<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________________ to _________________
Commission file number 1-892
THE B.F.GOODRICH COMPANY
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
New York 34-0252680
(State of incorporation) (I.R.S. Employer Identification No.)
4020 Kinross Lakes Parkway
Richfield, Ohio 44286-9368
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (330) 659-7600
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
ON WHICH REGISTERED
TITLE OF EACH CLASS ---------------------
<S> <C>
Common Stock, $5 par value New York Stock Exchange
9 5/8% Notes, maturing in 2001
8.30% Cumulative Quarterly Income Preferred Securities,
Series A* New York Stock Exchange
</TABLE>
- ---------------
* Issued by BFGoodrich Capital and the payments of trust distributions and
payments on liquidation or redemption are guaranteed under certain
circumstances by The B.F.Goodrich Company. The B.F.Goodrich Company is the
owner of 100% of the common securities issued by BFGoodrich Capital, a
Delaware statutory business trust.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K. [ ]
The aggregate market value of the voting stock, consisting solely of common
stock, held by nonaffiliates of the registrant as of February 18, 1999 was
$2,436.2 million ($32.75 per share). On such date, 74,387,028 of such shares
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the proxy statement dated March 4, 1999 are incorporated by
reference into Part III.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE> 3
PART I
ITEM 1. BUSINESS
Recent Development
On November 22, 1998, the Company and Coltec Industries Inc ("Coltec"), a
Pennsylvania company, entered into an Agreement and Plan of Merger ("Merger
Agreement"). Under the terms of the Merger Agreement, upon consummation of the
Merger each share of Coltec common stock issued and outstanding immediately
prior to the effective time of the Merger shall be converted into the right to
receive 0.56 of a share of BFGoodrich common stock.
The Merger, which will be accounted for as a pooling of interests, is
expected to close in early April of 1999. The Merger Agreement has been approved
by the Board of Directors of both companies. Consummation of the Merger is
subject to certain customary conditions, including, among others, approval of
the Merger Agreement by both companies' shareholders and the receipt of
regulatory approvals.
When the Company and Coltec entered into the Merger Agreement, both also
entered into Reciprocal Stock Option Agreements pursuant to which each granted
the other an option to purchase 19.9% of the outstanding shares of its common
stock upon the occurrence of certain specified events. The Reciprocal Stock
Option Agreements were entered into as a condition of the Merger Agreement and
serve as an inducement for each of the companies to consummate the Merger.
The headquarters of the new combined company will be located in Charlotte,
NC.
For additional information regarding the Merger, Merger Agreement and the
Reciprocal Stock Option Agreements, see the Joint Proxy Statement/Prospectus,
including Annex A, B and C.
General Development of Business
The Company manufactures and supplies a wide variety of systems and
component parts for the aerospace industry and provides maintenance, repair and
overhaul services on commercial, regional, business and general aviation
aircraft. The Company also manufactures specialty plastics and specialty
additives products for a variety of end-user applications.
A further description of the Company's business is provided below.
The Company, with 1998 sales of $4.0 billion, is organized into two
principal business segments: BFGoodrich Aerospace ("Aerospace") and BFGoodrich
Performance Materials ("Performance Materials"). The Company maintains patent
and technical assistance agreements, licenses and trademarks on its products,
process technologies and expertise in most of the countries in which it
operates. The Company conducts its business through numerous divisions and 98
wholly and majority-owned subsidiaries worldwide.
The principal executive offices of BFGoodrich are located at 4020 Kinross
Lakes Parkway, Richfield, Ohio 44286-9368 (telephone (330) 659-7600).
The Company was incorporated under the laws of the State of New York on May
2, 1912 as the successor to a business founded in 1870.
In March 1998, the Company acquired Freedom Chemical Company for
approximately $378.0 million in cash. Freedom Chemical is a leading 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.
Freedom Chemical has leadership positions as a supplier of specialty chemical
additives used in personal care, food and beverage, pharmaceutical, textile,
graphic arts, paints, colorants and coatings applications and as chemical
intermediates. The Company also acquired a small manufacturer of textile
chemicals and a small manufacturer of energetic materials systems during 1998.
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 were 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.
1
<PAGE> 4
During 1997, the Company acquired five additional businesses (four of which
were acquired during the fourth quarter) for cash consideration of $133.4
million in the aggregate, which included $65.3 million of goodwill. 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.
On August 15, 1997, the Company sold its chlor-alkali and olefins ("CAO")
business to The Westlake Group for $92.7 million, resulting in an after-tax gain
of $14.5 million, or $.19 per diluted share. 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 reflects the CAO
business (previously reported as Other Operations) as a discontinued operation.
On February 3, 1997, the Company sold Tremco Incorporated to RPM, Inc. for
$230.7 million, resulting in an after-tax gain of $59.5 million, or $.80 per
diluted share. The sale of Tremco Incorporated completed the disposition of the
Company's Sealants, Coatings and Adhesives ("SC&A") Group, which also
represented a disposal of a segment of a business under APB 30. Accordingly, the
SC&A Group is also reflected as a discontinued operation in the Consolidated
Statement of Income.
Also during 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 received cash proceeds of $72.5 million,
which resulted in a pretax gain of $26.4 million ($16.4 million after tax).
During 1996, the Company acquired five specialty chemicals businesses for
cash consideration of $107.9 million, which included $80.0 million of goodwill.
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 represented product lines
consisting of water-borne acrylic resins and coatings and additives used in the
graphic arts industry. The fourth acquisition consisted of water-based textile
coatings product lines. The remaining acquisition was a small supplier of
anti-static compounds.
Financial Information About Industry Segments
In 1998, 1997 and 1996, sales to Boeing, solely by the Aerospace Segment,
totaled 14 percent, 14 percent and 13 percent, respectively, of consolidated
sales.
For financial information concerning the Company's sales, operating income,
identifiable assets, property additions, depreciation and amortization and
geographic information, see Note N to Consolidated Financial Statements.
Narrative Description of Business
AEROSPACE
The Company's Aerospace Segment is conducted through four major business
groups.
Aerostructures Group (formerly Rohr) primarily designs, develops and
integrates aircraft engine nacelle and pylon systems for commercial and general
aviation customers.
Landing Systems Group manufactures aircraft landing gear; aircraft wheels
and brakes; high-temperature composites; and aircraft evacuation slides and
rafts for commercial, military, regional and business aviation customers and for
space programs.
Sensors and Integrated Systems Group manufactures sensors and sensor-based
systems; fuel measurement and management systems; electromechanical actuators;
aircraft windshield wiper systems; health and usage management systems;
electronic test equipment; ice protection systems; specialty heated products;
collision warning systems; weather detection systems; standby attitude
indicators; aircraft lighting components; and polymer and composite products for
commercial, military, regional, business and general aviation customers, and for
aircraft engine and space programs.
2
<PAGE> 5
Maintenance, Repair and Overhaul Group ("MRO") provides maintenance, repair
and overhaul of commercial airframes, components, wheels and brakes, landing
gear, instruments and avionics for commercial, regional, business and general
aviation customers.
The Company is among the largest suppliers of aircraft systems and
components and aircraft maintenance repair and overhaul services in the world.
It competes with other aerospace industry manufacturers to supply parts and
provide service on specific fleets of aircraft, frequently on a
program-by-program bid basis. Competition is primarily based on product
performance, service capability and price. Contracts to supply systems and
components and provide service are generally with aircraft manufacturers,
airlines and airfreight businesses worldwide. The Company also competes on U.S.
Government contracts, generally as a subcontractor. Competition is principally
based on product performance and price.
PERFORMANCE MATERIALS
The Company's Performance Materials Segment is conducted through three
major business groups.
Textile and Industrial Coatings Group manufactures acrylic textile coatings
and industrial formulations of Carbopol(R) polymers for textile printing;
durable press resins, dyes and softeners; and paper saturants and coatings in
wood, metal and other surface finishing products and in graphic arts
applications.
Consumer Specialties Group manufactures thickening, suspension and emulsion
polymers for personal care products, household and pharmaceutical applications.
Polymer Additives & Specialty Plastics Group manufactures thermoplastic
polyurethane and alloys; high-heat-resistant and low-combustibility plastics;
static-dissipating polymers; antioxidants for rubber, plastic and lubricants
applications; and reaction-injection molding resins. Products are marketed and
sold to manufacturers for film and sheet applications; wire and cable jacketing;
and magnetic media. Specialty plastics are also used in the manufacture of
automotive products; recreational vehicles and products; agricultural equipment;
industrial equipment; tire and rubber goods; plumbing and industrial pipe; fire
sprinkler systems and building material components.
The Company competes with other major chemical manufacturers. Products are
sold primarily based on product performance. Frequently, products are
manufactured or formulated to order for specific customer applications and often
involve considerable technical assistance from the Company.
Backlogs
At December 31, 1998, the Company had a backlog of approximately $2.8
billion, principally related to the Aerospace Segment, of which approximately 59
percent is expected to be filled during 1999. The amount of backlog at December
31, 1997 was approximately $2.4 billion. Backlogs in the Aerospace Segment are
subject to delivery delays or program cancellations, which are beyond the
Company's control.
Raw Materials
Raw materials used in the manufacture of Aerospace products, including
steel and carbon, are available from a number of manufacturers and are generally
in adequate supply.
Availability of all major monomers and chemicals used in the Performance
Materials Segment is anticipated to be adequate for 1999. While chemical
feedstocks are currently in adequate supply, in past years, from time-to-time
for limited periods, various chemical feedstocks were in short supply. The
effect of any future shortages on the Company's operations will depend upon the
duration of any such shortages and possibly on future U.S. government policy,
which cannot be determined at this time.
Environmental
Federal, state and local statutes and regulations relating to the
protection of the environment and the health and safety of employees and other
individuals have resulted in higher operating costs and capital investments by
the industries in which the Company operates. Because of a focus toward greater
environmental awareness and increasingly stringent environmental regulations,
the Company believes that expenditures for compliance with environmental, health
and safety regulations will continue to have a significant impact on the conduct
of its
3
<PAGE> 6
business. Although it cannot predict accurately how these developments will
affect future operations and earnings, the Company does not believe these costs
will vary significantly from those of its competitors.
For additional information concerning environmental matters, see Note V to
Consolidated Financial Statements.
Research and Development
The Company conducts research and development under Company-funded programs
for commercial products and under contracts with others. Total research and
development expense amounted to $182.7 million in 1998, which included $63.1
million related to amounts funded by customers. For additional information
concerning research and development expense, see Note A to Consolidated
Financial Statements.
Patents and Licenses
The Company has many patents of its own and has acquired licenses under
patents of others. While such patents in the aggregate are important to the
Company, neither the primary business of the Company nor any of its industry
segments is dependent on any single patent or group of related patents. The
Company uses a number of trademarks important either to its business as a whole
or to its industry segments considered separately. The Company believes that
these trademarks are adequately protected.
Human Resources
As of December 31, 1998, the Company had 17,175 employees in the United
States. An additional 1,239 people were employed overseas. Approximately 8,400
employees were hourly paid. The Company believes it has good relationships with
its employees.
The hourly employees who are unionized are covered by collective bargaining
agreements with a number of labor unions and with varying contract termination
dates ranging from March 1999 to August 2003. There were no material work
stoppages during 1998.
Foreign Operations
The Company is engaged in business in foreign markets. Manufacturing and
service facilities for Aerospace and Performance Materials are located in
Belgium, Canada, England, France, Germany, Japan, India, Australia, Hong Kong,
Korea, The Netherlands, Scotland, Singapore and Spain. The Company also markets
its products and services through sales subsidiaries and distributors in a
number of foreign countries. The Company also has technical fee, patent royalty
agreements and joint venture agreements with various foreign companies.
Outside North America, no single foreign geographic area is currently
significant, although the Company continues to expand its business in Europe.
Currency fluctuations, tariffs and similar import limitations, price controls
and labor regulations can affect the Company's foreign operations, including
foreign affiliates. Other potential limitations on the Company's foreign
operations include expropriation, nationalization, restrictions on foreign
investments or their transfers, and additional political and economic risks. In
addition, the transfer of funds from foreign operations could be impaired by the
unavailability of dollar exchange or other restrictive regulations that foreign
governments could enact. The Company does not believe that such restrictions or
regulations would have a materially adverse effect on its business, in the
aggregate.
For additional financial information about U.S. and foreign sales, see Note
N to Consolidated Financial Statements.
ITEM 2. PROPERTIES
The manufacturing and service operations of the Company are carried on at
facilities, all of which are owned, unless otherwise indicated, at the following
locations:
AEROSPACE
Albuquerque, New Mexico
Amelot, France*
Arkadelphia, Arkansas
Austin, Texas*
Bangalore, India
Basingstoke, England*
Bedford, Massachusetts
Burnsville, Minnesota
Cedar Knolls, New Jersey
4
<PAGE> 7
Chula Vista, California**
Cleveland, Ohio**
Columbus, Ohio
Dallas, Texas*
Dewsbury, England
East Brunswick, New Jersey*
Eagan, Minnesota
Everett, Washington**
Fairhope, Alabama*
Foley, Alabama*
Fort Lauderdale, Florida
Grand Rapids, Michigan
Green, Ohio **
Hagerstown, Maryland
Hamburg, Germany
Harrow, England*
Heber Springs, Arkansas
Irvine, California*
Jacksonville, Florida
Karnataka, India
Louisville, Kentucky*
Lynnwood, Washington*
Memphis, Tennessee
Miami, Florida*
Middletown, Connecticut*
New Century, Kansas**
Oldsmar, Florida
Ontario, California*
Paris, France
Phoenix, Arizona
Prestwick, Scotland**
Pueblo, Colorado
Riverside, California
San Marcos, Texas
Santa Fe Springs, California**
Sheridan, Arkansas*
Singapore*
Spencer, West Virginia
Taipo, Hong Kong*
Tempe, Arizona*
Tokyo, Japan
Toulouse, France**
Troy, Ohio
Tullahoma, Tennessee
Union, West Virginia
Villawood, Australia
Vergennes, Vermont
Wichita, Kansas
PERFORMANCE MATERIALS
Akron, Ohio
Antwerp, Belgium
Avon Lake, Ohio
Barcelona, Spain
Calvert City, Kentucky
Cartersville, Georgia
Chagrin Falls, Ohio
Charlotte, North Carolina
Chennai, India
Cincinnati, Ohio***
Cowpens, South Carolina
Delfzijl, The Netherlands
Dewsbury, England
Elyria, Ohio
Gastonia, North Carolina
Greenville, South Carolina
Henry, Illinois
Kalama, Washington
Kallo, Belgium
Lawrence, Massachusetts
Leominster, Massachusetts
Louisville, Kentucky
Madras, India***
Munich, Germany*
Oevel, Belgium
Pedricktown, New Jersey
Pohang, Korea
Raubling, Germany**
Shepton Mallet, England
Taylors, South Carolina
Twinsburg, Ohio
Vadodara, India
Williston, South Carolina
RESEARCH FACILITIES AND ADMINISTRATIVE OFFICES
OTHER THAN MANUFACTURING FACILITY OFFICES
Avon Lake, Ohio*
Brecksville, Ohio
Brussels, Belgium*
Chula Vista, California**
Cleveland, Ohio*
Hong Kong*
Hurricane Mesa, Utah
Manyunck, Pennsylvania
Montrose, Ohio
North Canton, Ohio*
Richfield, Ohio
Seattle Washington*
Tokyo, Japan
Uniontown, Ohio*
Washington, D.C.*
Waterloo, Ontario, Canada*
- ---------------
* Leased
** Leased in Part
*** Land is Leased; Building is Owned
The Company considers that its properties are well maintained and in good
operating condition.
The Company and its subsidiaries are lessees under a number of cancelable
and non-cancelable leases for certain real properties, used primarily for
administrative, retail, maintenance, repair and overhaul of aircraft, aircraft
wheels and brakes and evacuation systems and warehouse operations, and for
certain equipment (see Note K to the Consolidated Financial Statements).
ITEM 3. LEGAL PROCEEDINGS
There are pending or threatened against BFGoodrich or its subsidiaries
various claims, lawsuits and administrative proceedings, all arising from the
ordinary course of business with respect to commercial, product liability and
environmental matters, which seek remedies or damages. The Company believes that
any liability
5
<PAGE> 8
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, environmental and other matters.
Gain contingencies, if any, are recognized when realized.
The Company 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 ("PRP") by
the U.S. Environmental Protection Agency ("EPA") in connection with
approximately 43 sites, most of which related to businesses previously
discontinued. The Company believes it may have continuing liability with respect
to not more than 19 sites.
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
PRP, review of remediation methods and negotiation with other PRPs and
governmental agencies.
At December 31, 1998, the Company has recorded in Accrued Expenses and in
Other Non-current Liabilities a total of $57.4 million to cover future
environmental expenditures, principally for remediation of the aforementioned
sites and other environmental matters.
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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The number of common shareholders of record at December 31, 1998, was
11,244. The discussions of the limitations and restrictions on the payment of
dividends on common stock are included in Notes J and T to the Consolidated
Financial Statements.
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>
1998 1997
------------ -----------
QUARTER HIGH LOW DIVIDEND QUARTER HIGH LOW DIVIDEND
- ------- ---- --- -------- ------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
First.. 54 1/2 38 3/8 $.275 First 43 1/8 36 1/2 $.275
Second.. 56 44 11/16 .275 Second 48 1/4 35 1/8 .275
Third.. 50 1/4 26 1/2 .275 Third 47 1/4 41 5/8 .275
Fourth.. 40 1/2 28 13/16 .275 Fourth 46 40 3/4 .275
</TABLE>
6
<PAGE> 9
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FIVE-YEAR FINANCIAL DATA
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales.................................... $3,950.8 $3,373.0 $2,845.8 $2,661.8 $2,601.4
Operating income......................... 476.8 250.1 310.3 247.4 217.0
Income from continuing operations........ 228.1 113.2 115.5 94.8 66.4
BALANCE SHEET DATA:
Total assets............................. $4,192.6 $3,493.9 $3,579.8 $3,387.5 $3,435.4
Non-current long-term debt and capital
lease obligations..................... 995.2 564.3 881.4 963.0 1,001.1
Mandatorily redeemable preferred
securities of Trust................... 123.6 123.1 122.6 122.2 --
Total shareholders' equity............... 1,599.6 1,422.6 1,225.8 975.9 979.2
OTHER FINANCIAL DATA:
Total segment operating income........... $ 532.2 $ 388.5 $ 363.1 $ 303.9 $ 270.0
EBITDA(1)................................ 634.6 484.4 420.9 346.7 319.8
Operating cash flow...................... 356.6 209.6 265.5 221.0 264.2
Capital expenditures..................... 208.5 159.9 197.1 155.8 136.1
Dividends (common and preferred)......... 75.7 59.5 58.8 61.6 64.6
Distributions on Trust preferred
securities............................ 10.5 10.5 10.5 5.1 --
PER SHARE OF COMMON STOCK:
Income from continuing operations,
diluted............................... $ 3.04 $ 1.53 $ 1.65 $ 1.34 $ .91
Dividends declared....................... 1.10 1.10 1.10 1.10 1.10
Book value............................... 21.51 19.56 17.66 14.97 13.54
RATIOS:
Operating income as a percent of sales
(%)................................... 12.1 7.4 10.9 9.3 8.3
Return on common shareholders' equity
(%)................................... 15.0 13.5 15.8 14.7 10.8
Debt-to-capitalization ratio (%)......... 39.8 33.0 44.3 49.3 53.8
Dividend payout-common stock (%)......... 33.4 33.4 33.9 40.6 55.9
OTHER DATA:
Common shareholders of record at end of
year.................................. 11,244 13,550 n/a n/a n/a
Common shares outstanding at end of year
(millions)............................ 74.4 72.7 69.4 65.2 64.2
Number of employees at end of year....... 18,414 16,838 17,960 17,275 18,292
</TABLE>
- ---------------
(1) "EBITDA" as used herein means income from continuing operations before
distributions on Trust preferred securities, income tax expense, net
interest expense, depreciation and amortization and special items.
Special items for 1998, 1997 and 1996 are described on page 9 of this
Form 10-K. Special items in 1995 included a net gain of $12.5 million
from an insurance settlement; a net gain of $2.2 million from the sale
of a business; and a charge of $1.9 million relating to a voluntary
early retirement program. Special items in 1994 included a charge of
$6.4 million attributable to unamortized pension prior service costs
related to a reduction in employment levels and a net gain of $1.6
million on the sale of a business.
7
<PAGE> 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
This Management's Discussion and Analysis contains forward-looking
statements. See the last section for certain risks and uncertainties.
Results of Operations
PENDING MERGER
On November 22, 1998, the Company and Coltec Industries, Inc. ("Coltec"), a
Pennsylvania company, entered into an Agreement and Plan of Merger ("Merger
Agreement"). Under the terms of the Merger Agreement, upon consummation of the
Merger, each share of Coltec common stock issued and outstanding immediately
prior to the effective time of the Merger shall be converted into the right to
receive 0.56 of a share of BFGoodrich common stock. The Merger, which will be
accounted for as a pooling of interests, is expected to close in early April of
1999. Upon consummation of the Merger, all prior period financial statements
will be restated to include the financial information of Coltec as if it had
always been a part of the Company. For more information regarding the Merger,
see Note C to the Consolidated Financial Statements.
TOTAL COMPANY
BFGoodrich achieved the fourth year of solid sales and earnings growth
since the new company effectively came into being on January 1, 1994, following
the sale of the Geon Vinyl Products Segment in 1993. In addition, the largest
business combination in its 128-year history was accomplished at the end of
1997.
Consolidated Operations The Company achieved strong double-digit sales and
income growth from continuing operations in 1998. Income from continuing
operations climbed 25 percent, excluding the impact of merger-related costs. The
Company experienced continued strong demand in many markets in both the
Aerospace and Performance Materials Segments.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
SALES
Aerospace........................................ $2,755.2 $2,468.3 $2,021.4
Performance Materials............................ 1,195.6 904.7 824.4
-------- -------- --------
Total....................................... $3,950.8 $3,373.0 $2,845.8
======== ======== ========
OPERATING INCOME
Aerospace........................................ $ 386.4 $ 260.3 $ 253.6
Performance Materials............................ 145.8 128.2 109.5
-------- -------- --------
Total Reportable Segments................... 532.2 388.5 363.1
Corporate........................................ (55.4) (138.4) (52.8)
-------- -------- --------
Total....................................... $ 476.8 $ 250.1 $ 310.3
======== ======== ========
</TABLE>
Cost of sales was 72.2 percent in 1998 compared with 73.8 percent of sales
in 1997 and 71.8 percent of sales in 1996. Margin improvement in the Aerospace
Segment in 1998 was partially offset by a margin decline in the Performance
Materials Segment. Cost of sales in 1997 was also negatively impacted by the
MD-90 write-off as compared to 1998 and 1996 levels (see detailed group
discussions below).
Selling, general and administrative costs were 15.5 percent of sales in
1998, compared with 16.5 percent in 1997 and 16.9 percent in 1996. The decrease
in 1998 as compared to 1997 was a result of additional long-term incentive
compensation expense in 1997 that resulted from exceeding the three year goals
and achieving a maximum payout under the plan. The leverage that resulted from
the increase in sales at each of the segments also resulted in a reduction in
SG&A costs as a percentage of sales from 1996 to 1997. (See detailed group
discussions below).
Income from continuing operations included various charges or gains
(referred to as special items) which affected reported earnings. Excluding the
effects of special items, income from continuing operations in 1998 was $234.6
million, or $3.13 per diluted share, compared with $179.3 million, or $2.42 per
diluted share in 1997, and
8
<PAGE> 11
$127.7 million, or $1.83 per diluted share in 1996. The following table presents
the impact of special items on earnings per diluted share.
<TABLE>
<CAPTION>
EARNINGS PER DILUTED SHARE 1998 1997 1996
-------------------------- ----- ----- -----
<S> <C> <C> <C>
Income from continuing operations.......................... $3.04 $1.53 $1.65
Net (gain) loss on sold businesses....................... -- (.22) .03
Gain on issuance of subsidiary stock..................... -- (.10) --
MD-90 write-off.......................................... -- .28 --
Merger-related costs..................................... -- .93 --
Asset impairment and restructuring charges............... .09 -- .10
Exchange of convertible debt............................. -- -- .05
----- ----- -----
Income from continuing operations, excluding special
items................................................. $3.13 $2.42 $1.83
===== ===== =====
</TABLE>
Income from continuing operations for the year ended December 31, 1998
includes $6.5 million ($0.09 per share) for costs associated with the
Aerostructures Group's closure of three facilities and the impairment of a
fourth facility.
Income from continuing operations for the year ended December 31, 1997
includes (i) merger costs of $69.3 million ($0.93 per share) in connection with
our merger with Rohr, Inc., (ii) a net gain of $8.0 million ($0.10 per share)
resulting from an initial public offering of common stock by BFGoodrich's
subsidiary, DTM Corporation, (iii) a net gain of $16.4 million ($0.22 per share)
from the sale of a business, and (iv) a charge of $21.0 million ($0.28 per
share) related to the Aerostructures Group's production contract with IAE
International Aero Engines AG to produce nacelles for McDonnell Douglas
Corporation's MD-90 aircraft.
Income from continuing operations for the year ended December 31, 1996
includes (i) a charge of $2.6 million ($0.04 per share) relating to a voluntary
early retirement program, (ii) a net gain of $1.0 million ($0.01 per share) from
the sale of a business, (iii) a loss of $3.1 million ($0.04 per share) on the
sale of a wholly-owned aircraft leasing subsidiary, (iv) a charge of $4.3
million ($0.06 per share) for an impairment write-down on a facility in
Arkadelphia, Arkansas, and (v) a charge of $3.2 million ($0.05 per share) for
the exchange of convertible notes.
The Company is continuing to evaluate realignment of its operations to
improve efficiencies and reduce costs.
ACQUISITIONS
On December 22, 1997, BFGoodrich completed a merger with Rohr, Inc. by
exchanging 18,588,004 shares of BFGoodrich common stock for all of the common
stock of Rohr (the term Company is used to refer to BFGoodrich including Rohr).
Each share of Rohr common stock was exchanged for .7 of one share of BFGoodrich
common stock. The merger was accounted for as a pooling of interests, and all
prior period financial statements were restated to include the financial
information of Rohr as though Rohr had always been a part of BFGoodrich.
Prior to the merger, Rohr's fiscal year ended on July 31. For purposes of
the combination, Rohr's financial results for its fiscal year ended July 31,
1997, were restated to the year ended December 31, 1997, to conform with
BFGoodrich's calendar year end. Financial results for Rohr's fiscal years ended
July 31, 1996 and earlier were not restated to conform to BFGoodrich's calendar
year end. For periods prior to 1997, Rohr's fiscal years ended July 31 have been
combined with BFGoodrich's calendar years ended December 31. As a result, Rohr's
results of operations for the period August 1, 1996 to December 31, 1996, do not
appear in the Consolidated Statement of Income and instead are recorded as a
direct adjustment to equity. Rohr's revenues, expenses and net loss for this
five-month period were $341.3 million, $359.3 million and $18.0 million,
respectively. Included in expenses during this period was a $49.3 million pretax
charge ($29.5 million after tax) relating to the McDonnell Douglas MD-90 program
(see discussion under Aerostructures Group).
The following acquisitions were recorded using the purchase method of
accounting. Their results of operations were included in the Company's results
since their respective dates of acquisition.
9
<PAGE> 12
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. The Company also acquired a small
manufacturer of textile chemicals used for fabric preparation and finishing and
a small manufacturer of energetic materials systems during 1998.
During 1997, the Company acquired five businesses for cash consideration of
$133.4 million in the aggregate, which included $65.3 million of goodwill. 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
polyurethane and is located in the United Kingdom. The remaining acquisition is
a small specialty chemicals business.
During 1996, the Company acquired five specialty chemicals businesses for
cash consideration of $107.9 million, which included $80.0 million of goodwill.
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 represented product lines
consisting of water-borne acrylic resins and coatings and additives used in the
graphic arts industry. The fourth acquisition consisted of water-based textile
coatings product lines. The remaining acquisition was a small supplier of
anti-static compounds.
1998 COMPARED WITH 1997
AEROSPACE
Market Overview The aerospace industry recorded another strong year in
1998, elevating BGoodrich Aerospace to its highest ever levels of sales and
operating income. Deliveries of large commercial aircraft increased 42 percent
over 1997, while deliveries of regional aircraft increased 23 percent in 1998.
Revenue passenger miles, a key indicator of market demand, also rose during the
year despite the softening of Asia-Pacific demand. World airline passenger
traffic increased an estimated 2.3 percent over the prior year, while U.S.
domestic revenue passenger miles increased by 3.9 percent. Military spending
remained relatively flat in 1998.
Segment Performance The Aerospace Segment's sales in 1998 were $2,755.2
million. Forty-two percent of sales were to commercial transport programs
(Boeing and Airbus). Sales to civil aviation customers were 89 percent in 1998,
an increase from 86 percent in 1997. Military sales comprised 9 percent of
Aerospace sales, the same level as last year.
The Aerospace Segment's operating income improved 48.4 percent during 1998.
In addition to the Group-specific results discussed below, the Segment as a
whole benefited principally from higher volume supplemented by the continued
implementation of productivity initiatives, including lean manufacturing and
procurement improvement efforts.
<TABLE>
<CAPTION>
% OF SALES
-------------
1998 1997 % CHANGE 1998 1997
-------- -------- -------- ---- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C>
SALES
Aerostructures........................... $1,144.2 $1,039.7 10.1
Landing Systems.......................... 598.2 509.6 17.4
Sensors and Integrated Systems........... 574.6 550.7 4.3
MRO...................................... 438.2 368.3 19.0
-------- --------
Total Sales......................... $2,755.2 $2,468.3 11.6
======== ========
OPERATING INCOME
Aerostructures........................... $ 178.7 $ 102.6 74.3 15.6 9.9
Landing Systems.......................... 77.5 72.0 7.6 13.0 14.1
Sensors and Integrated Systems........... 111.6 89.0 25.4 19.4 16.2
MRO...................................... 18.6 (3.3) N/A 4.2 (0.9)
-------- --------
Total Operating Income.............. $ 386.4 $ 260.3 48.4 14.0 10.5
======== ========
</TABLE>
Aerostructures Group Aerostructures Group sales for 1998 of $1,144.2
million were $104.5 million, or 10.1 percent, higher than in 1997. Contributing
to the increased sales were higher aftermarket spares sales and
10
<PAGE> 13
accelerated deliveries on many commercial programs, including the V-2500
(A319/320/321 aircraft) and the start up of production deliveries on the 737-700
program. These increases were partially offset by reduced deliveries on the A340
program.
The Aerostructures Group's 1998 operating income of $178.7 million included
a $10.5 million pretax special charge for costs associated with the closure of
three facilities and the impairment of a fourth (see Note E to the Consolidated
Financial Statements). Operating income of $102.6 million in 1997 was adversely
impacted by a $35.2 million pretax charge on the MD-90 contract. Excluding these
special items, operating income increased in 1998 by $51.5 million, or 37
percent, primarily as a result of increased sales volume and by the
proportionately higher ratio of aftermarket spares sales to production sales.
Aftermarket spare sales generally carry a higher margin than production sales.
Landing Systems Group Sales in the Landing Systems Group of $598.2 million
were $88.6 million, or 17.4 percent, higher than in 1997. Sales growth reflected
higher original-equipment demand for landing gear and evacuation products, as
well as stronger than expected aftermarket demand for aircraft wheels and
brakes. Principal landing gear programs were the B767 and B737 (nose gear).
Landing gear sales volumes also reflected the establishment of a facility in
Seattle to provide fully dressed landing gears to Boeing on the B747-400
program. Commercial wheel and brake demand was strongest on the A320, B737, and
B747 programs. Evacuation product sales increased on the B747-400 and A330/A340
programs. The evacuation systems business also completed in October 1998 the
acquisition of Universal Propulsion Company ("UPCo") which is expected to
enhance the business's safety systems offerings through its direct thermal
inflation technology. UPCo manufactures energetic materials systems used to
activate ejection seats, airplane evacuation slides and related products.
Operating income in the Landing Systems Group increased 7.6 percent in
1998. Higher sales and favorable product mix benefited the Group's operating
income. Certain factors, however, constrained income growth. Those factors
included higher wheel and brake strategic sales incentives, principally for the
B777, B737, and Airbus programs; higher product development costs, offset in
part by cost reduction initiatives in operations; and increased landing gear
manufacturing costs associated with the increase in production to match
original-equipment manufacturers' build rates.
Sensors and Integrated Systems Group Sensors and Integrated Systems Group
sales of $574.6 million were $23.9 million, or 4.3 percent, higher than in 1997.
Sales of the Group were split nearly equally between the large commercial
transport customers (30 percent), regional, business and general aviation (25
percent), military (25 percent) and space (20 percent). All four markets
experienced increased sales for the year.
Demand for sensor and avionics products was particularly strong. Increased
sales of sensor products were driven by rate increases on major Boeing programs,
retrofit of competitors' products on Airbus programs and the application of
products to new regional and business programs such as Embraer 145, Gulfstream
V, and Bombardier Global Express. The higher sales of avionics products was
fueled by greater than anticipated acceptance of a new, low cost collision
avoidance product -- SkyWatch(R) -- and strong associated sales of our
StormScope(R) line of lightning detectors.
Expansion of our ice protection product line, including new specialty
heated products, also contributed to the results. The Group's sales performance
was further enhanced by higher demand for satellite products (acquired in the
March 1997 purchase of Gulton Data Systems) that was driven by expansion of our
capabilities and product offerings.
The Group's operating income improved 25.4 percent in 1998, to $111.6
million, compared with $89.0 million in 1997. The increase reflects the higher
sales volumes, the impact of productivity initiatives, a favorable sales mix,
and new products introduced during the year.
Maintenance, Repair and Overhaul (MRO) Group The MRO Group's sales of
$438.2 million were $69.9 million, or 19 percent, higher than in 1997. During
1998, the MRO Group achieved higher sales volumes compared with 1997,
successfully replacing the sales which were lost after the bankruptcy (in early
1998) of Western Pacific Airlines and the termination of an America West
Airlines maintenance contract. New business included long-term service contracts
with, in addition to others, Qantas, Continental, Northwest, United, and Virgin
Atlantic Airlines. Sales improved due to higher volumes in the airframe and
component services businesses. The performance of the component services
business reflects strong demand for wheels and brakes
11
<PAGE> 14
and nacelles services. New business assisting Boeing in paint and other
component services also contributed to the improved results.
The MRO Group reported significantly higher operating income in 1998, even
after giving consideration to the $11.8 million bad debt charge recognized in
1997 due to the bankruptcy of Western Pacific Airlines. Increased operating
income in 1998 was attributable to improved operating efficiencies in the
component services business and the introduction of new higher-margin
specialized services. The Group also benefited from substantially reduced
turnover of the certified airframe and powerplant mechanics work force in the
airframe business, compared with the prior two years.
Although the Group's operating income margin increased during 1998 compared
with 1997 (4.2 percent versus 2.2 percent--excluding the 1997 bad debt charge),
several factors constrained the growth of operating income and margins in 1998.
First, the Group's landing gear services business in Miami completed the
construction of a new world-class service facility (also in the Miami area) in
mid 1998. Much of the second half of 1998 was spent transitioning operations
from the old facility to the new one, during which time duplicate facility costs
and production inefficiencies were incurred. This business also incurred
significant charges to resolve several customer billing disputes, largely from
the prior year. Management believes the impact of these items is nonrecurring.
Second, start-up costs were incurred by the Group's airframe business in
connection with a new major customer, resulting from servicing aircraft new to
the business. Finally, the airframe business commenced in 1998 the development
of a major new business system, the implementation of which is expected to be
completed by mid 1999. As a result, the business increased inventory valuation
reserves and expensed development-related costs. Excluding the impact of the
above charges, operating income margins in 1998 would have been slightly above 6
percent rather than 4.2 percent.
OUTLOOK
Despite well-founded concerns about Asian and Latin American economies, the
aerospace industry is expected to experience continued growth in 1999.
Deliveries of large commercial transport aircraft--a common barometer of the
health of the industry--are anticipated to increase by 13.5 percent over 1998's
record levels per the January/February 1999 edition of The Airline Monitor.
Airline traffic is also expected to remain strong since the general economy is
healthy and business and leisure travel have become more affordable.
Additionally, the demand for aftermarket replacement parts should remain steady
as airlines continue to retrofit older airplanes to meet FAA Stage III noise
regulations and to comply with stricter safety guidelines.
The regional market is expected to remain strong in 1999 with revenue
passenger miles anticipated to grow approximately 6 percent per the
January/February 1999 edition of The Airline Monitor. The average number of
seats in regional/commuter aircraft is expected to increase as longer-range
turbo-jet aircraft replace older turbo-props within regional airline fleets.
This trend is substantiated by the regional jet forecast, which reveals
declining turbo-prop production and increasing turbo-jet production in the long
term. BFGoodrich Aerospace had anticipated the shifting mix of regional aircraft
and currently participates on the latest regional jet programs such as the
Global Express, Dornier family, Embraer 145 and the Canadair RJ.
Unlike the regional market, production of business jets is expected to
remain flat in 1999. However, BFGoodrich Aerospace believes that its position on
such new platforms as the Cessna Citation X, the Canadair Challenger, and the
Gulfstream G-V bode well for success in the aftermarket.
BFGoodrich Aerospace expects to maintain its current level of participation
in the military aerospace market at approximately 10 percent of total Aerospace
sales. As in 1998, military spending is expected to decline slightly in real
terms in 1999. Although funding for additional programs is limited, the Segment
participates in many of the newest military programs, including the Joint Strike
Fighter and the V-22. Furthermore, an opportunity exists for the Segment to
increase sales of replacement products to defense customers. The Segment is well
positioned to capture a larger share of the military aftermarket with products
currently on the F-15, F-16, F/A-18, C-17, H-60, C-130J, and AH-64 programs.
The airline industry enjoyed a profitable year in 1998 and anticipates
another strong year in 1999. With their success has come continued outsourcing
of non-core functions, including maintenance, repair, and overhaul. BFGoodrich
Aerospace expects to sustain its role as a leader in the third party maintenance
industry by providing the highest quality, comprehensive nose-to-tail services.
The MRO Group expects to achieve greater efficiencies in 1999 after the
investment in 1998 in a new landing gear repair and overhaul facility in Miami.
In addition to process improvements, the new facility is expected to bring about
faster turn-around times and better service to our customers.
12
<PAGE> 15
PERFORMANCE MATERIALS
Market Overview The markets for most of the Performance Materials Segment's
products softened throughout 1998. Market pressures included the Asian and other
emerging market financial crises as well as slowing demand in most of the other
markets served by the Segment.
Segment Performance As a result of the more competitive market conditions
noted above, the Segment's 32.2 percent increase in sales only resulted in a
13.7 percent increase in operating income. While the acquisition of Freedom
Chemical in March 1998 contributed significantly to the increase in sales during
the year, its concentrations in these areas of particular market weakness
resulted in a less-than-expected contribution to operating income in 1998. The
acquisition has, however, better positioned the segment for future growth by
expanding its global reach, adding to its product portfolio and extending its
market breadth. Excluding acquisitions, the Segment experienced a 1.0 percent
increase in sales and a 4.8 percent increase in operating income due to
favorable raw material costs and production efficiencies. The impact of foreign
exchange was not significant to 1998's results.
<TABLE>
<CAPTION>
% OF SALES
COMPARABLE -------------
1998 1997 % CHANGE % CHANGE 1998 1997
-------- ------ -------- ---------- ---- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
SALES
Textile and Industrial
Coatings.................... $ 606.2 $401.2 51.1 (0.4)
Polymer Additives and Specialty
Plastics.................... 431.3 420.9 2.5 1.3
Consumer Specialties........... 158.1 82.6 91.4 6.2
-------- ------
Total.................. $1,195.6 $904.7 32.2 1.0
======== ======
OPERATING INCOME
Textile and Industrial
Coatings.................... $ 63.0 $ 48.6 29.6 8.0 10.4 12.1
Polymer Additives and Specialty
Plastics.................... 58.8 57.3 2.6 1.6 13.6 13.6
Consumer Specialties........... 24.0 22.3 7.6 5.8 15.2 27.0
-------- ------
Total.................. $ 145.8 $128.2 13.7 4.8 12.2 14.2
======== ======
</TABLE>
The following discussion and analysis of fluctuations in sales and
operating income for the Performance Materials Segment excludes the impact of
acquisitions (see Comparable % Change column).
Textile and Industrial Coatings Group Sales in the Textile and Industrial
Coatings group decreased 0.4 percent from the prior year. The decrease resulted
from volume shortfalls in the Company's textile markets offset by increased
volumes in the Group's industrial specialty products and increased sales prices
in the Group's coatings products. Domestic textile mills demand has been lower
due to an increase in imports and a general slowdown in the apparel markets. In
addition, the export of fabrics to Asian and European countries slowed in 1998.
The Russian currency crisis and the European Union furniture fabric tariffs all
had negative revenue effects on this Group.
Operating income for the Textile and Industrial Coatings Group increased by
$3.9 million, or 8 percent, in 1998 despite the slight reduction in sales due to
reduced raw material pricing and other manufacturing cost efficiencies.
Polymer Additives and Specialty Plastics Group Sales in the Polymer
Additives and Specialty Plastics Group increased $5.5 million, or 1.3 percent,
over the prior year. Sales volumes increased in the Group's Estane(R)
thermoplastic polyurethanes (TPU) driven by strength in static control polymers
and European TPU demand and Telene(R) DCPD monomer markets but decreased in the
Group's TempRite(R) high heat resistant plastics due to weakness in middle east
markets as well as increased competition from other materials. Sales prices
remained relatively stable with the exception of some Polymer Additives'
products used for the rubber and polymer industries and Estane(R) TPU, where two
competitors commissioned new U.S. production facilities in 1998.
Operating income increased slightly over the prior year mostly as a result
of increased volume and favorable raw material pricing.
13
<PAGE> 16
Consumer Specialties Group The $5.1 million, or 6.2 percent, increase in
sales in the Consumer Specialties Group was driven by increased volumes in the
Group's pharmaceutical and personal care products. Sales prices generally
increased in all of the Group's product lines.
The 5.8 percent increase in operating income was mainly attributable to a
favorable sales mix and higher volumes.
OUTLOOK
The Performance Materials Segment will face challenges in 1999. The Asian
economic downturn, other emerging market financial crises as well as adverse
competitive pressures all combined to pose a challenging operating environment.
However, the segment expects demand to strengthen during the second half of 1999
and is optimistic about continued cost reduction benefits from acquisition
integration and its process improvement and productivity programs.
In order to strengthen its customer and market focus, simplify its business
structure and enhance productivity, the Performance Materials Segment announced
in February 1999 a realignment of business processes. The realignment is
expected to result in the elimination of approximately 160 positions and is
expected to result in annual cost savings of $10-$12 million. The Segment
expects to obtain six months of these cost savings during 1999.
The Segment's Textile and Industrial Coatings Group enters 1999 with 1998
total domestic textile sales 7 percent below 1997 levels, and United States
textile exports approximately 25 percent lower than 1997 levels. The Group
expects to benefit from the continued integration of the Segment's recent
acquisitions during 1999.
The Polymer Additives and Specialty Plastics Group foresees moderate
revenue increases in 1999. Sales volumes in the Group's Estane(R) thermoplastic
polyurethanes and Telene(R) DCPD monomer markets are expected to grow in 1999.
The Group's TempRite(R) high heat resistant plastic and Polymer Additives
revenue base is expected to remain stable with limited growth in 1999.
Productivity improvements are expected to benefit operating income levels as
well during 1999.
The Consumer Specialties Group expects to continue to benefit from strong
growth in North America and foresees limited growth in Asia, Latin America and
Eastern Europe over the short-term. The Group also expects to benefit from
acquisition integration synergies in 1999.
1997 COMPARED TO 1996
AEROSPACE
Aerospace achieved sales growth of 22 percent over 1996. Sixty percent of
Aerospace's 1997 sales were to original-equipment manufacturers, up from 51
percent in 1996. The increase in original-equipment sales was due to stronger
demand for new commercial aircraft in the marketplace. Sales to civil aviation
customers were 86 percent of total Aerospace sales in 1997, compared with 87
percent in 1996. Military sales decreased to 9 percent of Aerospace sales, from
12 percent a year earlier. Aerospace achieved a 3 percent increase in operating
income, despite a $35.2 million charge related to the MD-90 program, a large
increase in strategic sales incentives related to wheels and brakes, and an
$11.8 million bad debt write-off due to a customer's bankruptcy and productivity
problems in the MRO Group.
<TABLE>
<CAPTION>
SALES BY GROUP 1997 1996
-------------- -------- --------
(IN MILLIONS)
<S> <C> <C>
Aerostructures.............................................. $1,039.7 $ 744.4
Landing Systems............................................. 509.6 414.8
Sensors and Integrated Systems.............................. 550.7 493.2
MRO......................................................... 368.3 369.0
-------- --------
Total............................................. $2,468.3 $2,021.4
======== ========
</TABLE>
Aerostructures Group (Rohr) The group's sales were $1,039.7 million in
1997, a $295.3 million, or 40 percent, increase from 1996. Contributing to
increased sales were accelerated delivery rates on most commercial programs,
reflecting increased production rates of commercial aircraft and increased
deliveries of spare parts. The
14
<PAGE> 17
CFM56-5 and V2500 programs (which power the A320 family), A340, RR535-E4
(primarily for the Boeing 757), and MD-90 programs all reflected significant
volume increases.
The Aerostructures Group 1997 operating income of $102.6 million included a
$35.2 million pretax charge on the MD-90 contract. Operating income increased in
1997 primarily as a result of increased sales. Operating income of $89.8 million
in 1996 was adversely impacted by a $7.2 million pretax impairment charge on the
group's Arkadelphia, Arkansas, facility. Operating income in 1996 benefited from
the recognition of profit on the MD-90 program (1996 MD-90 sales were $68.8
million). In 1997, however, no profit was recognized on MD-90 sales (totaling
$109.9 million), adversely affecting margins, in addition to the $35.2 million
pretax charge recognized on that program in 1997, as discussed below.
In 1990, the Company entered into a contract with International Aero
Engines to produce nacelles for The Boeing Company's (formerly the McDonnell
Douglas Corporation's) MD-90 aircraft. Under the terms of the contract, the
Company agreed to recover its preproduction costs, and the higher-than-average
production costs associated with early production shipments, over a specified
number of deliveries. In light of the wide market acceptance of the MD-80
series, which was the predecessor aircraft, the Company believed sufficient
MD-90 aircraft would be sold to allow it to recover its costs.
