $20.0 million during the third
quarter as compared to the corresponding quarter in 1997. Interest expense-net
also increased during the nine months period ended September 30, 1998 as
compared to the prior year by $6.5 million to $53.3 million. The increase in
interest expense-net is due to increased indebtedness resulting from the
acquisition of CH Patrick and Freedom Chemical, offset by savings due to the
refinancing of Rohr's higher cost debt in late 1997.
OTHER INCOME/EXPENSE-NET
------------------------
The increase in other expense-net during the first nine months of 1998 as
compared to the comparable period last year is due to a 1997 pre-tax gain of
$26.4 million from the sale of the Company's engine electrical business (see
Note G of the condensed consolidated financial statements) and a $13.7 million
pre-tax gain on the issuance of subsidiary stock (see Note H of the condensed
consolidated financial statements).
INCOME TAXES
------------
For the third quarter and first nine months of 1998, the Company's effective tax
rate was approximately 38.5 percent. For the same periods last year, the
Company's effective tax rate was approximately 37.5 percent. For each period,
the effective tax rate was higher than the federal statutory rate principally
due to state and local income taxes.
DISCONTINUED OPERATIONS
-----------------------
The Company recognized a $1.6 million after-tax charge related to a business
previously divested and reported as a discontinued operation during the 1998
first quarter.
The Company's results for the first nine months of 1997 reflect the gain on the
sale of Tremco Incorporated in February 1997 and the results of operations and
the gain on the sale of the chlor-alkali and olefins business in August 1997.
- 20 -
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
-------------------------------
Current assets less current liabilities increased by $224.8 million from
December 31, 1997 to September 30, 1998. The increase resulted principally from
an increase in accounts receivable and inventory. The Company's current ratio
increased from 1.5X at December 31, 1997 to 1.7X at September 30, 1998, and the
quick ratio increased from .6X at December 31, 1997 to .7X at September 30,
1998. The Company expects to have adequate cash flow from operations and has the
credit facilities (described in the Company's Annual Report on Form 10-K for the
year ended December 31, 1997) to satisfy its operating requirements and capital
spending programs and to finance growth opportunities as they arise.
The Company's debt-to-capitalization ratio was 39.1 percent at September 30,
1998, compared with 33.0 percent at December 31, 1997. For purposes of this
ratio, the Trust preferred securities are treated as capital.
Cash Flows
- ----------
Cash flow from operating activities, excluding merger costs, during the first
nine months of 1998 was $193.4 million more than the same period last year. The
Company expects to generate positive cash flow in 1998 after satisfying capital
expenditures and the payment of dividends, excluding the effects of acquisitions
and divestitures.
YEAR 2000 ISSUE
---------------
General
- -------
The Year 2000 issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Company's computer
equipment and software and devices with embedded technology that are
date-sensitive may recognize a date using "00" as the year 1900 rather than the
year 2000. This could result in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
The Company has assessed how it may be impacted by the Year 2000 issue and has
formulated and commenced implementation of a comprehensive plan to address all
known aspects of the issue.
The Plan
- --------
The Company's plan encompasses its information systems, production and
facilities equipment that utilize date/time oriented software or computer chips,
products, vendors and customers and will be carried out in four phases: 1)
assessment and development of a plan; 2) remediation; 3) testing; and 4)
implementation.
The Company's plan also includes contracting with independent experts as
considered necessary. To date, the Company has engaged independent experts to
evaluate its Year 2000 plan, including its identification, assessment,
remediation and testing efforts.
- 21 -
<PAGE>
With regard to information systems, production and facilities equipment and
products, the Company is substantially complete with the assessment and plan
development phase and is approximately 60 percent, 60 percent and 80 percent
complete, respectively with its total planned efforts including remediation,
testing and implementation. The Company expects that its remediation efforts in
these areas will be substantially completed by September 30, 1999.
The Company is also reviewing the efforts of its vendors and customers to become
Year 2000 compliant. Letters and questionnaires have been or are in the process
of being sent to all critical entities with which the Company does business to
assess their Year 2000 readiness. To date, the Company has received responses
from approximately 47 percent of such third parties, and over 90 percent of the
companies that have responded have provided written assurances that they expect
to address all of their known significant Year 2000 issues on a timely basis.
The Company anticipates that these activities will be on-going for the remainder
of 1998 and all of 1999 and will include follow-up telephone interviews and
on-site meetings as considered necessary in the circumstances. Although this
review is continuing, the Company is not currently aware of any vendor or
customer circumstances that may have a material adverse impact on the Company.
The Company will be looking for alternative suppliers where circumstances
warrant. The Company can provide no assurance that Year 2000 compliance plans
will be successfully completed by suppliers and customers in a timely manner.
Cost
- ----
The Company's preliminary estimate of the total cost for Year 2000 compliance is
approximately $45 million, of which approximately $23 million has been incurred
through September 30, 1998. Of the $23 million spent to date, approximately $21
million related to the cost to repair or replace software and related hardware
and approximately $2 million was related to the cost of replacing/repairing
non-compliant production and facilities equipment. The Company's cost estimates
include the amount specifically related to remedying Year 2000 issues as well as
costs for improved systems which are Year 2000 compliant and would have been
acquired in the ordinary course but whose acquisition has been accelerated to
ensure compliance by the Year 2000.
Incremental spending has not been, and is not expected to be, material because
most Year 2000 compliance costs include items that are part of the standard
procurement and maintenance of the Company's information systems and production
and facilities equipment. Other non-Year 2000 efforts have not been materially
delayed or impacted by the Company's Year 2000 initiatives.