Starting in 1996, a series of developments created market uncertainties
regarding future sales of the MD-90 aircraft. The most significant of these
developments included: McDonnell Douglas' termination of the MD-XX program and
the doubts this action raised regarding McDonnell Douglas' continued presence in
the commercial aircraft industry; the decision of several large airlines that
had traditionally operated McDonnell Douglas aircraft to order aircraft that
compete with the MD-90; the announced (and subsequently completed) acquisition
of McDonnell Douglas by Boeing, which produces a family of competing aircraft;
the announcement by Delta Air Lines (launch customer for the MD-90) of its
intent to replace its existing fleet of MD-90s and to seek a business resolution
with McDonnell Douglas with respect to its remaining orders for the aircraft;
and the lack of significant new MD-90 orders.
In recognition of these developments, the Company reduced its estimates of
future MD-90 aircraft deliveries in December 1996 to include only deliveries
which were supported by firm orders, options and letters of intent for the
aircraft. Based on its reduced estimate of future aircraft deliveries, the
Company believed that future MD-90 sales would not be sufficient to recover its
contract investment plus the costs it would be required to spend in the future
to complete the contract. As a result, the Company recorded a $49.3 million
pretax charge ($29.5 million after tax) in December of 1996 (this charge did not
impact the income statement; rather, it was recognized as a direct adjustment to
equity as a result of aligning Rohr's fiscal year with BFGoodrich's). In July
1997, the Company further reduced its market estimate of future MD-90 sales to
existing firm aircraft orders (excluding firm orders from Delta Air Lines) and
recorded an additional $35.2 million pretax charge ($21.0 million after tax, or
$.28 per diluted share).
<TABLE>
<CAPTION>
OPERATING INCOME (LOSS) BY GROUP 1997 1996
-------------------------------- ------ ------
(IN MILLIONS)
<S> <C> <C>
Aerostructures.............................................. $102.6 $ 89.8
Landing Systems............................................. 72.0 61.2
Sensors and Integrated Systems.............................. 89.0 72.6
MRO......................................................... (3.3) 30.0
------ ------
Total............................................. $260.3 $253.6
====== ======
</TABLE>
Landing Systems Group The Group's sales were $509.6 million, an increase of
$94.8 million, or 23 percent, from 1996. The continued sales growth in 1997
primarily reflected higher original-equipment volumes of landing gear and
evacuation products and higher wheel and brake replacement sales. Landing gear
programs providing the largest increased volume contribution included the B737
(nose gear), B767 and MD-11. Key evacuation systems programs included the
B747-400 and the A330/340. Aftermarket demand for commercial wheels and brakes
was also strong, primarily for the B777, B737, B747-400 and A330/340 programs.
In addition, demand for regional, business, and military wheels and brakes
significantly improved during the year, particularly for the F-16 retrofit
program.
15
<PAGE> 18
The Landing Systems Group achieved significantly higher operating income
during the year, due primarily to greater sales of landing gear and evacuation
slides to the original-equipment market and more aftermarket sales of wheels and
brakes. This result was achieved by the group despite a three-week strike at the
landing gear business in the second quarter and substantially higher strategic
sales incentive costs in the wheel and brake business. Operating margins
(operating income as a percent of sales) declined modestly, reflecting the lower
margins associated with original-equipment sales relative to aftermarket sales
and significantly higher strategic sales incentive costs.
Sensors and Integrated Systems Group The Group's sales were $550.7 million
in 1997, an increase of $57.5 million, or 11.7 percent, from 1996. The increased
sales volumes of the Sensors and Integrated Systems Group reflected increased
demand from commercial original-equipment manufacturers for aircraft sensors,
principally on the B777 and B747 commercial transport programs and the Embraer
and Gulfstream GV regional and business jet programs. Stronger demand for
aftermarket spares also boosted sales, particularly for aircraft sensors and
aircraft fuel systems. In addition, the group benefited from the March
completion of the Gulton Data Systems acquisition, a transaction which offset
lost sales resulting from the engine electrical systems business divestiture in
June 1997. Gulton Data Systems sells products primarily to the space industry.
Operating income for the group increased 23 percent over 1996 results due
to increased volumes of higher-margin aftermarket spares that were sold to the
commercial markets. Operating income improvement also reflects productivity
initiatives, including business and plant consolidations. In addition, the
income contribution of Gulton Data Systems more than offset the lost income from
the divested engine electrical systems business.
<TABLE>
<CAPTION>
OPERATING MARGIN BY GROUP 1997 1996
------------------------- ---- ----
<S> <C> <C>
Aerostructures.............................................. 9.9% 12.1%
Landing Systems............................................. 14.1% 14.8%
Sensors and Integrated Systems.............................. 16.2% 14.7%
MRO......................................................... (0.9)% 8.1%
Total Segment........................................ 10.5% 12.5%
</TABLE>
Maintenance, Repair and Overhaul (MRO) Group The Group's sales were $368.3
million in 1997, a decrease of $0.7 million from 1996. Sales declined modestly
compared with 1996, largely reflecting decreased sales volume in the component
services business due to reduced demand from a major customer and, to a lesser
extent, the bankruptcy of two customers early in 1997. The group's airframe
business, however, posted higher sales during the year. Despite the negative
effects of the UPS strike during the summer of 1997 and productivity issues
throughout the year, the airframe business achieved a 5 percent sales growth.
This growth was due to increased demand for services from airline customers
throughout the year and the addition of two new customers -- United and
Northwest Airlines.
The MRO Group, however, recorded an operating loss in 1997. The group
recognized an $11.8 million bad debt charge related to all amounts receivable
from Western Pacific Airlines. Western Pacific filed for Chapter 11 protection
under the Bankruptcy Code last October. On February 4, 1998, Western Pacific
abruptly ceased its operations, resulting in the bankruptcy court ordering
liquidation of the airline. In addition to the Western Pacific matter, the
airframe business continued to face challenges in retaining skilled technical
workers, as competition for skilled workers significantly increased due to
hiring at Boeing and the airlines. This resulted in higher costs for training
new workers, lower productivity and higher wage and benefit rates for retained
skilled workers. Although turnover of the labor force declined progressively
during 1997, turnover levels at year end were still higher than historical
levels. In addition, lower customer demand and higher operating costs in the
component services business contributed to the operating income decline.
Finally, the group's 1996 sales included approximately $7.0 million of
high-margin product sales by the component services business which are not
normally made by the service businesses.
PERFORMANCE MATERIALS
Sales increased 10 percent in 1997, to $904.7 million. Excluding
acquisitions, sales increased 7 percent. Segment operating income increased 17
percent, largely reflecting strong volume growth. Adverse foreign exchange
effects tempered the segment's income growth, which would have been 21 percent
excluding the impact
16
<PAGE> 19
of the stronger U.S. dollar. The 1996 information has been reclassified from the
two groups previously reported into the current three group structure of the
Segment.
<TABLE>
<CAPTION>
SALES BY GROUP 1997 1996
-------------- ------ ------
(IN MILLIONS)
<S> <C> <C>
Textile and Industrial Coatings............................. $401.2 $362.6
Polymer Additives and Specialty Plastics.................... 420.9 386.0
Consumer Specialties........................................ 82.6 75.8
------ ------
$904.7 $824.4
====== ======
</TABLE>
Textile and Industrial Coatings Sales for the Group increased by $38.6
million, or 10.6 percent, from $362.6 million in 1996 to $401.2 million in 1997.
Excluding the negative impact of a stronger dollar during 1997, sales increased
11.5 percent. The increase in sales was attributable to increased volumes and
prices across all product lines, especially in the coatings and industrial
markets served by the Group. Excluding acquisitions, sales increased by 3
percent.
Operating income increased 24 percent during 1997 as compared to 1996. The
increase in operating income was due to increases in volume and price as well as
the impact of acquisitions. These increases were partially offset by the
negative impact of a stronger U.S. dollar. Excluding acquisitions and the impact
of foreign exchange, operating income increased by 19.4 percent.
<TABLE>
<CAPTION>
OPERATING INCOME 1997 1996
---------------- ------ ------
(IN MILLIONS)
<S> <C> <C>
Textile and Industrial Coatings............................. $ 48.6 $ 39.2
Polymer Additives and Specialty Plastics.................... 57.3 55.4
Consumer Specialties........................................ 22.3 14.9
------ ------
$128.2 $109.5
====== ======
</TABLE>
Polymer Additives and Specialty Plastics Group Sales in 1997 rose 9
percent, from $386.0 million in 1996 to $420.9 million in 1997, despite the
stronger U.S. dollar effects during the year. Adjusted for exchange rate
changes, principally against European currencies, sales increased 13 percent
over 1996. Solid volume gains in the group's TempRite(R) high-heat-resistant
plastics were achieved, most of which were in North America, while significantly
higher volumes for Estane(R) thermoplastic polyurethanes occurred in both North
America and Europe. Static-control polymer sales growth was achieved in North
America and Asia.
1997 was a transitional year for Specialty Plastics from an operating
income perspective. Operating income growth of 3.4 percent relating mostly to
volume increases was offset principally by start-up costs in connection with
investments in domestic and global expansions in all divisions. Also, the
negative foreign exchange impact of the stronger U.S. dollar and higher raw
material costs reduced operating income. The group's operating income increased
11.0 percent over 1996 without the foreign exchange impact. Operating income
growth was achieved by the thermoplastic polyurethane business. Significant
operating margin erosion occurred, however, in the high-heat-resistant plastics
business, principally caused by the significant start-up costs associated with
the construction of two new European plants.
<TABLE>
<CAPTION>
OPERATING MARGIN BY GROUP 1997 1996
------------------------- ---- ----
<S> <C> <C>
Textile and Industrial Coatings............................. 12.1% 10.8%
Polymer Additives and Specialty Plastics.................... 13.6% 14.4%
Consumer Specialties........................................ 27.0% 19.7%
</TABLE>
Consumer Specialties Group Sales for the Group increased by $6.8 million,
or 9 percent, from $75.8 million in 1996 to $82.6 million in 1997. Excluding the
impact of a stronger dollar during 1997, sales increased 14.1 percent. Synthetic
thickener sales for personal-care, household and pharmaceutical applications in
Europe and Asia were particularly strong. Selling prices were also generally
higher across all product lines.
17
<PAGE> 20
Operating income increased $7.4 million, or 49.7 percent, from $14.9
million in 1996 to $22.3 million in 1997 driven by increased volumes and prices,
as well as an improved sales mix. These increases were partially offset by the
negative impact of a stronger U.S. dollar. Excluding the impact of foreign
exchange, operating income increased 66.4 percent.
IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES The Company has recorded impairment,
restructuring and other charges during each of the last three years. See
additional discussion in Note E to the Consolidated Financial Statements.
NET INTEREST EXPENSE Net interest expense increased by $12.8 million in 1998.
The increase in interest expense-net is due to increased indebtedness resulting
from the acquisition of CH Patrick at the end of 1997 and Freedom Chemical in
March of 1998, offset by savings that resulted from the refinancing of Rohr's
higher cost debt in late 1997.
ISSUANCE OF SUBSIDIARY STOCK In May 1997, the Company's subsidiary, DTM
Corporation, issued 2,852,191 shares of its authorized but previously unissued
common stock in an initial public offering ("IPO"). The Company recognized a
pretax gain of $13.7 million ($8.0 million after tax, or $.10 per diluted share,
including provision for deferred income taxes) in accordance with the Securities
and Exchange Commission's ("SEC") Staff Accounting Bulletin 84.
In February 1999, the Company sold its remaining interest in DTM for
approximately $3.5 million. The Company's net investment in DTM approximated
$0.5 million at December 31, 1998. The gain will be recorded within Other Income
(Expense) during the first quarter of 1999.
OTHER INCOME (EXPENSE) -- NET Excluding the impact of a one-time pre-tax gain of
$26.4 million in 1997 related to the sale of a business, other expenses
increased by $6.7 million in 1998. The increase related primarily to costs
associated with executive life insurance.
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 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. For additional information see Note B to the
Consolidated Financial Statements.
EXTRAORDINARY ITEMS During 1997, the Company incurred a charge of $19.3 million
(net of a $13.1 million income tax benefit), or $.25 per diluted share, to
extinguish certain debt of Rohr. For additional information see Note F to the
Consolidated Financial Statements.
RETURN ON EQUITY The Company's objective is to achieve and maintain a return on
equity of 15 percent. In 1998, the Company achieved a return on equity of 15.0
percent, compared with 13.5 percent in 1997 and 15.8 percent in 1996. Adjusted
for the special items previously mentioned, return on equity for 1998, 1997 and
1996 was 15.5 percent, 13.5 percent and 11.6 percent, respectively.
CAPITAL RESOURCES AND LIQUIDITY Current assets less current liabilities were
$623.7 million at December 31, 1998, compared with $466.4 million a year
earlier -- an increase of $157.3 million. The Company's current ratio was 1.63X
at December 31, 1998, compared with 1.50X a year ago. In addition, the quick
ratio was 0.67X at the end of 1998, compared with 0.62X at the end of 1997.
These increases/decreases principally reflect the impact of the Company's
refinancing activities. The Company's total debt less cash and cash equivalents
was $1,110.4 million at December 31, 1998, compared with $713.3 million at
December 31, 1997.
The Company has adequate cash flow from operations to satisfy its operating
requirements and capital spending programs. In addition, the Company has the
credit facilities described in the following paragraphs to finance growth
opportunities as they arise.
SHORT-TERM DEBT
The Company maintains $300.0 million of committed domestic revolving credit
agreements with various banks, expiring in the year 2000. At December 31, 1998,
and throughout the year, these facilities were not in use.
18
<PAGE> 21
In addition, the Company had available formal foreign lines of credit and
overdraft facilities, including the committed European revolver, of $100.2
million at December 31, 1998, of which $32.5 million was available.
The Company's $75.0 million committed multi-currency revolving credit
facility with various international banks, expires in the year 2003. The Company
intends to use this facility for short- and long-term local currency financing
to support European operations growth. At December 31, 1998, the Company had
borrowed $64.0 million ($37.2 million on a short-term basis and $26.8 million on
a long-term basis) denominated in various European currencies at floating rates.
The Company has effectively converted the $26.8 million long-term debt portion
into fixed-rate debt with an interest rate swap.
The Company also maintains $380 million of uncommitted domestic money
market facilities with various banks to meet its short-term borrowing
requirements. As of December 31, 1998, $277 million of these facilities were
unused and available. The Company's uncommitted credit facilities are provided
by a small number of commercial banks that also provide the Company with all of
its domestic committed lines of credit and the majority of its cash management,
trust and investment management requirements. As a result of these established
relationships, the Company believes that its uncommitted facilities are a highly
reliable and cost-effective source of liquidity.
LONG-TERM DEBT
In 1998, the Company issued $100.0 million of 6.45 percent notes due in
2008, $130.0 million of 6.9 percent notes due in 2018 and $200.0 million of 7.0
percent notes due in 2038, primarily for the financing of the Freedom Chemical
acquisition (see Note D to the Consolidated Financial Statements).
The Company believes that its credit facilities are sufficient to meet
longer-term capital requirements, including normal maturities of long-term debt.
The Company's senior debt is currently rated A- by Standard and Poor's
Ratings Group, A- by Duff & Phelps Credit Rating Co. and Baa1 by Moody's
Investors Service.
At December 31, 1998, the Company's debt-to-capitalization ratio was 39.8
percent. For purposes of this ratio, the QUIPS (see Note T to the Consolidated
Financial Statements) are treated as capital.
EBITDA
EBITDA is income from continuing operations before distributions on Trust
preferred securities, income tax expense, net interest expense, depreciation and
amortization and special items. EBITDA for the Company is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Income from continuing operations before taxes and trust
distributions......................................... $384.9 $217.8 $194.4
Add:
Net interest expense.................................. 73.8 61.0 85.1
Depreciation and amortization......................... 165.4 133.5 121.3
Special items......................................... 10.5 72.1 20.1
------ ------ ------
EBITDA.................................................. $634.6 $484.4 $420.9
====== ====== ======
</TABLE>
OPERATING CASH FLOWS
Operating cash flows of $356.6 million in 1998 were $147.0 million higher
than in 1997. Excluding net gains on the sale of businesses in 1997, net income
increased by $187.1 million in 1998. Changes in assets and liabilities, however,
resulted in approximately $48 million of additional cash outflows in 1998.
INVESTING CASH FLOWS
The Company used $631.5 million of cash in 1998 related to investing
activities, primarily in the acquisition of various businesses. In 1997,
investing activities provided the Company with $119.1 million of cash, primarily
from the sale of various businesses. The Company expects to acquire additional
businesses as circumstances warrant and as opportunities arise and also expects
to continue to evaluate its portfolio of businesses that are not considered
strategic in the future.
19
<PAGE> 22
FINANCING CASH FLOWS
Financing activities provided the Company with $259.0 million in cash in
1998, as compared to using cash of $382.9 million in 1997. The Company increased
its borrowings in 1998 to finance the acquisitions discussed above. Likewise,
the Company used the proceeds from the sale of various businesses in 1997 to
repay certain higher cost debt. The Company also spent approximately $40 million
to terminate a receivables sales program in 1998.
Cash flow from operations has been more than adequate to finance capital
expenditures in each of the past three years. The Company expects to have
sufficient cash flow from operations to finance planned capital spending for
1999.
Environmental Matters
Federal, state and local statutes and regulations relating to the
protection of the environment and the health and safety of employees and other
individuals have resulted in higher operating costs and capital investments by
the industries in which the Company operates. Because of a focus toward greater
environmental awareness and increasingly stringent environmental regulations,
the Company believes that expenditures for compliance with environmental, health
and safety regulations will continue to have a significant impact on the conduct
of its business. Although it cannot predict accurately how these developments
will affect future operations and earnings, the Company does not believe its
costs will vary significantly from those of its competitors.
The Company expects to incur capital expenditures and future costs for
environmental, health and safety improvement programs. These expenditures are
customary operational costs and are not expected to have a material adverse
effect on the financial position, liquidity or results of operations of the
Company.
BFGoodrich and its subsidiaries are generators of both hazardous 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 ("EPA") in connection with
approximately 43 sites, most of which related to businesses previously
discontinued. The Company believes it may have continuing liability with respect
to not more than 19 sites.
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
PRP, review of remediation methods and negotiation with other PRPs and
governmental agencies.
At December 31, 1998, the Company has recorded in Accrued Expenses and in
Other Non-current Liabilities a total of $57.4 million to cover future
environmental expenditures, principally for remediation of the aforementioned
sites and other environmental matters.
The Company believes that its environmental matters are adequately reserved
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.
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.
Certain Aerospace Contracts
The Company's Aerostructures Group has a contract with Boeing on the
717-200 program and a contract with Pratt & Whitney on the PW4000 program that
are subject to certain risks and uncertainties. The Company has pre-production
inventory of $83.0 million related to design and development costs on the
717-200 program
20
<PAGE> 23
through December 31, 1998. In addition, the Company has excess-over-average
inventory of $30.3 million related to costs associated with the production of
the flight test inventory and the first production units. The Company expects to
spend approximately $4.0 million more for preproduction costs through mid-1999,
the aircraft's scheduled Federal Aviation Administration ("FAA") certification
date. If the contract is cancelled prior to FAA certification, the Company
expects substantial recovery of these costs. If the aircraft is certified and
actively marketed, the amount of these costs and initial production start-up
costs recovered by the Company will depend upon the number of aircraft
delivered.
In 1993, the Company revised its contract with Pratt & Whitney on the
PW4000 for A300/A310 and MD-11 programs. The revised contract provides that if
Pratt & Whitney accepts delivery of less than 500 units from 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 of 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 December 31, 1998, the Company had $49.2 million of contract
costs ($44.7 million of in-process and $4.5 million of finished products) in
inventory for the PW4000 program.
Year 2000 Computer Costs
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 is being carried out in four phases:
1) assessment and development of a plan; 2) remediation; 3) testing; and 4)
implementation. The Company's plan includes purchasing new information systems
where circumstances warrant.
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 at certain locations.
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 70 percent, 60 percent and 90 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 sent to all
critical entities with which the Company does business to assess their Year 2000
readiness. The Company anticipates that its activities will be on-going for all
of 1999 and will include follow-up telephone interviews and on-site meetings as
considered necessary in the circumstances. The Company believes the Year 2000
Information and Readiness Disclosure Act of 1998 will facilitate the exchange of
Year 2000 information between it and its suppliers in 1999. 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 $55 million, of which approximately $38 million has
been incurred through December 31, 1998. The Company's estimate of total costs
to be spent has increased by approximately $10 million from the third quarter
due to the inclusion of estimated internal labor costs. The Company capitalized
approximately $26 million and expensed approximately $12 million of the $38
million spent to date. The Company's cost estimates include the amount
21
<PAGE> 24
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 effected 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.
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
Although the Euro was successfully introduced on January 1, 1999, the
legacy currencies of those countries participating 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 continues to address 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. Actions taken to date include
the ability to quote its prices; invoice when requested by the customer; and
issue pay checks to its employees on a dual currency basis. The Company has not
yet set conversion dates for its accounting systems, statutory reporting and tax
books, but will do so in 1999 in conjunction with its efforts to be Year 2000
compliant. The financial institutions in which the Company has relationships
have transitioned to the Euro successfully as well and are issuing statements in
dual currencies.
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.
22
<PAGE> 25
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.
On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 -- Reporting on the Costs of Start-Up
Activities (the SOP). The SOP is effective for the Company in 1999 and would
require the write-off of any amounts deferred within the balance sheet related
to start-up activities, as defined within the SOP. The Company has reviewed the
provisions of this SOP and does not believe its adoption will have a material
adverse impact on earnings or on its financial condition.
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 involve risk and
uncertainty.
With respect to Aerospace, the continuing recovery of the worldwide civil
aviation market could be adversely affected if customers cancel or delay current
orders or original-equipment manufacturers reduce the rate they build or expect
to build products for such customers. Such cancellations, delays or reductions
may occur if there is a substantial change in the health of the airline industry
or in the general economy, or if a customer were to experience financial or
operational difficulties. There have been weak new aircraft orders and actual
cancellation of orders from Asian carriers due to the Asian financial crisis.
There are financial difficulties in Russia and Latin America as well. If these
developments should continue or accelerate, it could have an adverse effect upon
the Company. Even if orders remain strong, original-equipment manufacturers
could reduce the rate at which they build aircraft due to inability to obtain
adequate parts from suppliers and/or because of productivity problems relating
to a recent rapid build-up of the labor force to increase the build rate of new
aircraft. Boeing announced a temporary cessation of production in the fall of
1997 for these reasons. A change in levels of defense spending could curtail or
enhance prospects in the Company's military business. If the trend towards
increased outsourcing or reduced number of suppliers in the airline industry
changes, it could affect the Company's business. If the Boeing 717 program is
not as successful as anticipated, or the Company cannot work out an equitable
adjustment on the PW4000 program, it could adversely affect the Company's
business. (See Note I to the Consolidated Financial Statements for additional
information.) If the Company is unable to continue to acquire and develop new
systems and improvements, it could affect future growth rates. There has been a
higher-than-normal historical turnover rate of technicians in the MRO business
due to hiring by Boeing and the airlines, although recently the turnover rate
has been returning closer to historical levels. If this trend were again to
reverse, it could have an adverse effect on the Company. Such events could be
exacerbated if there is a substantial change in the health of the airline
industry, or in the general economy, or if a customer were to experience major
financial difficulties. If the development and sale of direct thermal inflation
technology devices does not proceed as contemplated, future growth could be
adversely impacted. If the operating efficiencies anticipated for the new Miami,
Florida landing gear overhaul facility do not materialize, margins in this
business could be adversely affected. Various industry estimates of future
growth of revenue passenger miles, new original equipment deliveries and
estimates of future deliveries of regional, business, general aviation and
military orders may prove optimistic, which could have an adverse affect on
operations.
With respect to Performance Materials, if the expected growth in volume
demand does not materialize, results could be adversely impacted. Expected sales
increases in the Far East and Latin America could be adversely impacted by
recent turmoil in financial markets in those regions. If demand does not
increase during the second half of 1999 as anticipated or cost reduction
benefits do not materialize, the results of the Performance Materials Segment
could be adversely affected. If cost benefits from continued integration of
recent acquisitions and realignment activities do not occur as expected, results
could be adversely impacted. Revenue growth in various businesses may not
materialize as expected.
With respect to the entire Company, if customers or outside vendors are
unable to make their computer systems Year 2000 compliant in time, or 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 are unexpected
developments with respect to environmental matters involving the Company, it
could have an adverse effect upon the Company. The Company's financial template
sets forth goals, but they are not forecasts.
23
<PAGE> 26
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments The Company does not hold or issue
derivative financial instruments for trading purposes. The Company uses
derivative financial instruments to manage its exposure to fluctuations in
interest rates and foreign exchange rates. The aggregate value of derivative
financial instruments held or issued by the Company is not material to the
Company nor is the market risk posed. For additional discussion of the Company's
use of such instruments see Notes A and P to Consolidated Financial Statements.
Interest Rate Exposure Based on the Company's overall interest rate
exposure as of and during the year ended December 31, 1998, a near-term change
in interest rates, within a 95% confidence level based on historical interest
rate movements, would not materially affect the Company's consolidated financial
position, results of operations or cash flows.
Foreign Currency Exposure The Company's international operations expose it
to translation risk when the local currency financial statements are translated
to U.S. dollars. As currency exchange rates fluctuate, translation of the
statements of income of international businesses into U.S. dollars will affect
comparability of revenues and expenses between years. None of the components of
the Company's consolidated statements of income was materially affected by
exchange rate fluctuations in 1998, 1997, or 1996. The Company hedges a
significant portion of its net investments in international subsidiaries by
financing the purchase and cash flow requirements through local currency
borrowings.
See Notes A and P to the Consolidated Financial Statements for a discussion
of the Company's exposure to foreign currency transaction risk. At December 31,
1998, a hypothetical 10 percent movement in foreign exchange rates applied to
the hedging agreements and underlying exposures would not have a material effect
on earnings.
24
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The Consolidated Financial Statements and Notes to Consolidated Financial
Statements of The BFGoodrich Company and subsidiaries have been prepared by
management. These statements have been prepared in accordance with generally
accepted accounting principles and, accordingly, include amounts based upon
informed judgments and estimates. Management is responsible for the selection of
appropriate accounting principles and the fairness and integrity of such
statements.
The Company maintains a system of internal controls designed to provide
reasonable assurance that accounting records are reliable for the preparation of
financial statements and for safeguarding assets. The Company's system of
internal controls includes: written policies, guidelines and procedures;
organizational structures, staffed through the careful selection of people that
provide an appropriate division of responsibility and accountability; and an
internal audit program. Ernst & Young LLP, independent auditors, were engaged to
audit and to render an opinion on the Consolidated Financial Statements of The
BFGoodrich Company and subsidiaries. Their opinion is based on procedures
believed by them to be sufficient to provide reasonable assurance that the
Consolidated Financial Statements are not materially misstated. The report of
Ernst & Young LLP follows.
The Board of Directors pursues its oversight responsibility for the
financial statements through its Audit Committee, composed of Directors who are
not employees of the Company. The Audit Committee meets regularly to review with
management and Ernst & Young LLP the Company's accounting policies, internal and
external audit plans and results of audits. To ensure complete independence,
Ernst & Young LLP and the internal auditors have full access to the Audit
Committee and meet with the Committee without the presence of management.
/s/ D. L. Burner
D. L. Burner
Chairman and Chief Executive Officer
/s/ L.C. Vinney
L. C. Vinney
Senior Vice President and Chief Financial Officer
/s/ R.D. Koney, Jr.
R. D. Koney, Jr.
Vice President and Controller
25
<PAGE> 28
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, 1998 and 1997, and the
related Consolidated Statements of Income, Shareholders' Equity and Cash Flows
for each of the three years in the period ended December 31, 1998. 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 did not audit the financial statements as of and for the year
ended July 31, 1996 of Rohr, Inc., which statements reflect total sales
constituting 27 percent of total consolidated sales for 1996. Those financial
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for Rohr, Inc. for 1996,
is based solely on the report of the other auditors.
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 and the report of other auditors provide a reasonable
basis for our opinion.
In our opinion, based on our audits and, for 1996, the report of other
auditors, 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, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 5, 1999
26
<PAGE> 29
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
SALES....................................................... $3,950.8 $3,373.0 $2,845.8
Operating costs and expenses:
Cost of sales............................................. 2,853.1 2,454.7 2,042.5
Charge for MD-90 contract................................. -- 35.2 --
Selling and administrative costs.......................... 610.4 556.0 481.8
Restructuring costs and asset impairment.................. 10.5 -- 11.2
Merger-related costs...................................... -- 77.0 --
-------- -------- --------
3,474.0 3,122.9 2,535.5
-------- -------- --------
OPERATING INCOME............................................ 476.8 250.1 310.3
Interest expense............................................ (79.0) (73.0) (89.3)
Interest income............................................. 5.2 12.0 4.2
Gain on issuance of subsidiary stock........................ -- 13.7 --
Other income (expense)--net................................. (18.1) 15.0 (30.8)
-------- -------- --------
Income from continuing operations before income taxes and
Trust distributions....................................... 384.9 217.8 194.4
Income tax expense.......................................... (146.3) (94.1) (68.4)
Distributions on Trust preferred securities................. (10.5) (10.5) (10.5)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................... 228.1 113.2 115.5
Income (loss) from discontinued operations -- net of
taxes..................................................... (1.6) 84.3 58.4
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS........................... 226.5 197.5 173.9
Extraordinary losses on debt extinguishment -- net of
taxes..................................................... -- (19.3) --
-------- -------- --------
NET INCOME.................................................. $ 226.5 $ 178.2 $ 173.9
======== ======== ========
BASIC EARNINGS PER SHARE:
Continuing operations..................................... $ 3.09 $ 1.59 $ 1.74
Discontinued operations................................... (.02) 1.19 .87
Extraordinary losses...................................... -- (.27) --
-------- -------- --------
Net income................................................ $ 3.07 $ 2.51 $ 2.61
======== ======== ========
DILUTED EARNINGS PER SHARE:
Continuing operations..................................... $ 3.04 $ 1.53 $ 1.65
Discontinued operations................................... (.02) 1.13 .83
Extraordinary losses...................................... -- (.25) --
-------- -------- --------
Net income................................................ $ 3.02 $ 2.41 $ 2.48
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
27
<PAGE> 30
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................. $ 31.7 $ 47.0
Accounts and notes receivable............................. 629.0 532.6
Inventories............................................... 772.5 652.6
Deferred income taxes..................................... 142.1 132.4
Prepaid expenses and other assets......................... 39.2 36.7
-------- --------
Total Current Assets.............................. 1,614.5 1,401.3
Property.................................................... 1,255.9 1,065.1
Deferred Income Taxes....................................... 39.7 86.0
Prepaid Pension............................................. 148.0 148.3
Goodwill.................................................... 771.0 546.2
Identifiable Intangible Assets.............................. 112.4 51.1
Other Assets................................................ 251.1 195.9
-------- --------
Total Assets...................................... $4,192.6 $3,493.9
======== ========
CURRENT LIABILITIES
Short-term bank debt...................................... $ 144.1 $ 192.8
Accounts payable.......................................... 364.4 327.6
Accrued expenses.......................................... 420.1 411.3
Income taxes payable...................................... 59.4 --
Current maturities of long-term debt and capital lease
obligations............................................ 2.8 3.2
-------- --------
Total Current Liabilities......................... 990.8 934.9
Long-term Debt and Capital Lease Obligations................ 995.2 564.3
Pension Obligations......................................... 43.6 39.6
Postretirement Benefits Other Than Pensions................. 338.1 343.7
Other Non-current Liabilities............................... 101.7 65.7
Commitments and Contingent Liabilities...................... -- --
Mandatorily Redeemable Preferred Securities of Trust........ 123.6 123.1
SHAREHOLDERS' EQUITY
Common stock-$5 par value
Authorized, 200,000,000 shares; issued, 76,213,081
shares in 1998 and 73,946,160 shares in 1997.......... 381.1 369.7
Additional capital........................................ 543.7 500.7
Income retained in the business........................... 736.8 591.5
Accumulated other comprehensive income.................... 3.6 (3.5)
Unearned portion of restricted stock awards............... -- (.7)
Common stock held in treasury, at cost (1,846,894 shares
in 1998 and 1,204,022 shares in 1997).................. (65.6) (35.1)
-------- --------
Total Shareholders' Equity........................ 1,599.6 1,422.6
-------- --------
Total Liabilities and Shareholders' Equity........ $4,192.6 $3,493.9
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
28
<PAGE> 31
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $226.5 $178.2 $173.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary losses on debt extinguishment............ -- 19.3 --
Depreciation and amortization.......................... 165.4 138.8 139.8
Deferred income taxes.................................. 27.8 33.2 29.0
Net gains on sale of businesses........................ -- (138.8) (4.5)
Charge for exchange of 7.75% Convertible Notes......... -- -- 5.3
Asset impairment write-down............................ 6.5 -- 7.2
Change in assets and liabilities, net of effects of
acquisitions and dispositions of businesses:
Receivables....................................... (2.5) (41.7) (36.9)
Inventories....................................... (70.7) (53.3) (29.9)
Other current assets.............................. 1.0 1.1 2.0
Accounts payable.................................. -- 26.0 7.2
Accrued expenses.................................. (13.1) 86.2 6.2
Income taxes payable.............................. 61.9 (11.2) (19.5)
Other non-current assets and liabilities.......... (46.2) (28.2) (14.3)
------ ------ ------
Net cash provided by operating activities................... 356.6 209.6 265.5
------ ------ ------
INVESTING ACTIVITIES
Purchases of property....................................... (208.5) (159.9) (197.1)
Proceeds from sale of property.............................. 4.2 8.5 8.8
Proceeds from sale of businesses............................ -- 395.9 28.9
Sale of short-term investments.............................. -- 8.0 --
Payments made in connection with acquisitions, net of cash
acquired.................................................. (427.2) (133.4) (107.9)
------ ------ ------
Net cash provided (used) by investing activities............ (631.5) 119.1 (267.3)
------ ------ ------
FINANCING ACTIVITIES
Net (decrease) increase in short-term debt.................. (52.6) 68.9 122.5
Proceeds from issuance of long-term debt.................... 433.0 150.0 71.1
Repayment of long-term debt and capital lease obligations... (8.6) (543.0) (155.5)
Cash collateral for receivable sales program................ -- 5.0 13.5
Termination of receivable sales program..................... (40.0) -- --
Proceeds from issuance of capital stock..................... 26.7 14.8 11.2
Purchases of treasury stock................................. (13.3) (9.7) (.1)
Dividends................................................... (75.7) (59.5) (58.8)
Distributions on Trust preferred securities................. (10.5) (10.5) (10.5)
Other....................................................... -- 1.1 1.3
------ ------ ------
Net cash provided (used) by financing activities............ 259.0 (382.9) (5.3)
------ ------ ------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... 0.6 (2.2) (.7)
------ ------ ------
Net Decrease in Cash and Cash Equivalents................... (15.3) (56.4) (7.8)
Cash and Cash Equivalents at Beginning of Year(1)........... 47.0 103.4 144.9
------ ------ ------
Cash and Cash Equivalents at End of Year.................... $ 31.7 $ 47.0 $137.1
====== ====== ======
</TABLE>
- ---------------
(1) Cash and cash equivalents at the beginning of 1997 does not agree with the
amount at the end of 1996 due to the net cash transactions of Rohr from
August 1, 1996 to December 31, 1996, which are not reflected in the 1996
column above (see Note D).
See Notes to Consolidated Financial Statements.
29
<PAGE> 32
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED UNEARNED
COMMON STOCK INCOME OTHER PORTION OF
THREE YEARS ENDED --------------- ADDITIONAL RETAINED IN COMPREHENSIVE RESTRICTED TREASURY
DECEMBER 31, 1998 SHARES AMOUNT CAPITAL THE BUSINESS INCOME STOCK AWARDS STOCK TOTAL
----------------- ------ ------ ---------- ------------ ------------- ------------ -------- --------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1995...... 33.113 $165.6 $536.8 $375.7 $(57.6) $(16.2) $(28.3) $ 976.0
Net income..................... 173.9 173.9
Other comprehensive income:
Unrealized translation
adjustments................ (3.7) (3.7)
Minimum pension liability
adjustment................. 40.8 40.8
--------
Total comprehensive income..... 211.0
Employee award programs........ 0.600 3.0 19.0 7.2 (1.8) 27.4
Two-for-one common stock
split........................ 33.256 166.3 (166.3)
Contribution to pension
plans........................ 0.755 3.8 26.2 30.0
Conversion of 7.75% Convertible
Subordinated Notes........... 2.806 14.0 28.3 42.3
Purchases of stock for
treasury..................... (2.1) (2.1)
Dividends (per
share -- $1.10).............. (58.8) (58.8)
------ ------ ------ ------ ------ ------ ------ --------
Balance December 31, 1996...... 70.530 352.7 444.0 490.8 (20.5) (9.0) (32.2) 1,225.8
Net income..................... 178.2 178.2
Other comprehensive income:
Unrealized translation
adjustments, net of
reclassification adjustment
for loss included in net
income of $2.3............. (7.6) (7.6)
Minimum pension liability
adjustment................. (1.8) (1.8)
--------
Total comprehensive income..... 168.8
Employee award programs........ 0.826 4.1 12.8 8.3 (0.7) 24.5
Adjustment to conform Rohr's
fiscal year.................. 2.071 10.3 39.6 (18.0) 26.4 58.3
Conversion of 7.75% Convertible
Subordinated
Notes........................ 0.099 0.5 1.0 1.5
Exercise of warrants........... 0.420 2.1 3.3 5.4
Purchases of stock for
treasury..................... (2.2) (2.2)
Dividends (per
share -- $1.10).............. (59.5) (59.5)
------ ------ ------ ------ ------ ------ ------ --------
Balance December 31, 1997...... 73.946 369.7 500.7 591.5 (3.5) (0.7) (35.1) 1,422.6
Net income..................... 226.5 226.5
Other comprehensive income:
Unrealized translation
adjustments................ 5.9 5.9
Minimum pension liability
adjustment................. 1.2 1.2
--------
Total comprehensive income..... 233.6
Employee award programs........ 1.032 5.2 30.9 0.7 (0.7) 36.1
Conversion of 7.75% Convertible
Subordinated Notes........... 1.235 6.2 12.1 18.3
Purchases of stock for
treasury..................... (29.8) (29.8)
Dividends (per
share -- $1.10).............. (81.2) (81.2)
------ ------ ------ ------ ------ ------ ------ --------
Balance December 31, 1998...... 76.213 $381.1 $543.7 $736.8 $ 3.6 $ -- $(65.6) $1,599.6
====== ====== ====== ====== ====== ====== ====== ========
</TABLE>
See Notes to Consolidated Financial Statements.
30
<PAGE> 33
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation The Consolidated Financial Statements reflect
the accounts of The BFGoodrich Company and its majority-owned subsidiaries ("the
Company" or "BFGoodrich"). Investments in 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 (losses) from these
businesses is included in Other income (expense)-net. Intercompany accounts and
transactions are 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 other than inventoried costs relating to long-term
contracts 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.
Inventoried costs on long-term contracts include certain preproduction
costs, consisting primarily of tooling and design costs and production costs,
including applicable overhead. The costs attributed to units delivered under
long-term commercial contracts are based on the estimated average cost of all
units expected to be produced and are determined under the learning curve
concept, which anticipates a predictable decrease in unit costs as tasks and
production techniques become more efficient through repetition. This usually
results in an increase in inventory (referred to as "excess-over average")
during the early years of a contract.
In the event that in-process inventory plus estimated costs to complete a
specific contract exceeds the anticipated remaining sales value of such
contract, such excess is charged to current earnings, thus reducing inventory to
estimated realizable value.
In accordance with industry practice, costs in inventory include amounts
relating to contracts with long production cycles, some of which are not
expected to be realized within one year.
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. In the case of capitalized lease assets,
amortization is computed over the lease term if shorter. 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. The weighted average
number of years that goodwill is being amortized over is 28 years. Goodwill
amortization is recorded in cost of sales.
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, trademarks, 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 and the Company's
estimate of undiscounted cash flows over the assets remaining estimated useful
life are less than the assets carrying value. 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 and Income Recognition For revenues not recognized under the
contract method of accounting, 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.
31
<PAGE> 34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A significant portion of the Company's sales in the Aerostructures Group of
the Aerospace Segment are under long-term, fixed-priced contracts, many of which
contain escalation clauses, requiring delivery of products over several years
and frequently providing the buyer with option pricing on follow-on orders.
Sales and profits on each contract are recognized primarily in accordance with
the percentage-of-completion method of accounting, using the units-of-delivery
method. The Company follows the guidelines of Statement of Position 81-1 ("SOP
81-1"), "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" (the contract method of accounting) except that the
Company's contract accounting policies differ from the recommendations of SOP
81-1 in that revisions of estimated profits on contracts are included in
earnings under the reallocation method rather than the cumulative catch-up
method.
Profit is estimated based on the difference between total estimated revenue
and total estimated cost of a contract, excluding that reported in prior
periods, and is recognized evenly in the current and future periods as a uniform
percentage of sales value on all remaining units to be delivered. Current
revenue does not anticipate higher or lower future prices but includes units
delivered at actual sales prices. Cost includes the estimated cost of the
preproduction effort (primarily tooling and design), plus the estimated cost of
manufacturing a specified number of production units. The specified number of
production units used to establish the profit margin is predicated upon
contractual terms adjusted for market forecasts and does not exceed the lesser
of those quantities assumed in original contract pricing or those quantities
which the Company now expects to deliver in the periods assumed in the original
contract pricing. Option quantities are combined with prior orders when
follow-on orders are released.
The contract method of accounting involves the use of various estimating
techniques to project costs at completion and includes estimates of recoveries
asserted against the customer for changes in specifications. These estimates
involve various assumptions and projections relative to the outcome of future
events, including the quantity and timing of product deliveries. Also included
are assumptions relative to future labor performance and rates, and projections
relative to material and overhead costs. These assumptions involve various
levels of expected performance improvements. The Company reevaluates its
contract estimates periodically and reflects changes in estimates in the current
and future periods under the reallocation method.
Included in sales are amounts arising from contract terms that provide for
invoicing a portion of the contract price at a date after delivery. Also
included are negotiated values for units delivered and anticipated price
adjustments for contract changes, claims, escalation and estimated earnings in
excess of billing provisions, resulting from the percentage-of-completion method
of accounting. Certain contract costs are estimated based on the learning curve
concept discussed under Inventories above.
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, 1998,
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 and maturity 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 to a fixed rate. The cost of interest rate swaps is recorded
as part of interest expense and accrued expenses. 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
32
<PAGE> 35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 and are reported as part of cost of sales and accrued expenses.
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. Also, the Company has used forward contracts, on a limited
basis, to manage its exchange risk on a portion of its purchase commitments from
vendors of aircraft components denominated in foreign currencies and to manage
its exchange risk for sums paid to a French subsidiary for services. Forward
gains and losses associated with contracts accounted for under contract
accounting are deferred as contract costs.
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.
Issuance of Subsidiary Stock The Company recognizes gains and losses on
the issuance of stock by a subsidiary in accordance with the U.S. Securities and
Exchange Commission's ("SEC") Staff Accounting Bulletin 84.
Earnings Per Share Earnings per share is computed in accordance with SFAS
No. 128, "Earnings per Share."
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 1998, 1997
and 1996 were $182.7 million, $141.2 million and $137.5 million, respectively.
Of these amounts, $63.1 million, $39.4 million and $29.4 million, respectively,
were funded by customers.
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.
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.
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.
33
<PAGE> 36
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 -- Reporting on the Costs of Start-Up
Activities (the SOP). The SOP is effective for the Company in 1999 and would
require the write-off of any amounts deferred within the balance sheet related
to start-up activities, as defined within the SOP. The Company has reviewed the
provisions of this SOP and does not believe its adoption will have a material
adverse impact on earnings or on its financial condition.
NOTE B DISCONTINUED OPERATIONS
On August 15, 1997, the Company completed the disposition of its
chlor-alkali and olefins ("CAO") business to The Westlake Group for $92.7
million, resulting in an after-tax gain of $14.5 million, or $.19 per diluted
share. 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 reflects the CAO business (previously reported as Other
Operations) as a discontinued operation, in addition to the following
discontinued operations.
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 $.80 per diluted share. The sale of Tremco Incorporated completed
the disposition of the Company's Sealants, Coatings and Adhesives ("SC&A") Group
which also represented a disposal of a segment of a business under APB 30.
A summary of the results of discontinued operations is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- ------
(IN MILLIONS)
<S> <C> <C> <C>
Sales:
CAO..................................................... $ -- $98.0 $160.6
SC&A.................................................... -- -- 316.8
----- ----- ------
$ -- $98.0 $477.4
Pretax income from operations:
CAO..................................................... $ -- $16.1 $ 21.0
SC&A(1)................................................. -- -- 27.0
----- ----- ------
-- 16.1 48.0
Income tax expense........................................ -- (5.8) (19.6)
----- ----- ------
Net income from operations................................ -- 10.3 28.4
Gains on sale of discontinued operations:
CAO(2).................................................. -- 14.5 --
SC&A(3)................................................. -- 59.5 --
Adjustment to gain of 1993 discontinued operation......... -- -- 30.0
Adjustment to 1997 gain on the sale of SC&A............... (1.6) -- --
----- ----- ------
Income (loss) from discontinued operations................ $(1.6) $84.3 $ 58.4
===== ===== ======
</TABLE>
- ---------------
(1) Includes $6.4 million gain on the sale of a business in 1996.
(2) Net of $7.8 million of income taxes.
(3) Net of $22.8 million of income taxes; includes provision of $7.9 million for
operating losses during the phase-out period.
NOTE C PENDING MERGER (UNAUDITED)
On November 22, 1998, the Company and Coltec Industries, Inc. ("Coltec"), a
Pennsylvania company, entered into an Agreement and Plan of Merger ("Merger
Agreement"). Under the terms of the Merger Agreement, upon consummation of the
Merger, each share of Coltec common stock issued and outstanding
34
<PAGE> 37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
immediately prior to the effective time of the Merger shall be converted into
the right to receive 0.56 of a share of BFGoodrich common stock. The Merger will
be accounted for as a pooling of interests, and as such, future consolidated
financial statements will include Coltec's financial data as if Coltec had
always been a part of BFGoodrich. The Merger is expected to close in early April
of 1999.
The unaudited pro forma combined financial data is presented for
informational purposes only. They are not necessarily indicative of the results
of operations or of the financial position which would have occurred had the
Merger been completed during the periods or as of the date for which the pro
forma data are presented. They are also not necessarily indicative of the
Company's future results of operations or financial position. In particular, the
Company expects to realize significant operating cost savings as a result of the
Merger. No adjustment has been included in the pro forma combined financial data
for these anticipated operating cost savings nor for the one-time merger and
consolidation costs expected to be incurred upon consummation of the Merger.
Pro forma per share amounts for the combined company are based on the
Exchange Ratio of 0.56 of a share of BFGoodrich common stock for each share of
Coltec common stock.
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Pro Forma Combined Statement of Income Data:
Sales............................................ $5,454.9 $4,687.9 $4,005.5
Income from continuing operations................ 350.4 208.1 170.1
Income from continuing operations per diluted
common share.................................. 3.08 1.86 1.57
Weighted average number of common shares and
assumed conversions (on a fully diluted basis)
(millions).................................... 113.9 112.1 109.8
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
1998
------------
<S> <C>
Pro Forma Combined Balance Sheet Data:
Total assets.............................................. $5,293.5
Total shareholders' equity................................ 1,299.3
Book value per common share............................... 11.84
</TABLE>
NOTE D OTHER ACQUISITIONS AND DISPOSITIONS
Acquisitions
On December 22, 1997, BFGoodrich completed a merger with Rohr, Inc. by
exchanging 18,588,004 shares of BFGoodrich common stock for all of the common
stock of Rohr (the term Company is used to refer to BFGoodrich including Rohr).
Each share of Rohr common stock was exchanged for .7 of one share of BFGoodrich
common stock.
The merger was accounted for as a pooling of interests. Accordingly, all
prior period Consolidated Financial Statements and notes thereto were restated
to include the results of operations, financial position and cash flows of Rohr
as though Rohr had always been a part of BFGoodrich.
Prior to the merger, Rohr's fiscal year ended on July 31. For purposes of
the combination, Rohr's financial results for its fiscal year ended July 31,
1997, were restated to the year ended December 31, 1997, to conform with
BFGoodrich's calendar year end. Financial results for Rohr's fiscal years ended
July 31, 1996 and earlier were not restated to conform to BFGoodrich's calendar
year end. For periods prior to 1997, Rohr's fiscal years ended July 31 have been
combined with BFGoodrich's calendar years ended December 31. As a result, Rohr's
35
<PAGE> 38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
results of operations for the period August 1, 1996 to December 31, 1996 do not
appear in the Consolidated Statement of Income and instead are recorded as a
direct adjustment to equity. Rohr's revenues, expenses and net loss for this
five-month period were $341.3 million, $359.3 million and $18.0 million,
respectively. Included in expenses during this period was a $49.3 million pretax
charge ($29.5 million after tax) relating to the McDonnell Douglas MD-90 program
(see Note E).
There were no transactions between BFGoodrich and Rohr prior to the
combination. Certain reclassifications were made to Rohr's financial statements
to conform to BFGoodrich's presentation.
The Company recognized pretax merger-related costs of $105.0 million ($86.0
million after tax, or $1.15 per diluted share). Merger-related costs consisted
primarily of costs of investment bankers, attorneys, accountants, financial
printing, debt extinguishment and payments due under contractual employee
arrangements. Of the $105.0 million, $28.0 million related to debt
extinguishment costs ($16.7 million after tax, or $.22 per diluted share) which
have been reported as an extraordinary item (see Note F). Of the $86.0 million
after-tax merger-related costs above, $7.9 million was recorded by BFGoodrich
and $78.1 million was recorded by Rohr.
The following acquisitions were recorded using the purchase method of
accounting. Their results of operations, which are not material, have been
included in the Consolidated Financial Statements since their respective dates
of acquisition.
In March 1998, the Company acquired Freedom Chemical Company for
approximately $378 million in cash. Freedom Chemical is a leading 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.
Freedom Chemical has leadership positions as a supplier of specialty chemical
additives used in personal-care, food and beverage, pharmaceutical, textile,
graphic arts, paints, colorants and coatings applications and as chemical
intermediates. The Company also acquired a small textile manufacturer and a
small manufacturer of energetic materials systems during 1998.
During 1997, the Company acquired five businesses for cash consideration of
$133.4 million in the aggregate, which includes $65.3 million of goodwill. 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 Performance Materials business.
During 1996, the Company acquired five specialty chemicals businesses for
cash consideration of $107.9 million, which included $80.0 million of goodwill.
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 represented product lines
consisting of water-borne acrylic resins and coatings and additives used in the
graphic arts industry. The fourth acquisition consisted of water-based textile
coatings product lines. The remaining acquisition was a small supplier of
anti-static compounds.
Dispositions
During 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 received cash proceeds of $72.5 million,
which resulted in a pretax gain of $26.4 million ($16.4 million after tax)
reported in Other income (expense) -- net.
NOTE E IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES
The Aerostructures Group's fourth quarter special charge in 1998 of $10.5
million before tax ($6.5 million after tax, or $.09 per share), relates to costs
associated with the closure of three facilities and an asset impairment charge.
The charge includes $4.0 million for employee termination benefits; $1.8 million
related to writing down
36
<PAGE> 39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
the carrying value of the three facilities to their fair value less cost to sell
and $4.7 million for an asset impairment related to an assembly-service facility
in Hamburg, Germany.
The employee termination benefits primarily represents severance payments
that will be made to approximately 700 employees (approximately 600 wage and 100
salaried).
The shutdowns, expected to be completed by the fourth quarter of 1999, will
affect a composite bonding facility in Hagerstown, Maryland and two assembly
sites in Heber Springs and Sheridan, Arkansas. Production work performed at
these facilities will be absorbed by the Aerostructures Group's remaining
facilities.
The $1.8 million restructuring charge relates to the write-down of the
Hagerstown, Heber Springs and Sheridan facilities to their fair value less cost
to sell. The carrying amount of the assets related to these three facilities,
net of machinery and equipment that will be transferred to other Aerostructures
facilities, approximated $10.0 million at December 31, 1998. The effect of
suspending depreciation on these assets will approximate $0.9 million annually.
The $4.7 million impairment charge resulted from management's review of the
business for possible disposition. The entire asset impairment charge related to
tangible assets and was based on independent third party appraisals of the
facility's fair value. The charge has been recorded in the restructuring costs
and asset impairment line item within operating income.
In 1997, the Company recognized a $35.2 million pretax charge ($21.0
million after tax, or $.28 per diluted share) to write off that portion of its
contract investment in the McDonnell Douglas MD-90 aircraft program, including
the costs it will be required to spend in the future to complete the contract,
that the Company determined would not be recoverable from future MD-90 sales
represented by firm aircraft orders. In addition, the Company recognized a $49.3
million pretax charge ($29.5 million after tax) in December 1996, related to the
MD-90 program. This charge did not impact the income statement; rather, it was
recognized as a direct adjustment to equity as a result of aligning Rohr's
fiscal year with BFGoodrich's.
In 1996, the Company recognized a $7.2 million pretax impairment charge on
its Arkadelphia, Arkansas, facility. Also during 1996, the Company recognized a
$4.0 million pretax charge for a voluntary early retirement program for eligible
employees of the Performance Materials Segment.
NOTE F EXTRAORDINARY ITEMS
During 1997, the Company incurred an extraordinary charge of $19.3 million
(net of a $13.1 million income tax benefit), or $.25 per diluted share, to
extinguish certain indebtedness previously held by Rohr. Costs incurred include
debt premiums and other direct costs associated with the extinguishment of the
related debt. The Company used a combination of existing cash funds and proceeds
from new lower-cost long-term debt to extinguish the debt. Of the $19.3 million,
$2.6 million (net of a $1.8 million income tax benefit) was incurred during the
third quarter in connection with Rohr's 9.33 percent Senior Notes and 9.35
percent Senior Notes. The remaining $16.7 million (net of an $11.3 million
income tax benefit) relates to debt extinguishment costs incurred in connection
with the Rohr merger during the fourth quarter for refinancing Rohr's 11.625
percent Senior Notes, 9.25 percent Subordinated Debentures, 7.00 percent
Convertible Subordinated Debentures and 7.75 percent Convertible Subordinated
Notes.
37
<PAGE> 40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
NOTE G EARNINGS PER SHARE
The computation of basic and diluted earnings per share for income from
continuing operations is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings per share-income from
continuing operations.............................. $228.1 $113.2 $115.5
Effect of dilutive securities:
7.75% Convertible Notes............................... -- .9 1.9
------ ------ ------
Numerator for diluted earnings per share--income
from continuing operations available to common
stockholders after assumed conversions........... $228.1 $114.1 $117.4
====== ====== ======
Denominator:
Denominator for basic earnings per
share--weighted-average shares..................... 73.7 71.0 66.6
Effect of dilutive securities:
Stock options and warrants......................... .7 1.6 1.4
Contingent shares.................................. .1 .7 .5
7.75% Convertible Notes............................ .5 1.3 2.4
------ ------ ------
Dilutive potential common shares...................... 1.3 3.6 4.3
------ ------ ------
Denominator for diluted earnings per
share--adjusted weighted-average shares and
assumed conversions.............................. 75.0 74.6 70.9
====== ====== ======
Per share income from continuing operations:
Basic............................................ $ 3.09 $ 1.59 $ 1.74
====== ====== ======
Diluted.......................................... $ 3.04 $ 1.53 $ 1.65
====== ====== ======
</TABLE>
NOTE H ACCOUNTS AND NOTES RECEIVABLE
Accounts and notes receivable consist of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Amounts billed.............................................. $610.0 $490.6
Recoverable costs and accrued profit on units delivered but
not billed................................................ 7.9 10.0
Recoverable costs and accrued profit on progress completed
but not billed............................................ 0.5 --
Unrecovered costs and estimated profit subject to future
negotiations.............................................. 20.2 19.2
Notes and other receivables................................. 13.0 34.1
------ ------
$651.6 $553.9
Less allowance for doubtful accounts...................... (22.6) (21.3)
------ ------
Total.................................................. $629.0 $532.6
====== ======
</TABLE>
"Recoverable costs and accrued profit on units delivered but not billed"
represents revenue recognized on contracts for amounts not billable to customers
at the balance sheet date. This amount principally represents delayed payment
terms along with escalation and repricing predicated upon deliveries and final
payment after acceptance.
38
<PAGE> 41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
"Recoverable costs and accrued profit on progress completed but not billed"
represents revenue recognized on contracts based on the percentage-of-completion
method of accounting and is anticipated to be billed and collected in accordance
with contract terms.
"Unrecovered costs and estimated profit subject to future negotiations"
consists of contract tasks completed for which a final price has not been
negotiated with the customer. Amounts in excess of agreed-upon contract prices
are recognized when it is probable that the claim will result in additional
contract revenue and the amounts can be reliably estimated. Included in this
amount are estimated recoveries on constructive change claims related to
government-imposed redefined acceptance criteria on the Grumman F-14 contract.
Management believes that amounts reflected in the financial statements are
reasonable estimates of the ultimate settlements.
NOTE I INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
FIFO or average cost (which approximates current costs):
Finished products......................................... $236.0 $173.4
In process................................................ 416.9 411.2
Raw materials and supplies................................ 189.8 161.4
------ ------
842.7 746.0
Reserve to reduce certain inventories to LIFO basis......... (54.1) (57.5)
Progress payments and advances.............................. (16.1) (35.9)
------ ------
Total.................................................. $772.5 $652.6
====== ======
</TABLE>
At December 31, 1998 and 1997, approximately 28 percent and 27 percent,
respectively, of inventory was valued by the LIFO method.
In-process inventories as of December 31, 1998, which include significant
deferred costs for long-term contracts accounted for under contract accounting,
are summarized by contract as follows (in millions, except quantities which are
number of aircraft):
<TABLE>
<CAPTION>
AIRCRAFT ORDER STATUS(1) COMPANY ORDER STATUS
---------------------------- ----------------------------------------------
DELIVERED UN- UN- (3)FIRM
TO FILLED FILLED (2)CONTRACT UN-FILLED (5)YEAR
CONTRACT AIRLINES ORDERS OPTIONS QUANTITY DELIVERED ORDERS COMPLETE
-------- --------- ------ ------- ----------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
PW4000 for the A300/A310
and MD-11(4) 287 10 9 325 303 19 2000
737-700................. 167 952 1,078 1,000 212 488 2002
717-200................. -- 115 100 300 1 54 2007
Others..................
In-process inventory
related to long-term
contracts.............
In-process inventory not
related to long-term
contracts.............
Balance at December 31,
1998..................
<CAPTION>
IN-PROCESS INVENTORY
------------------------------------
PRE- EXCESS
PRO- PRO- OVER-
CONTRACT DUCTION DUCTION AVERAGE TOTAL
-------- ------- ------- ------- ------
<S> <C> <C> <C> <C>
PW4000 for the A300/A310
and MD-11(4) $ 10.7 $ 8.0 $ 26.0 $ 44.7
737-700................. 8.5 -- 3.6 12.1
717-200................. 13.1 83.0 30.3 126.4
Others.................. 71.6 5.3 .8 77.7
------ ----- ------ ------
In-process inventory
related to long-term
contracts............. $103.9 $96.3 $ 60.7 260.9
====== ===== ======
In-process inventory not
related to long-term
contracts............. 156.0
------
Balance at December 31,
1998.................. $416.9
======
</TABLE>
- ---------------
(1) Represents the aircraft order status as reported by Case and/or other
sources the Company believes to be reliable for the related aircraft and
engine option. The Company's orders frequently are less than the announced
orders shown above.
(2) Represents the number of aircraft used to obtain average unit cost.
(3) Represents the number of aircraft for which the Company has firm unfilled
orders.
(4) Contract quantity represents the lesser of those quantities assumed in
original contract pricing or those quantities which the Company now expects
to deliver in the periods assumed in original contract pricing.
(5) The year presented represents the year in which the final production units
included in the contract quantity are expected to be delivered. The contract
may continue in effect beyond this date.
39
<PAGE> 42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 $83.0 million related to
design and development costs on the 717-200 program through December 31, 1998.
In addition, the Company has excess-over-average inventory of $30.3 million
related to costs associated with the production of the flight test inventory and
the first production units. The Company expects to spend approximately $4.0
million more for preproduction costs through mid-1999, the aircraft's scheduled
Federal Aviation Administration ("FAA") certification date. If the contract is
cancelled prior to FAA certification, the Company expects substantial recovery
of these costs. If the aircraft is certified and actively marketed, the amount
of these costs and initial production start-up costs recovered by the Company
will depend upon the number of aircraft delivered.
In 1993, the Company revised its contract with Pratt & Whitney on the
PW4000 for A300/A310 and MD-11 programs. The revised contract provides that if
Pratt & Whitney accepts delivery of less than 500 units from 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 of 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 December 31, 1998, the Company had $49.2 million of contract
costs ($44.7 million of in-process and $4.5 million of finished products) in
inventory for the PW4000 program.
NOTE J FINANCING ARRANGEMENTS
Short-Term Bank Debt At December 31, 1998, the Company had separate
committed revolving credit agreements with certain banks providing for domestic
lines of credit aggregating $300.0 million. Borrowings under these agreements
can be for any period of time until the expiration date and bear interest, at
the Company's option, at rates tied to the banks' certificate of deposit,
Eurodollar or prime rates. 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 facility fee of 12 basis points per annum on the total $300.0
million committed line. At December 31, 1998, no amounts were outstanding
pursuant to these agreements.
In addition, the Company had available formal foreign lines of credit and
overdraft facilities, including a committed European revolver, of $100.2 million
at December 31, 1998, of which $32.5 million was available.
The Company also maintains uncommitted domestic money market facilities
with various banks aggregating $380.0 million, of which $277.0 million of these
lines were unused and available at December 31, 1998. Weighted-average interest
rates on outstanding short-term borrowings were 5.2 percent and 6.4 percent at
December 31, 1998 and 1997, respectively. Weighted-average interest rates on
short-term borrowings were 5.6 percent, 5.0 percent and 5.9 percent during 1998,
1997 and 1996, respectively.
Long-Term Debt At December 31, 1998 and 1997, long-term debt and capital
lease obligations payable after one year consisted of:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
9.625% Notes, maturing in 2001.............................. $175.0 $175.0
MTN notes payable........................................... 699.0 269.0
European revolver........................................... 26.8 25.5
IDRBs, maturing in 2023, 6.0%............................... 60.0 60.0
Other debt, maturing to 2015 (interest rates from 3.0% to
11.625%).................................................. 28.0 26.8
------ ------
988.8 556.3
Capital lease obligations (Note K).......................... 6.4 8.0
------ ------
Total............................................. $995.2 $564.3
====== ======
</TABLE>
40
<PAGE> 43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
MTN Notes Payable The Company has periodically issued long-term debt
securities in the public markets through a medium term note program (referred to
as the MTN program), which commenced in 1995. MTN notes outstanding at December
31, 1998, consist entirely of fixed-rate non-callable debt securities. In 1998,
the Company issued $100.0 million of 6.45 percent MTN notes due in 2008, $130.0
million of 6.9 percent MTN notes due in 2018 and $200.0 million of 7.0 percent
notes due in 2038, primarily for the financing of the Freedom Chemical
acquisition (see Note D). During 1997, and in connection with the refinancing of
Rohr's debt, the Company issued $150.0 million of 7.2 percent MTN notes, due in
2027. All other MTN notes outstanding were issued during 1995 and 1996, with
interest rates ranging from 7.3 percent to 8.7 percent and maturity dates
ranging from 2025 to 2046.
European Revolver The Company has a $75.0 million committed multi-currency
revolving credit facility with various international banks, expiring in the year
2003. The Company uses this facility for short and long-term, local currency
financing to support the growth of its European operations. At December 31,
1998, the Company's long-term borrowings under this facility were $26.8 million
denominated in Spanish pesetas at a floating rate that is tied to Spanish LIBOR
(3.56 percent at December 31, 1998). The Company has effectively converted the
$26.8 million long-term borrowing into fixed rate debt with an interest rate
swap.
IDRBs The industrial development revenue bonds maturing in 2023 were issued
to finance the construction of a hangar facility in 1993. Property acquired
through the issuance of these bonds secures the repayment of the bonds.
Aggregate maturities of long-term debt, exclusive of capital lease
obligations, during the five years subsequent to December 31, 1998, are as
follows (in millions): 1999--$.8; 2000--$1.0; 2001--$202.6; 2002--$0.7 and
2003 -- $0.7.
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, $863.3 million of income retained in the business and additional
capital was free from such limitations at December 31, 1998.
NOTE K LEASE COMMITMENTS
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, 1998:
<TABLE>
<CAPTION>
CAPITAL NONCANCELABLE
LEASES OPERATING LEASES
------- ----------------
(IN MILLIONS)
<S> <C> <C>
1999....................................................... $2.6 $ 32.7
2000....................................................... 2.1 28.7
2001....................................................... 1.8 23.2
2002....................................................... 1.5 17.6
2003....................................................... 1.0 12.8
Thereafter................................................. 1.4 20.6
---- ------
Total minimum payments..................................... 10.4 $135.6
======
Amounts representing interest.............................. (2.0)
----
Present value of net minimum lease payments................ 8.4
Current portion of capital lease obligations............... (2.0)
----
Total............................................ $6.4
====
</TABLE>
41
<PAGE> 44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Net rent expense from continuing operations consisted of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C>
Minimum rentals............................................ $36.8 $28.2 $26.0
Contingent rentals......................................... .3 3.9 2.9
Sublease rentals........................................... (.1) (.1) (.1)
----- ----- -----
Total............................................ $37.0 $32.0 $28.8
===== ===== =====
</TABLE>
NOTE L PENSIONS AND POSTRETIREMENT BENEFITS
The Company has several 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 also 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 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, 1998 and 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, 1998, the pension
plans held 2.9 million shares of the Company's common stock with a fair value of
$99.8 million.
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 following table sets forth the status of the Company's funded defined
benefit pension plans and unfunded defined benefit postretirement plans as of
December 31, 1998 and 1997, and the amounts recorded in the Consolidated Balance
Sheet at these dates. This table excludes accrued pension costs for unfunded,
non-qualified pension plans of $37.2 million in 1998 and $73.2 million in 1997,
and the related projected benefit obligations of $48.0 million in 1998 and $82.2
million in 1997.
42
<PAGE> 45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
-------------------- ------------------
1998 1997 1998 1997
-------- -------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED BENEFIT OBLIGATIONS
Projected benefit obligation at beginning of
year........................................ $1,251.9 $1,146.8 $ 326.9 $ 312.4
Service cost................................... 22.4 19.8 2.8 2.2
Interest cost.................................. 89.6 90.3 21.5 23.7
Amendments..................................... 2.1 (1.4) -- --
Actuarial (gains) losses....................... 36.9 98.4 (1.2) 15.9
Acquisitions................................... 4.6 -- 3.3 --
Benefits paid.................................. (97.5) (102.0) (28.9) (27.3)
-------- -------- ------- -------
Projected benefit obligation at end of year.... $1,310.0 $1,251.9 $ 324.4 $ 326.9
-------- -------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $1,263.1 $1,121.8 $ -- $ --
Actual return on plan assets................... 168.1 178.9 -- --
Acquisitions................................... 4.6 -- -- --
Company contributions.......................... 25.4 64.4 28.9 27.3
Benefits paid.................................. (97.5) (102.0) (28.9) (27.3)
-------- -------- ------- -------
Fair value of plan assets at end of year....... $1,363.7 $1,263.1 $ -- $ --
-------- -------- ------- -------
FUNDED STATUS (UNDERFUNDED)
Funded status.................................. $ 53.7 $ 11.2 $(324.4) $(326.9)
Unrecognized net actuarial loss................ 67.5 101.6 (37.9) (36.6)
Unrecognized prior service cost................ 36.0 40.0 (5.8) (6.3)
Unrecognized net transition obligation......... 9.5 9.6 -- --
-------- -------- ------- -------
Prepaid (accrued) benefit cost................. $ 166.7 $ 162.4 $(368.1) $(369.8)
======== ======== ======= =======
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL
POSITION CONSIST OF:
Prepaid benefit cost........................... $ 166.7 $ 163.6 $ -- $ --
Accrued benefit liability...................... -- (1.2) (368.1) (369.8)
-------- -------- ------- -------
Net amount recognized.......................... $ 166.7 $ 162.4 $(368.1) $(369.8)
======== ======== ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate.................................. 7.0% 7.25% 7.00% 7.25%
Expected return on plan assets................. 9.0% 9.0% -- --
Rate of compensation increase.................. 3.5% 3.5% -- --
</TABLE>
For measurement purposes, a 6.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 4.75 percent for 2002 and remain at that level
thereafter.
43
<PAGE> 46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
PENSION BENEFITS OTHER BENEFITS
------------------------- -----------------------
1998 1997 1996 1998 1997 1996
------- ----- ----- ----- ----- -----
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost.......................... $ 22.4 $19.8 $23.8 $ 2.8 $ 2.2 $ 2.4
Interest cost......................... 89.6 90.3 82.9 21.5 23.7 22.7
Expected return on plan assets........ (102.6) (96.4) (85.6) -- -- --
Amortization of prior service cost.... 5.9 6.3 5.4 (0.5) (0.5) (0.6)
Amortization of transition
obligation......................... 0.1 0.1 0.5 -- -- --
Recognized net actuarial (gain)
loss............................... 5.4 5.1 5.7 (1.3) (1.0) (1.7)
------- ----- ----- ----- ----- -----
Benefit cost.......................... 20.8 25.2 32.7 22.5 24.4 22.8
Curtailment (gain)/loss............... -- 5.4 -- -- (2.5) --
------- ----- ----- ----- ----- -----
$ 20.8 $30.6 $32.7 $22.5 $21.9 $22.8
======= ===== ===== ===== ===== =====
</TABLE>
The table below quantifies the impact of a one percentage point change in
the assumed health care cost trend rate.
<TABLE>
<CAPTION>
1 PERCENTAGE POINT 1 PERCENTAGE POINT
INCREASE DECREASE
------------------ ------------------
<S> <C> <C>
Effect on total of service and interest cost
components in 1998......................... $ 1.5 million $ 1.3 million
Effect on postretirement benefit obligation
as of December 31, 1998.................... $18.2 million $15.9 million
</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 generally matches 1 dollar for each 1 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 (up to 6 percent of eligible earnings). For 1998, 1997 and
1996, Company contributions amounted to $16.5 million, $15.3 million and $15.9
million, respectively.
In addition, the Company contributed $10.1 million, $8.9 million and $12.4
million in 1998, 1997 and 1996, 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 M INCOME TAXES
Income from continuing operations before income taxes and Trust
distributions as shown in the Consolidated Statement of Income consists of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Domestic......................................... $ 361.3 $199.9 $167.1
Foreign.......................................... 23.6 17.9 27.3
-------- ------ ------
Total.................................. $ 384.9 $217.8 $194.4
======== ====== ======
</TABLE>
44
<PAGE> 47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
A summary of income tax (expense) benefit from continuing operations in the
Consolidated Statement of Income is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Current:
Federal......................................... $ (89.8) $(52.2) $(25.8)
Foreign......................................... (10.1) (5.8) (9.0)
State........................................... (18.6) (2.9) (4.6)
------- ------ ------
(118.5) (60.9) (39.4)
------- ------ ------
Deferred:
Federal......................................... (27.4) (31.3) (27.6)
Foreign......................................... (1.0) (1.3) .8
State........................................... .6 (.6) (2.2)
------- ------ ------
(27.8) (33.2) (29.0)
------- ------ ------
Total................................... $(146.3) $(94.1) $(68.4)
======= ====== ======
</TABLE>
Significant components of deferred income tax assets and liabilities at
December 31, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
Deferred income tax assets:
Accrual for postretirement benefits other than
pensions.............................................. $128.8 $127.8
Inventories.............................................. 30.7 64.2
Other nondeductible accruals............................. 62.7 59.3
Tax credit and net operating loss carryovers............. 91.8 95.6
Other.................................................... 51.8 44.4
------ ------
Total deferred income tax assets................. 365.8 391.3
------ ------
Deferred income tax liabilities:
Tax over book depreciation............................... (90.8) (72.3)
Tax over book intangible amortization.................... (40.3) (17.2)
Pensions................................................. (41.0) (47.7)
Other.................................................... (11.9) (35.7)
------ ------
Total deferred income tax liabilities............ (184.0) (172.9)
------ ------
Net deferred income taxes................................ $181.8 $218.4
====== ======
</TABLE>
Management has determined, based on the Company's history of prior earnings
and its expectations for the future, that taxable 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. The tax credit and net operating loss
carryovers, principally relating to Rohr, are primarily comprised of federal net
operating loss carryovers of $220.0 million which expire in the years 2005
through 2013, and investment tax credit and other credits of $15.1 million which
expire in the years 2003 through 2014. 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.
45
<PAGE> 48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The effective income tax rate from continuing operations varied from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
PERCENT OF PRETAX INCOME
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
Corporate-owned life insurance investments.................. (.2) -- (1.0)
Amortization of nondeductible goodwill...................... 1.3 .9 1.0
Difference in rates on consolidated foreign subsidiaries.... .7 (.1) (.4)
State and local taxes, net of federal benefit............... 3.0 1.3 2.5
Tax exempt income from foreign sales corporation............ (1.6) (3.3) (.1)
QUIPS distributions......................................... (.8) (1.7) (1.9)
Nondeductible merger-related costs.......................... -- 9.2 --
Other items................................................. .6 1.9 .1
---- ---- ----
Effective income tax rate................................... 38.0% 43.2% 35.2%
==== ==== ====
</TABLE>
The Company has not provided for U.S. federal and foreign withholding taxes
on $133.7 million of foreign subsidiaries' undistributed earnings as of December
31, 1998, 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 $6.4 million.
NOTE N BUSINESS SEGMENT INFORMATION
The Company's operations are classified into two reportable business
segments: BFGoodrich Aerospace ("Aerospace") and BFGoodrich Performance
Materials ("Performance Materials"). The Company's two reportable business
segments are managed separately based on fundamental differences in their
operations.
Aerospace consists of four business groups: Aerostructures; 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 engine nacelle and pylon
systems; 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.
Performance Materials consists of three business groups: Textile and
Industrial Coatings, Polymer Additives and Specialty Plastics, and Consumer
Specialties. They serve various markets such as personal-care, pharmaceuticals,
printing, textiles, industrial, construction and automotive. Performance
Materials' 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.
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 Performance Materials' products are
principally sold to customers in North America and Europe.
Segment operating income is total segment revenue reduced by operating
expenses identifiable with that business segment. Corporate includes general
corporate administrative costs and Advanced Technology Group research expenses.
46
<PAGE> 49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The Company evaluates performance and allocates resources based on
operating income. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies. There
are no intersegment sales.
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
(IN MILLIONS)
<S> <C> <C> <C>
SALES
Aerospace.......................................... $2,755.2 $2,468.3 $2,021.4
Performance Materials.............................. 1,195.6 904.7 824.4
-------- -------- --------
Total Sales................................ $3,950.8 $3,373.0 $2,845.8
======== ======== ========
OPERATING INCOME
Aerospace.......................................... $ 386.4 $ 260.3 $ 253.6
Performance Materials.............................. 145.8 128.2 109.5
-------- -------- --------
532.2 388.5 363.1
Corporate General and Administrative Expenses(2)... (55.4) (138.4) (52.8)
-------- -------- --------
Total Operating Income..................... $ 476.8 $ 250.1 $ 310.3
======== ======== ========
ASSETS
Aerospace.......................................... $2,372.5 $2,347.0 $2,169.2
Performance Materials.............................. 1,369.5 877.3 784.6
Corporate.......................................... 450.6 269.6 626.0
-------- -------- --------
Total Assets............................... $4,192.6 $3,493.9 $3,579.8
======== ======== ========
CAPITAL EXPENDITURES
Aerospace.......................................... $ 134.1 $ 81.9 $ 64.6
Performance Materials.............................. 70.6 73.2 97.5
Corporate.......................................... 3.8 4.8 35.0
-------- -------- --------
Total Capital Expenditures................. $ 208.5 $ 159.9 $ 197.1
======== ======== ========
DEPRECIATION AND AMORTIZATION EXPENSE
Aerospace.......................................... $ 87.3 $ 82.6 $ 79.3
Performance Materials.............................. 75.3 48.2 39.0
Corporate.......................................... 2.8 8.0 21.5
-------- -------- --------
Total Depreciation and Amortization........ $ 165.4 $ 138.8 $ 139.8
======== ======== ========
GEOGRAPHIC AREAS
NET SALES
United States................................... $2,631.7 $2,307.8 $1,989.7
Europe(1)....................................... 843.8 723.7 525.2
Other Foreign................................... 475.3 341.5 330.9
-------- -------- --------
Total...................................... $3,950.8 $3,373.0 $2,845.8
======== ======== ========
PROPERTY
United States................................... $1,104.8 $ 947.3 $1,015.1
Europe.......................................... 148.3 116.5 108.3
Other Foreign................................... 2.8 1.3 18.6
-------- -------- --------
Total...................................... $1,255.9 $1,065.1 $1,142.0
======== ======== ========
</TABLE>
- ---------------
(1) European sales in 1998, 1997 and 1996 included $262.3 million, $418.9
million and $248.5 million, respectively, of sales to customers in France.
Sales were allocated to geographic areas based on where the product was
shipped to.
(2) Corporate general and administrative expenses in 1997 include merger costs
of $77.0 million.
47
<PAGE> 50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In 1998, 1997 and 1996, sales to Boeing, solely by the Aerospace Segment,
totaled 14 percent, 14 percent and 13 percent, respectively, of consolidated
sales. Sales to Boeing include sales to McDonnell Douglas which merged with
Boeing in 1997.
NOTE O 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.
In February 1999, the Company sold its remaining interest in DTM for
approximately $3.5 million. The Company's net investment in DTM approximated
$0.5 million at December 31, 1998. The gain will be recorded within Other Income
(Expense) during the first quarter of 1999.
NOTE P SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
BALANCE CHARGED BALANCE
BEGINNING TO COSTS AT END
OF YEAR AND EXPENSE OTHER DEDUCTIONS (1) OF YEAR
--------- ----------- ----- -------------- --------
ACCOUNTS RECEIVABLE ALLOWANCE (DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998............... $21.3 $ 5.8 $ .9(2) $ (5.4) $22.6
Year ended December 31, 1997............... 26.2 15.6 .7(2)
(2.1)(3) (19.1) 21.3
Year ended December 31, 1996............... 24.7 6.0 2.9(2) (7.4) 26.2
</TABLE>
- ---------------
(1) Write-off of doubtful accounts, net of recoveries
(2) Allowance related to acquisitions
(3) Allowance related to operations that were sold
<TABLE>
<CAPTION>
1998 1997
--------- ---------
(IN MILLIONS)
<S> <C> <C>
PROPERTY
Land........................................................ $ 50.2 $ 41.8
Buildings and improvements.................................. 666.0 632.9
Machinery and equipment..................................... 1,417.2 1,215.7
Construction in progress.................................... 164.7 125.0
--------- ---------
$ 2,298.1 $ 2,015.4
Less allowances for depreciation and amortization........... (1,042.2) (950.3)
--------- ---------
Total............................................. $ 1,255.9 $ 1,065.1
========= =========
</TABLE>
Property includes assets acquired under capital leases, principally
buildings and machinery and equipment, of $17.0 million and $33.4 million at
December 31, 1998 and 1997, respectively. Related allowances for depreciation
and amortization are $5.4 million and $15.5 million, respectively. Interest
costs capitalized from continuing operations were $3.5 million in 1998, $5.3
million in 1997 and $6.3 million in 1996. Amounts charged to expense for
depreciation and amortization from continuing operations during 1998, 1997 and
1996 were $128.0 million, $111.3 million and $101.2 million, respectively.
48
<PAGE> 51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
GOODWILL
Accumulated amortization.................................... $100.2 $ 71.4
====== ======
IDENTIFIABLE INTANGIBLE ASSETS
Accumulated amortization.................................... $ 29.3 $ 26.0
====== ======
</TABLE>
Amortization of goodwill and identifiable intangible assets from continuing
operations was $37.4 million, $22.2 million and $20.1 million in 1998, 1997 and
1996, respectively.
<TABLE>
<CAPTION>
1998 1997
------ ------
(IN MILLIONS)
<S> <C> <C>
ACCRUED EXPENSES
Wages, vacations, pensions and other employment costs....... $149.4 $164.9
Postretirement benefits other than pensions................. 30.0 26.1
Taxes, other than federal and foreign taxes on income....... 53.7 42.3
Accrued environmental liabilities........................... 18.8 18.0
Accrued interest............................................ 34.9 27.0
Other....................................................... 133.3 133.0
------ ------
Total............................................. $420.1 $411.3
====== ======
</TABLE>
FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's accounting policies with
respect to financial instruments are described in Note A.
The carrying amounts of the Company's significant on balance sheet
financial instruments approximate their respective fair values at December 31,
1998 and 1997, except for the Company's long-term debt.
<TABLE>
<CAPTION>
1998 1997
-------- ------
(IN MILLIONS)
<S> <C> <C>
Long-term debt (including current portion)
Carrying Amount........................................... $ 998.0 $567.5
Fair Value................................................ $1,183.5 $605.6
</TABLE>
Off balance sheet derivative financial instruments at December 31, 1998 and
1997, held for purposes other than trading, were as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------ ------------------------
CONTRACT/ FAIR CONTRACT/ FAIR
NOTIONAL AMOUNT VALUE NOTIONAL AMOUNT VALUE
--------------- ----- --------------- -----
(IN MILLIONS)
<S> <C> <C> <C> <C>
Interest rate swaps.................. $26.8 $(2.1) $25.5 $(1.3)
Foreign currency forward contracts... 4.2 -- 12.2 (.1)
Foreign currency swap agreements..... -- -- .7 --
</TABLE>
At December 31, 1998, the Company had one interest rate swap agreement,
wherein the Company pays a fixed rate of interest and receives a LIBOR-based
floating rate.
Foreign currency forward contracts mature over the next two 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.
49
<PAGE> 52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
ACCUMULATED OTHER COMPREHENSIVE INCOME
Unrealized foreign currency translation................... $ 4.2 $ (1.7) $ 5.9
Minimum pension liability................................. (0.6) (1.8) (26.4)
------ ------ ------
Total........................................... $ 3.6 $ (3.5) $(20.5)
====== ====== ======
</TABLE>
NOTE Q 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>
1998 1997 1996
------- ------- -------
(IN MILLIONS)
<S> <C> <C> <C>
Estimated fair value of tangible assets acquired....... $ 232.0 $ 70.1 $ 46.4
Goodwill and identifiable intangible assets acquired... 315.4 75.8 81.7
Cash paid.............................................. (427.2) (133.4) (107.9)
------- ------- -------
Liabilities assumed or created......................... $ 120.2 $ 12.5 $ 20.2
======= ======= =======
Liabilities disposed of in connection with sales of
businesses........................................... $ -- $ 44.2 $ 1.5
Assets acquired in connection with sale of business.... -- -- 27.6
Interest paid (net of amount capitalized).............. 68.0 81.5 88.6
Income taxes paid...................................... 27.6 145.9 34.8
Contribution of common stock to pension trust.......... -- -- 30.0
Exchange of 7.75% Convertible Notes.................... -- (1.3) (37.8)
Change in equity due to exchange of 7.75% Convertible
Notes................................................ -- 1.5 43.1
</TABLE>
NOTE R 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, 1998,
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 F The Company has
200,000 shares of Junior Participating Preferred Stock-Series F -- $1 par value
authorized at December 31, 1998. Series F shares have preferential voting,
dividend and liquidation rights over the Company's common stock. At December 31,
1998, no Series F shares were issued or outstanding and 81,812 shares were
reserved for issuance.
On August 2, 1997, the Company made a dividend distribution of one
Preferred Share Purchase Right ("Right") on each share of the Company's common
stock. These Rights replace previous shareholder rights which expired on August
2, 1997. Each Right, when exercisable, entitles the registered holder thereof to
purchase from the Company one one-thousandth of a share of Series F Stock at a
price of $200 per one one-thousandth of a share (subject to adjustment). The one
one-thousandth of a share is intended to be the functional equivalent of one
share of the Company's common stock.
The Rights are not exercisable or transferable apart from the common stock
until an Acquiring Person, as defined in the Rights Agreement without the prior
consent of the Company's Board of Directors, acquires 20 percent or more of the
voting power of the Company's common stock or announces a tender offer that
would result in 20 percent ownership. The Company is entitled to redeem the
Rights at 1 cent per Right any time before
50
<PAGE> 53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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 common 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 F Stock having a market value of
twice the Right's exercise price.
Holders of the Right are 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, the Company is involved in a merger or other business
combination transaction with another person in which its common shares are
changed or converted, or the Company sells 50 percent or more of its assets or
earnings power to another person. The Rights expire on August 2, 2007.
NOTE S COMMON STOCK
During 1998, 1997 and 1996, 1,031,870; 826,388 and 600,057 shares,
respectively, of authorized but unissued shares of common stock were issued
under the Stock Option Plan and other employee stock ownership plans.
On December 22, 1997, 18,588,004 shares of common stock were issued in
connection with the merger with Rohr (see Note D). During 1998, 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.
During 1996, 754,717 shares ($30.0 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. In addition, 2,006,868 shares
($48.0 million) of common stock related to Rohr's pension plans were contributed
during the period between August 1 and December 31, 1996 and, as a result, are
included in equity as part of the adjustment to conform Rohr's fiscal year.
The Company acquired 627,539; 53,137 and 52,949 shares of treasury stock in
1998, 1997 and 1996, respectively, and reissued none in 1998; 5,000 in 1997 and
22,500 shares in 1996, in connection with the Stock Option Plan and other
employee stock ownership plans. In 1998, 1997 and 1996, 15,333; 19,900 and
60,400 shares, respectively, of common stock previously awarded to employees
were forfeited and restored to treasury stock.
As of December 31, 1998, there were 5,598,814 shares reserved for future
issuance under the Stock Option Plan.
NOTE T 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
51
<PAGE> 54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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.
NOTE U STOCK OPTION PLAN
At December 31, 1998, the Company had stock-based compensation plans
described below that include the pre-merger plans of Rohr. Effective with the
merger, outstanding Rohr options were assumed by the Company and converted to
fully-vested options to purchase BFGoodrich common stock at a ratio of .7 of one
share of BFGoodrich common stock for each Rohr option and at an appropriately
revised exercise price.
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.
Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation"
("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:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Risk-Free Interest Rate (%)...................... 4.68 5.75 5.39
Dividend Yield (%)............................... 2.8 2.7 2.5
Volatility Factor (%)............................ 31.0 16.2 19.0
Weighted Average Expected Life of the Options
(years)........................................ 4.7 5.2 5.0
</TABLE>
The assumptions used were comparable for BFGoodrich's and Rohr's stock
options, except that for the Rohr options, the dividend yield assumption was
zero and the volatility factor was 43.8 percent in 1997 and 43.1 percent in
1996. The option valuation model requires the input of highly subjective
assumptions, primarily stock price volatility, changes in which can materially
affect the fair value estimate. The weighted-average fair values of stock
options granted during 1998, 1997 and 1996 were $10.62, $7.59 and $7.28,
respectively.
For purposes of the pro forma disclosures required by SFAS 123, 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
52
<PAGE> 55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
changes in the market price of the Company's common stock. The Company's pro
forma information is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income:
As reported................................... $226.5 $178.2 $173.9
Pro forma..................................... 221.3 170.6 172.8
Earnings per share:
Basic
As reported................................ $ 3.07 $ 2.51 $ 2.61
Pro forma.................................. 3.00 2.40 2.59
Diluted
As reported................................ $ 3.02 $ 2.41 $ 2.48
Pro forma.................................. 2.95 2.30 2.45
</TABLE>
The pro forma effect on net income for 1996 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. In addition, the pro forma effect on net income in 1997 is not
representative of the pro forma effect on net income in future years because
1997 includes $4.5 million of after-tax compensation expense related to the Rohr
options which became fully vested upon the consummation of the merger with Rohr.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998 WEIGHTED-AVERAGE
(OPTIONS IN THOUSANDS) OPTIONS EXERCISE PRICE
---------------------------- ------- ----------------
<S> <C> <C>
Outstanding at beginning of year..................... 4,018.0 $29.25
Granted.............................................. 990.7 41.92
Exercised............................................ (871.6) 28.56
Forfeited............................................ (80.2) 35.46
Expired.............................................. (2.1) 38.04
-------
Outstanding at end of year........................... 4,054.8 32.27
=======
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997 WEIGHTED-AVERAGE
(OPTIONS IN THOUSANDS) OPTIONS EXERCISE PRICE
---------------------------- -------- ----------------
<S> <C> <C>
Outstanding at beginning of year.................... 4,943.8 $25.16
Granted............................................. 846.7 40.51
Exercised........................................... (1,661.1) 22.44
Forfeited........................................... (97.1) 33.96
Expired............................................. (14.3) 43.64
--------
Outstanding at end of year.......................... 4,018.0 29.25
========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996 WEIGHTED-AVERAGE
(OPTIONS IN THOUSANDS) OPTIONS EXERCISE PRICE
---------------------------- ------- ----------------
<S> <C> <C>
Outstanding at beginning of year..................... 4,212.6 $22.96
Granted.............................................. 1,612.2 28.85
Exercised............................................ (842.4) 21.33
Forfeited............................................ (96.4) 26.64
Expired.............................................. (54.2) 39.24
-------
Outstanding at end of year........................... 4,831.8 24.96
=======
</TABLE>
53
<PAGE> 56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The number of options outstanding at the end of 1996 does not agree with
the beginning amount for 1997 due to option activity for Rohr during the
five-month period ended December 31, 1996, not reflected in the 1996 activity
above.
The following table summarizes information about the Company's stock
options outstanding at December 31, 1998:
<TABLE>
<CAPTION>
WEIGHTED-
OPTIONS OPTIONS WEIGHTED- AVERAGE
OUTSTANDING EXERCISEABLE AVERAGE REMAINING
GRANT (IN (IN EXERCISE CONTRACTUAL
DATE THOUSANDS) THOUSANDS) PRICE LIFE (YEARS)
----- ----------- ------------ --------- ------------
<S> <C> <C> <C> <C>
1998............................... 943.3 217.6 $41.94 9.0
1997............................... 741.2 490.5 40.58 8.2
1996............................... 735.3 611.6 33.66 7.1
1995............................... 753.1 753.1 21.58 6.2
1994............................... 161.5 161.5 18.26 5.1
All other.......................... 720.4 720.5 23.95 2.5
------- -------
Total.................... 4,054.8 2,954.8
======= =======
</TABLE>
Stock options in the "All other" category were outstanding at prices ranging
from $15.00 to $45.18.
During 1998, 1997 and 1996, restricted stock awards for 500; 9,761 and
26,103 shares, respectively, were made under the Stock Option Plan. During 1998,
1997 and 1996, stock awards for 4,977; 5,500 and 25,400 restricted shares,
respectively, were forfeited. Restricted 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 1998, 1997
and 1996, $0.1 million, $1.8 million and $1.9 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. Since the company exceeded all of the
performance objectives established in 1995, an additional 159,445 shares were
awarded to those key executives in 1998. In 1997 and 1996, 5,000 and 14,560
performance shares, respectively were granted to certain key executives that
commenced employment during those years. During 1998, 1997 and 1996, 10,356;
14,400 and 35,000 performance shares, respectively, were forfeited.
Prior to 1998, the market value of performance shares awarded under the
plan was recorded as unearned restricted stock. In 1998, the Company changed the
plan to a phantom performance share plan and issued 207,800 phantom performance
shares. Under this plan, compensation expense is recorded based on the extent
performance objectives are expected to be met. In 1998, 1997 and 1996, $1.7
million, $14.3 million and $8.3 million, respectively, were charged 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 1998, 1997 and 1996 would have been $45.47, $41.44
and $38.54 per share, respectively.
NOTE V COMMITMENTS AND CONTINGENCIES
The Company 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. The Company believes that
any liability
54
<PAGE> 57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
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, 1998, 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
$35.1 million. The Company has not previously been required to assume any
responsibility for these financial obligations as a result of defaults and is
not currently aware of any existing conditions which would cause a financial
loss. As a result, the Company believes that risk of loss relative to these
contingent obligations is remote.
The Company and its subsidiaries are generators of both hazardous 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 ("EPA") in connection with
approximately 43 sites, most of which related to businesses previously
discontinued. The Company believes it may have continuing liability with respect
to not more than 19 sites.
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
PRP, review of remediation methods and negotiation with other PRPs and
governmental agencies.
At December 31, 1998, the Company has recorded in Accrued Expenses and in
Other Non-current Liabilities a total of $57.4 million to cover future
environmental expenditures, principally for remediation of the aforementioned
sites and other environmental matters.
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.
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.
At December 31, 1998, approximately 19 percent of the Company's labor force
was covered by collective bargaining agreements. Approximately 4 percent of the
labor force is covered by collective bargaining agreements that will expire
during 1999.