Risks
- -----
The Company believes that the Year 2000 issue will not pose significant
operational problems for the Company. However, if all Year 2000 issues are not
properly identified, or assessment, remediation and testing are not affected in
a timely manner with respect to problems that are identified, there can be no
assurance that the Year 2000 issue will not have a material adverse impact on
the Company's results of operations or adversely affect the Company's
relationships with customers, vendors, or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse impact on the Company's systems or results of operations.
- 22 -
<PAGE>
Contingency Plan
- ----------------
The Company has begun, but not yet completed, a comprehensive analysis of the
operational problems and costs (including loss of revenues) that would be
reasonably likely to result from the failure by the Company and certain third
parties to complete efforts necessary to achieve Year 2000 compliance on a
timely basis. A contingency plan has not been developed for dealing with the
most reasonably likely worst case scenario as such scenario has not yet been
clearly identified. The Company currently plans to complete such analysis and
contingency planning by March 31, 1999.
(The foregoing analysis contains forward-looking information. See cautionary
statement at the end of the Management's Discussion and Analysis section.)
TRANSITION TO THE EURO
----------------------
The Euro is scheduled to be introduced on January 1, 1999, at which time the
conversion rates between legacy currencies and the Euro will be set for the
eleven participating EMU member countries. However, the legacy currencies in
those countries will continue to be used as legal tender through January 1,
2002. Thereafter, the legacy currencies will be canceled and Euro bills and
coins will be used in the eleven participating countries.
Transition to the Euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. Finance and accounting issues
include the conversion of accounting systems, statutory records, tax books and
payroll systems to the Euro, as well as conversion of bank accounts and other
treasury and cash management activities.
The Company is addressing these transition issues and does not expect the
transition to the Euro to have a material effect on the results of operations or
financial condition of the Company.
NEW ACCOUNTING STANDARDS
------------------------
In June 1998, the Financial Accounting Standards Board issued Statement No. 133,
Accounting for Derivative Instruments and Hedging Activities, which is required
to be adopted in years beginning after June 15, 1999. The Statement permits
early adoption as of the beginning of any fiscal quarter after its issuance. The
Statement will require the Company to recognize all derivatives on the balance
sheet at fair value. Derivatives that are not hedges must be adjusted to fair
value through income. If the derivative is a hedge, depending on the nature of
the hedge, changes in the fair value of the derivative will either be offset
against the change in fair value of the hedged assets, liabilities, or firm
commitments through earnings or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings.
- 23 -
<PAGE>
The Company has not yet determined what the effect of Statement No. 133 will be
on its earnings and financial position and has not yet determined the timing or
method of adoption. However, the Statement could increase volatility in earnings
and comprehensive income.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND
--------------------------------------------------
UNCERTAINTY
-----------
This document includes certain forward-looking statements, as defined in the
Private Securities Litigation Reform Act of 1995, that involves risk and
uncertainty. Please see "Risks" under the "Year 2000 Issue" section for a
description of risks and uncertainties related to that issue. Additionally, the
Company cannot be sure the costs for compliance will not be greater than
currently estimated. Furthermore, there is no assurance that the most likely
worse-case scenario can be identified or that contemporary plans can be
successfully developed to deal with these matters. If the magnitude of the Year
2000 issue is greater than presently anticipated, it could have a material
adverse impact on the Company. If there were a material decrease in the revenue
and profitability of the Company's businesses, its cash flow may be adversely
affected.
Estimating liabilities with respect to environmental matters is difficult due to
numerous variables. Changes can occur in the scope or nature of the remedy
resulting in increased or occasionally decreased costs. The Company's share of
remediation costs may be greater or lesser than assumed due to changes in the
number of other potentially responsible parties to contribute to the remedy, or
judicial or other determinations that result in a change in the Company's share
of the liability for a site. Expected indemnification from third parties may not
materialize due to disputes regarding indemnification obligations or lack of
financial resources which can also result in greater financial exposure to the
Company. Furthermore, new sites requiring remediation can be identified at which
the Company may have future liability.
PART II - OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit 27 - Financial Data Schedule - September 30, 1998
(b) Reports on Form 8-K - none
- 24 -
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
November 5, 1998 The B.F.Goodrich Company
- ---------------- ------------------------
/S/LES C. VINNEY
-------------------------
Les C. Vinney
Senior Vice President and
Chief Financial Officer
/S/ROBERT D. KONEY, JR.
-------------------------
Robert D. Koney, Jr.
Vice President & Controller
(Chief Accounting Officer)
- 25 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Condensed Consolidated Balance Sheet and the Condensed Consolidated
Statement of Income of this form 10-Q and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 43,100
<SECURITIES> 0
<RECEIVABLES> 661,500
<ALLOWANCES> 21,700
<INVENTORY> 762,600
<CURRENT-ASSETS> 1,625,800
<PP&E> 2,231,500
<DEPRECIATION> 1,024,600
<TOTAL-ASSETS> 4,096,700
<CURRENT-LIABILITIES> 934,600
<BONDS> 995,000
123,400
0
<COMMON> 380,900
<OTHER-SE> 1,180,700
<TOTAL-LIABILITY-AND-EQUITY> 4,096,700
<SALES> 2,934,900
<TOTAL-REVENUES> 2,934,900
<CGS> 2,126,500
<TOTAL-COSTS> 2,126,500
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 57,700
<INCOME-PRETAX> 289,100
<INCOME-TAX> 111,400
<INCOME-CONTINUING> 169,800
<DISCONTINUED> 1,600
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 168,200
<EPS-PRIMARY> 2.29
<EPS-DILUTED> 2.24
</TABLE>