55
<PAGE> 58
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1998 QUARTERS 1997 QUARTERS
------------------------------------- ---------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ -------- ------ -------- ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENT SALES:
Aerospace.......................... $685.3 $ 670.1 $681.4 $ 718.4 $541.5 $618.1 $646.5 $662.2
Performance Materials.............. 252.4 340.9 304.8 297.5 222.7 228.4 223.7 229.9
------ -------- ------ -------- ------ ------ ------ ------
Total Sales...................... $937.7 $1,011.0 $986.2 $1,015.9 $764.2 $846.5 $870.2 $892.1
====== ======== ====== ======== ====== ====== ====== ======
Gross Profit..................... $254.2 $ 278.0 $276.2 $ 289.3 $203.0 $228.5 $218.5 $233.1
====== ======== ====== ======== ====== ====== ====== ======
BUSINESS SEGMENT OPERATING INCOME:
Aerospace.......................... $ 87.9 $ 90.9 $101.1 $ 106.5 $ 55.0 $ 73.3 $ 63.5 $ 68.5
Performance Materials.............. 36.6 40.2 37.4 31.6 31.1 31.1 31.8 34.2
Corporate.......................... (13.8) (13.7) (12.9) (15.0) (14.8) (15.2) (16.3) (92.1)
------ -------- ------ -------- ------ ------ ------ ------
Total Operating Income........... $110.7 $ 117.4 $125.6 $ 123.1 $ 71.3 $ 89.2 $ 79.0 $ 10.6
====== ======== ====== ======== ====== ====== ====== ======
INCOME (LOSS) FROM:
Continuing Operations.............. $ 54.2 $ 55.9 $ 59.7 $ 58.3 $ 29.8 $ 64.5 $ 37.4 $(18.5)
Discontinued Operations............ (1.6) -- -- -- 64.1 3.4 16.8 --
Extraordinary Items................ -- -- -- -- -- -- (2.6) (16.7)
------ -------- ------ -------- ------ ------ ------ ------
Net Income (Loss)................ $ 52.6 $ 55.9 $ 59.7 $ 58.3 $ 93.9 $ 67.9 $ 51.6 $(35.2)
====== ======== ====== ======== ====== ====== ====== ======
Basic Earnings (Loss) Per Share:
Continuing operations.............. $ .74 $ .76 $ .80 $ .78 $ .42 $ .91 $ .53 $ (.26)
Net income (loss).................. $ .72 $ .76 $ .80 $ .78 $ 1.33 $ .96 $ .73 $ (.49)
Diluted Earnings (Loss) Per Share:
Continuing operations.............. $ .72 $ .74 $ .80 $ .78 $ .40 $ .87 $ .50 $ (.26)
Net income (loss).................. $ .70 $ .74 $ .80 $ .78 $ 1.27 $ .91 $ .69 $ (.49)
</TABLE>
The fourth quarter of 1998 includes a $6.5 million after-tax loss from a
restructuring charge and a write-down of an impaired asset in the Aerospace
Segment.
The first quarter of 1997 includes a $59.5 million after-tax gain in
discontinued operations from the sale of the SC&A Group. The second quarter
includes a pretax gain of $26.4 million from the sale of the Company's engine
electrical business and a $13.7 million pretax gain on the issuance of a
subsidiary's stock. In the third quarter of 1997, the Company recognized a $35.2
million pretax loss to write off a portion of the MD-90 contract and recognized
a $2.6 million after-tax charge from the early extinguishment of certain Rohr
debt (reported as an extraordinary item). In the fourth quarter of 1997, the
Company recognized pretax charges of $77.0 million for merger costs and $10.9
million from the write-off of accounts receivable from a bankrupt customer. The
fourth quarter of 1997 also includes a $16.7 million after-tax charge for the
early extinguishment of certain Rohr debt refinanced in connection with the
merger, also reported as an extraordinary item.
56
<PAGE> 59
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Biographical information concerning the Company's Directors appearing under
the caption "Election of Directors" in the Company's proxy statement dated March
4, 1999 is incorporated herein by reference. Biographical information concerning
the Company's Executive Officers is as follows:
David L. Burner, Age 59, Chairman, President and Chief Executive Officer
Mr. Burner joined the Company in 1983 as Vice President, Finance, for the
Company's Engineered Products Group. He served in several other management
positions before being named Executive Vice President of BFGoodrich Aerospace in
1985. He was appointed President of BFGoodrich Aerospace in 1987. Mr. Burner was
elected a Senior Vice President in 1990, an Executive Vice President in 1993,
President in December 1995, assumed the additional title of Chief Executive
Officer in December 1996 and became Chairman in July 1997. Before joining
BFGoodrich he was Executive Vice President and Chief Financial Officer of ABS
Industries in Willoughby, Ohio. Mr. Burner received a B.S.C. degree in
accounting from Ohio University.
Marshall O. Larsen, Age 50, Executive Vice President and President and Chief
Operating Officer, BFGoodrich Aerospace
Mr. Larsen joined the Company in 1977 as an Operations Analyst. He served in
various management positions until 1986 when he became Assistant to the
President of the Company. He later served as General Manager of several
divisions of BFGoodrich Aerospace. In 1994, Mr. Larsen was elected a Vice
President of the Company and named Group Vice President, Safety Systems,
BFGoodrich Aerospace. In December 1995 he was elected Executive Vice President
of the Company and named President and Chief Operating Officer of BFGoodrich
Aerospace. Mr. Larsen has a B.S. in engineering from the U.S. Military Academy
and an M.S. in industrial administration from the Krannert Graduate School of
Management at Purdue University.
David B. Price, Jr., Age 53, Executive Vice President and President and Chief
Operating Officer, BFGoodrich Performance Materials
Mr. Price joined BFGoodrich in July 1997 in his present capacity. Prior to
joining BFGoodrich, he was President of Performance Materials of Monsanto
Company since 1995. Prior positions held by Mr. Price at Monsanto include Vice
President and General Manager of commercial operations for the Industrial
Products Group from 1993 to 1995, Vice President and General Manager of the
Performance Products Group from 1991 to 1993, and Vice President and General
Manager of Specialty Chemicals Division from 1987 to 1991. Mr. Price has a B.S.
in civil engineering from the University of Missouri and an M.B.A. from Harvard
University.
Laurence A. Chapman, Age 49, Senior Vice President -- Finance
Mr. Chapman was elected to his current position in February 1999. He had been
Senior Vice President and Chief Financial Officer of BFGoodrich
Aerospace -- Aerostructures Group, formerly Rohr, Inc. from December 1997 until
February 1999. Previously, Mr. Chapman was Senior Vice President and Chief
Financial Officer of Rohr, Inc. since 1994. From 1987 to 1994, Mr. Chapman held
various executive positions at Westinghouse Electric Company, most recently Vice
President and Treasurer and Chief Financial Officer of Westinghouse Financial
Services. Mr. Chapman received a BA in accounting from McGill University and an
MBA from Harvard Graduate School of Business.
Terrence G. Linnert, Age 52, Senior Vice President and General Counsel
Mr. Linnert joined BFGoodrich in November 1997. Prior to joining BFGoodrich, Mr.
Linnert was senior vice president of corporate administration, chief financial
officer and general counsel at Centerior Energy Corporation.
57
<PAGE> 60
At BFGoodrich, Mr. Linnert has responsibilities for the Company's legal,
internal auditing, environmental and federal government relations organizations.
Mr. Linnert joined The Cleveland Electric Illuminating Company in 1968, holding
various engineering, procurement and legal positions until 1986, when CEI and
The Toledo Edison Company became affiliated as wholly owned subsidiaries of
Centerior Energy Corporation. Subsequently, Mr. Linnert had a variety of legal
responsibilities until he was named director of legal services in 1990. In 1992,
he was appointed a vice president, with responsibilities for legal, governmental
and regulatory affairs. Prior to joining the Company, his responsibilities at
Centerior included managing the legal, finance, human resources, regulatory and
governmental affairs, internal auditing and corporate secretary functions. Mr.
Linnert received a bachelor of science degree in electrical engineering from the
University of Notre Dame in 1968 and a juris doctor degree from the
Cleveland-Marshall School of Law at Cleveland State University in 1975.
Les C. Vinney, Age 50, Senior Vice President and Chief Financial Officer
Mr. Vinney joined the Company in 1991 as Vice President of Finance and Chief
Financial Officer, Specialty Polymers and Chemicals Division. In 1993, he was
named Senior Vice President, Finance and Administration, BFGoodrich Specialty
Chemicals. In 1994, he was named Group Vice President, Sealants, Coatings and
Adhesives Group, and President, Tremco Incorporated, and elected a Vice
President of the Company. In January 1997, Mr. Vinney was elected Vice President
and Treasurer of the Company. In April 1998, Mr. Vinney was elected Senior Vice
President and was named Chief Financial Officer in July 1998. Prior to joining
the Company, he was with Engelhard Corporation in a number of senior operating
and financial management positions, including Group Vice President of the
Engineered Materials Division. He also held various management positions with
Exxon Corporation. Mr. Vinney has a B.A. in economics and political science and
an M.B.A. from Cornell University.
Robert D. Koney, Jr., Age 42, Vice President and Controller
Mr. Koney joined the Company in 1986 as a financial accounting manager. He
became Assistant Controller for BFGoodrich Aerospace in 1992 before being
appointed Vice President and Controller for the Commercial Wheels and Brakes
business in 1994. He was elected Vice President and Controller in April 1998.
Prior to joining BFGoodrich, he held management positions with Picker
International and Arthur Andersen & Company. Mr. Koney received a B.A. in
accounting from the University of Notre Dame and an M.B.A. in business
administration from Case Western Reserve University.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation appearing under the captions
"Compensation Committee Report" and "Compensation of Directors" in the Company's
proxy statement dated March 4, 1999 is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership data appearing under the captions "Holdings of Company
Equity Securities by Directors and Executive Officers" and "Beneficial Ownership
of Securities" in the Company's proxy statement dated March 4, 1999 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
58
<PAGE> 61
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) Consolidated Financial Statements of The BFGoodrich Company and its
subsidiaries
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Management's Responsibility for Financial Statements........ 25
Report of Independent Auditors.............................. 26
Consolidated Statement of Income for the years ended
December 31, 1998, 1997, and 1996......................... 27
Consolidated Balance Sheet at December 31, 1998 and 1997.... 28
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997, and 1996......................... 29
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1998, 1997, and 1996................... 30
Notes to Consolidated Financial Statements.................. 31-55
Quarterly Financial Data (Unaudited)........................ 56
</TABLE>
(2) Consolidated Financial Statement Schedules:
Schedules have been omitted because they are not applicable or the
required information is shown in the Consolidated Financial
Statements or the Notes to the Consolidated Financial Statements.
(3) Listing of Exhibits: A listing of exhibits is on pages II-1 to II-3
of this Form 10-K.
(b) Reports on Form 8-K filed in the fourth quarter of 1998:
Filed November 24, 1998, relating to the merger with Coltec Industries,
Inc.
59
<PAGE> 62
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON FEBRUARY 15, 1999.
THE BFGOODRICH COMPANY
(Registrant)
By /s/ DAVID L. BURNER
------------------------------------
(David L. Burner, Chairman and
Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON FEBRUARY 15, 1999 BY THE FOLLOWING PERSONS
(INCLUDING A MAJORITY OF THE BOARD OF DIRECTORS) ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED.
<TABLE>
<S> <C>
/s/ DAVID L. BURNER /s/ JODIE K. GLORE
- -------------------------------------------- --------------------------------------------
(David L. Burner) (Jodie K. Glore)
Chairman and Chief Executive Officer Director
and Director (Principal Executive Officer)
/s/ LES C. VINNEY /s/ DOUGLAS E. OLESEN
- -------------------------------------------- --------------------------------------------
(Les C. Vinney) (Douglas E. Olesen)
Senior Vice President and Chief Financial Director
Officer
(Principal Financial Officer)
/s/ ROBERT D. KONEY, JR. /s/ RICHARD DE J. OSBORNE
- -------------------------------------------- --------------------------------------------
(Robert D. Koney, Jr.) (Richard de J. Osborne)
Vice President and Controller Director
(Principal Accounting Officer)
/s/ JEANETTE GRASSELLI BROWN /s/ ALFRED M. RANKIN, JR.
- -------------------------------------------- --------------------------------------------
(Jeanette Grasselli Brown) (Alfred M. Rankin, Jr.)
Director Director
/s/ DIANE C. CREEL /s/ ROBERT H. RAU
- -------------------------------------------- --------------------------------------------
(Diane C. Creel) (Robert H. Rau)
Director Director
/s/ GEORGE A. DAVIDSON, JR. /s/ JAMES R. WILSON
- -------------------------------------------- --------------------------------------------
(George A. Davidson, Jr.) (James R. Wilson)
Director Director
/s/ JAMES J. GLASSER /s/ A. THOMAS YOUNG
- -------------------------------------------- --------------------------------------------
(James J. Glasser) (A. Thomas Young)
Director Director
</TABLE>
60
<PAGE> 63
ITEM 14(a)(3) INDEX TO EXHIBITS
<TABLE>
<CAPTION>
TABLE II
EXHIBIT NO.
- -----------
<C> <S>
3(A) The Company's Restated Certificate of Incorporation, with
amendments filed August 4, 1997 and May 6, 1998.
3(B) The Company's By-Laws, as amended, through April 20, 1998, which
was filed with the same designation as an exhibit to the
Company's 10-Q Report for the Quarter ended March 31, 1998, and
is incorporated herein by reference.
4 Information relating to the Company's long-term debt is set
forth in Note J -- "Financing Arrangements" on pages 40
and 41 of this Form 10-K. Instruments defining the rights of
holders of such long-term debt are not filed herewith since
no single debt item exceeds 10% of consolidated assets.
Copies of such instruments will be furnished to the
Commission upon request.
10(A) Stock Option Plan.
10(B) Form of Disability Income Agreement. This exhibit was filed
as Exhibit 10(B)(4) to the Company's Form 10-K Annual Report
for the year ended December 31, 1998, and is incorporated
herein by reference.
10(C) Form of Supplemental Executive Retirement Plan Agreement.
10(D) Management Incentive Program.
10(E) Form of Management Continuity Agreement entered into by The
B.F.Goodrich Company and certain of its employees.
10(F) Senior Executive Management Incentive Plan. This exhibit was
filed as Appendix B to the Company's 1995 Proxy Statement
dated March 2, 1995 and is incorporated herein by reference.
10(G) Rights Agreement, dated as of June 2, 1997, between The
B.F.Goodrich Company and The Bank of New York which includes
the form of Certificate of Amendment setting forth the terms
of the Junior Participating Preferred Stock, Series F, par
value $1 per share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C which was filed as
Exhibit 1 to Form 8-A filed June 19, 1997 is incorporated
herein by reference.
10(H) Employee Protection Plan. This exhibit was filed as Exhibit
10(I) to the Company's Form 10-Q for the quarter ended June
30, 1997, and is incorporated herein by reference.
10(I) Benefit Restoration Plan. This exhibit was filed as Exhibit
10(J) to the Company's Form 10-K Annual Report for the year
ended December 31, 1992, and is incorporated herein by
reference.
10(J) The B.F.Goodrich Company Savings Benefit Restoration Plan
was filed as Exhibit 4(b) to the Company's Registration
Statement No. 333-19697 on Form S-8 and is incorporated
herein by reference.
10(K) Long-Term Incentive Plan Summary Plan Description and form
of award.
10(L) Amended and Restated Assumption of Liabilities and
Indemnification Agreement between the Company and The Geon
Company, which was filed as exhibit 10.3 to Registration
Statement No. 33-70998 on Form S-1 of The Geon Company, is
incorporated herein by reference.
10(M) Outside Directors' Phantom Share Plan. This exhibit was
filed with the same designation as an exhibit to the
Company's Form 10-K Annual Report for the year ended
December 31, 1997, and is incorporated herein by reference.
10(N) Directors Deferred Compensation Plan. This exhibit was filed
with the same designation as an exhibit to the Company's
Form 10-K Annual Report for the year ended December 31,
1997, and is incorporated herein by reference.
10(O) Rohr, Inc. Supplemental Retirement Plan (Restated 1997)
which was filed as an exhibit to Rohr, Inc.'s Form 10-Q for
the quarterly period ended May 4, 1997, is incorporated
herein by reference.
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
TABLE II
EXHIBIT NO.
- -----------
<C> <S>
10(P) Rohr, Inc. 1991 Stock Compensation for Non-Employee
Directors which was filed as an exhibit to Rohr, Inc.'s Form
10-K for fiscal year ended July 31, 1992, is incorporated
herein by reference.
10(Q) Rohr Industries, Inc., Management Incentive Plan (Restated
1982), as amended through the Fifteenth Amendment, as set
forth in Rohr, Inc.'s Form 10-K for fiscal year ended July
31, 1994, is incorporated herein by reference.
10(R) Sixteenth Amendment to Rohr, Inc. Management Incentive Plan
(Restated 1982), dated June 7, 1996, which was filed as an
exhibit to Rohr, Inc.'s Form 10-K for the fiscal year ended
July 31, 1996, is incorporated herein by reference.
10(S) Seventeenth Amendment to Rohr Industries, Inc. Management
Incentive Plan (Restated 1982), dated September 13, 1996,
which was filed as an exhibit to Rohr, Inc.'s Form 10-K for
the fiscal year ended July 31, 1996, is incorporated herein
by reference.
10(T) Employment Agreement with Robert H. Rau, which was filed as
an exhibit to Rohr, Inc.'s Form 10-Q for the period ended
May 2, 1993, is incorporated herein by reference.
10(U) First Amendment to Employment Agreement with Robert H. Rau,
which was filed as an exhibit to Rohr, Inc.'s Form 10-K for
fiscal year ended July 31, 1996, is incorporated herein by
reference.
10(V) Rohr, Inc. 1989 Stock Option Plan filed as exhibit 10.18 to
the Rohr Industries, Inc. Form 10-K for the fiscal year
ended July 31, 1990, is incorporated herein by reference.
10(W) Rohr, Inc. 1995 Stock Incentive Plan filed as exhibit 4.1 to
Rohr, Inc. Registration Statement No. 33-65447 filed on
December 28, 1995, is incorporated herein by reference.
10(X) Employment Agreement with Robert H. Rau. This exhibit was
filed with the same designation as an exhibit to the
Company's Form 10-K Annual Report for the year ended
December 31, 1997, and is incorporated herein by reference.
10(Y) Consulting Agreement with Robert H. Rau.
21 Subsidiaries
23(a) Consent of Independent Auditors -- Ernst & Young LLP
23(b) Consent of Independent Auditors -- Deloitte & Touche LLP
27 Financial Data Schedule
99 Independent Auditors Report -- Deloitte & Touche LLP
</TABLE>
The Company will supply copies of the foregoing exhibits to any shareholder
upon receipt of a written request addressed to the Secretary of The B.F.Goodrich
Company, 4020 Kinross Lakes Parkway, Richfield, Ohio 44286-9368, and the payment
of $.50 per page to help defray the costs of handling, copying and postage.
<PAGE> 1
EXHIBIT 3(A)
RESTATED CERTIFICATE OF INCORPORATION
OF
THE B.F.GOODRICH COMPANY
UNDER SECTION 807 OF THE
BUSINESS CORPORATION LAW
We, the undersigned, Jon V. Heider and Nicholas J. Calise, being
respectively Senior Vice President and Secretary of THE B.F.GOODRICH COMPANY, do
hereby certify as follows:
1. The name of the corporation is THE B.F.GOODRICH COMPANY, hereinafter
referred to as the "Company".
2. The Certificate of Incorporation was filed by the Department of
State on the 2nd day of May, 1912.
3. The Certificate of Incorporation is hereby amended to modify
paragraph A of Article ELEVENTH relating to repurchases from an Interested
Shareholder (as defined) in three respects. First, it requires that any proposed
repurchase of shares from an Interested Shareholder requiring the approval of
shareholders also requires the approval of a majority of the non-officer
directors. Second, it requires the cost of any such shareholder solicitation to
be at the expense of the Interested Shareholder. Finally, the amendment further
limits the price at which a purchase of shares could be made from an Interested
Shareholder without shareholder approval to the higher of (i) the closing price
on the last trading day immediately preceding the earlier of public disclosure
of the repurchase or the signing of a definitive repurchase agreement and (ii)
the average closing price during the 20 trading days immediately preceding the
date of such disclosure or agreement.
4. The text of the Certificate of Incorporation, as amended heretofore,
and as further amended, hereby is restated to read as herein set forth in full:
CERTIFICATE OF INCORPORATION OF
THE B.F.GOODRICH COMPANY
We, the undersigned, all being persons of full age and at least
two-thirds being citizens of the United States and at least one of us a resident
of the State of New York, desiring to form a stock corporation (other than a
moneyed corporation, or a corporation provided for by the banking, the
insurance, the
<PAGE> 2
railroad and the transportation corporation laws, or an educational institution
or corporation which may be incorporated as provided in the education law)
pursuant to the provisions of the Business Corporation Law of the State of New
York, do hereby make, sign, acknowledge and file this certificate for that
purpose as follows:
FIRST - The name of the corporation shall be THE B.F.GOODRICH COMPANY,
hereinafter referred to as the "Company."
SECOND - The location of its principal office in the State of New York
shall be at the City of New York, in the Borough of Manhattan, in the County of
New York, and State of New York.
THIRD - The purpose for which the Company is formed is to engage in any
lawful act or activity for which corporations may be organized under the
Business Corporation Law of the State of New York, provided that the Company is
not formed to engage in any act or activity requiring the consent or approval of
any state official, department, board, agency or other body without such consent
or approval first being obtained.
FOURTH - The aggregate number of shares which the Company shall have
authority to issue is 110,000,000, divided into 10,000,000 shares of Series
Preferred Stock of the par value of $1 per share (hereafter called "Series
Preferred Stock"), and 100,000,000 shares of Common Stock of the par value of $5
per share (hereafter called "Common Stock").
A statement of the designations, preferences, privileges and voting
powers of the shares of each class and the restrictions and qualifications
thereof shall be as follows:
(a) Series Preferred Stock
(1) Board Authority: The Series Preferred Stock may be issued
from time to time by the Board of Directors as herein provided in one
or more series. The designations, relative rights, preferences and
limitations of the Series Preferred Stock, and particularly of the
shares of each series thereof, may be similar to or may differ from
those of any other series. The Board of Directors of the Company is
hereby expressly granted authority, subject to the provisions of this
Article FOURTH, to issue from time to time Series Preferred stock in
one or more series and to fix from time to time before issuance
thereof, by filing a certificate pursuant to the Business Corporation
Law, the number of shares in each such series of such class and all
designations, relative rights, (including the right to convert into
shares of any class or into shares of any series of any class),
preferences and limitations of the shares in each such series,
including, but without limiting the generality of the foregoing, the
following:
2
<PAGE> 3
(i) The number of shares to constitute such series (which
number may at any time, or from time to time, be increased or
decreased by the Board of Directors, notwithstanding that
shares of the series may be outstanding at the time of such
increase or decrease, unless the Board of Directors shall have
otherwise provided in creating such series) and the
distinctive designation thereof;
(ii) The dividend rate on the shares of such series, whether
or not dividends on the shares of such series shall be
cumulative, and the date or dates, if any, from which
dividends thereon shall be cumulative;
(iii) Whether or not the shares of such series shall be
redeemable, and, if redeemable, the date or dates upon or
after which they shall be redeemable, the amount per share
(which shall be, in the case of each share, not less than its
preference upon involuntary liquidation, plus an amount equal
to all dividends thereon accrued and unpaid, whether or not
earned or declared) payable thereon in the case of the
redemption thereof, which amount may vary at different
redemption dates or otherwise as permitted by law;
(iv) The right, if any, of holders of such series to convert
the same into, or exchange the same for Common Stock or other
stock as permitted by law, and the terms and conditions of
such conversion or exchange, as well as provisions for
adjustment of the conversion rate in such events as the Board
of Directors shall determine;
(v) The amount per share payable on the shares of such series
upon the voluntary and involuntary liquidation, dissolution or
winding up of the Company.
(vi) Whether the holders of shares of such series shall have
voting power, full or limited, in addition to the voting
powers provided by law, and in case additional voting powers
are accorded to fix the extent thereof; and
(vii) Generally to fix the other rights and privileges and any
qualifications, limitations or restrictions of such rights and
privileges of such series, provided, however, that no such
rights, privileges, qualifications, limitations or
restrictions shall be in conflict with the Restated
Certificate of Incorporation of the Company or with the
resolution or resolutions adopted by the Board of Directors,
as
3
<PAGE> 4
hereinabove provided, providing for the issue of any series
for which there are shares then outstanding.
All shares of Series Preferred Stock of the same series shall be
identical in all respects, except that shares of any one series issued
at different times may differ as to dates, if any, from which
dividends thereon may accumulate. All shares of Series Preferred Stock
of all series shall be of equal rank and shall be identical in all
respects except that to the extent not otherwise limited in this
Article FOURTH any series may differ from any other series with
respect to any one or more of the designations, relative rights,
preferences and limitations (including, without limitations, the
designations, relative rights, preferences and limitations described
or referred to in subparagraphs (i) to (vii) inclusive above) which
may be fixed by the Board of Directors pursuant to this paragraph 1.
2. Dividends: Dividends on the outstanding Series Preferred
Stock of each series shall be declared and paid or set apart for
payment before any dividends shall be declared and paid or set apart
for payment on the Common Stock with respect to the same quarterly
dividend period. Dividends on any shares of Series Preferred Stock
shall be cumulative only if and to the extent set forth in a
certificate filed pursuant to law. After dividends on all shares of
Series Preferred Stock (including cumulative dividends if and to the
extent any such shares shall be entitled thereto) shall have been
declared and paid or set apart for payment with respect to any
quarterly dividend period, then and not otherwise so long as any shares
of the Series Preferred Stock shall remain outstanding, dividends may
be declared and paid or set apart for payment with respect to the same
quarterly dividend period on the Common Stock out of the assets or
funds of the Company legally available therefor.
All shares of Series Preferred Stock of all series shall be of equal
rank, preference and priority as to dividends irrespective of whether
or not the rates of dividends to which the same shall be entitled shall
be the same and when the stated dividends are not paid in full, the
shares of all series of the Series Preferred Stock shall share ratable
in the payment thereof in accordance with the sums which would be
payable on such shares if all dividends were paid in full provided,
however, that any two or more series of the Series Preferred Stock may
differ from each other as to the existence and extent of the right to
cumulative dividends, as aforesaid.
3. Voting Rights: Except as otherwise specifically provided
herein or in the certificate filed pursuant to law with respect to any
series of the Series Preferred Stock, or as otherwise provided by law,
the Series Preferred Stock shall not have any right to vote for the
election of directors or for any other purpose and the Common Stock
shall have the exclusive right to vote for the election of directors
and for all other purposes;
4
<PAGE> 5
provided, however, that at any time when six (6) quarterly dividends
on any one or more series of Series Preferred Stock entitled to
receive cumulative dividends shall be in default, the holders of all
such cumulative series at the time or times outstanding as to which
such default shall exist shall be entitled, at the next annual meeting
of stockholders for the election of directors, voting as a class,
whether or not the holders thereof shall be entitled otherwise to vote
by certificate filed pursuant to law, to the exclusion of the holders
of Common Stock and the holders of any series of non-cumulative Series
Preferred Stock, to vote for and elect two members of the Board of
Directors of the Company, and provided, further that at any time when
six (6) quarterly dividends on any one or more series of
non-cumulative Series Preferred Stock shall be in default, the holders
of all such non-cumulative series at the time or times outstanding as
to which such default shall exist shall be entitled, at the next
annual meeting of stockholders for the election of directors, voting
as a class, whether or not the holders thereof shall be entitled
otherwise to vote by certificate filed pursuant to law, to the
exclusion of the holders of Common Stock and the holders of any series
of cumulative Series Preferred Stock, to vote for and elect two
members of the Board of Directors of the Company. All rights of all
series of Series Preferred Stock to participate in the election of
directors pursuant to this paragraph 3 shall continue in effect, in
the case of all series of Series Preferred Stock entitled to receive
cumulative dividends, until cumulative dividends have been paid in
full or set apart for payment on each cumulative series which shall
have been entitled to vote at the previous annual meeting of
stockholders, or in the case of all series of non-cumulative Series
Preferred Stock, until non-cumulative dividends have been paid in full
or set apart for payment for four consecutive quarterly dividend
periods on each non-cumulative series which shall have been entitled
to vote at the previous annual meeting of stockholders. Directors
elected by the holders of any one or more series of stock voting
separately as a class, may be removed only by a majority vote of such
series, voting separately as a class, so long as the voting power of
such series shall continue. Subject to the voting rights, if any, of
any other series of Series Preferred Stock, the holders of the Common
Stock, voting as a class, to the exclusion of the holders of such
series so entitled to vote for and elect members of the Board pursuant
to this paragraph 3, shall be entitled to vote for and elect the
balance of the Board of Directors.
Each stockholder entitled to vote at any particular time in accordance
with the foregoing provisions shall not have more than one vote for
each share of stock held of record by him at the time entitled to
voting rights.
4. Liquidation: In the event of any liquidation, dissolution or
winding up of the Company, whether voluntary or involuntary, each
series of Series Preferred Stock shall have preference and priority
over the Common Stock for payment of the amount to which such series
of Series
5
<PAGE> 6
Preferred Stock shall be entitled in accordance with the provisions
thereof and each holder of Series Preferred Stock shall be entitled to
be paid in full his share of such amount, or have a sum sufficient for
the payment in full set aside, before any payments shall be made to
the holders of the Common Stock. If, upon liquidation, dissolution or
winding up of the Company, the assets of the Company or proceeds
thereof, distributable among the holders of the shares of all series
of the Series Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid, then such assets, or the proceeds
thereof, shall be distributed among such holders ratably in accordance
with the respective amounts which would be payable if all amounts
payable thereon were paid in full. After the payment to the holders of
Series Preferred Stock of all such amounts to which they are entitled,
as above provided, the remaining assets and funds of the Company shall
be divided and paid to the holders of the Common Stock.
5. Redemption: In the event that the Series Preferred Stock of
any one or more series shall be made redeemable as provided in clause
(iii) of paragraph 1 of section (a) of Article FOURTH herein, the
Company, at the option of the Board of Directors, may redeem, at the
time or times specified in the certificate filed pursuant to law with
respect to any such series, all or any part of any such series of
Series Preferred Stock outstanding upon notice duly given as
hereinafter specified, by paying for each share the then applicable
redemption price fixed by the Board of Directors as provided herein,
plus an amount equal to accrued and unpaid dividends to the date fixed
for redemption, provided, however, that a notice specifying the shares
to be redeemed, and the time and place of redemption (and, if less
than the total outstanding shares are to be redeemed, specifying the
certificate numbers and number of shares to be redeemed) shall be
published once in a daily newspaper printed in the English language
and published and of general circulation in the Borough of Manhattan,
the City of New York, and shall be mailed, addressed to the holders of
record of the Series Preferred Stock to be redeemed at their
respective addresses as the same shall appear upon the books of the
Company, not less than thirty (30) days nor more than ninety (90) days
previous to the date fixed for redemption. If less than the whole
amount of any outstanding series of Series Preferred Stock is to be
redeemed, the shares of such series to be redeemed shall be selected
by lot or pro rata in any manner determined by resolution of the Board
of Directors to be fair and proper. From and after the date fixed in
any such notice as the date of redemption (unless default shall be
made by the Company in providing moneys at the time and place of
redemption for the payment of the redemption price) all dividends upon
the Series Preferred Stock so called for redemption shall cease to
accrue, and all rights of the holders of said Series Preferred Stock
as stockholders in the Company, except the right to receive the
redemption price upon surrender of the certificate
6
<PAGE> 7
representing the Series Preferred Stock so called for redemption, duly
endorsed for transfer, if required, shall cease and determine. With
respect to any shares of Series Preferred Stock so called for
redemption, if, before the redemption date, the Company shall deposit
with a bank or trust company in the Borough of Manhattan, City of New
York, having a capital and surplus of at least $25,000,000, funds
necessary for such redemption, in trust, to be applied to the
redemption of the shares of Series Preferred Stock so called for
redemption, then from and after the date of such deposit, all rights
of the holders of such shares of Series Preferred Stock, so called for
redemption, shall cease and determine, except the right to receive, on
and after the date of such deposit, the redemption price upon
surrender of the certificates representing such shares of Series
Preferred Stock, so called for redemption, duly endorsed for transfer,
if required, and except as might otherwise be provided in the
certificate filed pursuant to law with respect to any such shares of
Series Preferred Stock, so called for redemption. Any interest accrued
on such funds shall be paid to the Company from time to time. Any
funds so deposited and unclaimed at the end of six (6) years from such
redemption date shall be released or repaid to the Company, after
which the holders of such shares of Series Preferred Stock so called
for redemption shall look only to the Company for payment of the
redemption price. Notwithstanding the foregoing, no redemption of any
shares of any series of Series Preferred Stock shall be made by the
Company (1) which as of the date of mailing of the notice of such
redemption would, if such date were the date fixed for redemption,
reduce the net assets of the Company remaining after such redemption
below the aggregate amount payable upon voluntary or involuntary
liquidation, dissolution or winding up to the holders of shares having
rights senior or equal to the Series Preferred Stock in the assets of
the Company upon liquidation, dissolution or winding up; or (2) unless
all cumulative dividends for the current and all prior dividend
periods have been declared and paid or declared and set apart for
payment on all shares of the Company having a right to cumulative
dividends.
6. $7.85 Cumulative Preferred Stock, Series A.
(i) The distinctive serial designation of the first series
of Series Preferred Stock, which shall be a closed series,
shall be "$7.85 Cumulative Preferred Stock, Series A ($1 par
value)" (hereinafter called "Series A Stock").
(ii) The number of shares of Series A Stock shall be
250,000.
(iii) The annual rate of dividends payable on shares of
Series A Stock shall be $7.85 per year and no more, payable
quarterly on the last days of March, June, September and
December, respectively, in each year with respect to the
quarterly dividend
7
<PAGE> 8
period (or portion thereof) ending on such dividend payment
date; provided, however, that in the case of any shares of
Series A Stock issued prior to October 1, 1972, the first
dividend payment, of dividends accrued since the date of
issue, shall be made on December 31, 1972.
(iv) Dividends on the shares of Series A Stock shall be
cumulative from the date or dates of issue thereof. The
holders of Series A Stock, in preference to the holders of any
junior stock, shall be entitled to receive, as and when
declared by the Board of Directors out of any funds legally
available therefor, cash dividends at the rate fixed in
subdivision (iii) hereof. The term "junior stock" as used
herein means Common Stock or any other stock of the Company
which by its terms is junior to Series Preferred Stock in
respect of dividends or payments in liquidation.
In no event, so long as any Shares of Series A Stock shall be
outstanding, shall any dividend, whether in cash or property,
be paid or declared, nor shall any other distribution be
ordered or made, on any junior stock, nor shall any shares of
any capital stock of the Company be purchased, redeemed or
otherwise acquired for value by the Company or by any
subsidiary of the Company, unless (A) all dividends on Series
A Stock for all past quarterly dividend periods and in the
case of a dividend or distribution, for the then current
quarterly period, shall have been paid or declared and a sum
sufficient for the payment thereof set apart and (B) the
Company shall have set aside all funds required for the
Sinking Fund for Series A Stock provided for in clause (vii)
of this paragraph 6 through the date of such payment,
declaration, distribution, purchase, redemption or other
acquisition. The provisions of this paragraph shall not,
however, apply to a dividend payable in any junior stock, to
the acquisition of shares of any junior stock in exchange for
shares of any other junior stock or to the acquisition of
shares of capital stock other than junior stock pursuant to a
tender offer made on a pro rata basis for all shares of
capital stock of the Company other than junior stock.
(v) In the event of any voluntary liquidation, dissolution or
winding up of the affairs of the Company, then before any
distribution or payment shall be made to the holders of any
junior stock, the holders of Series A Stock shall be entitled
to be paid in full the redemption price in effect at the time
of the distribution or payment date as provided in clause (vi)
of this paragraph 6, together with accrued dividends to such
distribution or payment date whether or not earned or
declared. In the event of any involuntary liquidation,
dissolution or winding up of the affairs of the
8
<PAGE> 9
Company, then, before any distribution or payment shall be
made to the holders of any junior stock, the holders of Series
A Stock shall be entitled to be paid in full an amount equal
to $100 per share, together with accrued dividends to such
distribution or payment date whether or not earned or
declared.
(vi) Series A Stock may be redeemed, as a whole or in part, at
the option of the Company by vote of its Board of Directors,
at any time or from time to time, at the redemption price in
effect at the redemption date as provided in this clause (vi),
together with accrued dividends to the redemption date;
provided however, that no such redemption may be made prior to
August 15, 1982 directly or indirectly from the proceeds of,
or as a part of, or in anticipation of, any refunding
operation involving the incurring of indebtedness, or issuance
of stock ranking prior to or on a parity with Series A Stock
in respect of dividends or upon liquidation, at an interest
cost on indebtedness or dividend yield on capital stock of
less than 7.85% both calculated in accordance with accepted
financial practice. The redemption prices per share for shares
of Series A Stock redeemed at any time during the twelve
months' periods indicated shall be as follows:
<TABLE>
<CAPTION>
12 MONTHS
BEGINNING 12 MONTHS BEGINNING
AUGUST 15 PRICE AUGUST 15 PRICE
<S> <C> <C> <C> <C>
1972 $107.85 1982 $103.92
1973 107.46 1983 103.53
1974 107.06 1984 103.14
1975 106.67 1985 102.75
1976 106.28 1986 102.36
1977 105.89 1987 101.96
1978 105.50 1988 101.57
1979 105.10 1989 101.18
1980 104.71 1990 100.78
1981 104.32 1991 100.39
and $100 per share thereafter.
</TABLE>
The provisions of paragraph 5 of this section (a) of Article
FOURTH applicable to redemption of all Series Preferred Stock
shall apply to Series A Stock, provided that, in addition, in
the case of any redemption of Series A Stock the Company shall
deposit, before the redemption date, with a bank or trust
company in the Borough of Manhattan, City of New York, having
a capital and surplus of at least $25,000,000, funds necessary
for such redemption, in trust, to
9
<PAGE> 10
be applied to such redemption, and the amounts shall be made
payable at the office of such bank or trust company.
(vii) There shall be a sinking fund (hereinafter called the
"Sinking Fund") for the benefit of the shares of Series A
Stock. For the purposes of the Sinking Fund, out of any net
assets of the Company legally available therefor, before any
dividends, in cash or property, shall be paid or declared, or
any distribution ordered or made on any junior stock, and
before any shares of any capital stock of the Company shall be
purchased, redeemed, or otherwise acquired for value by the
Company or any subsidiary, the Company shall set aside in cash
annually on July 16 in each year commencing with July 16,
1979, so long as there shall be outstanding any shares of
Series A Stock, an amount sufficient to redeem 12,500 shares
of Series A Stock (or such lesser number as remains
outstanding), at a price (the `Sinking Fund Redemption Price")
of $100 per share plus an amount equal to dividends accrued
thereon to the date fixed for redemption; provided, however,
that there shall be allowed to the Company as a credit
thereagainst any shares of Series A Stock which the Company
may have acquired or redeemed (otherwise than through the
operation of the Sinking Fund) which have not theretofore been
used for the purpose of any such credit and which shares shall
have been set aside by the Company for the purpose of the
Sinking Fund. The Sinking Fund shall be cumulative so that if
on any such July 16 the net assets of the Company legally
available therefor shall be insufficient to permit any such
amount to be set aside in full, or if for any other reason
such amount shall not have been set aside in full, the amount
of the deficiency shall be set aside, but without interest,
before any dividend, in cash or property, shall be paid or
declared, or any other distribution ordered or made, on any
junior stock and before any shares of any capital stock of the
Company shall be purchased, redeemed or otherwise acquired for
value by the Company or by any subsidiary of the Company,
subject to the exceptions provided in the last sentence of
clause (iv) of this paragraph 6. Moneys in the Sinking Fund
shall be applied within thirty days after having been set
aside to the redemption of shares of Series A Stock as above
provided. The Company may elect to redeem, on any Sinking Fund
redemption date, up to an additional 12,500 shares of Series A
Stock at the Sinking Fund Redemption Price. Such optional
redemption privilege shall not be cumulative from year to
year.
The provisions of paragraph 5 of this section (a) of Article
FOURTH shall apply to all Sinking Fund redemptions of Series A
Stock
10
<PAGE> 11
provided that, in addition, in the case of Sinking Fund
redemptions of Series A Stock the Company shall deposit,
before the redemption date, with a bank or trust company
meeting the requirements of clause (vi) of this paragraph 6,
funds necessary for such redemption, and the amounts shall be
made payable at the office of such bank or trust company.
(viii) The holders of Series A Stock shall be entitled to vote
only as hereinafter and in paragraph 3 of this section (a) of
Article FOURTH provided. Each stockholder of Series A Stock
entitled to vote at any particular time shall have one vote
for each share of Series A Stock held of record by him and
entitled to voting rights.
So long as any shares of Series A Stock are outstanding, in
addition to any other vote or consent of shareholders required
in this Certificate of Incorporation or by law, the approval
of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of Series A Stock at the time outstanding, shall be
necessary for effecting or validating:
(a) any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation, or of
the By-Laws, of the Company, which affects adversely
the voting powers of any other rights or preferences
of the holders of Series A Stock;
(b) authorization or creation of any class of stock
of the Company ranking prior to or on a parity with
Series Preferred Stock in respect of dividends or
payments in liquidation, or any increase in the
number of authorized shares of Series Preferred
Stock;
(c) issuance of any shares of any other series of
Series Preferred Stock unless, after giving pro forma
effect to the issuance of such shares and any
concurrent stock or debt retirement, net income of
the Company for any period of twelve consecutive
months within the preceding eighteen calendar months
exceeds two times the aggregate of all annual
dividend requirements of Series A Stock and all
shares (outstanding pro forma) ranking prior to or on
a parity with Series A Stock with respect to
dividends; or
(d) any merger, consolidation, sale of assets or
other transaction the effect of which, in any such
case, is to accomplish an event otherwise requiring
approval by holders of 66-2/3% of Series B Stock
under this clause (viii).
11
<PAGE> 12
7. $.975 Cumulative Preferred Stock, Series B.
(i) The distinctive serial designation of the second series of
Series Preferred Stock, which shall be a closed series, shall
be "$.975 Cumulative Preferred Stock, Series B ($1 par value)"
(hereinafter called "Series B Stock").
(ii) The number of shares of Series B Stock shall be 450,000.
(iii) The annual rate of dividends payable on shares of Series
B Stock shall be $.975 per year and no more, payable quarterly
on the last day of March, June, September and December,
respectively, in each year with respect to the quarterly
dividend period (or portion thereof) ending on such dividend
payment date; provided, however, that in the case of any
shares of Series B Stock issued prior to October 1, 1978, the
first dividend payment, which shall be of dividends accrued
since the date of issue, shall be made on December 31, 1978.
(iv) Dividends on the shares of Series B Stock shall be
cumulative from the date or dates of issue thereof. The
holders of Series B Stock, in preference to the holders of any
junior stock, shall be entitled to receive, as and when
declared by the Board of Directors out of any funds legally
available therefor, cash dividends at the rate fixed in
subdivision (iii) hereof. The term "junior stock" as used
herein means Common Stock or any other stock of the Company
which by its terms is junior to Series Preferred Stock in
respect of dividends or payments in liquidation.
In no event, so long as any shares of Series B Stock shall be
outstanding, shall any dividend, whether in cash or property,
be paid or declared, nor shall any other distribution be
ordered or made, on any junior stock, nor shall any shares of
any capital stock of the Company be purchased, redeemed or
otherwise acquired for value by the Company or by any
subsidiary of the Company, unless (A) all dividends on Series
B Stock for all past quarterly dividend periods and, in the
case of a dividend or distribution, for the then current
quarterly period, shall have been paid or declared and a sum
sufficient for the payment thereof set apart, and (B) the
Company shall have set aside all funds required for the
Sinking Fund for Series B Stock provided for in clause (vii)
of this paragraph 7 through the date of such payment,
declaration, distribution, purchase, redemption or other
acquisition. The provisions of this paragraph shall not,
however, apply to a dividend payable in any junior
12
<PAGE> 13
stock, to the acquisition of shares of any junior stock in
exchange for shares of any other junior stock or to the
acquisition of shares of capital stock other than junior stock
pursuant to a tender offer made on a pro rata basis for all
shares of capital stock of the Company other than junior
stock.
(v) In the event of any voluntary liquidation, dissolution or
winding up of the affairs of the Company, then before any
distribution or payment shall be made to the holders of any
junior stock, the holders of Series B Stock shall be entitled
to be paid in full the redemption price in effect at the time
of the distribution or payment date as provided in clause (vi)
of this paragraph 7 (or at the redemption price for the 12
months beginning July 15, 1983 in the event of a distribution
or payment date prior to July 15, 1983), together with accrued
dividends to such distribution or payment date whether or not
earned or declared. In the event of any involuntary
liquidation, dissolution or winding up of the affairs of the
Company, then, before any distribution or payment shall be
made to the holders of any junior stock, the holders of Series
B Stock shall be entitled to be paid in full an amount equal
to $10 per share, together with accrued dividends to such
distribution or payment date whether or not earned or
declared.
(vi) Series B Stock may be redeemed, as a whole or in part, at
the option of the Company by vote of its Board of Directors,
at any time or from time to time, at the redemption price in
effect at the redemption date as provided in this clause (vi),
together with accrued dividends to the redemption date;
provided, however, that no such redemption may be made prior
to July 15, 1983 or the date five years from the original
issue date of the Series B Stock, whichever is later. The
redemption prices per share for shares of Series B Stock
redeemed at any time during the twelve month periods indicated
shall be as follows:
<TABLE>
<CAPTION>
12 MONTHS 12 MONTHS
BEGINNING BEGINNING
JULY 15 PRICE JULY 15 PRICE
<S> <C> <C> <C> <C>
1983 $10.49 1988 $10.24
1984 10.44 1989 10.20
1985 10.39 1990 10.15
1986 10.34 1991 10.10
1987 10.29 1992 10.05
and $10 per share thereafter.
</TABLE>
The provisions of paragraph 5 of this section (a) of Article
FOURTH applicable to redemption of all Series Preferred Stock
shall apply to Series B Stock, provided that, in addition, in
the case of any
13
<PAGE> 14
redemption of Series B Stock the Company shall deposit, before
the redemption date, with a bank or trust company in the
Borough of Manhattan, City of New York, having a capital and
surplus of at least $25,000,000, funds necessary for such
redemption, in trust, to be applied to such redemption and the
amounts shall be made payable at the office of such bank or
trust company.
(vii) There shall be a sinking fund (hereinafter called the
"Series B Sinking Fund") for the benefit of the shares of
Series B Stock. For the purposes of the Series B Sinking Fund,
out of any net assets of the company legally available
therefor, before any dividends, in cash or property, shall be
paid or declared, or any distribution ordered or made on any
junior stock, and before any shares of any capital stock of
the Company shall be purchased, redeemed, or otherwise
acquired for value by the Company or any subsidiary, the
Company shall set aside in cash annually on June 15 in each
year commencing with June 15, 1983 (provided the first such
date shall be on the fifth anniversary of the original issue
date of the Series B Stock if such original issue date is
later than June 15, 1978), so long as there shall be
outstanding any shares of Series B Stock, an amount sufficient
to redeem 30,000 shares of Series B Stock (or such lesser
number as remains outstanding), at a price (the "Series B
Sinking Fund Redemption Price") of $10 per share plus an
amount equal to dividends accrued thereon to the date fixed
for redemption; provided, however, that there shall be allowed
to the Company as a credit thereagainst any shares of Series B
Stock which the Company may have acquired or redeemed
(otherwise than through the operation of the Series B Sinking
Fund) which have not theretofore been used for the purpose of
any such credit and which shares shall have been set aside by
the Company for the purpose of the Series B Sinking Fund. The
Series B Sinking Fund shall be cumulative so that if on any
such June 15 or the fifth anniversary date referred to above,
in the case of June 15, 1983, the net assets of the Company
legally available therefor shall be insufficient to permit any
such amount to be set aside in full, or if for any other
reason such amount shall not have been set aside in full, the
amount of the deficiency shall be set aside, but without
interest, before any dividend, in cash or property shall be
paid or declared, or any other distribution ordered or made,
on any junior stock and before any shares of any capital stock
of the Company shall be purchased, redeemed or otherwise
acquired for value by the Company or by an subsidiary of the
Company, subject to the exceptions provided in the last
sentence of clause (iv) of this paragraph 7. Moneys in the
Series B Sinking Fund shall be applied within thirty days
after having been set aside to the redemption of shares of
Series B Stock as above provided. The
14
<PAGE> 15
Company may elect to redeem, on any Series B Sinking Fund
Redemption Date, up to an additional 30,000 shares of Series B
Stock at the Series B Sinking Fund Redemption Price. Such
optional redemption privilege shall not be cumulative from
year to year.
The provisions of paragraph 5 of this section (a) of Article
FOURTH shall apply to all Sinking Fund redemption of Series B
Stock provided that, in addition, in the case of Series B
Sinking Fund redemption of Series B Stock the Company shall
deposit, before the redemption date, with a bank or trust
company meeting the requirements of clause (vi) of this
paragraph 7, funds necessary for such redemption, and the
amounts shall be made payable at the office of such bank or
trust company.
(viii) The holders of Series B Stock shall be entitled to vote
only as hereinafter provided and as provided in paragraph 3 of
this section (a) of Article FOURTH. Each stockholder of Series
B Stock entitled to vote at any particular time shall have one
vote for each share of Series B Stock held of record by him
and entitled to voting rights.
So long as any shares of Series B Stock are outstanding, in
addition to any other vote or consent of shareholders required
in this Certificate of Incorporation or by law, the approval
of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of Series B Stock at the time outstanding shall be
necessary for effecting or validating:
(a) any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation, or of
the By-Laws, of the company, which affects adversely
the voting powers or any other rights or preferences
of the holders of Series B Stock;
(b) authorization or creation of any class of stock
of the Company ranking prior to or on a parity with
Series Preferred Stock in respect of dividends or
payments in liquidation, or any increase in the
number of authorized shares of Series Preferred
Stock;
(c) issuance of any shares of any other series of
Series Preferred Stock unless, after giving pro forma
effect to the issuance of such shares and any
concurrent stock or debt retirement, net income of
the Company for any period of twelve consecutive
months within the preceding eighteen
15
<PAGE> 16
calendar months exceeds two times the aggregate of
all annual dividend requirements of Series B Stock
and all shares (outstanding pro forma) ranking prior
to or on a parity with Series B Stock with respect to
dividends; or
(d) any merger, consolidation, sale of assets or
other transaction the effect of which, in any such
case, is to accomplish an event otherwise requiring
approval by holders of 66-2/3% of Series B Stock
under this clause (viii).
8. $3.125 Cumulative Convertible Preferred Stock, Series C.
(i) The distinctive serial designation of the third series of
Series Preferred Stock, which shall be a closed series, shall
be "$3.125 Cumulative Convertible Preferred Stock, Series C
($1 par value)" (hereinafter called "Series C Stock").
(ii) The number of shares of Series C Stock shall be
3,538,936.
(iii) The annual rate of dividends payable on shares of Series
C Stock shall be $3.125 per year and no more, payable
quarterly on the last day of march, June, September and
December in each year with respect to the quarterly dividend
period (or portion thereof) ending on such dividend payment
date; provided, however, that in the case of any shares of
Series C Stock issued prior to June 30, 1981, the first
dividend payment, which shall be of dividends accrued since
February 15, 1981, shall be made on June 30, 1981.
(iv) Dividends on the shares of Series C Stock shall be
cumulative from February 15, 1981. The holders of Series C
Stock, in preference to the holders of any junior stock, shall
be entitled to receive, as and when declared by the Board of
Directors out of any funds legally available therefor, cash
dividends at the rate fixed in clause (iii) of this paragraph
8. The term "junior stock" as used herein means Common Stock
or any other stock of the Company which by its terms is junior
to Series Preferred Stock in respect of dividends or payments
in liquidation.
In no event, so long as any shares of Series C Stock shall be
outstanding, shall, any dividend, whether in cash or property,
be paid or declared, nor shall any other distribution be
ordered or made, on any junior stock, nor shall any shares of
any capital stock of the Company be purchased, redeemed or
otherwise acquired for value by the Company or by any
subsidiary of the Company, unless all dividends on Series C
Stock for all past quarterly dividend
16
<PAGE> 17
periods and, in the case of a dividend or distribution, for
the then current quarterly period, shall have been paid or
declared and a sum sufficient for the payment thereof set
apart. The provisions of this clause (iv) shall not however,
apply to a dividend payable in any junior stock, to the
acquisition of shares of any junior stock in exchange for
shares of any other junior stock or to the acquisition of
shares of capital stock other than junior stock pursuant to a
tender offer made on a pro rata basis for all shares of
capital stock of the Company other than junior stock (based on
the aggregate involuntary liquidation value of each series of
such capital stock outstanding).
(v) In the event of any voluntary liquidation, dissolution or
winding up of the affairs of the Company, then before any
distribution or payment shall be made to the holders of any
junior stock, the holders of Series C Stock shall be entitled
to be paid in full the redemption price in effect at the time
of the distribution or payment date as provided in clause (vi)
of this paragraph 8, together with accrued dividends to such
distribution or payment date, whether or not earned or
declared. In the event of any involuntary liquidation,
dissolution or winding up of the affairs of the Company, then,
before any distribution or payment shall be made to the
holders of any junior stock, the holders of Series C Stock
shall be entitled to be paid in full an amount equal to $25
per share, together with accrued dividends to such
distribution or payment date, whether or not earned or
declared.
(vi) Series C Stock may be redeemed, as a whole or in part, at
the option of the Company by vote of its Board of Directors,
at any time or from time to time, at the redemption price in
effect at the redemption date as provided in this clause (vi),
together with accrued dividends to the redemption date,
whether or not earned or declared. The redemption prices per
share for shares of Series C Stock redeemed at any time during
the twelve-month periods indicated shall be as follows:
<TABLE>
<CAPTION>
12 MONTHS 12 MONTHS
BEGINNING BEGINNING
FEBRUARY 15 PRICE FEBRUARY 15 PRICE
<S> <C> <C> <C> <C>
1981 $28.125 1986 $26.563
1982 27.813 1987 26.250
1983 27,500 1988 25.938
1984 27.188 1989 25.625
1985 26.875 1990 25.313
and $25 per share thereafter.
</TABLE>
17
<PAGE> 18
The provisions of paragraph 5 of this section (a) of article
FOURTH applicable to redemption of all Series Preferred Stock
shall apply to Series C Stock, provided that, in addition, in
the case of any redemption of Series C Stock the Company shall
deposit, before the redemption date, with a bank or trust
company in the Borough of Manhattan, City of New York, having
a capital and surplus of at least $25,000,000, funds necessary
for such redemption, in trust, to be applied to such
redemption and the amounts shall be made payable at the office
of such bank or trust company.
(vii) The holders of Series C Stock shall be entitled to vote
only as hereinafter provided and as provided in paragraph 3 of
this section (a) of Article FOURTH. Each stockholder of Series
C Stock entitled to vote at any particular time shall have one
vote for each share of Series C Stock held of record by him
and entitled to voting rights.
So long as any shares of Series C Stock are outstanding, in
addition to any other vote or consent of stockholders required
in this Certificate of Incorporation or by law, the approval
of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of Series C Stock at the time outstanding shall be
necessary for effecting or validating:
(a) any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation, or of
the By-Laws, of the Company, which affects adversely
the voting powers or any other rights or preferences
of the holders of Series C Stock;
(b) authorization or creation of any class of stock
of the Company ranking prior to or on a parity with
Series Preferred Stock in respect of dividends or
payments in liquidation, or any increase in the
number of authorized shares of Series Preferred
Stock;
(c) issuance of any shares of any other series of
Series Preferred Stock unless, after giving pro forma
effect to the issuance of such shares and any
concurrent stock or debt retirement, net income of
the Company for any period of twelve consecutive
months within the preceding eighteen calendar months
exceeds two times the aggregate of all annual
dividend requirements of Series C Stock and all
18
<PAGE> 19
shares (outstanding pro forma) ranking prior to or on
a parity with Series C Stock with respect to
dividends; or
(d) any merger, consolidation, sale of assets or
other transaction the effect of which, in any such
case, is to accomplish an event otherwise requiring
approval by holders of 66-2/3% of Series C Stock
under this clause (vii).
(viii) (A) Subject to the provisions for adjustment
hereinafter set forth, each share of Series C Stock
shall be convertible at the option of the holder
thereof, upon surrender at the principal office of
the Company and at such other office or offices as
the Board of Directors may designate, of the
certificate for the share so to be converted, duly
endorsed or assigned to the Company in blank, into
.833 fully paid and nonassessable shares of Common
Stock of the Company. The right to convert shares of
Series C Stock called for redemption shall terminate
at the close of business on the date fixed for
redemption. Upon conversion, no allowance or
adjustment shall be made for dividends on either
class of stock.
(B) The number of shares of Common Stock and the
number of any other shares of the Company, if any,
into which each share of Series C Stock is
convertible shall be adjusted from time to time as
follows:
(1) In case the Company shall (x) pay a
dividend on its Common Stock in other
shares, (y) subdivide its outstanding Common
Stock or (z) combine its outstanding Common
Stock into a smaller number of shares of
Common Stock, or issue by reclassification
of its shares of Common Stock (whether
pursuant to a merger or consolidation or
otherwise) any other shares of the Company,
then the holder of each share of Series C
Stock shall be entitled to receive, upon the
conversion of such share, the number of
shares of the Company which he would have
owned or have been entitled to receive after
the happening of any of the events described
above had such share been converted
immediately prior to the happening of such
event. Such adjustment shall be made
whenever any of the events listed above
shall occur. An adjustment made pursuant to
this subclause (B)(1) shall become effective
retroactively with respect to conversions
made subsequent to the record date in the
case of a
19
<PAGE> 20
dividend and shall become effective
immediately after the effective date in the
case of a subdivision, combination or
reclassification;
(2) In case the Company shall issue rights
or warrants to the holders of its Common
Stock as such entitling them to subscribe
for a purchase Common Stock at a price per
share less than the current market price per
share (as defined in subclause (C) below) on
such record date, then in each such case the
number of shares of Common Stock into which
each share of Series C Stock shall
thereafter be convertible shall be
determined by multiplying the number of
shares of Common Stock into which such share
of Series C Stock was theretofore
convertible by a fraction, of which the
numerator shall be the number of shares of
Common Stock outstanding on the date of
issuance of such rights or warrants plus the
number of additional shares of Common Stock
offered for subscription or purchase, and of
which the denominator shall be the number of
shares of Common Stock outstanding on the
date of issuance of such rights or warrants
plus the number of shares of Common Stock
which the aggregate offering price of the
total number of shares so offered would
purchase at such current market price. For
the purposes of this subclause (B)(2), the
issuance of rights or warrants to subscribe
for or purchase securities convertible into
shares of Common Stock shall be deemed to be
the issuance of rights or warrants to
purchase the shares of Common Stock into
which such securities are convertible at an
aggregate offering price equal to the
aggregate offering price of such securities
plus the minimum aggregate amount (if any)
payable upon conversion of such securities
into shares of Common Stock. Such adjustment
shall be made whenever any such rights or
warrants are issued and shall become
effective retroactively with respect to
conversions made subsequent to the record
date for the determination of shareholders
entitled to receive such rights or warrants.
For purposes of this subclause (B)(2) the
granting of the right to purchase shares of
Common Stock (whether from treasury shares
or otherwise) pursuant to any dividend or
interest reinvestment plan and/or any Common
Stock purchase plan providing
20
<PAGE> 21
for the reinvestment of dividends or
interest payable on securities of the
Company and/or the investment of periodic
optional payments at a price per share of
not less than 95 percent of the current
market price per share (determined as
provided in such plans) of the Common Stock
(so long as such right to purchase is in no
case evidenced by the delivery of rights and
warrants) shall not be deemed to constitute
an issue of rights or warrants by the
Company within the meaning of this subclause
(B)(2); and
(3) In case the Company shall distribute to
holders of its shares of Common Stock
(whether pursuant to a merger or
consolidation or otherwise) evidences of its
indebtedness or assets (excluding cash
distributions after December 31, 1979 not
exceeding (x) $100,000,000 plus (y) the
aggregate net income of the Company and its
subsidiaries on a consolidated basis after
such date determined in accordance with
generally accepted accounting principals,
less (z) dividends paid after such date on
shares other than shares of Common Stock) or
rights to subscribe (excluding those
referred to in subclause (B)(2) above) then
in each such case the number of shares of
Common Stock into which each share of Series
C Stock shall thereafter be convertible
shall be determined by multiplying the
number of shares of Common Stock into which
such share of Series C Stock was theretofore
convertible by a fraction, of which the
numerator shall be the current market price
per share of Common Stock (as defined in
subclause (C) below) on the record date for
determination of shareholders entitled to
receive such distribution, and of which the
denominator shall be such current market
price per share of Common Stock less the
fair value (as determined by a resolution of
the Board of Directors of the Company filed
with each transfer agent for the Series C
Stock, which determination shall be
conclusive) of the portion of the evidences
of indebtedness or assets or rights to
subscribe applicable to one share of Common
Stock. Such adjustment shall be made
whenever any such distribution is made and
shall become effective retroactively with
respect to conversions made subsequent to
the record date for the determination of
stockholders entitled to receive such
distribution.
21
<PAGE> 22
(C) For the purpose of any computation under
subclause (B) above, the current market price per
share of Common Stock on any date shall be deemed to
be the average of the daily Closing Prices for 30
consecutive Trading Days selected by the Company
commencing not more than 45 Trading Days before the
date in question. The term "Closing Price" on any day
shall mean the reported last sale price per share of
Common Stock regular way on such day or, in case no
such sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in
each case on the New York Stock Exchange or, if the
shares of Common Stock are not listed or admitted to
trading on such Exchange, on the American Stock
Exchange or, if the shares of Common Stock are not
listed or admitted to trading on such Exchange, the
principal national securities exchange on which the
shares of Common Stock are listed or admitted to
trading or, if the shares of Common Stock are not
listed or admitted to trading on any national
securities exchange, the average of the closing bid
and asked prices in the over-the-counter market as
reported by the National Association of Securities
Dealers' Automated Quotation System, or, if not so
reported, as reported by the National Quotation
Bureau, Incorporated, or any successor thereof, or,
if not so reported, the average of the closing bid
and asked prices as furnished by any member of the
National Association of Securities Dealers, Inc.
selected from time to time by the Company for that
purpose; and the term "Trading Day" shall mean a day
on which the principal national securities exchange
on which the shares of Common Stock are listed or
admitted to trading is open for the transaction of
business or, if the shares of Common Stock are not
listed or admitted to trading on any national
securities exchange, a Monday, Tuesday, Wednesday,
Thursday or Friday on which banking institutions in
the Borough of Manhattan, City and State of New York,
are not authorized or obligated by law or executive
order to close.
(D) No adjustment in the conversion rate shall be
required unless such adjustment (plus any adjustments
not previously made by reason of this subclause (D))
would require an increase or decrease of at least 1%
in the number of shares of Common Stock into which
each share of Series C Stock is then convertible;
provided, however, that any adjustments which by
reason of this subclause (D) are not required to be
made shall be carried forward and taken into account
in any
22
<PAGE> 23
subsequent adjustment. All calculations under this
clause (viii) of paragraph 8 shall be made to the
nearest one hundred thousandth of a share.
(E) The Board of Directors may make such increases in
the conversion rate, in addition to those required by
this clause (viii) of paragraph 8, as shall be
determined by the Board, as evidenced by a Board
resolution, to be advisable in order to avoid
taxation so far as practicable of any dividend of
stock or stock rights or any event treated as such
for Federal income tax purposes to the recipients.
The Board shall have the power to resolve any
ambiguity or correct any error in this clause (viii)
of paragraph 8 and its actions in so doing, as
evidenced by a Board resolution, shall be final and
conclusive.
(F) In the event that at any time, as a result of an
adjustment made pursuant to subclause (B)(1) above,
the holder of any shares of Series C Stock thereafter
surrendered for conversion shall become entitled to
receive any shares of capital stock of the Company
other than shares of Common Stock, thereafter the
number of shares so receivable upon conversion of
such shares of Series C Stock shall be subject to
adjustment from time to time in a manner and on terms
as nearly equivalent as practicable to the provisions
with respect to the shares of Common Stock contained
in subclauses (B)(1) to (B)(3), inclusive, above, and
the other provisions of this clause (viii) of
paragraph 8 with respect to the shares of Common
Stock shall apply on like terms to any such other
shares.
(G) Whenever the conversion rate is adjusted as
herein provided:
(1) The Company shall compute the adjusted
conversion rate and shall cause to be
prepared a certificate signed by the
Company's treasurer setting forth the
adjusted conversion rate and a brief
statement of the facts requiring such
adjustment and the computation thereof; such
certificate shall forthwith be filed with
each transfer agent for the Series C Stock;
and
(2) A notice stating that the conversion
rate has been adjusted and setting forth the
adjusted conversion rate shall, as soon as
practicable, be
23
<PAGE> 24
mailed to the holders of record of
outstanding shares of the Series C Stock.
(H) In case:
(1) The Company shall declare a dividend or
other distribution on its Common Stock,
other than in cash;
(2) The Company shall authorize the issuance
to all holders of its Common Stock of rights
or warrants entitling them to subscribe for
or purchase any Common Stock or any other
subscription rights or warrants; or
(3) Of any reclassification of the capital
stock of the Company (other than a
subdivision or combination of its
outstanding Common Stock), or of any
consolidation or merger to which the Company
is a party and for which approval of any
shareholders of the Company is required, or
of the sale, lease, exchange or other
disposition of all or substantially all the
property and assets of the Company; or
(4) Of the voluntary or involuntary
liquidation, dissolution or winding up of
the Company; then the Company shall cause to
be mailed to each transfer agent for the
Series C Stock and to the holders of record
of the outstanding shares of Series C Stock,
at least 20 days (or 10 days in any case
specified in subclauses (H)(1) or (H)(2)
above) prior to the applicable record or
effective date hereinafter specified, a
notice stating (x) the date as of which the
holders of record of Common Stock to be
entitled to such dividend, distribution
rights or warrants are to be determined, or
(y) the date on which such reclassification,
consolidation, merger, sale, lease,
exchange, disposition, liquidation,
dissolution or winding up is expected to
become effective, and the date as of which
it is expected that holders of record of
Common Stock shall be entitled to exchange
their shares for securities or other
property, if any, deliverable upon such
reclassification, consolidation, merger,
sale, lease, exchange, disposition,
liquidation, dissolution or winding up. The
failure to give the notice required by this
subclause (H), or any defect therein, shall
not affect the legality or validity of
24
<PAGE> 25
any such dividend, distribution, right,
warrant, reclassification, consolidation,
merger, sale, lease, exchange, disposition,
liquidation, dissolution or winding up, or
the vote on any action authorizing such.
(I) The Company shall at all times reserve and keep
available out of its authorized but unissued Common
Stock, for the purpose of issuance upon conversion of
the Series C Stock, the full number of shares of
Common Stock then deliverable upon the conversion of
all shares of Series C Stock then outstanding.
(J) The Company will pay any and all taxes that may
be payable in respect of the issuance or delivery of
shares of Common Stock on conversion of shares of
Series C Stock. The Company shall not, however, be
required to pay any tax which may be payable in
respect of any transfer involved in the issuance and
delivery of shares of Common Stock in a name other
than that in which the shares of Series C Stock so
converted were registered, and no such issuance or
delivery shall be made unless and until the person
requesting such issuance has paid to the Company the
amount of any such tax or has established to the
satisfaction of the Company that such tax has been
paid.
(K) For the purpose of this clause (viii) of
paragraph 8, the term "Common Stock" shall include
any shares of the Company of any class or series
which has no preference or priority in the payment of
dividends or in the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to
redemption by the Company. However, shares of Common
Stock issuable upon conversion of Series C Stock
shall include only shares of the class designated as
Common Stock as of the original date of issuance of
the Series C Stock, or shares of the Company of any
classes or series resulting from any reclassification
or reclassifications thereof and which have no
preference or priority in the payment of dividends or
in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of
the Company and which are not subject to redemption
by the company, provided that if at any time there
shall be more than one such resulting class or
series, the shares of such class and series then so
issuable shall be substantially in the proportion
which the total number of
25
<PAGE> 26
shares of such class and series resulting from all
such reclassifications bears to the total number of
shares of all such classes and series resulting from
all such reclassifications.
(L) No fractional shares or scrip representing
fractional shares shall be issued upon the conversion
of Series C Stock. If any such conversion would
otherwise require the issuance of a fractional share,
an amount equal to such fraction multiplied by the
Closing Price (determined as provided in subclause
(C) above) of the Common Stock on the day of
conversion shall be paid to the holder in cash by the
Company.
(M) The certificate of any independent firm of public
accountants of recognized standing selected by the
Board of Directors shall be presumptive evidence of
the correctness of any computation made under this
clause (viii) of paragraph 8.
9. $3.50 Cumulative Convertible Preferred Stock, Series
D.
(i) The distinctive serial designation of the fourth series of
Series Preferred Stock, which shall be a closed series, shall
be "$3.50 Cumulative Convertible Preferred Stock, Series D ($1
par value)" (hereinafter called "Series D Stock").
(ii) The number of shares of Series D Stock shall be
2,200,000.
(iii) The annual rate of dividends payable on shares of Series
D Stock shall be $3.50 per year and no more, payable quarterly
on the last day of March, June, September and December in each
year with respect to the quarterly dividend period (or portion
thereof) ending on such dividend payment date; provided,
however, that in the case of any shares of Series D Stock
issued prior to December 31, 1986, the first dividend payment,
which shall be of dividends accrued since November 21, 1986
shall be made on March 31, 1987.
(iv) Dividends on the shares of Series D Stock shall be
cumulative from November 21, 1986. The holders of Series D
Stock, in preference to the holders of any junior stock, shall
be entitled to receive, as and when declared by the Board of
Directors out of any funds legally available therefor, cash
dividends at the rate fixed in clause (iii) of this paragraph
9. The term "junior stock" as used herein means Common Stock
or any other stock of the
26
<PAGE> 27
Company which by its terms is junior to Series Preferred Stock
in respect of dividends or payments in liquidation.
In no event, so long as any shares of Series D Stock shall be
outstanding, shall any dividend, whether in cash or property,
be paid or declared, nor shall any other distribution be
ordered or made, on junior stock, nor shall any shares of any
capital stock of the Company be purchased, redeemed or
otherwise acquired for value by the Company or by any
subsidiary of the Company, unless all dividends on Series D
Stock for all past quarterly dividend periods and, in the case
of a dividend or distribution, for the then current quarterly
period, shall have been paid or declared and a sum sufficient
for the payment thereof set apart. The provisions of this
clause (iv) shall not however, apply to a dividend payable in
any junior stock, to the acquisition of shares of any junior
stock in exchange for shares of any other junior stock or to
the acquisition of shares of capital stock other than junior
stock pursuant to a tender offer made on a pro rata basis for
all shares of capital stock of the Company other than junior
stock (based on the aggregate involuntary liquidation value of
each series of such capital stock outstanding).
(v) In the event of any voluntary liquidation, dissolution or
winding up of the affairs of the Company, then before any
distribution or payment shall be made to the holders of any
junior stock, the holders of Series D Stock shall be entitled
to be paid in full the redemption price in effect at the time
of the distribution or payment date as provided in clause (vi)
of this paragraph 9 (and if prior to January 2, 1990, then at
the redemption price in effect on January 2, 1990), together
with accrued dividends to such distribution or payment date,
whether or not earned or declared. In the event of any
involuntary liquidation, dissolution or winding up of the
affairs of the Company, then, before any distribution or
payment shall be made to the holders of any junior stock, the
holders of Series D Stock shall be entitled to be paid in full
an amount equal to $50 per share, together with accrued
dividends to such distribution or payment date, whether or not
earned or declared.
(vi) Series D Stock may be redeemed, as a whole or in part, at
the option of the Company by vote of its Board of Directors,
at any time or from time to time, on or after January 2, 1990,
at the redemption price in effect at the redemption date as
provided in this clause (vi), together with accrued dividends
to the redemption date, whether or not earned or declared. The
redemption prices per share for shares of Series D Stock
redeemed at any time during the twelve month periods indicated
shall be as follows:
27
<PAGE> 28
<TABLE>
<CAPTION>
12 MONTHS 12 MONTHS
BEGINNING BEGINNING
JANUARY 1 PRICE JANUARY 1 PRICE
<S> <C> <C> <C> <C>
1990 $52.45 1994 $51.05
1991 52.10 1995 50.70
1992 51.75 1996 50.35
1993 51.40
and $50 per share thereafter.
</TABLE>
The provisions of paragraph 5 of this section (a) of Article
FOURTH applicable to redemption of all Series Preferred Stock
shall apply to Series D Stock, provided that, in addition, in
the case of any redemption of Series D Stock the Company shall
deposit, before the redemption date, with a bank or trust
company in the Borough of Manhattan, City of New York, having
a capital and surplus of at least $25,000,000, funds necessary
for such redemption, in trust, to be applied to such
redemption and the amounts shall be made payable at the office
of such bank or trust company.
(vii) The holders of Series D Stock shall be entitled to vote
only as hereinafter provided and as provided in paragraph 3 of
this section (a) of Article FOURTH. Each stockholder of Series
D Stock entitled to vote at any particular time shall have one
vote for each share of Series D Stock held of record by him
and entitled to voting rights.
So long as any shares of Series D Stock are outstanding, in
addition to any other vote or consent of stockholders required
in this Certificate of Incorporation or by law, the approval
of the holders of at least sixty-six and two-thirds percent
(66-2/3%) of Series D Stock at the time outstanding shall be
necessary for effecting or validating:
(A) any amendment, alteration or repeal of any of the
provisions of the Certificate of Incorporation, or of
the By-Laws, of the Company, which affects adversely
the voting powers or any other rights or preferences
of the holders of Series D Stock;
(B) authorization or creation of any class of stock
of the Company ranking prior to or on a parity with
Series Preferred Stock in respect of dividends or
payments in liquidation, or any increase in the
number of authorized shares of Series Preferred
Stock;
28
<PAGE> 29
(C) any merger, consolidation, sale of assets or
other transaction the effect of which, in any such
case, is to accomplish an event otherwise requiring
approval by holders of 66-2/3% of Series D Stock
under this clause (vii).
(viii) (A) Subject to the provisions for adjustment
hereinafter set forth, each share of Series D Stock
shall be convertible at the option of the holder
thereof, upon surrender at the principal office of
the Company and at such other office or offices as
the Board of Directors may designate, of the
certificate for the share so to be converted, duly
endorsed or assigned to the Company in blank, into
0.909 fully paid and nonassessable shares of Common
Stock of the Company. The right to convert shares of
Series D Stock called for redemption shall terminate
at the close of business on the date fixed for
redemption. Upon conversion, no allowance or
adjustment shall be made for dividends on either
class of stock, except to the extent set forth in the
next paragraph.
Any holder of shares of Series D Stock desiring to
convert such shares into shares of Common Stock shall
surrender the certificate or certificates for the
shares of Series D Stock being converted, duly
endorsed or assigned to the Company or in blank, at
the principal office of the Company or at a bank or
trust company appointed by the Company for that
purpose, accompanied by a written notice of
conversion specifying the number (in whole shares) of
shares of Series D Stock to be converted and the name
or names in which such holder wishes the certificate
or certificates for shares of Common Stock to be
issued; in case such notice shall specify a name or
names other than that of such holder, such notice
shall be accompanied by payment of all transfer taxes
payable upon the issue of shares of Common Stock in
such name or names. In case less than all of the
shares of Series D Stock represented by a certificate
are to be converted by a holder, upon such conversion
the Company shall issue and deliver or cause to be
issued and delivered to such holder a certificate or
certificates for the shares of Series D Stock not so
converted. A holder of Series D Stock on a dividend
record date who (or whose transferee) converts Series
D Stock on a dividend payment date will be entitled
to receive and retain the dividend payable on such
Series D Stock. A holder of Series D Stock at the
close of business on a dividend record date will be
entitled to receive the dividend payable on such
Series D Stock on the corresponding dividend payment
date notwithstanding the
29
<PAGE> 30
conversion thereof or the Company's default in
payment of the dividend due on the dividend payment
date, but Series D Stock surrendered for conversion
during the period from the close of business on any
dividend record date to the opening of business on
the corresponding dividend payment date (except
Series D Stock called for redemption on a redemption
date during such period) must be accompanied by
payment to the Company of an amount equal to the
dividend payable on such dividend payment date. A
holder of Series D Stock called for redemption on a
redemption date between a dividend record date and
the corresponding dividend payment date who (or whose
transferee) convert such Series D Stock will be
entitled to receive such dividend and need not repay
the dividend upon surrender of such Series D Stock
for conversion.
(B) The number of shares of Common Stock and the
number of any other shares of the Company, if any,
into which each share of Series D Stock is
convertible shall be adjusted from time to time as
follows:
(1) In case the Company shall (x) pay a
dividend on its Common Stock in other
shares, (y) subdivide its outstanding Common
Stock or (z) combine its outstanding Common
Stock into a smaller number of shares of
Common Stock, or issue by reclassification
of its shares of Common Stock (whether
pursuant to a merger or consolidation or
otherwise) any other shares of the Company,
then the holder of each share of Series D
Stock shall be entitled to receive, upon the
conversion of such share, the number of
shares of the Company which he would have
owned or have been entitled to receive after
the happening of any of the events described
above had such share been converted
immediately prior to the happening of such
event. Such adjustment shall be made
whenever any of the events listed above
shall occur. An adjustment made pursuant to
this subclause (B)(1) shall become effective
retroactively with respect to conversions
made subsequent to the record date in the
case of a dividend and shall become
effective immediately after the effective
date in the case of a subdivision,
combination or reclassification;
(2) In case the Company shall issue rights
or warrants to the holders of its Common
Stock as such
30
<PAGE> 31
entitling them to subscribe for or purchase
Common Stock at a price per share less than
the current market price per share (as
defined in subclause (c) below) on such
record date, then in each such case the
number of shares of Common Stock into which
each share of Series D Stock shall
thereafter be convertible shall be
determined by multiplying the number of
shares of Common Stock into which such share
of Series D Stock was theretofore
convertible by a fraction, of which the
numerator shall be the number of shares of
Common Stock outstanding on the date of
issuance of such rights or warrants plus the
number of additional shares of Common Stock
offered for subscription or purchase, and of
which the denominator shall be the number of
shares of Common Stock outstanding on the
date of issuance of such rights or warrants
plus the number of shares of Common Stock
which the aggregate offering price of the
total number of shares so offered would
purchase at such current market price. For
the purposes of this subclause (B)(2), the
issuance of rights or warrants to subscribe
for or purchase securities convertible into
shares of Common Stock shall be deemed to be
the issuance of rights or warrants to
purchase the shares of Common Stock into
which such securities are convertible at an
aggregate offering price equal to the
aggregate offering price of such securities
plus the minimum aggregate amount (if any)
payable upon conversion of such securities
into shares of Common Stock. Such adjustment
shall be made whenever any such rights or
warrants are issued and shall become
effective retroactively with respect to
conversions made subsequent to the record
date for the determination of shareholders
entitled to receive such rights or warrants.
For purposes of this subclause (B)(2) the
granting of the right to purchase shares of
Common Stock (whether from treasury shares
or otherwise) pursuant to any dividend or
interest reinvestment plan and/or any Common
Stock purchase plan providing for the
reinvestment of dividends or interest
payable on securities of the Company and/or
the investment of periodic optional payments
at a price per share of not less than 95
percent of the current market price per
share (determined as provided in such plans)
of the Common Stock (so long as such right
to purchase is
31
<PAGE> 32
in no case evidenced by the delivery of
rights and warrants) shall not be deemed to
constitute an issue of rights or warrants by
the Company within the meaning of this
subclause (B)(2); and
(3) In case the Company shall distribute to
holders of its shares of Common Stock
(whether pursuant to a merger or
consolidation or otherwise) evidences of its
indebtedness or assets (excluding cash
distributions) or rights to subscribe
(excluding those referred to in subclause
(B)(2) above) then in each such case the
number of shares of Common Stock into which
each share of Series D Stock shall
thereafter be convertible shall be
determined by multiplying the number of
shares of Common Stock into which such share
of Series D Stock was theretofore
convertible by a fraction, of which the
numerator shall be the current market price
per share of Common Stock (as defined in
subclause (C) below) on the record date for
determination of shareholders entitled to
receive such distribution, and of which the
denominator shall be such current market
price per share of Common Stock on the date
fixed for such determination less the fair
value (as determined by a resolution of the
Board of Directors of the Company filed with
each transfer agent for the Series D Stock,
which determination shall be conclusive) of
the portion of the evidences of indebtedness
or assets or rights to subscribe applicable
to one share of Common Stock. Such
adjustment shall be made whenever any such
distribution is made and shall become
effective retroactively with respect to
conversions made subsequent to the record
date for the determination of stockholders
entitled to receive such distribution.
(C) For the purpose of any computation under
subclause (B) above, the current market price per
share of Common Stock on any date shall be deemed to
be the average of the daily Closing Prices for 30
consecutive Trading Days selected by the Company
commencing not more than 45 Trading Days before the
date in question. The term "Closing Price" on any day
shall mean the reported last sale price per share of
Common Stock regular way on such day or, in case no
such sale takes place on such day, the average of the
reported closing bid and asked prices regular way, in
each case as reported on the New York Stock Exchange
32
<PAGE> 33
Composite Transactions or, if the shares of Common
Stock are not listed or admitted to trading on such
Exchange, on the American Stock Exchange or, if the
shares of Common Stock are not listed or admitted to
trading on such Exchange, the principal national
securities exchange on which the shares of Common
Stock are listed or admitted to trading or, if the
shares of Common Stock are not listed or admitted to
trading on any national securities exchange, the
average of the closing bid and asked prices in the
over-the-counter market as reported by the National
Association of Securities Dealers' Automated
Quotation System, or, if not so reported, as reported
by the National Quotation Bureau, Incorporated, or
any successor thereof, or, if not so reported, the
average of the closing bid and asked prices as
furnished by any member of the National Association
of Securities Dealers, Inc. selected from time to
time by the Company for that purpose; and the term
"Trading Day" shall mean a day on which the principal
national securities exchange on which the shares of
Common Stock are listed or admitted to trading is
open for the transaction of business or, if the
shares of Common Stock are not listed or admitted to
trading on any national securities exchange, a
Monday, Tuesday, Wednesday, Thursday or Friday on
which banking institutions in the Borough of
Manhattan, City and State of New York, are not
authorized or obligated by law or executive order to
close.
(D) No adjustment in the conversion rate shall be
required unless such adjustment (plus any adjustments
not previously made by reason of this subclause (D))
would require an increase or decrease of at least 1%
in the number of shares of Common Stock into which
each share of Series D Stock is then convertible;
provided, however, that any adjustments which by
reason of this subclause (D) are not required to be
made shall be carried forward and taken into account
in any subsequent adjustment. All calculations under
this clause (viii) of paragraph 9 shall be made to
the nearest one-hundred thousandth of a share.
(E) In the event that at any time, as a result of an
adjustment made pursuant to subclause (B)(1) above,
the holder of any shares of Series D Stock thereafter
surrendered for conversion shall become entitled to
receive any shares of capital stock of the Company
other than shares of Common Stock, thereafter the
number of shares so receivable upon conversion of
such shares of Series D
33
<PAGE> 34
Stock shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the
shares of Common Stock contained in subclauses (B)(1)
to (B)(3), inclusive, above, and the other provisions
of this clause (viii) of paragraph 9 with respect to
the shares of Common Stock shall apply on like terms
to any such other shares.
(F) The Company may, but shall not be required to,
make such increases in the conversion rate, in
addition to those required by this clause (viii) of
paragraph 9 as it considers to be advisable in order
to avoid or diminish any income tax to any holder of
shares of Common Stock resulting from any dividend or
distribution of stock or issuance of rights or
warrants to purchase or subscribe for stock or from
any event treated as such for income tax purposes or
for any other reasons. The Company shall have the
power to resolve any ambiguity or correct any error
in this clause (viii) of paragraph 9 and its actions
in so doing shall be final and conclusive.
(G) In case the Company shall effect any capital
reorganization of the Common Stock (other than a
subdivision, combination, capital reorganization or
reclassification provided for in paragraph (B)) or
shall consolidate, merge or engage in a statutory
share exchange with or into any other corporation
(other than a consolidation, merger or share exchange
in which the Company is the surviving corporation and
each share of Common Stock outstanding immediately
prior to such consolidation or merger is to remain
outstanding immediately after such consolidation or
merger) or shall sell or transfer all or
substantially all its assets to any other
corporation, lawful provision shall be made as a part
of the terms of such transaction whereby the holders
of shares of Series D Stock shall receive upon
conversion thereof, in lieu of each share of Common
Stock which would have been issuable upon conversion
of such shares if converted immediately prior to the
consummation of such transaction, the same kind and
amount of stock (or other securities, cash or
property, if any) as may be issuable or distributable
in connection with such transaction with respect to
each share of Common Stock outstanding at the
effective time of such transaction, subject to
subsequent adjustments for subsequent stock dividends
and distributions, subdivisions or combinations of
shares, capital reorganizations, reclassifications,
consolidations,
34
<PAGE> 35
mergers or share exchanges, as nearly equivalent as
possible to the adjustments provided for in this
clause (viii) of paragraph 9.
(H) Whenever the conversion rate is adjusted as
herein provided:
(1) The Company shall compute the adjusted
conversion rate and shall cause to be
prepared a certificate signed by the
Company's treasurer setting forth the
adjusted conversion rate and a brief
statement of the facts requiring such
adjustment and the computation thereof; such
certificate shall forthwith be filed with
each transfer agent for the Series D Stock;
and
(2) A notice stating that the conversion
rate has been adjusted and setting forth the
adjusted conversion rate shall, as soon as
practicable, be mailed to the holders of
record of outstanding shares of the Series D
Stock.
(I) In case:
(1) The Company shall declare a dividend or
other distribution on its Common Stock,
other than in cash;
(2) The Company shall authorize the issuance
to all holders of its Common Stock of rights
or warrants entitling them to subscribe for
or purchase any Common Stock or any other
subscription rights or warrants; or
(3) Of any reclassification of the capital
stock of the Company (other than a
subdivision or combination of its
outstanding Common Stock), or of any
consolidation or merger to which the Company
is a party and for which approval of any
shareholders of the Company is required, or
of the sale, lease, exchange or other
disposition of all or substantially all the
property and assets of the Company; or
(4) Of the voluntary or involuntary
liquidation, dissolution or winding up of
the Company;
35
<PAGE> 36
then the Company shall cause to be mailed to each
transfer agent or for the Series D Stock and to the
holders of record of the outstanding shares of Series
D Stock, at least 20 days (or 10 days in any case
specified in subclauses (I)(1) or (I)(2) above) prior
to the applicable record or effective date
hereinafter specified, a notice stating (x) the date
as of which the holders of record of Common Stock to
be entitled to such dividend, distribution, rights or
warrants are to be determined, or (y) the date on
which such reclassification, consolidation, merger,
sale, lease, exchange, disposition, liquidation,
dissolution or winding up is expected to become
effective, and the date as of which it is expected
that holders of record of Common Stock shall be
entitled to exchange their shares for securities or
other property, if any, deliverable upon such
reclassification, consolidation, merger, sale, lease,
exchange, disposition, liquidation, dissolution or
winding up. The failure to give the notice required
by this subclause (I), or any defect therein, shall
not affect the legality or validity of any such
dividend, distribution, right, warrant,
reclassification, consolidation, merger, sale, lease,
exchange, disposition, liquidation, dissolution or
winding up, or the vote on any action authorizing
such.
(J) The Company shall at all times reserve and keep
available out of its authorized but unissued Common
Stock, or Common Stock held as treasury shares, or a
combination of both, for the purpose or issuance upon
conversion of the Series D Stock, the full number of
shares of Common Stock then deliverable upon the
conversion of all shares of Series D Stock then
outstanding.
(K) For the purpose of this clause (viii) of
paragraph 9, the term "Common Stock" shall include
any shares of the Company of any class or series
which has no preference or priority in the payment of
dividends or in the distribution of assets upon any
voluntary or involuntary liquidation, dissolution or
winding up of the Company and which is not subject to
redemption by the Company. However, shares of Common
Stock issuable upon conversion of Series D Stock
shall include only shares of the class designated as
Common Stock as of the original date of issuance of
the Series D Stock, or shares of the Company of any
classes or series resulting from any reclassification
or reclassifications thereof and which have no
preference or priority in the payment of dividends or
in the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or
36
<PAGE> 37
winding up of the Company and which are not subject
to redemption by the Company, provided that if at any
time there shall be more than one such resulting
class or series, the shares of such class and series
then so issuable shall be substantially in the
proportion which the total number of shares of such
class and series, resulting from all such
reclassifications bears to the total number of shares
of all such classes and series resulting from all
such reclassifications.
(L) No fractional shares or scrip representing
fractional shares shall be issued upon the conversion
of Series D Stock. If any such conversion would
otherwise require the issuance of a fractional share,
an amount equal to such fraction multiplied by the
Closing Price (determined as provided in subclause
(C) above) of the Common Stock on the day of
conversion shall be paid to the holder in cash by the
Company.
(M) The certificate of any independent firm of public
accountants of recognized standing selected by the
Board of Directors shall be presumptive evidence of
the correctness of any computation made under this
clause (viii) of paragraph 9.
(ix) Shares of Series D Preferred Stock which are called for
redemption as hereinabove provided, but which shall be
converted into Common Stock as hereinabove provided prior to
their actual redemption, shall not be deemed to have been
redeemed for the purposes of this Article FOURTH.
10. Cumulative Participating Preferred Stock, Series E.
Section 1. Designation and Amount. There shall be a series of the Series
Preferred Stock of the Company which shall be designated as the "Cumulative
Participating Preferred Stock, Series E ($1 par value)" ("Series E Stock"), and
the number of shares constituting such series shall be 350,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series E Stock
to a number less than that of the shares then outstanding plus the number of
shares issuable upon exercise of outstanding rights, options or warrants or upon
conversion of outstanding securities issued by the Company
Section 2. Dividends and Distributions.
37
<PAGE> 38
(A) The holders of shares of Series E Stock, in preference to the
holders of shares of Common Stock, $5.00 par value (the "Common Stock"), of the
Company, shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds legally available for the purpose, quarterly dividends
payable in cash on the last day of March, June, September and December in each
year (each such date being referred to herein as a "Quarterly Dividend Payment
Date"), commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or fraction of a share of Series E Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $1.00, or (b)
subject to the provision for adjustment hereinafter set forth, 100 times the
aggregate per share amount of all cash dividends, and 100 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock, since the immediately preceding
Quarterly Dividend Payable Date, or, with respect to the first quarterly
Dividend Payment Date, since the first issuance of any share or fraction of a
share of Series E Stock. In the event the Company shall at any time after the
Rights Declaration Date (i) declare any dividend on Common Stock payable in
shares of Common Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of shares, then in
each such case the amount to which holders of shares of Series E Stock were
entitled immediately prior to such event under clause (b) of the preceding
sentence shall be adjusted by multiplying such amount by a fraction the
numerator of which is the number of shares of common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of common Stock that were outstanding immediately prior to such event.
(B) The Company shall declare a dividend or distribution on the Series
E Stock as provided in paragraph (A) above immediately after it declares a
dividend or distribution on the Common Stock (other than a dividend payable in
shares of Common Stock); provided that, in the event no dividend or distribution
shall have been declared on the Common Stock during the period between any
Quarterly Dividend Payment Date and the next subsequent Quarterly Dividend
Payment Date, a dividend of $1.00 per share on the Series E Stock shall
nevertheless be payable on such subsequent Quarterly Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series E Stock from the Quarterly Dividend Payment Date next preceding
the date of issue of such shares of Series E Stock, unless the date of issue of
such shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series E Stock entitled to receive a quarterly dividend and before
such Quarterly Dividend Payment Date in either of which events such
38
<PAGE> 39
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest. Dividends
paid on the shares of Series E Stock in an amount less than the total amount of
such dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding.
Section 3. Voting Rights. The holders of shares of Series E Stock shall have the
following voting rights:
(A) Each share of Series E Stock shall entitle the holder thereof to
one hundred votes, subject to adjustment as provided in paragraph B below, on
all matters submitted to a vote of the shareholders of the Company.
(B) Except as otherwise provided herein or by law, the holders of
shares of Series E Stock and the holders of shares of Common Stock shall vote
together as one class on all matters submitted to a vote of shareholders of the
Company. In the event the Company shall at any time after the Rights Declaration
Date (i) declare any dividend on Common Stock payable in shares of Common Stock,
(ii) subdivide the outstanding Common Stock, or (iii) combine the outstanding
Common Stock into a smaller number of shares, then in each such case the number
of votes to which holders of shares of Series E Stock were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction
the numerator of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to such event.
(C) Notwithstanding paragraph A above, each holder of Series E Stock
when voting as a class with the holders of all cumulative series of Series
Preferred Stock for the election of two members of the Board of Directors when
six (6) quarterly dividends on any one or more series of Series Preferred Stock
entitled to receive cumulative dividends shall be in default as provided in
paragraph 3 of Article FOURTH shall have one vote for each share of Series E
Stock held of record.
(D) Except as set forth herein, holders of Series E Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series E Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not
39
<PAGE> 40
declared, on shares of Series E Stock outstanding shall have been paid in full,
the Company shall not
(i) declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for
consideration any shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series E Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series E Stock, except dividends paid
ratably on the Series E Stock and all such parity stock on
which dividends are payable or in arrears in proportion to the
total amounts to which the holders of all such shares are then
entitled; or
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity (either
as to dividends or upon liquidation, dissolution or winding
up) with the Series E Stock, provided that the Company may at
any time redeem, purchase or otherwise acquire shares of any
such parity stock in exchange for shares of any stock of the
Company ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series E Stock;
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series E Stock purchased or
otherwise acquired by the Company in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. The Company shall cause all
such shares upon their cancellation to become authorized but unissued shares of
Preferred Stock which may be reissued as part of a new series of Preferred
Stock, subject to the conditions and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Company, no distribution shall be made to the holders of
shares of stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series E Stock unless, prior thereto, the
holders of shares of Series E Stock shall have received $20,000 per share, plus
an amount equal to
40
<PAGE> 41
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment (the "Series E Liquidation Preference"). Following
the payment of the full amount of the Series E Liquidation Preference, no
additional distributions shall be made to the holders of shares of Series E
Stock unless, prior thereto, the holders of shares of Common Stock shall have
received an amount per share (the "Common Adjustment") equal to the quotient
obtained by dividing (i) the series E Liquidation Preference by (ii) 100 (as
appropriately adjusted as set forth in subparagraph C below to reflect such
events as stock splits, stock dividends and recapitalizations with respect to
the Common Stock) (such number in clause (ii), the "Adjustment Number").
Following the payment of the full amount of the Series E Liquidation Preference
and the Common Adjustment in respect of all outstanding shares of Series E Stock
and Common Stock, respectively, holders of Series E Stock and holders of shares
of Common Stock shall receive their ratable and proportionate share of the
remaining assets to be distributed in the ratio of the Adjustment Number to 1
with respect to such Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event there are not sufficient assets available to permit
payment in full of the Series E Liquidation Preference and the liquidation
preferences of all other series of preferred stock, if any, which rank on a
parity with the Series E Stock, then such remaining assets shall be distributed
ratably to the holders of such parity shares in proportion to their respective
liquidation preferences. In the event there are not sufficient assets available
to permit payment in full of the Common Adjustment, then such remaining assets
shall be distributed ratably to the holders of Common Stock.
(C) In the event the Company shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable in shares of
Common Stock, (ii) subdivide the outstanding Common Stock, or (iii) combine the
outstanding Common Stock into a smaller number of shares, then in each such case
the Adjustment Number in effect immediately prior to such event shall be
adjusted by multiplying such Adjustment Number by a fraction the numerator of
which is the number of shares of Common Stock outstanding immediately after such
event and the denominator of which is the number of shares of Common Stock that
were outstanding immediately prior to such event.
Section 7. Consolidation, Merger, etc. In case the Company shall enter into any
consolidation, merger, combination or other transaction in which the shares of
Common Stock are exchanged for or changed into other stock or securities, cash
and/or any other property, then in any such case the shares of Series E Stock
shall at the same time be similarly exchanged or changed in an amount per share
(subject to the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any other property
(payable in kind), as the case may be, into which or for which each share of
Common Stock is changed or exchanged. In the event the Company shall at any time
after the Rights Declaration Date (i) declare any dividend on Common Stock
41
<PAGE> 42
payable in shares of Common Stock, (ii) subdivide the outstanding Common Stock,
or (iii) combine the outstanding Common Stock into a smaller number of shares,
then in each such case the amount set forth in the preceding sentence with
respect to the exchange or change of shares of Series E Stock shall be adjusted
by multiplying such amount by a fraction the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that are
outstanding immediately prior to such event.
Section 8. Redemption. The shares of Series E Stock shall not be redeemable.
Section 9. Amendment. The Certificate of Incorporation of the Company shall not
be further amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series E Stock so as to affect them
adversely without the affirmative vote of the holders of a majority of the
outstanding shares of Series E Stock, voting separately as a class.
Section 10. Fractional Shares. Series E Stock may be issued in fractions of a
share which shall entitle the holder, in proportion to such holder's fractional
shares, to exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of holders of Series
E. Stock.
(b) Common Stock
1. Issuance: From time to time Common Stock may be issued in
such amounts and for such purposes as shall be determined by
the Board of Directors.
2. Dividends: Subject to all the rights of the Series
Preferred Stock, such dividends as may be determined by the
Board of Directors may be declared and paid on the Common
Stock from time to time out of the surplus of the Company
legally available for the payment of dividends. The Board of
Directors shall, however, have power from time to time to fix
and determine and to vary the amount of the working capital of
the Company, and to direct and determine the use and
disposition of any surplus of the Company.
3. Voting Rights: Except as otherwise expressly provided with
respect to the Series Preferred Stock or with respect to any
series of the Series Preferred Stock, the Common Stock shall
have the exclusive right to vote for the election of directors
and for all other purposes, each holder of the Common Stock
being entitled to one vote for each share thereof held.
4. Liquidation: Upon any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, and after
the
42
<PAGE> 43
holders of the Series Preferred Stock of each series shall
have been paid in full the amounts to which they respectively
shall be entitled, or an amount sufficient to pay the
aggregate amount to which the holders of the Series Preferred
Stock of each series shall be entitled shall have been
deposited with a bank or trust company having its principal
office in the Borough of Manhattan, the City of New York, and
having a capital, surplus and undivided profits of at least
Twenty-Five Million Dollars ($25,000,000) as a trust fund for
the benefit of the holders of such Series Preferred Stock, the
remaining net assets of the Company shall be distributed pro
rata to the holders of the Common Stock in accordance with
their respective rights and interests, to the exclusion of the
holders of the Series Preferred Stock.
(c) General Provisions
1. Shares of Series Preferred Stock of the Company redeemed as
hereinabove provided shall be deemed retired and extinguished
and may not be reissued.
2. A consolidation or merger of the Company with or into
another corporation or corporations or a sale, whether for
cash, shares of stock, securities or properties, of all or
substantially all of the assets of the Company shall not be
deemed or construed to be a liquidation, dissolution or
winding up of the Company within the meaning of this Article.
3. No stockholder of the Company shall be entitled, as such,
as a matter of right, to subscribe for or purchase any part of
any new or additional issue of stock of any class or series
whatsoever, any rights or options to purchase stock of any
class or series whatsoever, or any securities convertible into
any stock of any class or series whatsoever, whether now or
hereafter authorized, and whether issued for cash or other
consideration, or by way of dividend.
4. The Board of Directors may from time to time issue scrip in
lieu of fractional shares of stock. Such scrip shall not
confer upon the holder any right to dividends or any voting or
other rights of a stockholder of the Company, but the Company
shall from time to time, within such time as the Board of
Directors may determine or without limit of time if the Board
of Directors so determines, issue one or more whole shares of
stock upon the surrender of scrip for fractional shares
aggregating the number of whose shares issuable in respect of
the scrip so surrendered, provided that the scrip so
43
<PAGE> 44
surrendered shall be properly endorsed for transfer if in
registered form.
FIFTH - The name and post-office address of each of the incorporators
and original subscribers to the capital stock, and the number of shares of
Common Stock subscribed for by each, are as follows:
<TABLE>
<CAPTION>
NUMBER
OF
POST-OFFICE SHARES
NAME ADDRESS
<S> <C> <C>
Bertram G. Work...................... Akron, Ohio....................... 18
Charles B. Raymond................. Akron, Ohio....................... 1
David M. Goodrich.................... New York, New York................ 1
20
Total
</TABLE>
SIXTH - The duration of the Company shall be perpetual.
SEVENTH - the directors shall have power, amongst other things:
(a) From time to time, to determine whether, and to what
extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Company, or any of them,
shall be open to the inspection of stockholders; and no stockholder
shall have any right to inspect any book or account or document of the
Company except as conferred by the statutes of New York or authorized
by the directors;
(b) Subject to the provisions of the aforesaid Stock
Corporation Law, to hold their meetings either within or without the
State of New York, and to have one or more offices, and to keep the
books of the Company (except the stock and transfer books and correct
books of account of all its business and transactions) outside the
State of New York, and at such place or places, as may from time to
time be designated by them;
(c) To provide by the By-Laws, or otherwise, for the
selection, from among their own number, of an executive committee of
such number as they may from time to time designate, and to delegate to
such executive committee all or any of the powers of the Board of
Directors, when the Board is not in session, provided that such
delegation of power is not contrary to law;
(d) To appoint such other standing committees as they may
determine, with such powers as shall be conferred by them or as may be
authorized by the By-Laws; and
44
<PAGE> 45
(e) To appoint or elect officers and assistant officers of the
Company.
EIGHTH - The Secretary of State of the State of New York is designated
as the agent of the Company upon whom process in any action or proceeding
against it may be served within the State of New York. The address to which the
Secretary of State shall mail a copy of process in any action or proceeding
against the Company which may be served upon him is c/o CT Corporation System,
1633 Broadway, New York, New York 10009. The name and address of the registered
agent which is to be the agent of the Company upon whom process against it may
be served are, CT Corporation System, 1633 Broadway, New York, New York 10009.
NINTH - No contract or other transaction between the Company and any
other corporation shall be affected by the fact that the directors of this
Company are interested in or are directors or officers of such other
corporation, and any director individually may be a party to or may be
interested in any contract or transaction of this Company; and no contract or
transaction of this Company with any person or persons, firm or association
shall be affected by the fact that any director or directors of this Company is
a party to or interested in such contract or transaction, or in any way
connected with such person or persons, firm or association, provided that the
interest in any such contract or other transaction of any such director shall be
fully disclosed and that such contract or other transaction shall be authorized
or ratified by the vote of a sufficient number of directors of the Company not
so interested; and each and every person who may become a director of this
Company is hereby relieved from any liability that might otherwise exist from
contracting with the Company for the benefit of himself or any firm, association
or corporation in which he may be in any wise interested.
TENTH - Subject always to the By-Laws made by the stockholders, the
Board of Directors may make By-Laws, and, from time to time, may alter, amend or
repeal any By-Laws; but any By-Laws made by the Board of Directors may be
altered, amended or repealed by the stockholders at any annual meeting, or at
any special meeting provided notice of such proposed alteration or repeal be
included in the notice of meeting.
ELEVENTH - Transactions with Shareholders.
A. Certain Purchases of Company Shares. Any direct or indirect
purchase or other acquisition by the Company of any class of the
Company's shares from any person or persons known by the Company to be
an Interested Shareholder (as hereinafter defined) who has beneficially
owned, directly or indirectly, any such securities for less than two
years prior to the date of such purchase or any agreement in respect
thereof shall, except as hereinafter expressly provided, require the
approval of a majority of the non-officer-directors of the Company and
the affirmative
45
<PAGE> 46
vote, to be solicited at the expense of such Interested Shareholder, of
not less than a majority of the votes entitled to be cast by the
holders of all then outstanding shares of Voting Stock (as hereafter
defined), voting together as a single class. Such affirmative vote
shall be required notwithstanding the fact that no vote may be
required, or that a lesser percentage of separate class vote may be
specified, by law or any other provision of this Certificate of
Incorporation or the By-Laws of this Company or otherwise.
Notwithstanding the foregoing, no such affirmative vote shall be
required with respect to:
(a) any offer to purchase made by the Company which is made on
the same terms and conditions to holders of all shares of the
same class of the Company,
(b) any purchase by the Company of its shares at a price no
higher than the higher of (i) the Closing Price (as
hereinafter defined) on the last trading date immediately
preceding the earlier of public disclosure of the repurchase
or the signing of a definitive repurchase agreement and (ii)
the average Closing Price during the 20 trading days
immediately preceding the date of such disclosure or
agreement.
The term "Closing Price" on the day in question means the
closing sale price on such day of a share of the Company's stock on the
Composite Tape for New York Stock Exchange-Listed Stocks, or, if the
stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or if the stock is not listed on such Exchange, on the
principal United States Securities Exchange registered under the
Securities Exchange Act of 1934 in which the stock is listed, or if the
stock is not listed on any such exchange, the highest closing bid
quotation with respect to a share of the stock on the National
Association of Securities Dealers, Inc. Automated Quotations System or
any similar system then in use, or if no such quotations are available,
the market value of the stock as determined in good faith by a majority
of the non-officer-directors of the Company present at a meeting of the
Board of Directors at which a quorum is present.
B. Business combinations with Substantial Shareholders. In
addition to any affirmative vote required by law or this Certificate of
Incorporation or the By-Laws of the Company, and except as otherwise
expressly provided in Section C of this Article ELEVENTH, a Business
Combination (as hereinafter defined) shall require the affirmative vote
of not less than eighty percent (80%) of the votes entitled to be cast
by the holders of all then outstanding shares of Voting Stock (as
hereinafter defined), voting together as a single class. Such
affirmative vote shall be required notwithstanding the fact that no
vote may be required, or that a
46
<PAGE> 47
lesser percentage or separate class vote may be specified, by law or
any other provision of this Certificate of Incorporation or the By-Laws
of this Company or otherwise.
C. When Higher Vote is Not Required. The provisions of Section
B of this Article ELEVENTH shall not be applicable to any particular
Business Combination, and such Business Combination shall require only
such affirmative vote, if any, as is required by law or by any other
provision of this Certificate of Incorporation or the By-Laws of this
Company, if all of the conditions specified in either of the following
Paragraphs 1 or 2 are met:
1. Approval by Disinterested Directors. The Business
Combination shall have been recommended by a majority (whether
such recommendation is made prior to or subsequent to the
acquisition of beneficial ownership of the Voting Stock that
caused the Substantial Shareholder [as hereinafter defined] to
become a Substantial Shareholder) of the Disinterested
Directors (as hereinafter defined) present at a meeting of the
Board of Directors at which a quorum is present.
2. Price and Procedure Requirements. All of the following
conditions shall have been met:
a. The aggregate amount of cash and the Fair Market
Value (as hereinafter defined) as of the date of the
consummation of the Business Combination (the
"Consummation Date") of consideration other than cash
to be received per share by holders of Common Stock
in such Business Combination shall be at least equal
to the highest amount determined under clauses (i)
and (ii) below:
(i) (if applicable) the highest per share
price (including any brokerage commissions,
transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Substantial
Shareholder for any share of Common Stock in
connection with (A) the acquisition by the
Substantial Shareholder of beneficial
ownership of shares of Common Stock within
the period beginning two years immediately
prior to the first public announcement of
the proposed Business Combination (the
"Announcement Date") and terminating on the
Consummation Date, or (B) in the transaction
in which it became a Substantial
Shareholder, which ever is higher; and
47
<PAGE> 48
(ii) the fair Market Value per share of
Common Stock on the Announcement Date or on
the date on which the Substantial Shareholder
became a Substantial Shareholder (such latter
date the "Determination Date"), whichever is
higher.
b. The aggregate amount of cash, plus the Fair Market
Value as of the Consummation Date of consideration
other than cash, to be received per share by holders
of shares of any class or series of outstanding
Preferred Stock, shall be at least equal to the
highest amount determined under clauses (i), (ii) and
(iii) below);
(i) (if applicable) the highest per share
price including any brokerage commissions,
transfer taxes and soliciting dealers' fees)
paid by or on behalf of the Substantial
Shareholder for any share of such class or
series of Preferred Stock in connection with
the acquisition by the Substantial
Shareholder of beneficial ownership of
shares of such class or series of Preferred
Stock within the period beginning two years
immediately prior to the Announcement Date
and terminating on the Consummation Date, or
in the transaction in which it became a
Substantial Shareholder, whichever is
higher;
(ii) the Fair Market Value per share of such
Preferred Stock on the Announcement Date or
on the Determination Date, whichever is
higher; and
(iii) (if applicable) the highest
preferential amount per share to which the
holders of shares of such class or series of
Preferred Stock would be entitled in the
event of any voluntary or involuntary
liquidation, dissolution or winding up of
the affairs of the Company, regardless of
whether the Business Combination to be
consummated constitutes such an event.
The provisions of Paragraphs C.2.a. and
C.2.b. shall be required to be met with respect to
every class or series of outstanding shares, whether
or not the Substantial Shareholder has previously
acquired beneficial ownership of any shares of a
particular class or series.
48
<PAGE> 49
c. The consideration to be received by holders of a
particular class or series of outstanding shares
shall be in cash or in the same form and in the same
relative proportion as previously has been paid by or
on behalf of the Substantial Shareholder or any
person referred to in Paragraph 6 of Section D of
this Article ELEVENTH in connection with its direct
or indirect acquisition of beneficial ownership of
shares of such class or series.
If the consideration so paid for shares of any class
or series varied as to form, the form of
consideration for such class or series of shares
shall be either cash or the form and in the same
relative proportion used to acquire beneficial
ownership of the largest number of shares of such
class or series previously acquired by the
Substantial Shareholder or any person referred to in
Paragraph 6 of Section D of this Article ELEVENTH.
The price determined in accordance with Paragraphs
(C).2.a. and (C).2.b. shall be subject to appropriate
adjustment in the event of any stock dividend, stock
split, reclassification of shares or similar event.
d. After such Substantial Shareholder has become a
Substantial Shareholder and prior to the consummation
of such Business Combination:
(i) except as recommended by a majority of
the Disinterested Directors present at a
meeting of the Board of Directors at which a
quorum is present, there shall have been no
failure to declare and pay at the regular
date therefor any full quarterly dividends
(whether or not cumulative) payable in
accordance with the terms of any outstanding
Preferred Stock;
(ii) there shall have been no reduction in
the annual rate of dividends paid on the
Common Stock (except as necessary to reflect
any stock split, stock dividend or
subdivision of the Common Stock), except as
recommended by a majority of the
Disinterested Directors present at a meeting
of the Board of Directors at which a quorum
is present;
(iii) there shall have been an increase in
the annual rate of dividends paid on the
Common Stock as necessary to reflect any
reclassification (including any reverse
stock split), recapitalization,
reorganization or any similar transaction
that has the
49
<PAGE> 50
effect of reducing the number of outstanding
shares of Common Stock, unless the failure
so to increase such annual rate is
recommended by a majority of the
Disinterested Directors present at a meeting
of the Board of Directors at which a quorum
is present.
e. After such Substantial Shareholder has become a
Substantial Shareholder, such Substantial Shareholder
shall not have received the benefit, directly or
indirectly (except as employee benefits or
proportionately as a shareholder of the Company), of
any loans, advances, guarantees, pledges or other
financial assistance or any tax credits or other tax
advantages provided by the Company, whether in
anticipation of or in connection with such Business
Combination or otherwise.
f. A proxy or information statement describing the
proposed Business Combination and complying with the
requirements of the Securities Exchange Act of 1934
and the rules and regulations thereunder (the "Act")
(or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed to all
shareholders of the Company at least 30 days prior to
the consummation of such business combination
(whether or not such proxy or information statement
is required to be mailed pursuant to such Act or
subsequent provisions). The proxy or information
statement shall contain on the first page thereof, in
a prominent place, any statement as to the
advisability (or inadvisability) of the Business
Combination that the Disinterested Directors, or any
of them, may choose to make and, if deemed advisable
by a majority of the Disinterested Directors, the
opinion of an investment banking firm selected by a
majority of such Disinterested Directors as to the
fairness (or lack of fairness) of the terms of the
Business Combination from a financial point of view
to the holders of the outstanding shares other than
the Substantial Shareholder and its Affiliates or
Associates (both terms as hereinafter defined), such
investment banking firm to be paid a reasonable fee
for its services by the Company.
g. Such substantial Shareholder shall not have made
any material change in the Company's business or
equity capital structure without the recommendation
of a majority of the Disinterested Directors present
at a meeting of the Board of Directors at which a
quorum is present.
50
<PAGE> 51
D. Certain Definitions. For the purposes of this Article
ELEVENTH:
1. The term "Business Combination" shall mean:
(a) any merger or consolidation of the Company or any
Subsidiary (as hereinafter defined) with (i) any
Substantial Shareholder or (ii) any other corporation
(whether or not itself a Substantial Shareholder)
which is or after such merger or consolidation would
be an Affiliate or Associate of a Substantial
Shareholder; or
(b) the adoption of any plan or proposal for the
liquidation or dissolution of the Company proposed by
or on behalf of a Substantial Shareholder or any
Affiliate or Associate of any Substantial
Shareholder; or
(c) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one transaction or
a series of transactions) to or with any Substantial
Shareholder or any Affiliate or Associate of any
Substantial Shareholder involving any assets or
securities of the Company or any Subsidiary having an
aggregate Fair Market Value of $25,000,000 or more;
or
(d) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Company, or any merger or consolidation of the
Company with any of its Subsidiaries or any other
transaction (whether or not with or otherwise
involving a Substantial Shareholder) that has the
effect, directly or indirectly, of increasing the
proportionate share of any class or series, or any
securities convertible into shares or into equity
securities of any Subsidiary, that is beneficially
owned by any Substantial Shareholder or any Affiliate
or Associate of any Substantial Shareholder; or
(e) any agreement, contract or other arrangement
providing for any one or more of the actions
specified in the foregoing clauses (a) to (d).
2. The term "Voting Stock" shall mean all shares issued from
time to time under Article FOURTH of this Certificate of
Incorporation and which by its terms may be voted generally in
the election of directors of the Company (it being understood
that each share of Voting Stock shall have the number of votes
granted to it pursuant to Article FOURTH).
51
<PAGE> 52
3. The term "person" shall mean any individual, firm,
corporation or other entity and shall include any group
comprised of any person and any other person with whom such
person or any Affiliate or Associate of such person has any
agreement, arrangement or understanding, directly or
indirectly, for the purpose of acquiring, holding, voting or
disposing of shares.
4. The term "interested Shareholder" shall mean any person
(other than the Company or any Subsidiary) who or which:
(a) is the beneficial owner (as hereinafter defined),
directly or indirectly, in the aggregate of three
percent (3%) or more of the class of securities to be
acquired; or
(b) is an Affiliate or Associate of the Company and
at any time within the two-year period immediately
prior to the date in question was the beneficial
owner, directly or indirectly, in the aggregate of
three percent (3%) or more of the class of securities
to be acquired; or
(c) is an assignee or has otherwise succeeded to any
shares of the class of securities to be acquired
which were at any time within the two-year period
immediately prior to the date in question
beneficially owned by an Interested Shareholder, if
such assignment or succession shall have occurred in
the course of a transaction or transactions not
involving a public offering within the meaning of the
Securities Act of 1933.
5. The term "Substantial Shareholder" shall mean any person
(other than the Company or any subsidiary) who or which:
(a) is the beneficial owner, directly or indirectly,
in the aggregate of more than twenty percent (20%) of
the voting power of the outstanding Voting Stock; or
(b) is an Affiliate or Associate of the Company and
at any time within the two-year period immediately
prior to the date in question was the beneficial
owner, directly or indirectly, in the aggregate of
twenty percent (20%) or more of the voting power of
the then outstanding Voting Stock; or
(c) is an assignee of or has otherwise succeeded to
any shares of Voting Stock which were at any time
within the two-year period immediately prior to the
date in question beneficially owned by any
Substantial Shareholder, if such
52
<PAGE> 53
assignment or succession shall have occurred in the
course of a transaction or series of transactions not
involving a public offering within the meaning of the
Securities Act of 1933.
6. A person shall be a "beneficial owner" of any Voting Stock:
(a) which such person or any of its Affiliates or
Associates beneficially owns, directly or indirectly;
or
(b) which such person or any of its Affiliates or
Associates has
(i) the right to acquire (whether such right
is exercisable immediately or only after the
passage of time), pursuant to any agreement,
arrangement or understanding or upon the
exercise of conversion rights, exchange
rights, warrants or options, or otherwise,
or
(ii) the right to vote pursuant to any
agreement, arrangement or understanding; or
(c) which are beneficially owned, directly or indirectly,
by any other person with which such person or any of
its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares
of Voting Stock.
7. For the purposes of determining whether a person is an
Interested Shareholder pursuant to Paragraph 4 of this Section
D, or a Substantial Shareholder pursuant to Paragraph 5 of
this Section D, the number of shares of Voting Stock deemed to
be outstanding shall include all shares deemed owned by such
person through application of Paragraph 6 of this Section D
but shall not include any other shares of Voting Stock which
may be issuable to others pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion
rights, warrants or options, or otherwise.
8. The terms "Affiliate" and "Associate" shall have the
respective meanings ascribed to such terms in Rule 12b-2 of
the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on February 1, 1985.
53
<PAGE> 54
9. The term "Subsidiary" means any corporation of which a
majority of any class of equity security is owned, directly or
indirectly, by the Company; provided, however, that for the
purposes of the definition of a Substantial Shareholder set
forth in Paragraph 5 of this Section D, the term "Subsidiary"
shall mean only a corporation of which a majority of each
class of equity security is owned, directly or indirectly, by
the Company.
10. The term "Disinterested Director" means any member of the
Board of Directors of the Company who is unaffiliated with the
Substantial Shareholder and was a member of the Board of
Directors prior to the time that the Substantial Shareholder
became a Substantial Shareholder, and any successor of a
Disinterested Director who is unaffiliated with the
Substantial Shareholder and is recommended to succeed a
Disinterested Director by a majority of Disinterested
Directors then on the Board of Directors.
11. The term "Fair Market Value" means:
(a) in the case of cash, the amount of such cash;
(b) in the case of stock, the highest closing sale
price during the 30-day period immediately preceding
the date in question of a share of such stock on the
Composite Tape for New York Stock Exchange-Listed
Stocks, or, if such stock is not quoted on the
Composite Tape, on the New York Stock Exchange, or,
if such stock is not listed on such Exchange, on the
principal United States securities exchange
registered under the Securities Exchange Act of 1934
on which such stock is listed, or, if such stock is
not listed on any such exchange, the highest closing
bid quotation with respect to a share of such stock
during the 30-day period preceding the date in
question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any
similar system then in use, or if no such quotations
are available, the fair market value on the date in
question of a share of such stock as determined in
good faith by a majority of the Disinterested
Directors present at a meeting of the Board of
Directors at which a quorum is present; and
(c) in the case of property other than cash or stock,
the fair market value of such property on the date in
question as determined in good faith by a majority of
the Disinterested Directors present at a meeting of
the Board of Directors at which a quorum is present.
54
<PAGE> 55
12. In the event of any Business Combination in which
the Company survives, the phrase "consideration other than
cash to be received" as used in paragraphs 2.a. and 2.b. of
Section C of this Article ELEVENTH shall include the shares of
Common Stock and/or the shares of any other class of series of
shares retained by the holders of such shares.
E. Powers of the Board of Directors. A majority of the
Disinterested Directors present at a meeting of the Board of Directors
at which a quorum is present shall have the power and duty to determine
for the purposes of this Article ELEVENTH, on the basis of information
known to them after reasonable inquiry, (a) whether a person is an
Interested Shareholder or a Substantial Shareholder, (b) the number of
shares of Voting Stock beneficially owned by any person, (c) the length
of time such shares are beneficially owned by any person, (d) whether a
person is an Affiliate or Associate of another, (e) whether the assets
which are the subject of any Business Combination have, or the
consideration to be received for the issuance or transfer of securities
by the Company or any Subsidiary in any Business Combination has, an
aggregate Fair Market Value of $25,000,000 or more, and (f) such other
matters with respect to which a determination or interpretation
required under this Article ELEVENTH.
F. No Effect on Fiduciary Obligation of Interested Shareholder
or Substantial Shareholder. Nothing contained in this Article ELEVENTH
shall be construed to relieve any Interested Shareholder or Substantial
Shareholder from any fiduciary obligation imposed by law.
G. Amendment, Repeal, etc. Notwithstanding any other
provisions of this Certificate of Incorporation or the By-Laws (and
notwithstanding the fact that a lesser percentage may be specified by
law, this Certificate of Incorporation or the By-Laws of this Company
or otherwise), the affirmative vote of not less than eighty percent
(80%) of the votes entitled to be cast by the holders of all then
outstanding shares of Voting Stock, voting together as a single class,
shall be required to amend, repeal or adopt any provisions inconsistent
with this Article ELEVENTH; provided, however, that this Section G
shall not apply to, and such eighty percent (80%) vote shall not be
required for, any amendment, repeal or adoption recommendation by a
majority of the Disinterested Directors present at a meeting of the
Board of Directors at which a quorum is present.
TWELFTH - No member of the Board of Directors shall have any personal
liability to the company or its shareholders for damages for any breach of duty
in such capacity, provided that this Article shall not eliminate or limit:
55
<PAGE> 56
(i) the liability of any Director if a judgment or other final
adjudication adverse to him or her establishes that his or her acts or
omissions were in bad faith or involved intentional misconduct or a
knowing violation of law or that he or she personally gained in fact a
financial profit or other advantage to which he or she was not legally
entitled or that his or her acts violated section 719 of the Business
Corporation Law; or
(ii) the liability of any Director for any act or omission prior to
the adoption of this Article.
Neither the amendment nor repeal of this Article, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article, shall eliminate or reduce the effect of this Article in respect of any
act or omission occurring prior to such amendment, repeal or adoption of an
inconsistent provision.
5. This amendment and restatement of the Certificate of Incorporation
of The B.F.Goodrich Company was authorized by the unanimous vote of the Board of
Directors of the Company at a meeting duly called and held, a quorum being
present, on the 6th day of June, 1988 and by the shareholders of the Company at
a special meeting duly called and held, a quorum being present, on the 27th day
of July, 1988.
IN WITNESS WHEREOF, the undersigned have executed and signed their
names and affirm that the statements made herein are true under the penalties of
perjury, this 29th day of July, 1988.
THE B.F.GOODRICH COMPANY
Jon V. Heider
Senior Vice President
Nicholas J. Calise
Secretary
56
<PAGE> 57
CERTIFICATE OF AMENDMENT
of
THE CERTIFICATE OF INCORPORATION
of
THE B.F.GOODRICH COMPANY
(Under Section 805 of the
Business Corporation Law)
-------------------------
Pursuant to the provisions of Section 805 of the Business Corporation
Law, the undersigned hereby certify:
1. The name of the corporation is The B.F.Goodrich Company (the
"Company"),
2. The Certificate of Incorporation of the Company was filed by the
Department of State on 2nd day of May, 1912.
3. The Certificate of Incorporation of the Company is hereby amended by
the addition of the following provision stating the number, designations,
relative rights, preferences and limitations of a series of Series Participating
Preferred Stock of the Company, designated as Junior Participating Preferred
Stock, Series F, par value $1 per share, as unanimously approved by the Board of
Directors of the Company at a meeting on June 2, 1997 pursuant to the authority
vested in it by the Certificate of Incorporation of the Company.
Junior Participating Preferred Stock, Series F:
Section 1. DESIGNATION AND AMOUNT. The shares of such series shall be
designated as "Junior Participating Preferred Stock, Series F" (the "Series F
Preferred Stock") and the number of shares constituting the Series F Preferred
Stock shall be 100,000. Such number of shares may be increased or decreased by
resolution of the Board of Directors; PROVIDED, that no decrease shall reduce
the number of shares of Series F Preferred Stock to a number less than the
number of shares then outstanding plus the number of shares reserved for
issuance upon the exercise of outstanding options, rights or warrants or upon
the conversion of any outstanding securities issued by the Company convertible
into Series F Preferred Stock.
<PAGE> 58
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) Subject to the rights of the holders of any shares of any series of
Preferred Stock (or any similar stock) ranking prior and superior to the Series
F Preferred Stock with respect to dividends, the holders of shares of Series F
Preferred Stock, in preference to the holders of Common Stock, par value $5 per
share (the "Common Stock"), of the Company, and of any other junior stock, shall
be entitled to receive, when, as and if declared by the Board of Directors out
of funds legally available for the purpose, quarterly dividends payable in cash
on the first day of January, April, July and October in each year (each such
date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first issuance
of a share or fraction of a share of Series F Preferred Stock, in an amount per
share (rounded to the nearest cent) equal to the greater of (a) $10 or (b)
subject to the provision for adjustment hereinafter set forth, 1000 times the
aggregate per share amount of all cash dividends, and 1000 times the aggregate
per share amount (payable in kind) of all non-cash dividends or other
distributions, other than a dividend payable in shares of Common Stock or a
subdivision of the outstanding shares of Common Stock (by reclassification or
otherwise), declared on the Common Stock since the immediately preceding
Quarterly Dividend Payment Date or, with respect to the first Quarterly Dividend
Payment Date, since the first issuance of any share or fraction of a share of
Series F Preferred Stock. In the event the Company shall at any time declare or
pay any dividend on the Common Stock payable in shares of Common Stock, or
effect a subdivision or combination or consolidation of the outstanding shares
of Common Stock (by reclassification or otherwise than by payment of a dividend
in shares of Common Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the amount to which holders of shares of Series F
Preferred Stock were entitled immediately prior to such event under clause (b)
of the preceding sentence shall be adjusted by multiplying such amount by a
fraction, the numerator of which is the number of shares of Common Stock
outstanding immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding immediately prior to such
event.
(B) The Company shall declare a dividend or distribution on the Series
F Preferred Stock as provided in paragraph (A) of this Section immediately after
it declares a dividend or distribution on the Common Stock (other than a
dividend payable in shares of Common Stock); provided that, in the event no
dividend or distribution shall have been declared on the Common Stock during the
period between any Quarterly Dividend Payment Date and the next subsequent
Quarterly Dividend Payment Date, a dividend of $10 per share on the Series F
Preferred Stock shall nevertheless be payable on such subsequent Quarterly
Dividend Payment Date.
(C) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series F Preferred Stock from the Quarterly Dividend Payment Date next
preceding the date of issue of such shares, unless the date of issue of such
shares is prior to the record date for the first Quarterly Dividend Payment
Date, in which case dividends on such shares shall begin to accrue from the date
of issue of such shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the determination of holders
of shares of Series F Preferred Stock entitled to receive a quarterly dividend
and before such Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such Quarterly Dividend
Payment Date. Accrued but unpaid dividends shall not bear interest.
2
<PAGE> 59
Dividends paid on the shares of Series F Preferred Stock in an amount less than
the total amount of such dividends at the time accrued and payable on such
shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series F Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be not more than 50 days prior to the date fixed for the payment
thereof.
Section 3. VOTING RIGHTS. The holders of shares of Series F Preferred
Stock shall have the following voting rights:
(A) Subject to the provision for adjustment hereinafter set forth, each
share of Series F Preferred Stock shall entitle the holder thereof to 1000 votes
on all matters submitted to a vote of the shareholders of the Company. In the
event the Company shall at any time declare or pay any dividend on the Common
Stock payable in shares of Common Stock, or effect a subdivision or combination
or consolidation of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common Stock) into a
greater or lesser number of shares of Common Stock, then in each such case the
number of votes per share to which holders of shares of Series F Preferred Stock
were entitled immediately prior to such event shall be adjusted by multiplying
such number by a fraction, the numerator of which is the number of shares of
Common Stock outstanding immediately after such event and the denominator of
which is the number of shares of Common Stock that were outstanding immediately
prior to such event.
(B) Except as otherwise provided herein, in any other Certificate of
Designations creating a series of Preferred Stock or any similar stock, or by
law, the holders of shares of Series F Preferred Stock and the holders of shares
of Common Stock and any other capital stock of the Company having general voting
rights shall vote together as one class on all matters submitted to a vote of
shareholders of the Company.
(C) Except as set forth herein, or as otherwise provided by law,
holders of Series F Preferred Stock shall have no special voting rights and
their consent shall not be required (except to the extent they are entitled to
vote with holders of Common Stock as set forth herein) for taking any corporate
action.
Section 4. CERTAIN RESTRICTIONS.
(A) Whenever quarterly dividends or other dividends or distributions
payable on the Series F Preferred Stock as provided in Section 2 are in arrears,
thereafter and until all accrued and unpaid dividends and distributions, whether
or not declared, on shares of Series F Preferred Stock outstanding shall have
been paid in full, the Company shall not:
(i) declare or pay dividends, or make any other distributions,
on any shares of stock ranking junior (either as to dividends
or upon liquidation, dissolution or winding up) to the Series
F Preferred Stock;
(ii) declare or pay dividends, or make any other
distributions, on any shares of stock ranking on a parity
(either as to dividends or upon
3
<PAGE> 60
liquidation, dissolution or winding up) with the Series F
Preferred Stock, except dividends paid ratably on the Series F
Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series F Preferred Stock, provided that the Company may at
any time redeem, purchase or otherwise acquire shares of any
such junior stock in exchange for shares of any stock of the
Company ranking junior (either as to dividends or upon
dissolution, liquidation or winding up) to the Series F
Preferred Stock; or
(iv) redeem or purchase or otherwise acquire for consideration
any shares of Series F Preferred Stock, or any shares of stock
ranking on a parity with the Series F Preferred Stock, except
in accordance with a purchase offer made in writing or by
publication (as determined by the Board of Directors) to all
holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual
dividend rates and other relative rights and preferences of
the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
(B) The Company shall not permit any subsidiary of the Company to
purchase or otherwise acquire for consideration any shares of stock of the
Company unless the Company could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in such manner.
Section 5. REACQUIRED SHARES. Any shares of Series F Preferred Stock
purchased or otherwise acquired by the Company in any manner whatsoever shall be
retired and cancelled promptly after the acquisition thereof. All such shares
shall upon their cancellation become authorized but unissued shares of Preferred
Stock and may be reissued as part of a new series of Preferred Stock subject to
the conditions and restrictions on issuance set forth herein, in the Certificate
of Incorporation, or in any other Certificate of Designations creating a series
of Preferred Stock or any similar stock or as otherwise required by law.
Section 6. LIQUIDATION, DISSOLUTION OR WINDING UP. Upon any
liquidation, dissolution or winding up of the Company, no distribution shall be
made (1) to the holders of shares of stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to the Series F
Preferred Stock unless, prior thereto, the holders of shares of Series F
Preferred Stock shall have received $1000 per share, plus an amount equal to
accrued and unpaid dividends and distributions thereon, whether or not declared,
to the date of such payment, provided that the holders of shares of Series F
Preferred Stock shall be entitled to receive an aggregate amount per share,
subject to the provision for adjustment hereinafter set forth, equal to 1000
times the aggregate amount to be distributed per share to holders of shares of
Common Stock, or (2) to the holders of shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or winding up) with the
Series F Preferred Stock, except distributions made ratably on the Series F
Preferred Stock and all such parity stock in proportion to the total
4
<PAGE> 61
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up. In the event the Company shall at any
time declare or pay any dividend on the common Stock payable in shares of Common
Stock, or effect a subdivision or combination or consolidation of the
outstanding shares of Common Stock (by reclassification or otherwise than by
payment of a dividend in shares of Common Stock) into a greater or lesser number
of shares of Common Stock, then in each such case the aggregate amount to which
holders of shares of Series F Preferred Stock were entitled immediately prior to
such event under the proviso in clause (1) of the preceding sentence shall be
adjusted by multiplying such amount by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after such event and
the denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 7. CONSOLIDATION, MERGER, ETC. In case the Company shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case each share of
Series F Preferred Stock shall at the same time be similarly exchanged or
changed into an amount per share, subject to the provision for adjustment
hereinafter set forth, equal to 1000 times the aggregate amount of stock,
securities, cash and/or any other property (payable in kind), as the case may
be, into which or for which each share of Common Stock is changed or exchanged.
In the event the Company shall at any time declare or pay any dividend on the
Common Stock payable in shares of Common Stock, or effect a subdivision or
combination or consolidation of the outstanding shares of Common Stock (by
reclassification or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common Stock, then in each
such case the amount set forth in the preceding sentence with respect to the
exchange or change of shares of Series F Preferred Stock shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
shares of Common Stock outstanding immediately after such event and the
denominator of which is the number of shares of Common Stock that were
outstanding immediately prior to such event.
Section 8. NO REDEMPTION. The shares of Series F Preferred Stock shall
not be redeemable.
Section 9. RANK. The Series F Preferred Stock shall rank, with respect
to the payment of dividends and the distribution of assets, junior to all series
of any other class of the Company's Preferred Stock.
Section 10. AMENDMENT. The Certificate of Incorporation of the Company
shall not be amended in any manner which would materially alter or change the
powers, preferences or special rights of the Series F Preferred Stock so as to
affect them adversely without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Series F Preferred Stock, voting
together as a single class.
<PAGE> 62
IN WITNESS WHEREOF, we have executed and subscribed this Certificate of
Amendment, and do affirm the foregoing as true, under penalties of perjury this
31st day of July, 1997.
--------------------------------------
Name: David L. Burner
Title: Chairman, President and
Chief Executive Officer
--------------------------------------
Name: Nicholas J. Calise
Title: Secretary
<PAGE> 63
CERTIFICATE OF AMENDMENT
OF
THE CERTIFICATE OF INCORPORATION
OF
THE B.F.GOODRICH COMPANY
(Under Section 805 of the
Business Corporation Law)
------------------------------
Pursuant to the provisions of Section 805 of the
Business Corporation Law, the undersigned hereby certify:
1. The name of the corporation is The B.F.Goodrich Company
(the "Company").
2. The Certificate of Incorporation of the Company was filed
by the Department of State on the 2nd day of May, 1912.
3. The Certificate of Incorporation of the Company is hereby
amended to modify Article FOURTH to increase the number of authorized shares of
Common Stock from 100,000,000 to 200,000,000 shares by deleting the existing
Article Fourth in its entirety and substituting the following:
"FOURTH -- The aggregate number of shares which the Company
shall have authority to issue is 210,000,000, divided into 10,000,000
shares of Series Preferred Stock of the par value of $1 per share
(hereafter called "Series Preferred Stock"), and 200,000,000 shares of
Common Stock of the par value of $5 per share (hereafter called "Common
Stock")."
4. This amendment of the Certificate of Incorporation of The
B.F.Goodrich Company was authorized by the unanimous vote of the Board of
Directors of the Company at a meeting duly called and held, a quorum being
present, on the 16th day of
<PAGE> 64
February 1998 and by a vote of the holders of a majority of the outstanding
shares of the Company's Common Stock at a meeting duly called and held, a quorum
being present, on the 20th day of April 1998.
IN WITNESS WHEREOF, we have executed and subscribed this
Certificate of Amendment, and do affirm the foregoing as true, under penalties
of perjury this 30th day of April, 1998.
/s/ DAVID L. BURNER
-------------------------------
David L. Burner, Chairman,
President and Chief Executive
Officer
/s/ NICHOLAS J. CALISE
-------------------------------
Nicholas J. Calise, Secretary
<PAGE> 1
Exhibit 10(A)
THE B.F.GOODRICH COMPANY
STOCK OPTION PLAN
(Amended February 16, 1998)
1. PURPOSE. The purpose of the Plan is to promote the interests of the
shareholders by providing stock-based incentives to selected employees to align
their interests with shareholders and to motivate them to put forth maximum
efforts toward the continued growth, profitability and success of the Company.
In furtherance of this objective, stock options, stock appreciation rights,
performance shares, restricted shares, common stock, and/or other incentive
awards may be granted in accordance with the provisions of this Plan.
2. ADMINISTRATION. The Plan is to be administered by the Compensation
Committee or any successor committee (the "Committee") of the Board of Directors
of the Company. The Committee shall consist of at least three members who shall
not be eligible to participate in the Plan. The Committee shall have full power
and authority to construe, interpret and administer the Plan. All decisions,
actions or interpretations of the Committee shall be final, conclusive and
binding on all parties.
The Committee may delegate to the Chief Executive Officer and to
other senior officers of the Company the authority to make awards under the Plan
with respect to not more than ten percent of the shares authorized under the
Plan, pursuant to such conditions and limitations as the Committee may
establish, except that only the Committee may make awards to Participants who
are subject to Section 16 of the Securities Exchange Act of 1934.
3. SHARES AVAILABLE FOR THE PLAN. An aggregate of 3,200,000 shares of
common stock of the Company shall be available for delivery pursuant to the
provisions of the Plan. Such shares may be either authorized but unissued shares
or treasury shares. Any shares awarded under the Plan which are not issued or
otherwise are returned to the Company, whether because awards have been
forfeited, lapsed, expired, been canceled, withheld to satisfy withholding tax
obligations or otherwise, shall again be available for other awards under the
Plan. However, upon surrender of a stock option or exercise of any related stock
appreciation right, the number of shares subject to the surrendered option shall
be charged against the maximum number of shares issuable under the Plan and
shall not be available for future awards.
4. LIMITATION ON AWARDS. No individual employee may receive awards
under this Plan with respect to more than 200,000 shares in any calendar year.
5. TERM. No awards may be made under this Plan after April 15, 2001.
<PAGE> 2
6. ELIGIBILITY. Awards under the Plan may be made to any salaried,
full-time employee of the Company or any subsidiary corporation of which more
than 50% of the voting stock is owned by the Company.
Directors who are not full-time employees are not eligible to participate.
7. STOCK OPTIONS. The Committee may in its discretion from time to time
grant to eligible employees options to purchase, at a price not less than 100%
of the fair market value on the date of grant (the "option price"), common stock
of the Company, subject to the conditions set forth in this Plan. The Committee
may not reduce the option price of any stock option grant after it is made,
except in connection with a Corporate Reorganization, nor may the Committee
agree to exchange a new lower priced option for an outstanding higher priced
option
The Committee, at the time of granting to any employee an
option to purchase shares or any related stock appreciation right or limited
stock appreciation right under the Plan, shall fix the terms and conditions upon
which such option or appreciation right may be exercised, and may designate
options incentive stock options pursuant to Section 422 of the Internal Revenue
Code of 1986, as amended (the "Internal Revenue Code") or any other statutory
stock option that may be permitted under the Internal Revenue Code from time to
time, provided, however that (i) the date on which such options and related
appreciation rights shall expire, if not exercised, may not be later than ten
years after the date of grant of the option, (ii) in the case of options
designated as incentive stock options (as defined in Section 422 of the Internal
Revenue Code), the aggregate fair market value of stock optioned to an employee
(determined at time of grant) under this plan or any other plan of this Company
and its subsidiaries with respect to which incentive stock options are
exercisable for the first time by such employee during any calendar year shall
be limited to $100,000 (unless such Section 422 limit is revised, then in
conformance with such revision) and (iii) in case of any other statutory stock
option permitted under the Internal Revenue Code, then in accordance with such
provisions as in effect from time to time.
Within the foregoing limitations, the Committee shall have the
authority in its discretion to specify all other terms and conditions, including
but not limited to provisions for the exercise of options in installments, the
time limits during which options may be exercised, and in lieu of payment in
cash, the exercise in whole or in part of options by tendering common stock of
the Company owned by the employee, valued at the fair market value on the date
of exercise or other acceptable forms of consideration equal in value to the
option price. The Committee may, in its discretion, issue rules or conditions
with respect to utilization of common stock for all or part of the option price,
including limitations on the pyramiding of shares.
8. STOCK APPRECIATION RIGHTS. The Committee may, in its discretion,
grant stock appreciation rights and limited stock appreciation rights (as
hereinafter described) in connection with any stock option, either at the time
of grant of such stock option or any
-2-
<PAGE> 3
time thereafter during the term of such stock option. Except for the terms of
this Plan with respect to limited stock appreciation rights, each stock
appreciation right shall be subject to the same terms and conditions as the
related stock option and shall be exercisable at such times and to such extent
as the Committee shall determine, but only so long as the related option is
exercisable. The number of stock appreciation rights or limited stock
appreciation rights shall be reduced not only by the number of appreciation
rights exercised but also by the number of shares purchased upon the exercise of
a related option. A related stock option shall cease to be exercisable to the
extent the stock appreciation rights or limited stock appreciation rights are
exercised. Upon surrender to the Company of the unexercised related stock
option, or any portion thereof, a stock appreciation right shall entitle the
optionee to receive from the Company in exchange therefor (a) a payment in stock
as determined below, or (b) to the extent determined by the Committee, the cash
equivalent of the fair market value of such payment in stock on the exercise
date had the employee been awarded a payment in stock instead of cash, or any
combination of stock and cash. The number of shares which shall be issued
pursuant to the exercise of stock appreciation rights shall be determined by
dividing (1) the total number of stock appreciation rights being exercised
multiplied by the amount by which the fair market value of a share of common
stock of the Company on the exercise date exceeds the option price of the
related option, by (2) the fair market value of a share of common stock of the
Company on the exercise date. No fractional shares shall be issued.
The grant of limited stock appreciation rights will permit a
grantee to exercise such limited stock appreciation rights for cash during a
sixty-day period commencing on the date on which any of the events described in
the definition of Change of Control occurs. The amount of cash received upon the
exercise of any limited stock appreciation rights shall equal the excess, if
any, of the fair market value of a share of the Company's common stock on the
date of exercise of the limited stock appreciation rights, over the option price
of the stock option to which the limited stock appreciation rights relate.
9. PERFORMANCE SHARE AWARDS. The Committee may make awards in common
stock subject to conditions established by the Committee which may include
attainment of specific performance objectives ("Performance Share Awards").
Performance Share Awards may include the awarding of additional shares upon
attainment of the specified performance objectives.
10. PERFORMANCE OBJECTIVES. Performance objectives that may be used
under the Plan include Net Income, Pretax Income, Consolidated Operating Income,
Segment Operating Income, Return on Equity, Operating Income Return on Net
Capital Employed, Return on Assets, Cash Flow, Working Capital and Earnings per
Share of Common Stock of the Company (the "Performance Objectives"). The
Performance Objectives shall be calculated without regard to any change in
accounting standards adopted pursuant to the Financial Accounting Standards
Board after the goal for a Performance Objective is adopted which will affect
the performance measure by 10 percent or more.
-3-
<PAGE> 4
11. RESTRICTED SHARES. The Committee may make awards in common stock
subject to conditions, if any, established by the Committee which may include
continued service with the Company or its subsidiaries. Any award of Restricted
Shares which is conditioned upon continued employment shall be conditioned upon
continued employment for a minimum period of two years and ten months following
the award, except in the case of death, disability or retirement. The maximum
number of Restricted Shares that may be awarded under the plan shall be 800,000
shares.
12. OTHER AWARDS. The Committee may make awards authorized under this
Plan in Units, the value of which is based, in whole or in part, on the value of
the Company's common stock, in lieu of making such awards in common stock. The
Committee may provide for the deferral of cash-based awards under such terms and
conditions as in its discretion it deems appropriate.
12A. DEFERRED AWARDS. The Committee may permit recipients of awards to
elect to defer receipt of such awards under such terms and conditions that the
Committee may prescribe. The Committee may authorize the Company to establish
various trusts or make other arrangements with respect to any deferred awards.
13. FAIR MARKET VALUE. For all purposes of this Plan the fair market
value of a share of stock shall be the mean of the high and low prices of the
Company's common stock on the relevant date as reported on the New York Stock
Exchange -- Composite Transactions listing (or similar report), or, if no sale
was made on such date, then on the next preceding day on which such a sale was
made.
14. TERMINATION OF EMPLOYMENT. Upon the termination of employment of
any employee for any reason, his or her options and any related appreciation
rights shall terminate at that time with respect to all shares which were not
then purchasable by him or her, provided, however, that if the termination of
employment is by reason of death, disability or retirement the Committee may in
its sole discretion provide that such options and related appreciation rights
shall not terminate upon death, disability or retirement and may become
immediately exercisable or continue to become exercisable in accordance with the
terms of the original grant.
15. ASSIGNABILITY. Options and any related appreciation rights and
other awards granted under this Plan shall not be transferable other than by
will or the laws of descent and distribution or by such other means as the
Committee may approve from time to time.
16. CORPORATE REORGANIZATION. The number and kind of shares authorized
for delivery under the Plan and the price at which shares may be purchased may
be adjusted appropriately in the event of any stock split, stock dividend,
combination of
-4-
<PAGE> 5
shares, merger, consolidation, reorganization, or other change in the structure
of the Company or the nature of the shares of the Company. The determination of
what adjustments, if any, are appropriate shall be made in the discretion of the
Board of Directors or the Committee.
In the event of a dissolution or liquidation of the Company or a
merger, consolidation, sale of all or substantially all of its assets, or other
corporate reorganization in which the Company is not the surviving corporation
or any merger in which the Company is the surviving corporation but the holders
of its common stock receive securities of another corporation, any outstanding
options hereunder shall terminate, provided that each optionee shall, in such
event, have the right immediately prior to such dissolution, liquidation,
merger, consolidation, sale of assets or reorganization in which the Company is
not the surviving corporation or any merger in which the Company is the
surviving corporation but the holders of its common stock receive securities of
another corporation, to exercise any unexpired option and/or stock appreciation
right in whole or in part without regard to the exercise date contained in such
option. Nothing herein contained shall prevent the assumption and continuation
of any outstanding option or the substitution of a new option by the surviving
corporation.
17. COMMITTEE'S DETERMINATION. The Committee's determinations under the
Plan including without limitation, determinations of the employees to receive
awards or grants, the form, amount and timing of such awards or grants, the
terms and provisions of such awards or grants and the agreements evidencing
same, and the establishment of Performance Objectives need not be uniform and
may be made by it selectively among employees who receive, or are eligible to
receive awards or grants under the Plan whether or not such employees are
similarly situated.
18. LEAVE OF ABSENCE OR OTHER CHANGE IN EMPLOYMENT STATUS. The
Committee shall be entitled to make such rules, regulations and determinations
as it deems appropriate under the Plan in respect of any leave of absence taken
by an employee or any other change in employment status, such as a change from
full time employment to a consulting relationship, of an employee relative to
any grant or award. Without limiting the generality of the foregoing, the
Committee shall be entitled to determine (i) whether or not any such leave of
absence or other change in employment status shall constitute a termination of
employment within the meaning of the Plan and (ii) the impact, if any, of any
such leave of absence or other change in employment status on awards under the
Plan theretofore made to any employee who takes such leave of absence or
otherwise changes his or her employment status.
19. WITHHOLDING TAXES. The Committee shall have the right to require
any Federal, state or local withholding tax requirements to be satisfied by
withholding shares of common stock or other amounts which would otherwise be
payable under the Plan.
-5-
<PAGE> 6
20. RETENTION OF SHARES. If shares of common stock are awarded subject
to attainment of Performance Objectives, continued service with the Company or
other conditions, the shares may be registered in the employees' names when
initially awarded, but possession of certificates for the shares shall be
retained by the Secretary of the Company for the benefit of the employees, or
shares may be registered in book entry form only, in both cases subject to the
terms of this Plan and the conditions of the particular awards. In either event,
each employee shall have the right to receive all dividends and other
distributions made with respect to such awards registered in his or her name and
shall have the right to vote or execute proxies with respect to such registered
shares.
21. FORFEITURE OF AWARDS. Any awards or parts thereof made under this
plan which are subject to Performance Objectives or other conditions which are
not satisfied, shall be forfeited, and any shares of common stock issued shall
revert to the Treasury of the Company.
22. CONTINUED EMPLOYMENT. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any employee the right to
continue in the employment of the Company or affect any right which the Company
may have to terminate the employment of such employee.
23. CHANGE IN CONTROL. For purposes of the Plan, a Change in
Control shall mean:
(i) The acquisition by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")), of beneficial ownership (within the meaning of
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the
then outstanding shares of common stock of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the election of
directors (the "Outstanding Company Voting Securities"); provided, however, that
the following acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company (other than by exercise of a conversion
privilege), (B) any acquisition by the Company or any of its subsidiaries, (C)
any acquisition by any employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries or (D) any acquisition by
any corporation with respect to which, following such acquisition, more than 70%
of, respectively, the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the Outstanding
Company Common Stock and Company Voting Securities immediately prior to such
acquisition in substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding Company Common Stock
and Outstanding Company Voting Securities, as the case may be; or
-6-
<PAGE> 7
(ii) During any period of two consecutive years, individuals
who, as of the beginning of such period, constitute the Board (the "Incumbent
Board"), cease for any reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director subsequent to the
beginning of such period whose election, or nomination for election by the
Company's shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial assumption of office occurs as a
result of either an actual or threatened election contest (as such terms are
used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or
(iii) approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with respect to which all
or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such reorganization, merger or
consolidation, do not, following such reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than 70% of, respectively, the
then outstanding shares of common stock and the combined voting power of the
then outstanding voting securities entitled to vote generally in the election of
directors, as the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the same proportions as
their ownership, immediately prior to such reorganization, merger or
consolidation of the Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be; or
(iv) Approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) a sale or other
disposition of all or substantially all of the assets of the Company, other than
to a corporation, with respect to which following such sale or other
disposition, more than 70% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power of the then
outstanding voting securities of such corporation to vote generally in the
election of directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the beneficial
owners, respectively, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities immediately prior to such sale or other disposition in
substantially the same proportion as their ownership, immediately prior to such
sale or other disposition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be.
24. EFFECT OF CHANGE IN CONTROL. Options and any related appreciation
rights that are not then exercisable shall become immediately exercisable in the
event of a Change in Control. The Committee may make such provision with respect
to other awards under this Plan as it deems appropriate in its discretion.
25. COMPLIANCE WITH LAWS AND REGULATIONS. Notwithstanding any other
provisions of the Plan, the issuance or delivery of any shares may be postponed
for
-7-
<PAGE> 8
such period as may be required to comply with any applicable requirements of any
national securities exchange or any requirements under any other law or
regulation applicable to the issuance or delivery of such shares, and the
Company shall not be obligated to issue or deliver any such shares if the
issuance or delivery thereof shall constitute a violation of any provision of
any law or any regulation of any governmental authority, whether foreign or
domestic, or any national securities exchange.
26. AMENDMENT. The Board of Directors of the Company may alter or amend
the Plan, in whole or in part, from time to time, or terminate the Plan at any
time, provided however, that no amendment shall be made without the approval of
the shareholders which has the effect of increasing the number of shares subject
to this Plan (other than in connection with a Corporate Reorganization), but no
such action shall adversely affect any rights or obligations with respect to
awards previously made under the Plan.
-8-
<PAGE> 1
Exhibit 10(C)
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AGREEMENT
------------------------------------------------
THIS AGREEMENT dated as of the day of , , by and between
The B.F.Goodrich Company, a New York corporation (the "Company"),
and (the "Executive Employee");
WITNESSETH:
WHEREAS, the Employee will not receive the same level of benefits under The
B.F.Goodrich Retirement Program for Salaried Employees (together with any
successor Pension Plan, the "Goodrich Pension Plan") as will employees who
commenced employment with the Company at an early age; and
WHEREAS, the Compensation Committee of the Board of Directors of the Company
desires that the Executive Employee receive the benefits of a Supplemental
Executive Retirement Plan Agreement authorized by the Board of Directors, which
provides certain supplemental pension and retiree medical benefits;
NOW THEREFORE, in consideration of the services rendered and to be rendered by
the Executive Employee and of the covenants contained herein, the parties agree
as follows:
-1-
<PAGE> 2
1. Alternative, Supplemental and Health Benefits
---------------------------------------------
In the event that the employment of the Executive Employee is
terminated for any reason, including termination by reason of death, disability,
retirement or voluntary or involuntary termination, the Company agrees that,
pursuant to the terms and conditions of this Agreement:
(a) The Company shall pay or cause to be paid an Alternative
Pension Benefit as provided in Section 2, et seq., hereof; and
(b) The Company shall pay or cause to be paid a Supplemental
Pension Benefit as provided in Section 3, et seq., hereof; and
(c) The Company shall pay or cause to be paid a Supplemental
Retiree Medical Benefit as provided in Section 4, et seq., hereof.
2. Alternative Pension Benefit
---------------------------
The Company shall pay or cause to be paid a monthly pension benefit
(the "Alternative Pension Benefit") which shall be calculated and paid as if it
had been determined and paid according to the provisions of the Goodrich Pension
Plan or any successor pension plan which is in effect at the time of such
termination of employment without regard to any limitation contained in Sections
401(a)(17) or 415 of the Internal Revenue Code of 1986, as amended, or any
similar subsequent
-2-
<PAGE> 3
provisions thereof, notwithstanding that the Executive Employee may not have
sufficient service with the Company to qualify for a pension benefit pursuant to
the Goodrich Pension Plan.
(a) For purposes of such calculation, the Executive Employee
shall be considered to have earned and to be eligible to receive a
vested pension benefit without regard to the years of service
requirement for vesting under the Goodrich Pension Plan.
(b) The Executive Employee's service for pension benefit
computation purposes shall be the Executive Employee's continuous
period of service (in completed years and months as calculated under
the Goodrich Pension Plan) with the Company from the date of such
employee's employment to the date of termination of such employment.
(c) In the event that the Executive Employee has less than
four years of continuous service at the termination of employment, the
Executive Employee's "Final Average Earnings" (as that term or similar
subsequent term is defined in the Goodrich Pension Plan) will be the
result obtained by dividing such employee's aggregate "Earnings" (as
that term or similar subsequent term is defined in the Goodrich Pension
Plan) paid to such employee during the period of the Executive
Employee's employment by the Company by the number of full months in
such period of employment and multiplying such intermediate result by
twelve.
(d) From that amount which is determined according to this
Section 2 to be the Executive Employee's Alternative Pension Benefit,
an amount will be subtracted which is actuarially equivalent to the
aggregate benefit, if any, which is actually paid to the Executive
-3-
<PAGE> 4
Employee or eligible beneficiaries from the Goodrich Pension Plan and
Benefit Restoration Plan.
(e) The Alternative Pension Benefit shall be payable according
to the same payment option elected by the Executive Employee for
benefit payments under the Goodrich Pension Plan, or which could be
elected if the Executive Employee were eligible for a benefit under the
Goodrich Pension Plan.
3. Supplemental Pension Benefit
----------------------------
In addition to such monthly benefits as are owing to the Executive
Employee or eligible beneficiaries either pursuant to the Goodrich Pension Plan
and/or Section 2 of this Agreement, the Company shall pay or cause to be paid, a
supplemental pension benefit (the "Supplemental Pension Benefit") which shall be
calculated and paid according to the Goodrich Pension Plan without regard to any
limitation contained in Sections 401(a)(17) or 415 of the Internal Revenue Code
of 1986, as amended, or any similar subsequent provisions thereof and which
shall be based upon a full one and six tenths percent (1.6%) of Final Average
Earnings for each full year and a pro rata share of one and six tenths percent
(1.6%) for each partial year in completed months of employment (in each case as
calculated under the Goodrich Pension Plan) of the Executive Employee's
employment with the Company, up to a maximum of twenty-four percent of Final
Average Earnings. The Supplemental Pension Benefit shall be payable according to
the same payment option elected by the Executive Employee for benefit payments
under Section 2(e) of this Agreement.
-4-
<PAGE> 5
4. Supplemental Retiree Medical Benefit
------------------------------------
In the event and to the extent the Executive Employee or eligible
beneficiaries are not eligible to participate in or otherwise do not receive the
full benefits of The BFGoodrich Health Care and Prescription Drug Plan for
retired salaried employees or any successor qualified health care plan for
retired salaried employees (the "Goodrich Retiree Medical Plan") following
termination of the Executive Employee's employment with the Company, the
Executive Employee and eligible beneficiaries shall be entitled to a
supplemental retiree medical benefit (the "Supplemental Retiree Medical
Benefit") which shall be equal to the full benefits of the Goodrich Retiree
Medical Plan which is in effect on the date of the termination of the Executive
Employee's employment with the Company with any changes which may be implemented
in the Goodrich Retiree Medical Plan from time to time thereafter. The
Supplemental Medical Benefit shall be payable to the Executive Employee and
eligible beneficiaries from and after the later of (a) the date of the Executive
Employee's termination of employment with the Company for any reason, or (b) the
date the Executive Employee reaches, or in the event of death would have
reached, such employee's fifty-fifth birthday.
5. Relationship with Management Continuity Agreement
-------------------------------------------------
In the event that (i) a "Change in Control", as that term is defined in
a certain Letter Agreement dated November 3, 1997 between the Company and the
Executive Employee or any similar successor agreement (the "Management
Continuity Agreement") occurs, and (ii) the Executive Employee's employment with
the Company is thereafter terminated and such employee thereby
-5-
<PAGE> 6
becomes entitled to receive, inter alia, the compensation specified in the
Management Continuity Agreement, then for purposes of this Agreement:
(a) No additional service with respect to the "Payment Period"
(as that term or similar subsequent term is defined in the Management
Continuity Agreement) as stated the Management Continuity Agreement
shall be added to the Alternative Pension Benefit referred to in
Section 2 of this Agreement so long as the Executive Employee receives
the equivalent of a pension benefit with respect to such Payment
Period; but if the Executive Employee for any reason does not receive
such benefit under the Management Continuity Agreement then the number
of months in the aforesaid Payment Period shall be added to the
Executive Employee's years of service with the Company to calculate the
Alternative Pension Benefit; and
(b) To the years of service used to calculate the Supplemental
Pension Benefit referred to in Section 3 of this Agreement there shall
be added the number of months in the aforesaid Payment Period.
6. Miscellaneous
-------------
(a) The Company shall pay from its general assets or cause to be paid
to the Executive Employee or eligible beneficiaries the Alternate Retirement
Benefit, the Supplemental Retirement Benefit and the Supplemental Retiree
Medical Benefit in the same manner, and with respect to each
-6-
<PAGE> 7
of such pension benefits with the same actuarial reductions, as such benefit
would be payable if it had been paid pursuant to the relevant Plan.
(b) Nothing in this Agreement shall prevent the Company from
terminating or amending the Goodrich Pension Plan, the Goodrich Health Care Plan
or the Goodrich Retiree Medical Plan, except that no such termination or
amendment shall deprive the Executive Employee or eligible beneficiaries of
(i) with respect to the Alternative Retirement Benefit, the
right to receive benefits under the Goodrich Pension Plan without
regard to vesting;
(ii) with respect to the Supplemental Retirement Benefit, the
right to receive such benefit as provided in this Agreement; and
(iii) with respect to the Supplemental Retiree Medical
Benefit, the right to receive the benefits under the Goodrich Retiree
Medical Plan as provided herein with any changes which may be
implemented in such plan from time to time.
(c) Nothing in this Agreement shall be construed to confer upon the
Executive Employee any right of continuing employment by the Company, nor shall
this Agreement interfere in any way with the right of the Company to assign the
Executive Employee to other duties or responsibilities or to terminate such
employee's employment at any time. Termination of employment for any reason,
however, shall not terminate this Agreement.
-7-
<PAGE> 8
(d) No right to payment or any other interest under this Agreement
shall be assignable by the Executive Employee or by any spouse or beneficiary
and no such right or other interest shall be subject to attachment, execution or
levy of any kind. This Agreement may and shall be assigned or transferred to,
and shall be binding upon any successor of the Company, and such successor shall
be deemed substituted for the "Company" under the terms of this Agreement.
(e) This Agreement shall be construed, administered and enforced in
accordance with the laws of the State of Ohio with respect to agreements made
and to be performed in the State of Ohio.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by an
officer thereunder duly authorized so to do, and the Executive Employee has
accepted and executed this Agreement, all as of the day and year first above
written.
THE B.F.GOODRICH COMPANY
By Direction of the Compensation Committee:
By
----------------------------------------
Accepted:
-------------------------------------------
-8-
<PAGE> 1
Exhibit 10(D)
THE BFGOODRICH COMPANY
MANAGEMENT INCENTIVE PROGRAM
----------------------------
PURPOSE
- -------
The BFGoodrich Management Incentive Program (the Program) has been established
to provide opportunities to certain key management personnel to receive
incentive compensation as a reward for high levels of personal performance above
the ordinary performance standards compensated by base salary, and for their
contributions to strong performance of the business units to which they are
assigned. The Program is designed to provide a competitive level of rewards when
all relevant performance objectives are achieved.
ELIGIBILITY
- -----------
Participation in the Program will be limited to those key executives that have
the potential to influence significantly and positively the performance of the
Company or the business unit to which they are assigned. Participants will be
selected by management annually. Inclusion of a key manager as a participant
does not, however, assure that an incentive award will be paid to the
participant for the year since actual awards are determined at the sole
discretion of management.
To be eligible for participation in a particular year, a key manager must have
assumed the duties of an incentive-eligible position and have been selected for
participation in the Program by July 1 of that year. To receive an award, the
participant must remain employed by The BFGoodrich Company through December 15
of the Program year, subject to the Change in Control provisions.
PARTICIPANT CATEGORIES
- ----------------------
Each participant will be assigned each year to an incentive category based on
organizational level and potential impact on important Company or business unit
results. The participant categories define the target level of incentive
opportunity, stated as a percentage of salary midpoint, that will be available
to the participant. Category assignments are initiated on the recommendation of
the appropriate Division head and approved by the Corporate Executive Office.
<PAGE> 2
MANAGEMENT INCENTIVE PROGRAM
GUIDELINES FOR CATEGORIES
-------------------------
<TABLE>
<CAPTION>
TARGET BONUS
AS PERCENT OF
BASE SALARY
CATEGORY MIDPOINT ELIGIBILITY GUIDELINES
- -------- ------------- ----------------------
<S> <C> <C>
A 85% Chairman and Chief Executive Officer
B 75% Vice Chairman; President; Chief Operating Officer
C 70% Executive Vice Presidents
D N/A Not Currently Used
E 60% Corporate Senior Vice Presidents
F 55% Other Company officers B Corporate Vice Presidents and
Operating Segment Group Vice Presidents
G 45% 1) 1800 or more Hay Points; or
2) Direct Report to Operating Segment President
and Hay Points Above 1300
H 40% 1) 1400 - 1799 Hay Points; or
2) Treasurer, Controller or Corporate Staff VP
I 35% 1200 - 1399 Hay Points
J 30% 1000 - 1199 Hay Points
K 25% 900 - 999 Hay Points
L 20% Less than 900 Hay Points
</TABLE>
INCENTIVE PROGRAM ELEMENTS
--------------------------
FINANCIAL GOAL(S)
- -----------------
A single measure of current year financial performance by the unit such as
Operating Income for a Division and Net Income or Pre-Tax Income for Corporate
staff is used to determine financial goals. The actual number selected as an
incentive plan goal need not coincide with the Operating Plan, but
-2-
<PAGE> 3
will be determined by management as representing a performance level which
merits full target level incentive payout. A threshold level is selected on the
same basis representing the minimum acceptable performance level to qualify for
any financial performance incentives and a maximum is set at a level judged as
deserving of maximum incentive payout.
STRATEGIC/OPERATIONAL GOALS
- ---------------------------
Strategic and operational goals are specific, current-year business and
non-financial objectives. While their achievement may not be measurable
mathematically, they must be accomplished in order to meet the current year's
Operating Plan or to successfully implement longer term strategies. Performance
of the unit against these goals will be evaluated by the Executive Office on a
scale of 0 to 150% accomplishment with at least a 50% rating required to qualify
for any incentive payment under this factor.
WEIGHTING FACTORS
- -----------------
The weighting of financial vs. strategic/operational performance reflects their
relative importance to the unit in the current year. The weightings may vary
between 80% / 20% and 50% / 50% and determine the portion of the target
incentive amount allocated to each performance measure. If a unit falls short of
the threshold level of financial performance, the amount of incentive available
for strategic/operational performance is limited to half the allocated amount.
INCENTIVE EARNINGS SCHEDULE
- ---------------------------
Generally, threshold levels of performance will earn 50% of target incentive
amounts and maximum levels will earn 150%. Attainment below threshold levels
will earn no incentives. The actual award will be based on both the individual
and the units attainment of previously established goals and objectives.
<TABLE>
<CAPTION>
INDIVIDUAL
PERFORMANCE INCENTIVE GUIDELINE
----------- -------------------
<S> <C>
Acceptable 50%
Satisfactory Plus 75%
Good l00%
Very Good l25%
Excellent l50%
</TABLE>
TARGET INCENTIVE AMOUNT
- -----------------------
The incentive target is the dollar amount of target level incentive opportunity
for each plan participant. It is the product of the participant's range midpoint
and the target incentive percentage determined by his incentive category
designation.
-3-
<PAGE> 4
PROVISIONS
- ----------
A. The Management Incentive Program is a discretionary compensation
plan. While performance is an important element in determining
incentive under the Program, actual payments, if any, are made at the
sole discretion of management. No awards under the Program are to be
considered earned until received.
B. Awards to participants who serve in incentive-eligible positions for
less than a full year, or who serve in two or more positions in a
year that are of significantly different size, will be adjusted on a
roughly PRO RATA basis.
PAYMENT UPON CHANGE IN CONTROL
- ------------------------------
Anything to the contrary notwithstanding, within five days following the
occurrence of a Change in Control, the Company shall pay to each participant an
interim lump-sum cash payment (the "Interim Payment") with respect to his or her
participation in the Management Incentive Program. The amount of the Interim
Payment shall equal the product of (x) the number of months, including
fractional months, that have elapsed until the occurrence of the Change in
Control in the calendar year in which the Change of Control occurs and (y)
one-twelfth of the greater of (i) the amount most recently paid to each
participant for a full calendar year, or (ii) the "target incentive amount" for
each participant in effect prior to the Change in Control for the calendar year
in which the Change in Control occurs, in each case under the Program. The
Interim Payment shall not reduce the obligation of the Company to make a final
payment under the terms of the Program, but any Interim Payment made shall be
offset against any later payment required under the terms of the Program for the
calendar year in which a Change in Control occurs. Notwithstanding the
foregoing, in no event shall any participant be required to refund to the
Company, or have offset against any other payment due any participant from or on
behalf of the Company, all or any portion of the Interim Payment.
For purposes of the Program, a Change in Control shall mean
(i) The acquisition by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act")), of beneficial
ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20% or more of either (A) the then outstanding
shares of common stock of the Company (the "Outstanding Company
Common Stock") or (B) the combined voting power of the then
outstanding voting securities of the Company entitled to vote
generally in the election of directors (the "Outstanding Company
Voting Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company (other than by exercise of a
conversion privilege), (B) any acquisition by the Company or any of
its subsidiaries, (C) any acquisition by any employee benefit plan
(or related trust) sponsored or maintained by the Company or any of
its subsidiaries or (D) any acquisition by any corporation with
respect to which, following such acquisition, more than 70% of,
respectively, the then outstanding shares of common stock of such
corporation and the combined voting power of the then outstanding
voting securities
-4-
<PAGE> 5
of such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Company Voting Securities immediately prior to such
acquisition in substantially the same proportions as their ownership,
immediately prior to such acquisition, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities, as the case
may be; or
(ii) During any period of two consecutive years, individuals
who, as of the beginning of such period, constitute the Board (the
"Incumbent Board") cease for any reason to constitute at least a
majority of the Board; provided, however, that any individual
becoming a director subsequent to the beginning of such period whose
election, or nomination for election by the Company's shareholders,
was approved by a vote of at least a majority of the directors then
comprising the Incumbent Board shall be considered as though such
individual were a member of the Incumbent Board, but excluding, for
this purpose, any such individual whose initial assumption of office
occurs as a result of either an actual or threatened election contest
(as such terms are used in Rule 14a-11 of Regulation 14A promulgated
under the Exchange Act); or
(iii) Approval by the shareholders of the Company of a
reorganization, merger or consolidation, in each case, with respect
to which all or substantially all of the individuals and entities who
were the beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities immediately
prior to such reorganization, merger or consolidation, do not,
following such reorganization, merger or consolidation, beneficially
own, directly or indirectly, more than 70% of, respectively, the then
outstanding shares of common stock and the combined voting power of
the then outstanding voting securities entitled to vote generally in
the election of directors, as the case may be, of the corporation
resulting from such reorganization, merger or consolidation in
substantially the same proportions as their ownership, immediately
prior to such reorganization, merger or consolidation of the
Outstanding Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(iv) Approval by the shareholders of the Company of (A) a
complete liquidation or dissolution of the Company or (B) a sale or
other disposition of all or substantially all of the assets of the
Company, other than to a corporation, with respect to which following
such sale or other disposition, more than 70% of, respectively, the
then outstanding shares of common stock of such corporation and the
combined voting power of the then outstanding voting securities of
such corporation entitled to vote generally in the election of
directors is then beneficially owned, directly or indirectly, by all
or substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company Common
Stock and Outstanding Company Voting Securities immediately prior to
such sale or other disposition in substantially the same proportion
as their ownership, immediately prior to such sale or other
disposition, of the Outstanding Company Common Stock and Outstanding
Company Voting Securities, as the case may be.
-5-
<PAGE> 1
Exhibit 10(E)
June 1, 1998
Dear :
The BFGoodrich Company (the "Company") considers the establishment and
maintenance of a sound and vital senior management to be essential to protecting
and enhancing the best interests of the Company and its shareholders. In this
connection, the Company recognizes that, as is the case with many publicly-held
corporations, the possibility of a change in control may exist and that such
possibility, and the uncertainty and questions which it may raise among
management, may result in the distraction and even the departure of senior
management personnel to the detriment of the Company and its shareholders.
Accordingly, the Company's Board of Directors has determined that appropriate
steps should be taken to reinforce and encourage the continued attention and
dedication of members of the Company's senior management, including yourself, to
their assigned duties without distraction in the face of potentially disturbing
circumstances arising from the possibility of a change in control of the
Company.
In order to induce you to remain in the employ of the Company, and to
continue your employment notwithstanding the occurrence or threat of occurrence
of a transaction that results in a change in control of the Company, this letter
agreement ("Agreement") sets forth the employment arrangement and benefits which
the Company agrees will be provided to you in the event a Change in Control (as
hereinafter defined in Paragraph 3) should occur during the term of this
Agreement and in the event that your employment is thereafter terminated under
such circumstances as are expressly provided in Paragraph 5 hereof.
In making provision for the payment of these benefits, it is not the
Company's intention to alter in any way the compensation and benefits that would
be paid to you in the absence of a Change in Control.
1. TERM. This Agreement shall commence on the date hereof and shall
continue through December 31 of this year, provided, however, that commencing on
January 1 of the following year and each January 1st thereafter, the term of
this Agreement shall automatically be extended for one additional year, unless
at least 90 days prior to such January 1st date, the Company shall have given
notice that it does not wish to extend this Agreement. Upon the occurrence of a
Change in Control during the term of this Agreement, including any extensions
thereof, this Agreement shall automatically be extended until the end of your
Period of Employment (as hereinafter defined in Paragraph 2), and may not be
terminated by the Company during such time.
2. PERIOD OF EMPLOYMENT. Your "Period of Employment" shall commence on
the date on which a Change in Control occurs and shall end on the later to occur
of (i) the date which is
- 1 -
<PAGE> 2
24 months after the date on which such Change in Control occurs, or (ii) the
date which is 24 months after the first date on which a majority of the Board of
Directors (the "Board") of the Company consists of persons who were not members
of the Board on the date immediately preceding the date on which a Change in
Control occurs. Notwithstanding the foregoing, however, your Period of
Employment shall not extend beyond either any Mandatory Retirement Date (as
hereinafter defined in Paragraph 3) applicable to you or the date which is 48
months after the date on which a Change in Control occurs.
3. CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) A "Change in Control" shall mean
(i) The acquisition by any individual, entity or
group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of
either (A) the then outstanding shares of common stock of the
Company (the "Outstanding Company Common Stock") or (B) the
combined voting power of the then outstanding voting
securities of the Company entitled to vote generally in the
election of directors (the "Outstanding Company Voting
Securities"); provided, however, that the following
acquisitions shall not constitute a Change of Control: (A) any
acquisition directly from the Company (other than by exercise
of a conversion privilege), (B) any acquisition by the Company
or any of its subsidiaries, (C) any acquisition by any
employee benefit plan (or related trust) sponsored or
maintained by the Company or any of its subsidiaries or (D)
any acquisition by any corporation with respect to which,
following such acquisition, more than 70% of, respectively,
the then outstanding shares of common stock of such
corporation and the combined voting power of the then
outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Company Voting Securities immediately prior
to such acquisition in substantially the same proportions as
their ownership, immediately prior to such acquisition, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be; or
(ii) During any period of two consecutive years,
individuals who, as of the beginning of such period,
constitute the Board (the "Incumbent Board") cease for any
reason to constitute at least a majority of the Board;
provided, however, that any individual becoming a director
subsequent to the beginning of such period whose election, or
nomination for election by the Company's shareholders, was
approved by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board,
but excluding, for this purpose, any such individual whose
initial assumption of office occurs as a result of either an
actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the
Exchange Act); or
- 2 -
<PAGE> 3
(iii) Approval by the shareholders of the Company of
a reorganization, merger or consolidation, in each case, with
respect to which all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of
the Outstanding Company Common Stock and Outstanding Company
Voting Securities immediately prior to such reorganization,
merger or consolidation, do not, following such
reorganization, merger or consolidation, beneficially own,
directly or indirectly, more than 70% of, respectively, the
then outstanding shares of common stock and the combined
voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as
the case may be, of the corporation resulting from such
reorganization, merger or consolidation in substantially the
same proportions as their ownership, immediately prior to such
reorganization, merger or consolidation of the Outstanding
Company Common Stock and Outstanding Company Voting
Securities, as the case may be; or
(iv) Approval by the shareholders of the Company of
(A) a complete liquidation or dissolution of the Company or
(B) a sale or other disposition of all or substantially all of
the assets of the Company, other than to a corporation, with
respect to which following such sale or other disposition,
more than 70% of, respectively, the then outstanding shares of
common stock of such corporation and the combined voting power
of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is
then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the
beneficial owners, respectively, of the Outstanding Company
Common Stock and Outstanding Company Voting Securities
immediately prior to such sale or other disposition in
substantially the same proportion as their ownership,
immediately prior to such sale or other disposition, of the
Outstanding Company Common Stock and Outstanding Company
Voting Securities, as the case may be.
(b) The term "Mandatory Retirement Date" shall mean the compulsory
retirement date, if any, established by the Company for those executives of the
Company who, by reason of their positions and the size of their nonforfeitable
annual retirement benefits under the Company's pension, profit-sharing, and
deferred compensation plans, are exempt from the provisions of the Age
Discrimination in Employment Act, 29 U.S.C. Sections 621, et seq, which date
shall not in any event be earlier for any executive than the last day of the
month in which such executive reaches age 65.
4. COMPENSATION DURING PERIOD OF EMPLOYMENT. For so long during your
Period of Employment as you are an employee of the Company, the Company shall be
obligated to compensate you as follows:
(a) You shall continue to receive your full base salary at the rate in
effect immediately prior to the Change in Control. Your base salary shall be
increased annually, with each such increase due on the anniversary date of your
most recent previous increase. Each such increase shall be no less than an
amount which at least equals on a percentage basis the mean of the annualized
percentage increases in base salary for all elected officers of the Company
during the two full calendar years immediately preceding the Change in Control.
- 3 -
<PAGE> 4
(b) You shall continue to participate in all benefit and compensation
plans (including but not limited to the Stock Option Plan, Long-Term Incentive
Plan, Management Incentive Program, Non-Qualified Benefit Security Plan,
Executive Life Insurance Program, Savings Benefit Restoration Plan, Performance
Share Deferred Compensation Plan, pension plan, savings plan, flexible benefits
plan, life insurance plan, health and accident plan or disability plan) in which
you were participating immediately prior to the Change in Control, or in plans
providing substantially similar benefits, in either case upon terms and
conditions and at levels at least as favorable as those provided to you under
the plans in which you were participating immediately prior to the Change in
Control;
(c) You shall continue to receive all fringe benefits, perquisites, and
similar arrangements which you were entitled to receive immediately prior to the
Change in Control; and
(d) You shall continue to receive annually the number of paid vacation
days and holidays which you were entitled to receive immediately prior to the
Change in Control.
5. COMPENSATION UPON TERMINATION OF EMPLOYMENT. If, during the Period
of Employment, the Company shall terminate your employment for any reason (other
than for a reason and as expressly provided in Paragraph 6 hereof), or if you
shall terminate your employment for "Good Reason" (as hereinafter defined in
subparagraph 5(f)), or without any reason during the "Window Period" (as
hereinafter defined in subparagraph 5(g)) then the Company shall be obligated to
compensate you as follows:
(a) The Company shall pay to you in a lump sum, by not later than the
fifth day following the Date of Termination (as hereinafter defined in Paragraph
8), an amount equal to one-twelfth of your annualized base salary in effect
immediately prior to the Date of Termination, multiplied by the number of
months, including fractional months, in the Payment Period which shall be the
shorter of (A) three (3) years, commencing on the Date of Termination, or (B)
the period from the Date of Termination to your Mandatory Retirement Date, if
any;
(b) By not later than the fifth day following the Date of Termination,
the Company shall pay you in a lump sum an amount equal to the product of (x)
the number of months, including fractional months, in the Payment Period and (y)
the sum of
(i) under the Company's Management Incentive Program the
greatest of one-twelfth of: (A) the amount most recently paid to you
for a full calendar year; (B) your "target incentive amount" for the
calendar year in which your Date of Termination occurs; or (C) your
"target incentive amount" in effect prior to the Change in Control for
the calendar year in which the Change in Control occurs; plus, if
applicable,
(ii) under the Company's Long-Term Incentive Plan the greatest
of (A) one-thirty-sixth of the "calculated market value" of the sum of
(1) the Restricted Shares awarded to you, (2) the Performance Shares as
to which restrictions were removed, if any, and (3) the awarding of
Additional Shares, if any, (including the value of any Performance
Shares you may have elected to defer under the Performance Share
Deferred Compensation Plan) under the Long-Term Incentive Plan for the
Plan Cycle 1995-1997 (if you were a participant in such
- 4 -
<PAGE> 5
Plan Cycle); (B) with respect to the most recently completed Plan Cycle
commencing with the 1998-2000 Plan Cycle (if completed), one-twelfth of
the "calculated market value" of the Performance Shares actually
awarded to you (including the value of any Performance Shares you may
have elected to defer under the Performance Share Deferred Compensation
Plan); (C) with respect to the most recently commenced Plan Cycle under
the Long-Term Incentive Plan (if you are a participant in such Plan
Cycle) prior to your Date of Termination, the sum of one-twelfth of the
"calculated market value" of the phantom Performance Shares, if any,
awarded to you; or (D) with respect to the most recently commenced Plan
Cycle prior to the date of the occurrence of the Change in Control, the
sum of one-twelfth of the "calculated market value" of the phantom
Performance Shares, if any, awarded to you.
Your "target incentive amount" under the Management Incentive Program
is determined by multiplying your salary range midpoint by the incentive target
percentage which is applicable to your incentive category under such Program.
The "calculated market value" of Restricted Shares, Performance Shares,
Additional Shares, shares deferred under the Performance Share Deferred
Compensation Plan or phantom Performance Shares under the Long-Term Incentive
Plan shall be the mean of the high and low prices of the Company's common stock
on the relevant date as reported on the New York Stock Exchange Composites
Transactions listing (or similar report), or, if no sale was made on such date,
then on the next preceding day on which a sale was made multiplied by the number
of shares involved in the calculation. The relevant date for clauses
5(b)(ii)(A)(1), 5(b)(ii)(C) and 5(b)(ii)(D) is the date upon which the
Compensation Committee ("Committee") of the Board of Directors awarded the
shares of stock in question; for clauses 5(b)(ii)(A)(2) and 5(b)(ii)(A)(3) is
the date on which the Committee made a determination of attainment of financial
objectives and removed restrictions on Performance Shares and, if applicable,
awarded Additional Shares and for clause 5(b)(ii)(B) is the date on which the
Committee made a determination of attainment of financial objectives and awarded
Performance Shares (including any Performance Shares you may have elected to
defer under the Performance Share Deferred Compensation Plan);
(c) If you are under age 55, or over the age of 55 but not eligible to
retire, at the Date of Termination, the Company shall maintain in full force and
effect, for your continued benefit, for the Payment Period, all health and
welfare benefit plans and programs or arrangements in which you were entitled to
participate immediately prior to the Date of Termination, as long as your
continued participation is possible under the general terms and provisions of
such plans and programs. In the event that your participation in any such plan
or program is barred, the Company shall provide you with benefits substantially
similar to those to which you would have been entitled to receive under such
plans and programs, had you continued to participate in them as an executive of
the Company plus an amount in cash equal to the amount necessary to cause the
amount of the aggregate after-tax compensation and employee benefits you receive
pursuant to this provision to be equal to the aggregate after-tax value of the
benefits which you would have received if you continued to receive such benefits
as an employee. If you are age 55 or over and eligible to retire on the Date of
Termination, the Company shall provide you with those health and welfare
benefits to which you would be entitled under the Company's general retirement
policies if you retired on the Termination Date with the Company paying that
percentage of the premium cost of the plans which it would have paid under the
terms of the plans in effect immediately prior to the Change of Control with
respect to individuals who retire at age 65, regardless of your actual age on
the Termination Date, provided
- 5 -
<PAGE> 6
such benefits would be at least equal to those which would have been payable if
you had been eligible to retire and had retired immediately prior to the Change
in Control;
(d) The Company shall, for the Payment Period, continue and you shall
be entitled to receive each and every fringe benefit program, perquisite, and
similar arrangement which you were entitled to receive or in which you were
entitled to participate immediately prior to the Date of Termination; and
(e) The Company shall, in addition to the benefits to which you are
entitled under the retirement plans or programs in which you participate, pay
you in a lump sum in cash at your normal retirement date (or earlier retirement
date should you so elect), as defined in the retirement plans or programs in
which you participate, an amount equal to
the actuarial equivalent of the retirement pension to which you would
have been entitled under the terms of such retirement plans or programs
had you accumulated additional years of continuous service under such
plans equal in length to your Payment Period. The length of the Payment
Period will be added to total years of continuous service for
determining vesting, the amount of benefit accrual, to the age which
you will be considered to be for the purposes of determining
eligibility for normal or early retirement calculations and the age
used for determining the amount of any actuarial reduction. For the
purposes of calculating benefit accrual, the amount of compensation you
will be deemed to have received during each month of your Payment
Period shall be equal to the sum of your annual base salary prorated on
a monthly basis as provided for under subparagraph 4(a) immediately
prior to the Date of Termination (including salary increases), plus
under the Company's Management Incentive Program the greatest of
one-twelfth of:
(i) the amount most recently paid to you for a full
calendar year,
(ii) your "target incentive amount" for the calendar
year in which your Date of Termination occurs, or
(iii) your "target incentive amount" in effect prior
to the Change in Control for the calendar year in which the
Change in Control occurs
reduced by the actuarial equivalent of any amounts to which you are
actually entitled pursuant to the provisions of said retirement plans
and programs.
For purposes of illustration, but not intending to be exhaustive, the following
are examples of how inclusion of the Payment Period may affect the calculation
of your retirement benefit.
A. If as of your Date of Termination your actual years of
service plus the length of your Payment Period is at least 10, then
1) If as of your Date of Termination your age plus
the length of your Payment Period is at least 65, your
retirement benefit under subparagraph 5(e) will be calculated
as a "normal retirement" benefit to which you would have been
entitled
- 6 -
<PAGE> 7
under the terms of the retirement plan in which you
participate had you accumulated continuous service equal to
such sum; and
2) If as of your Date of Termination your age plus
the length of your Payment Period is at least 55 but less than
65, your retirement benefit under subparagraph 5(e) will be
calculated as an "early retirement" benefit to which you would
have been entitled under the terms of the retirement plan in
which you participate had you accumulated continuous service
equal to such sum. The actuarial reduction used shall be the
actuarial reduction factor for early retirement, calculated to
your actual age plus the length of your Payment Period at your
Date of Termination.
Furthermore, if you were on the active rolls of the Company as
of December 31, 1989 and if the sum of your actual years of service
plus the length of your Payment Period is at least 10 but less than 24,
then for purposes of subparagraph 5(e) you will also receive an
Additional Credit for up to 4 years. The Additional Credit you will
receive will depend upon the sum of the years of your actual service
plus the length of your Payment Period and will be equal to the lesser
of:
(x) 4 years of Additional Credit; or
(y) The amount of Additional Credit needed such that,
when added to the sum of your actual years of service plus the
length of your Payment Period, it will create a total of
exactly 24.
No Additional Credit will be applied if the sum of your actual years of
service plus the length of your Payment Period is 24 or greater. You
will not receive any Additional Credit if you commenced employment with
the Company on or after January 1, 1990.
B. If as of your Date of Termination the sum of your actual
years of service plus the length of your Payment Period is less than
10, or your age plus the length of your Payment Period is less than 55,
your retirement benefit under subparagraph 5(e) will be calculated as a
"deferred vested pension" to which you would have been entitled under
the terms of the retirement plan in which you participate had you
accumulated continuous service equal to such sum. The actuarial
reduction used shall be the actuarial reduction factor for a deferred
vested pension, calculated to your actual age at your Date of
Termination plus the length of your Payment Period.
For purposes of this subparagraph 5(e), "actuarial equivalent" shall be
determined using the same methods and assumptions as those utilized under the
Company's retirement plans and programs immediately prior to the Change in
Control.
(f) For purposes of this Agreement, "Good Reason" shall mean:
(i) except as a result of the termination of your employment
pursuant to Paragraph 6 hereof and without your express written
consent, (A) the assignment to you of any new
- 7 -
<PAGE> 8
duties or responsibilities inconsistent with your positions, duties,
responsibilities, and reporting relationships and status within the
Company immediately prior to a Change in Control, (B) a change in your
duties, responsibilities, reporting relationships, titles or offices as
in effect immediately prior to a Change in Control, except that a
reduction in your duties or responsibilities which occurs solely
because the Company is no longer an independent publicly-held entity
shall not be deemed to be a reduction in your duties, or (C) any
removal of you from or any failure to re-elect you to any of such
positions;
(ii) the failure of the Company to comply with any of its
obligations under Paragraph 4 herein;
(iii) the relocation of the offices of the Company at which
you were employed immediately prior to the Change in Control to a
location which is more than twenty (20) miles from such prior location,
any increase in your obligation to travel on the Company's business
over your present business travel obligations, or the failure of the
Company to (A) pay or reimburse you, in accordance with the Company's
presently existing relocation policy for its employees, for all
reasonable costs and expenses, plus "gross-ups" referred to in such
policy incurred by you relating to a change of your principal residence
in connection with any relocation of the Company's offices to which you
consent, and (B) indemnify you against any loss (defined as the
difference between the actual sale price of such residence and the
higher of (1) your aggregate investment in such residence or (2) the
fair market value of such residence as determined by the relocation
management organization used by the Company immediately prior to the
Change in Control (or other real estate appraiser designated by you and
reasonably satisfactory to the Company)) realized in the sale of your
principal residence in connection with any such change of residence;
(iv) the failure of the Company to obtain the assumption of
and the agreement to perform this Agreement by any successor as
contemplated in Paragraph 11 hereof; or
(v) any purported termination of your employment which is not
effected pursuant to a Notice of Termination satisfying the
requirements of Paragraph 7 hereof.
(g) For purposes of this Agreement, the "Window Period" shall mean the
thirty (30) day period immediately following the first anniversary of the date
on which the Change in Control occurs.
6. TERMINATION FOR CAUSE. If your employment is terminated for any of
the following reasons and in accordance with the provisions of this Paragraph 6,
you shall not be entitled by virtue of this Agreement to any of the benefits
provided in the foregoing Paragraph 5:
(a) If, as a result of your incapacity due to physical or mental
illness, you shall have been absent from your duties with the Company on a
full-time basis for 120 consecutive business days, and within thirty (30) days
after a written Notice of Termination (as hereinafter defined in Paragraph 7) is
given, you shall not have returned to the full-time performance of your duties;
(b) If the Company shall have Cause. For the purposes of this
Agreement, the Company shall have "Cause" to terminate your employment hereunder
upon (i) the willful and continued failure by
- 8 -
<PAGE> 9
you to substantially perform your duties with the Company, which failure causes
material and demonstrable injury to the Company (other than any such failure
resulting from your incapacity due to physical or mental illness), after a
demand for substantial performance is delivered to you by the Board which
specifically identifies the manner in which the Board believes that you have not
substantially performed your duties, and after you have been given a period
(hereinafter known as the "Cure Period") of at least thirty (30) days to correct
your performance, or (ii) the willful engaging by you in other gross misconduct
materially and demonstrably injurious to the Company. For purposes of this
paragraph, no act, or failure to act, on your part shall be considered "willful"
unless conclusively demonstrated to have been done, or omitted to be done, by
you not in good faith and without reasonable belief that your action or omission
was in the best interests of the Company.
Notwithstanding the foregoing, you shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to you a
Notice of Termination which shall include a copy of a resolution duly adopted by
the affirmative vote of not less than three-quarters of the entire membership of
the Board at a meeting of the Board called and held for the purpose (after
reasonable notice to you and an opportunity for you, together with your counsel,
to be heard before the Board), finding that in the good faith opinion of the
Board you were guilty of conduct set forth above in clauses (i), including the
expiration of the Cure Period without the correction of your performance, or
(ii) of the preceding subparagraph and specifying the particulars thereof in
detail.
(c) If you die while employed by the Company or if you retire from such
employment during your Period of Employment, then you shall not be entitled to
any of the benefits provided by this Agreement and the benefits to which you or
your beneficiary shall be entitled shall be determined without regard to the
provisions hereof.
7. NOTICE OF TERMINATION. Any termination of your employment by the
Company or any termination by you either without any reason during the Window
Period or for Good Reason shall be communicated by written notice to the other
party hereto. For purposes of this Agreement, such notice shall be referred to
as a "Notice of Termination." Such notice shall, to the extent applicable, set
forth the specific reason for termination, and shall set forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
your employment under the provision so indicated.
8. DATE OF TERMINATION. "Date of Termination" shall mean:
(a) If you terminate your employment for Good Reason, the date
specified in the Notice of Termination, but in no event more than sixty (60)
days after Notice of Termination is given.
(b) If you terminate your employment without any reason during the
Window Period, unless otherwise specified in the Notice of Termination, as of
the first day during the Window Period.
(c) If your employment is terminated for Cause under subparagraph 6(b),
the date on which a Notice of Termination is given, except that the Date of
Termination shall not be any date prior to the date on which the Cure Period
expires without the correction of your performance.
- 9 -
<PAGE> 10
(d) If your employment pursuant to this Agreement is terminated
following absence due to physical incapacity, under subparagraph 6(a), then the
Date of Termination shall be thirty (30) days after Notice of Termination is
given (provided that you shall not have returned to the performance of your
duties on a full-time basis during such thirty (30) day period).
A termination of employment by either the Company or by you shall not
affect any rights you or your surviving spouse may have pursuant to any other
agreement or plan of the Company providing benefits to you, except as provided
in such agreement or plan.
9. CERTAIN ADDITIONAL PAYMENTS. (a) Anything in this Agreement to the
contrary notwithstanding, in the event it shall be determined that any payment
or distribution by the Company to you or for your benefit (whether paid or
payable or distributed or distributable pursuant to the terms of this Agreement
or otherwise, but determined without regard to any additional payments required
under this paragraph 9) (a "Payment") would be subject to the excise tax imposed
by Section 4999 (or any successor provisions) of the Internal Revenue Code of
1986, as amended (the "Code"), or any interest or penalties are incurred by you
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then you shall be entitled to receive an additional payment (a "Gross-Up
Payment") in an amount such that after payment by you of all taxes (including
any interest or penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties imposed
with respect thereto) and Excise Tax imposed on the Gross-Up Payment, you retain
an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the
Payments.
(b) Subject to the provisions of subparagraph 9(c), all determinations
required to be made under this paragraph 9, including whether and when such a
Gross-Up Payment is required and the amount of such Gross-Up Payment and the
assumptions to be utilized in arriving at such determination, shall be made by
Ernst & Young (or their successors) (the "Accounting Firm") which shall provide
detailed supporting calculations both to the Company and to you within fifteen
(15) business days of the receipt of notice from you that there has been a
Payment, or such earlier time as is requested by the Company. In the event that
the Accounting Firm is serving as accountant or auditor for the individual,
entity or group effecting the Change in Control, you shall appoint another
nationally recognized accounting firm to make the determinations required
hereunder (which accounting firm shall then be referred to as the Accounting
Firm hereunder). All fees and expenses of the Accounting Firm shall be borne
solely by the Company. Any Gross-Up Payment, as determined pursuant to this
paragraph 9, shall be paid by the Company to you within five (5) days of the
receipt of the Accounting Firm's determination. If the Accounting Firm
determines that no Excise Tax is payable by you, it shall furnish you with a
written opinion that failure to report the Excise Tax on your applicable federal
income tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and you. As a result of the uncertainty of the application of Section
4999 of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Gross-Up Payments which will not have been made
by the Company should have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that the Company
exhausts its remedies pursuant to Section 9(c) and you thereafter are required
to make a payment of any Excise Tax, the Accounting Firm shall determine the
amount of the Underpayment that has
- 10 -
<PAGE> 11
occurred and any such Underpayment shall be promptly paid by the Company to you
or for your benefit.
(c) You shall notify the Company in writing of any claim by the
Internal Revenue Service that, if successful, would require the payment by the
Company of the Gross-Up payment. Such notification shall be given as soon as
practicable but no later than ten (10) business days after you are informed in
writing of such claim and shall apprise the Company of the nature of such claim
and the date on which such claim is requested to be paid. You shall not pay such
claim prior to the expiration of the thirty (30) day period following the date
on which it gives such notice to the Company (or such shorter period ending on
the date that any payment of taxes with respect to such claim is due). If the
Company notifies you in writing prior to the expiration of such period that it
desires to contest such claim, you shall:
(i) give the Company any information reasonably requested by
the Company relating to such claim,
(ii) take such action in connection with contesting such claim
as the Company shall reasonably request in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
(iii) cooperate with the Company in good faith in order
effectively to contest such claim, and
(iv) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold you harmless, on an after-tax
basis, for any Excise Tax or income tax (including interest and penalties with
respect thereto) imposed as a result of such representation and payment of costs
and expenses. Without limitation on the foregoing provisions of this
subparagraph 9(c), the Company shall control all proceedings taken in connection
with such contest and, at its sole option, may pursue or forgo any and all
administrative appeals, proceedings, hearings and conferences with the taxing
authority in respect of any such claim and may, at its sole option, either
direct you to pay the tax claimed and sue for a refund or contest the claim in
any permissible manner, and you agree to prosecute such contest to a
determination before any administrative tribunal, in a court of initial
jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs you to pay such claim
and sue for a refund, the Company shall advance the amount of such payment to
you, on an interest-free basis and shall indemnify and hold you harmless, on an
after-tax basis, from any Excise Tax or income tax (including interest or
penalties with respect thereto) imposed with respect to such advance or with
respect to any imputed income with respect to such advance; and further provided
that any extension of the statute of limitations relating to payment of taxes
for your taxable year with respect to which such contested amount is claimed to
be due is limited solely to such contested amount. Furthermore, the Company's
control of the contest shall be limited to issues with respect to which a
Gross-Up Payment would be payable hereunder and you shall be entitled to settle
or contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
- 11 -
<PAGE> 12
(d) If, after the receipt by you of an amount advanced by the Company
pursuant to subparagraph 9(c), you become entitled to receive any refund with
respect to such claim, you shall (subject to the Company's complying with the
requirements of subparagraph 9(c)) promptly pay to the Company the amount of
such refund (together with any interest paid or credited thereon after taxes
applicable thereto). If, after the receipt by you of an amount advanced by the
Company pursuant to subparagraph 9(c), a determination is made that you shall
not be entitled to any refund with respect to such claim and the Company does
not notify you in writing of its intent to contest such denial of refund prior
to the expiration of thirty (30) days after such determination, then such
advance shall be forgiven and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof, the amount of Gross-Up
Payment required to be paid.
10. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS. You shall not be required to refund the amount of any payment or
employee benefit provided for or otherwise mitigate damages under this Agreement
by seeking other employment or otherwise, nor shall the amount of any payment or
benefit provided for under this Agreement be reduced by any compensation or the
value of any benefits earned by you as the result of any employment by another
employer after the date of termination of your employment with the Company, or
otherwise.
The provisions of this Agreement, and any payment or benefit provided
for hereunder, shall not reduce any amount otherwise payable, or in any way
diminish your existing rights, or rights which would occur solely as a result of
the passage of time, under any other agreement, contract, plan or arrangement
with the Company.
11. SUCCESSORS AND BINDING AGREEMENT. (a) The Company shall require any
successor (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business or assets of the Company,
by agreement in form and substance satisfactory to you, to assume and agree to
perform this Agreement.
(b) This Agreement shall be binding upon the Company and any successor
of or to the Company, including, without limitation, any person acquiring
directly or indirectly all or substantially all of the assets of the Company
whether by merger, consolidation, sale or otherwise (and such successor shall
thereafter be deemed "the Company" for the purposes of this Agreement), but
shall not otherwise be assignable by the Company.
(c) This Agreement shall inure to the benefit of and be enforceable by
you and your personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees. If you should die while
any amounts would still be payable to you pursuant to Paragraph 5 hereunder if
you had continued to live, all such amounts, unless otherwise provided herein,
shall be paid in accordance with the terms of this Agreement to your devisee,
legatee, or other designee or, if there be no such designee, to your estate.
12. NOTICES. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid,
- 12 -
<PAGE> 13
addressed to the respective addresses set forth on the first page of this
Agreement, provided that all notices to the Company shall be directed to the
attention of the Chief Executive Officer of the Company with a copy to the
Secretary of the Company, or to such other address as either party may have
furnished to the other in writing in accordance herewith, except that notices of
change of address shall be effective only upon receipt.
13. GOVERNING LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
Ohio, without giving effect to the principles of conflict of laws of such State.
14. MISCELLANEOUS. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in a writing signed by you and the Company. No waiver by either party hereto at
any time of any breach by the other party hereto or compliance with, any
condition or provision of this Agreement to be performed by such other party
shall be deemed a waiver of similar or dissimilar provisions or conditions at
the same or at any prior or subsequent time. No agreements or representations,
oral or otherwise, express or implied, with respect to the subject matter
hereof, have been made by either party which are not set forth expressly in this
Agreement.
15. VALIDITY. The invalidity or unenforceability of any provisions of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement which shall remain in full force and effect.
16. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same agreement.
17. WITHHOLDING OF TAXES The Company may withhold from any amounts
payable under this Agreement all federal, state, city or other taxes as shall be
required pursuant to any law or government regulation or ruling.
18. NONASSIGNABILITY. This Agreement is personal in nature and neither
of the parties hereto shall, without the consent of the other, assign or
transfer this Agreement or any rights or obligations hereunder, except as
provided in Section 11 above. Without limiting the foregoing, your right to
receive payments hereunder shall not be assignable or transferable, whether by
pledge, creation of a security interest or otherwise, other than by a transfer
by your will or by the laws of descent and distribution and in the event of any
attempted assignment or transfer contrary to this Section the Company shall have
no liability to pay any amounts so attempted to be assigned or transferred.
19. LEGAL FEES AND EXPENSES. If a Change in Control shall have
occurred, thereafter the Company shall pay and be solely responsible for any and
all attorneys' and related fees and expenses incurred by you to successfully (in
whole or in part, and whether by modification of the Company's position,
agreement, compromise, settlement, or administrative or judicial determination)
enforce this Agreement or any provision hereof or as a result of the Company or
any shareholder of the Company contesting the validity or enforceability of this
Agreement or any provision hereof. To
- 13 -
<PAGE> 14
secure the foregoing obligation, the Company shall, within 90 days after being
requested by you to do so, enter into a contract with an insurance company, open
a letter of credit or establish an escrow in a form satisfactory to you.
20. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement
shall create any right or duty on your part or on the part of the Company to
have you remain in the employment of the Company prior to the commencement of
the Period of Employment; provided, however, that any termination of your
employment, for any reason other than those set forth in Paragraph 6, following
the commencement of any discussion with a third party, or the announcement by a
third party of the commencement of, or the intention to commence, a tender
offer, or other intention to acquire all or a portion of the equity securities
of the Company that ultimately results in a Change in Control shall (unless such
termination is conclusively demonstrated to have been wholly unrelated to any
such activity relating to a Change in Control) be deemed to be a termination of
your employment after a Change in Control for purposes of this Agreement and
both the Period of Employment and the Payment Period shall be deemed to have
begun on the date of such termination.
21. RIGHT OF SETOFF. There shall be no right of setoff or counterclaim
against, or delay in, any payment by the Company to you or your designated
beneficiary or beneficiaries provided for in this Agreement in respect of any
claim against you or any debt or obligation owed by you, whether arising
hereunder or otherwise.
22. RIGHTS TO OTHER BENEFITS. The existence of this Agreement and your
rights hereunder shall be in addition to, and not in lieu of, your rights under
any other of the Company's compensation and benefit plans and programs, and
under any other contract or agreement between you and the Company.
23. SUPERSEDED AGREEMENT. The agreement between you and the Company
dated June 1, 1992 relating to the same subject matter as this Agreement (the
?Original Agreement?), is hereby amended and superseded in its entirety by this
Agreement, and the Original Agreement shall be of no further force or effect as
of the date of this Agreement.
If this letter correctly sets forth our agreement on the subject matter
hereof, kindly sign and return to the Company the enclosed copy of this letter
which will then constitute our agreement on this subject.
Sincerely,
THE BFGOODRICH COMPANY
ACCEPTED AND AGREED TO By direction of the Compensation
AS OF THE DATE HEREOF. Committee on behalf of the
Board of Directors
___________________________________ By ___________________________________
Employee Signature
- 14 -
<PAGE> 1
Exhibit 10(K)
SUMMARY PLAN DESCRIPTION
------------------------
BFGOODRICH LONG-TERM INCENTIVE PLAN
-----------------------------------
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933.
The Long-Term Incentive Plan is designed to provide long-term incentive
compensation to key executives who are in positions to influence the performance
of the Company, and thereby enhance shareholder value over time. The Plan
provides a significant additional financial opportunity and complements other
parts of the Company's total compensation program for executives (base salary,
Management Incentive Program, stock options and benefits).
The following is a summary of the main provisions of the Long-Term Incentive
Plan. The official and controlling provisions of the Plan are contained in the
text of the Stock Option Plan and the Long-Term Incentive Plan. In case of any
discrepancies, the Plan documents will govern. In this summary, BFGoodrich is
referred to as the "Company", and the Long-Term Incentive Plan is referred to as
the "LTIP" or the "Plan".
The benefits described in this summary have been structured to be in compliance
with current tax law. Any change in legislation or the interpretation of tax
laws which affect the tax nature of the benefits provided may necessitate
revisions in the Plan.
The Company reserves the right to amend, modify, suspend or partially or
completely terminate the Plan at any time.
PLAN OVERVIEW
- -------------
- - Participation in the LTIP will be approved by the Compensation
Committee of the Board of Directors.
-1-
<PAGE> 2
- - The LTIP will provide for annual grants of Performance Shares with
three-year overlapping cycles. Every year, a separate three-year
performance cycle will begin.
- - At the beginning of each three-year cycle, a grant of Performance
Shares will be made to each participant. Grants will be credited as
phantom Performance Shares in a book account for each participant.
Each phantom Performance Share will be equivalent to one share of
BFGoodrich common stock.
- - The Compensation Committee of the Board of Directors will establish a
consolidated Company goal based on average ROE over each three-year
cycle. All LTIP participants will be measured against the same ROE
goal which will reflect consolidated Company results. No separate
goals will be set for operating segment participants.
- - During the Plan cycle, dividend equivalents will be accrued on all
phantom Performance Shares. Such dividend equivalents will be credited
to each participant?s account in the form of additional phantom
Performance Shares at the same time and in the same amount as actual
dividend payments on BFGoodrich common stock.
- - Participants will be entitled to a payout of shares at the end of each
Plan cycle only if a threshold performance standard is met. The number
of shares to be received free of further restrictions will range from
50% to 150% of the total phantom Performance Share account (including
shares credited through dividend equivalents), based on attainment
against goals set by the Committee.
- - Payments from the Plan, if any, at the end of the Plan cycle, will be
made in actual shares of BFG common stock, less the number of shares
to satisfy applicable withholding taxes.
- - Participants may elect to defer all or a portion of their award until
termination of employment as described in the Performance Share
Deferred Compensation Plan.
- - The Compensation Committee of the Board of Directors retains the right
in its sole discretion to reduce any award which would otherwise be
payable, unless there has been a Change in Control, as defined in the
Stock Option Plan.
-2-
<PAGE> 3
PLAN PROVISIONS
- ---------------
ELIGIBILITY
- -----------
Eligibility to participate in the LTIP will be determined by the Compensation
Committee of the Board of Directors.
AWARD GRANTS
- ------------
The LTIP rewards financial performance for three-year overlapping cycles. Every
year, a separate three-year performance cycle will begin.
At the beginning of each three-year cycle, a grant of Performance Shares will be
made to each participant. Grants will be credited as phantom Performance Shares
in a book account for each participant. Each phantom Performance Share will be
equivalent to one share of BFGoodrich common stock.
The Company will maintain a phantom Performance Share account for each
participant for each separate three-year cycle. The account will be used solely
for record keeping purposes. No actual BFGoodrich common shares will be
registered in participants' names.
DIVIDENDS
- ---------
Dividend equivalents will be accrued on all phantom Performance Shares in each
participant's account for each Plan cycle. Such dividend equivalents will be
credited to each participant's account in the form of additional phantom
Performance Shares at the same time and in the same amount as actual dividend
payments on BFGoodrich common stock.
PERFORMANCE GOALS
- -----------------
The performance goal used to determine the number of Performance Shares earned
by each participant at the end of each Plan cycle will be based on average
return on equity (ROE) over each three-year cycle. The Compensation Committee of
the Board of Directors will establish a consolidated Company goal for each
three-year cycle. All LTIP participants will be measured against the same ROE
goal which will reflect consolidated Company results.
PLAN PAYOUTS
- ------------
-3-
<PAGE> 4
Payments from the Plan, if any, at the end of the Plan cycle, will be made in
actual shares of BFG common stock, less the number of shares to satisfy
applicable withholding taxes.
At the end of each three-year cycle, if a participant is still employed by the
Company, he or she will receive a payment from the Plan after the Compensation
Committee determines the final payout based upon specific financial performance
goals established for participants.
Participants will be entitled to a payout of shares at the end of each Plan
cycle only if a threshold performance standard is met. If threshold performance
is achieved, the number of shares to be received free of further restrictions
will range from 50% to 150% of a participant's total phantom Performance Share
account (including shares credited through dividend equivalents) for that Plan
cycle, based on attainment against goals set by the Committee.
TERMINATION OF EMPLOYMENT DUE TO DEATH, DISABILITY, RETIREMENT
- --------------------------------------------------------------
If a participant becomes totally disabled under the Company's Long-Term
Disability Plan, or retires under the Company's Retirement Program for Salaried
Employees during a Plan cycle, the participant will receive a pro rata payout at
the end of the Plan cycle, based upon the time portion of the cycle during which
he or she was employed. The actual payout will not occur until after the end of
the three-year cycle, at which time the financial performance for the entire
three-year cycle will be used to determine the size of the award in that event.
If a participant dies during a Plan cycle, the participant will receive a pro
rata payout of the shares originally awarded to him or her, including a pro rata
payout of dividends credited to the participant's account, based upon financial
results calculated for the portion of the cycle through the end of the fiscal
quarter following the participant's death.
OTHER TERMINATION OF EMPLOYMENT
- -------------------------------
If a participant terminates employment prior to the end of a Plan cycle for
reasons other than death, disability or retirement, he or she will forfeit all
Performance Shares, unless the Compensation Committee determines otherwise.
-4-
<PAGE> 5
NEW HIRES OR PROMOTIONS INTO ELIGIBLE POSITIONS
- -----------------------------------------------
Participants will become eligible for participation in the Plan at their new
position level beginning with the Plan cycle which begins on the January 1
immediately following their hire or promotion date. No new Performance Share
awards or adjustments to Performance Share awards for Plan cycles that commenced
prior to a participant's hire or promotion date will be made.
CHANGE IN CONTROL
- -----------------
Generally, participants will not receive a payout under the Plan until the end
of a three-year Plan cycle. An exception will occur, however, if there is a
Change in Control of the Company. A Change in Control is defined in the Stock
Option Plan. The effect of a Change in Control on a participant's ability to
receive Performance Shares is described in the Long-Term Incentive Plan.
Generally, that Plan provides that, as of the date of the Change in Control, a
participant will become entitled to a prorated portion of the shares originally
awarded to him or her, based upon financial performance for the portion of the
cycle which ends on the date of the Change in Control. A participant's
entitlement to additional shares will be based upon financial performance for
the portion of the three-year cycle which occurs after the Change in Control.
DEFERRAL OF PAYOUTS
- -------------------
Participants may elect to defer all or a portion of Performance Shares that may
be earned and payable at the end of a Plan cycle as described in the Performance
Share Deferred Compensation Plan. A deferral election must be made before the
Plan cycle begins, using a form provided by the Company.
PLAN ADMINISTRATION
- -------------------
The Plan is administered by the Compensation Committee of the Board of
Directors. The Committee has full power and authority to construe, interpret and
administer the Plan. All decisions, actions or interpretations of the Committee
shall be final, conclusive and binding on all parties.
The Committee retains the right in its sole discretion to reduce any award which
would otherwise be payable, unless there has been a Change in Control.
-5-
<PAGE> 6
The Committee reserves the right to amend, modify, suspend or partially or
completely terminate the Plan, unless there has been a Change in Control.
TAX INFORMATION
- ---------------
Generally, participants are not taxed on Performance Shares until the date on
which they become entitled to a payout of their Performance Shares. Under
current tax law, on the date participants become entitled to receive the shares
following completion of a three-year performance cycle, the market value of the
shares (net of any shares deferred) at that time is considered to be ordinary
income and they will be taxed on that amount. If participants hold the shares
and later sell them, any appreciation over the market value of the shares when
they received them at the end of the three-year cycle will be taxed based on
capital gains tax rules.
EARNINGS FOR BENEFIT PURPOSES
- -----------------------------
Any income participants derive from Performance Share payouts will not be
considered eligible earnings for Company or subsidiary pension plans, savings
plans, profit sharing plans or any other benefit plans.
WITHHOLDING TAX INFORMATION
- ---------------------------
At the end of the three-year performance period, the number of actual BFGoodrich
common shares participants will receive will be net of an amount of shares
sufficient to satisfy any federal, state and local withholding tax requirements
with which the Company must comply.
Participants should consult their tax advisor for a complete explanation of the
tax impact of their participation in the Long-Term Incentive Plan.
-6-
<PAGE> 7
1998 - 2000
BFGOODRICH LONG-TERM INCENTIVE PLAN
-----------------------------------
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING
SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933.
Name:
AWARD GRANT
- -----------
You have been granted the following Long-Term Incentive Plan shares for the
three-year performance period 1998 through 2000:
phantom Performance Shares
Grants are credited as phantom Performance Shares in a book account for you.
Each phantom Performance Share will be equivalent to one share of BFGoodrich
common stock.
PLAN GOALS
- ----------
The number of phantom Performance Shares you earn will depend on the three-year
performance of the total Company, as measured against specific Return on Equity
(ROE) targets. At the end of the three-year performance period, you will earn
phantom Performance Shares based on the following schedule:
<TABLE>
<CAPTION>
Total Company Percent Payout of
Three-Year Phantom Performance
Average ROE Share Account
------------- -------------------
<S> <C> <C>
Below 15.0% 0%
(Threshold) 15.0% 50%
(Target) 16.0% 100%
(Maximum) 17.0% and above 150%
</TABLE>
-7-
<PAGE> 8
(Note: If performance for the three-year period is between the percentage
attainment levels listed on this chart, your Performance Share award
will be prorated accordingly. For example, an average ROE of 16.3% will
pay out Performance Shares equal to 115.0% of the phantom Performance
Share Account.)
For assessing performance against 1998 - 2000 Long-Term Incentive Plan goals,
the Compensation Committee will use ROE as reported to shareholders with the
following adjustments:
- exclude the income and equity effect of any acquisition which is
not included in the Plan and which affects net income by 5% or
more;
- exclude the income and equity effect of gains or losses from any
divestiture which is not included in the Plan and which affects net
income by 5% or more;
- exclude the effect of any change in accounting standards which is
not included in the Plan if it will affect net income by 5% or
more.
OTHER IMPORTANT INFORMATION
- ---------------------------
- Grants will be credited as phantom Performance Shares in a book
account for you. Each phantom Performance Share will be equivalent
to one share of BFGoodrich common stock.
- Dividend equivalents will be accrued on all phantom Performance
Shares in your account during the Plan cycle. Such dividend
equivalents will be credited to your account in the form of
additional phantom Performance Shares at the same time and in the
same amount as actual dividend payments on BFGoodrich common stock.
- You will not earn any phantom Performance Shares if the Company's
average ROE during the 1998 - 2000 period is below 15.0% (threshold
performance).
- If threshold performance is achieved, the number of shares to be
received free of further restrictions will range from 50% to 150%
of your total phantom Performance Share account (including shares
credited through dividend equivalents), based on attainment against
goals set by the Compensation Committee.
-8-
<PAGE> 9
- Payments from the Plan, if any, at the end of the Plan cycle, will
be made in actual shares of BFG common stock, less the number of
shares to satisfy applicable withholding taxes.
- New phantom Performance Share grants and performance targets are
expected to be established for another three-year Plan period
beginning in 1999.
- If you become totally disabled under the Company's Long-Term
Disability Plan, or retire under the Company's Retirement Program
for Salaried Employees during the Plan cycle, you will receive a
pro rata payout at the end of the Plan cycle, based upon the time
portion of the cycle during which you were employed. The actual
payout will not occur until after the end of the three-year cycle,
at which time the financial performance for the entire three-year
cycle will be used to determine the size of the award in that
event.
- If you die during a Plan cycle, you will receive a pro rata payout
of your account, based upon financial results calculated for the
portion of the cycle through the end of the fiscal quarter
following your death.
- If you terminate employment prior to the end of the Plan cycle for
reasons other than death, disability or retirement, you will
forfeit all Performance Shares.
- The Compensation Committee of the Board of Directors retains the
right in its sole discretion to reduce any award which would
otherwise be payable, unless there has been a Change in Control, as
defined in the Stock Option Plan.
- Any income you derive from a payout of Performance Shares will not
be considered eligible earnings for Company or subsidiary pension
plans, savings plans, profit sharing plans or other benefit plans.
FOR MORE INFORMATION
- --------------------
If you have questions about the Long-Term Incentive Plan or need additional
information, contact Gary Habegger at (330) 659-7855.
-9-
<PAGE> 1
EXHIBIT 10(Y)
CONSULTING AGREEMENT
This Consulting Agreement is entered into between The B.F.Goodrich
Company ("BFGoodrich") and Robert H. Rau ("Rau"), as follows:
1. Services. In consideration of the Compensation, Rau will provide consulting
services as required by the BFGoodrich Chief Executive Officer, the President of
the BFGoodrich Aerospace Segment , or their designees ("the Services"). While it
is not contemplated by the parties that Rau will provide the Services on a
full-time basis, Rau shall be reasonably available to BFGoodrich. Rau shall also
be reasonably available to travel on business for BFGoodrich. In rendering the
Services, Rau shall comply with all BFGoodrich policies and procedures.
2. Term. This Agreement shall become effective on January 1, 1999 (regardless of
the date on which it is signed) and shall continue through December 31, 2001.
This Agreement shall not be renewed by its own terms, and any further rendition
of services by Rau beyond December 31, 2001 shall require the execution of a new
consulting agreement.
3. Compensation. Rau shall receive Twenty-Eight Thousand Dollars ($28,000.00)
(the "Compensation") per month during the term of this Agreement. The
Compensation shall be paid monthly. Rau shall be solely responsible for the
payment of all taxes and like obligations with respect to the Compensation. At
the end of each year of this Agreement, BFGoodrich shall issue a Form 1099 to
Rau with respect to the Compensation. BFGoodrich shall reimburse Rau for
first-class air travel and other expenses incurred in connection with his
rendering of the Services in accordance with its normal policies applicable
thereto.
4. Independent Contractor. Rau shall render the Services hereunder as an
independent contractor and not as an employee, agent, partner, or joint venturer
of BFGoodrich or any of its subsidiaries, divisions, affiliates or related
entities. Rau is not authorized to, nor shall he make any attempt to, make any
commitments, agreements or binding obligations for or on behalf of BFGoodrich
unless previously authorized by the Chief Executive Officer, the President of
the BFGoodrich Aerospace Segment or their designees. As an independent
contractor, Rau shall not be eligible by reason of this Consulting Agreement to
participate in any benefit, insurance, compensation, bonus or retirement program
offered at any time by BFGoodrich. This Agreement shall not, however, affect any
rights Rau has by virtue of his prior status as an employee of BFGoodrich or
Rohr, Inc. or other agreements entered into by Rau and BFGoodrich and/or Rohr,
Inc. prior to the effective date of this Agreement.
5. Confidential Information. It is anticipated that Rau will be privy to certain
data or information which is confidential or proprietary to BFGoodrich and/or
its subsidiaries,
Page 1 of 3
<PAGE> 2
divisions, affiliates or related entities ("Confidential Information"). By
entering into this Agreement, Rau agrees that all Confidential Information
furnished or disclosed to him (as well as work product developed by Rau during
the term of this Agreement) shall be maintained in confidence by Rau and shall
not be disclosed to any person or entity or used by Rau in any way, except as
specifically authorized in advance by BFGoodrich. Rau's obligation in this
respect shall continue indefinitely and shall survive the termination of this
Agreement. The parties agree that unauthorized disclosure and/or use of such
information would be harmful to BFGoodrich and that BFGoodrich may enforce the
provisions hereof through an injunction without proof of damage. Rau further
agrees that at the termination of this Agreement, he will immediately return all
data, documents or other information he received from or used during the term of
this Agreement to BFGoodrich. This paragraph is not intended to supersede any
agreements entered into by Rau during his employment by Rohr, Inc. or BFGoodrich
and any such agreements shall remain in full force and effect according to their
terms.
6. Work Product. All Work Product (as defined herein) created by Rau under this
Agreement is "work for hire" and is the exclusive property of BFGoodrich, and
may not be shared with or disclosed to any other party without BFGoodrich's
consent. Rau hereby assigns to BFGoodrich all right, title and interest in and
to the Work Product. "Work Product" means everything that is produced, conceived
or developed by Rau in the course of performing Services for BFGoodrich under
this Agreement, including, without limitation, any and all reports, analyses,
studies, documentation, notes, drawings, computer programs (source code, object
code and listings), customer lists, inventions, creations and deliverables.
During and after the term of this Agreement, Rau will assist BFGoodrich in every
reasonable way, at BFGoodrich's expense, to secure, maintain and defend for
BFGoodrich's benefit all copyrights, patent rights, mask work rights, trade
secret rights and other proprietary rights in and to the Work Product. To the
extent that Rau has property rights that are incorporated in or necessary to the
use of the Work Product, Rau grants BFGoodrich and its subsidiaries, divisions,
affiliates, and related entities a royalty-free, irrevocable, worldwide,
non-exclusive license to use, disclose, reproduce, modify, license and
distribute such Work Product. Upon termination of this Agreement, or upon any
earlier request of BFGoodrich, the Work Product and all copies thereof shall be
provided to BFGoodrich.
7. Compliance With Laws/Conflict of Interest. Rau warrants that he will comply
with all applicable state, federal and local laws in rendering services to
BFGoodrich. Rau shall at all times conduct himself in good faith and in
accordance with the highest ethical standards. Rau will not, during the term of
this Agreement, accept employment with, render services to, or act as a member
of the board of directors of other entities without the prior written consent of
the BFGoodrich Chief Executive Officer. Rau shall provide such information as
may be reasonably requested by the Chief Executive Officer in deciding whether
consent is appropriate. Such consent shall not be unreasonably withheld.
8. Death or Disability. If Rau dies or becomes disabled during the term of this
Agreement such that he cannot perform the Services, he or his beneficiary shall
Page 2 of 3
<PAGE> 3
nonetheless continue to receive the Compensation.
9. Termination. This Agreement shall terminate as specified in Paragraph 2
above. BFGoodrich may also terminate this Agreement on thirty days' notice
without liability for any remaining Compensation if Rau violates any law or
BFGoodrich policy, is disloyal or dishonest or acts in bad faith toward
BFGoodrich, has been grossly derelict in the performance of his job duties or
responsibilities, or has violated his undertakings in Paragraph 5, 6 or 7
hereof.
10. Modification. Any modification of this Agreement shall be made only by a
specific written amendment to this Agreement signed by Rau and the Chief
Executive Officer of BFGoodrich.
11. Severability. If any provision of this Agreement or the application thereof
is held invalid, such invalidity shall not affect any other provisions or
applications of this Agreement which can be given effect without the invalid
provisions or application, and to this end, the provisions of this Agreement are
declared to be severable.
12. Complete Agreement. This Agreement constitutes the full and complete
agreement between the parties with respect to the subject matter hereof. The
parties represent that they have read this entire Agreement and that its terms
and conditions are fully understood by them.
13. Governing Law. The parties expressly agree that this Agreement shall be
construed and governed by the law of the state of Ohio.
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto as of
the dates set forth below.
THE B.F.GOODRICH COMPANY
BY: _________________________________
Gary L. Habegger
DATE: ______________________________
_____________________________________
ROBERT H. RAU
ADDRESS:
_____________________________________
_____________________________________
Date: ______________________________
Page 3 of 3
<PAGE> 1
EXHIBIT 21
THE B.F.GOODRICH COMPANY
PARENT AND SUBSIDIARIES OF REGISTRANT
<TABLE>
<CAPTION>
PERCENTAGE OF
PLACE OF VOTING SECURITIES
CONSOLIDATED SUBSIDIARY COMPANIES INCORPORATION OWNED
--------------------------------- ------------- -----------------
<S> <C> <C>
The B.F.Goodrich Company (Registrant; there are no parents
of the registrant) New York
BFGoodrich Aerospace Aircraft Evacuation Systems Private
Limited India 100.00
BFGoodrich Aerospace Asia-Pacific, Limited Hong Kong 51.00
BFGoodrich Aerospace Component Overhaul & Repair, Inc. Delaware 100.00
BFGoodrich Aerospace MRO Group, Inc. Washington 100.00
BFGoodrich Aerospace Pte. Ltd. Singapore 100.00
BFGoodrich Aerospace Pty. Limited Australia 100.00
BFGoodrich Avionics Systems, Inc. Delaware 100.00
B.F.Goodrich Chemical Italia, S.R.L. Italy 100.00
BFGoodrich China, Inc. Delaware 100.00
The B.F.Goodrich Company of Japan, Ltd. Japan 100.00
BFGoodrich de Mexico, S.A. de C.V. Mexico 100.00
BFGoodrich FCC, Inc. Delaware 100.00
BFGoodrich Diamalt GmbH Germany 51.00
BFGoodrich Hilton Davis, Inc. Delaware 100.00
BFGoodrich Diamalt GmbH Germany 49.00
Diamo Handelsgesellschaft mbH Germany 100.00
Freedom Chemical Diamalt Beteiligungs GmbH Germany 100.00
Diamalt S.r.l. Italy 100.00
BFGoodrich Diamalt Pvt. Ltd. India 100.00
BFGoodrich Kalama, Inc. Washington 100.00
Kalama Foreign Sales Corporation Guam 100.00
Kalama Specialty Chemical, Inc. Washington 100.00
BFGoodrich Textile Chemicals, Inc. Delaware 100.00
FCC Acquisition Corporation Delaware 100.00
Freedom Textile Chemical Company (South Carolina),
Inc. Delaware 100.00
HEJ Holding, Inc. Delaware 1.00
BFGoodrich Diamalt, Inc. Delaware 100.00
The
Freedom Europe B.V. Netherlands 100.00
BFGoodrich Diamalt S.A. France 100.00
BFGoodrich FlightSystems, Inc. Ohio 100.00
BFGoodrich Performance Materials Asia Pacific Limited Hong Kong 100.00
BFGoodrich Specialty Chemicals (M) SDN. BHD. Malaysia 100.00
The
Delfzijl Resin C.V. Netherlands 99.00
First Charter Insurance Company Vermont 100.00
GKS, Inc. Delaware 100.00
HEJ Holding, Inc. Delaware 69.90
The
B.F.Goodrich Chemical Holding B.V. Netherlands 100.00
B.F.Goodrich Realty Europe N.V. Belgium 100.00
The
BFGoodrich TempRite Resin B.V. Netherlands 100.00
B.F.Goodrich Chemical (Belgie) N.V. Belgium 100.00
BFGoodrich Chemical Spain, S.A. Spain .0001
B.F.Goodrich Europe Coordination Center N.V. Belgium 62.50
The
B.F.Goodrich Chemical Sales Company B.V. Netherlands 100.00
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
PERCENTAGE OF
PLACE OF VOTING SECURITIES
CONSOLIDATED SUBSIDIARY COMPANIES INCORPORATION OWNED
--------------------------------- ------------- -----------------
<S> <C> <C>
BFGoodrich Chemical Spain, S.A. Spain 99.9999
B.F.Goodrich Europe Coordination Center N.V. Belgium 37.50
BFGoodrich Holding S.A. France 100.00
B.F.Goodrich Aerospace Europe S.A. France 100.00
BFGoodrich Aerospace Services S.A. France 100.00
Rosemount Aerospace S.A.R.L. France 100.00
E.P.P.C. Polyplastic S.A. France 100.00
The
JcAir, B.V. Netherlands 100.00
B.F.Goodrich Holding GmbH Germany 100.00
B.F.Goodrich Chemical (Deutschland) GmbH Germany 100.00
Rosemount Aerospace GmbH Germany 100.00
Goodrich Holding UK Limited United Kingdom 100.00
A-Chem (U.K.) Limited United Kingdom 100.00
BFGoodrich Aerospace UK Limited United Kingdom 100.00
B.F.Goodrich Chemical (U.K.) Limited United Kingdom 100.00
BFGoodrich Component Services Limited United Kingdom 100.00
Rohr Aero Services Limited United Kingdom 100.00
Rosemount Aerospace Limited United Kingdom 100.00
Simmonds Precision Limited United Kingdom 100.00
Godfrey Engineering, Inc. Florida 100.00
Goodrich Canada Inc. Canada 100.00
Goodrich Holding Corporation Delaware 100.00
BFGoodrich Korea, Inc. Korea 100.00
HEJ Holding, Inc. Delaware 5.10
International BFGoodrich Technology Corporation Delaware 100.00
Goodrich FSC, Inc. Barbados 100.00
JcAir, Inc. Kansas 100.00
JMSI Corporation Delaware 100.00
The
Delfzijl Resin C.V. Netherlands 1.00
ALA Corporation Delaware 100.00
CMK Corporation Delaware 100.00
Kinsman Road Realty Corporation Ohio 100.00
Mitech Corporation Ohio 100.00
Rohr, Inc. Delaware 100.00
RE Components Inc. Delaware 100.00
Rohr Aero Services, Inc. Delaware 100.00
Rohr Aero Services, Europe France 100.00
B.F.Goodrich Aerospace Europe, Inc. Delaware 100.00
HEJ Holding, Inc. Delaware 24.00
B.F.Goodrich Aerospace Europe GmbH Germany 100.00
Rohr Finance Corporation Delaware 100.00
Rohr Foreign Sales Corporation Guam 100.00
Rohr, Inc. Maine 100.00
Rohr International Sales Corporation Delaware 100.00
Rohr International Service Corporation Delaware 100.00
Transportation Insurance Limited Bermuda 100.00
Rohr Industries, Inc. Kentucky 100.00
Rohr Southern Industries, Inc. Delaware 100.00
Tolo Incorporated California 100.00
Rosemount Aerospace Inc. Delaware 100.00
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
PERCENTAGE OF
PLACE OF VOTING SECURITIES
CONSOLIDATED SUBSIDIARY COMPANIES INCORPORATION OWNED
--------------------------------- ------------- -----------------
<S> <C> <C>
Runway Acquisition Corporation Pennsylvania 100.00
Safeway Products Inc. Connecticut 100.00
Siltown Realty, Inc. Alabama 100.00
Simmonds Precision Products, Inc. New York 100.00
Simmonds Precision Engine Systems, Inc. New York 100.00
Simmonds Precision Motion Controls, Inc. New Jersey 100.00
TSA Holdings Inc. Delaware 100.00
The
TSA-rina Holding B.V. Netherlands 100.00
Universal Propulsion Company, Inc. Delaware 100.00
Statutory
trust in
BFGoodrich Capital Delaware 100.00
</TABLE>
All of the above subsidiaries are included in the 1998 consolidated
financial statements.
The Registrant also owns 50.22% of DTM Corporation, incorporated in Texas;
DTM Corporation owns 100% of DTM GmbH, incorporated in Germany; 50% of
BFGoodrich -- Messier, Inc., incorporated in Delaware; 50% of
Messier -- BFGoodrich S.A., incorporated in France; 50% of Telenor S.A.,
incorporated in France; 50% of Port Systems, L.L.C., a Michigan limited
liability company; Goodrich Holding Corporation owns 21.9% of Taysung
Enterprises Co., Ltd., incorporated in Korea; Rohr, Inc. owns 50% of Rohr Aero
Services -- Asia Pte. Ltd., incorporated in Singapore; BFGoodrich China, Inc.
owns 28.75% of Youli Piping Co. Ltd., incorporated in China; Transportation
Insurance Limited owns 4.35% of Tortuga Casualty Co. and 5.56% of United
Insurance Co., both incorporated in the Caymans; Freedom Chemical Diamalt
Beteiligungs GmbH owns 70% of Chongqing Diamalt Biochemical Co. Ltd.,
incorporated in China; BFGoodrich Diamalt GmbH owns the following: 50% of
HackerMalt Proteine Verwaltungs GmbH, incorporated in Germany; 50% of HackerMalt
Proteine GmbH & Co., incorporated in Germany; 33.4% of Lyomark Pharma GmbH,
incorporated in Germany; 40% of Srinivasa Cystine Limited, incorporated in
India; 74% of Indiamalt Pvt. Ltd., incorporated in India; and 50% of Yantal
Prince Chemical Co. Ltd., incorporated in China. These companies are accounted
for on the equity method.
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference of our report dated February
5, 1999, with respect to the consolidated financial statements of The BFGoodrich
Company included in the Annual Report (Form 10-K) for the year ended December
31, 1998, 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
33-29351 The Rohr Industries, Inc. 1988 Non-Employee June 19, 1989
Director Stock Option Plan -- Form S-8
33-49052 The B.F.Goodrich Company Key Employees' June 26, 1992
Stock Option Plan -- Form S-8
33-59580 The B.F.Goodrich Company Retirement Plus March 15, 1993
Savings Plan for Wage Employees -- Form S-8
333-03293 The B.F.Goodrich Company Stock Option Plan -- Form S-8 May 8, 1996
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
333-53877 Pretax Savings Plan for the Salaried Employees of May 29, 1998
Rohr, Inc. (Restated 1994) and Rohr, Inc. Savings Plan for
Employees Covered by Collective Bargaining Agreements
(Restated 1994) -- Form S-8
333-53879 Directors' Deferred Compensation Plan -- Form S-8 May 29, 1998
333-53881 Rohr, Inc. 1982 Stock Option Plan, May 29, 1998
Rohr, Inc. 1989 Stock Incentive Plan and
Rohr, Inc. 1995 Stock Incentive Plan -- Form S-8
</TABLE>
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
March 3, 1999
<PAGE> 1
EXHIBIT 23(b)
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation by reference in Registration Statements on
Form S-3 (No. 333-03343) and Form S-8 (Nos. 2-88940, 33-20421, 33-29351,
33-49052, 33-59580, 333-03293, 333-19697, 333-53877, 333-53879 and 333-53881) of
The BFGoodrich Company, of our report dated September 11, 1997, on our audit of
Rohr, Inc. for the year ended July 31, 1996, appearing in this Annual Report on
Form 10-K of The BFGoodrich Company for the year ended December 31, 1998.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
March 3, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME OF THIS FORM
10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 31,700
<SECURITIES> 0
<RECEIVABLES> 651,600
<ALLOWANCES> 22,600
<INVENTORY> 772,500
<CURRENT-ASSETS> 1,614,500
<PP&E> 2,298,100
<DEPRECIATION> 1,042,200
<TOTAL-ASSETS> 4,192,600
<CURRENT-LIABILITIES> 990,800
<BONDS> 995,200
123,600
0
<COMMON> 381,100
<OTHER-SE> 1,218,500
<TOTAL-LIABILITY-AND-EQUITY> 4,192,600
<SALES> 3,950,800
<TOTAL-REVENUES> 3,950,800
<CGS> 2,853,100
<TOTAL-COSTS> 2,853,100
<OTHER-EXPENSES> 10,500
<LOSS-PROVISION> 5,800
<INTEREST-EXPENSE> 79,000
<INCOME-PRETAX> 384,900
<INCOME-TAX> 146,300
<INCOME-CONTINUING> 228,100
<DISCONTINUED> (1,600)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,500
<EPS-PRIMARY> 3.07
<EPS-DILUTED> 3.02
</TABLE>
<PAGE> 1
EXHIBIT 99
INDEPENDENT AUDITORS' REPORT
We have audited the consolidated statements of operations, shareholders'
equity, and cash flows of Rohr, Inc. and its subsidiaries for the year ended
July 31, 1996 (such statements are not separately presented). 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material aspects, the results of operations and cash flows of Rohr, Inc. and
its subsidiaries for the year ended July 31, 1996, in conformity with generally
accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
San Diego, California
September 11, 1997
