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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 2000
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Commission file number 1-892
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THE B.F.GOODRICH COMPANY
------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 34-0252680
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, N.C. 28217
- ---------------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-423-7000
----------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of March 31, 2000, there were 107,334,177 shares of common stock outstanding.
There is only one class of common stock.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
2000 1999
--------- ---------
<S> <C> <C>
Sales $ 1,378.2 $ 1,411.8
Operating Costs and Expenses:
Cost of sales 986.6 1,007.1
Selling and administrative expenses 203.6 217.1
Merger-related and consolidation costs 5.4 26.2
--------- ---------
1,195.6 1,250.4
--------- ---------
Operating income 182.6 161.4
Interest expense (36.5) (34.0)
Interest income 1.2 0.7
Other income (expense) - net (4.5) (2.4)
--------- ---------
Income before income taxes and Trust distributions 142.8 125.7
Income tax expense (52.1) (44.8)
Distributions on Trust preferred securities (4.6) (4.6)
--------- ---------
Net Income $ 86.1 $ 76.3
========= =========
Earnings per share:
Basic $ 0.79 $ 0.70
Diluted $ 0.78 $ 0.69
Dividends declared per common share $ 0.275 $ 0.275
</TABLE>
See notes to condensed consolidated financial statements.
2
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THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 76.8 $ 66.4
Accounts and notes receivable, less allowances
for doubtful receivables (March 31, 2000:
$29.2; December 31, 1999: $28.2) 917.3 845.1
Inventories 1,003.6 989.5
Deferred income taxes 131.0 129.7
Prepaid expenses and other assets 59.5 58.7
---------- ----------
Total Current Assets 2,188.2 2,089.4
---------- ----------
Property, plant and equipment 1,552.2 1,577.3
Prepaid Pension 215.0 212.1
Goodwill 1,046.0 1,031.1
Identifiable intangible assets 111.2 114.0
Other Assets 462.2 431.7
---------- ----------
$ 5,574.8 $ 5,455.6
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank debt $ 410.7 $ 229.1
Accounts payable 451.5 476.2
Accrued expenses 677.9 712.2
Income taxes payable 123.4 78.9
Current maturities of long-term debt
and capital lease obligations 14.9 14.5
---------- ----------
Total Current Liabilities 1,678.4 1,510.9
---------- ----------
Long-term debt and capital lease obligations 1,516.4 1,516.9
Pension obligations 80.4 80.4
Postretirement benefits other than pensions 344.6 347.7
Deferred income taxes 130.3 126.7
Other non-current liabilities 274.7 308.5
Commitments and contingent liabilities -- --
Mandatorily redeemable preferred securities of trust 272.0 271.3
Shareholders' Equity
Common stock - $5 par value
Authorized 200,000,000 shares; issued
112,100,299 shares at March 31, 2000, and
112,064,927 shares at December 31, 1999
(excluding 14,000,000 shares held by a
wholly owned subsidiary) 560.5 560.3
Additional capital 896.4 895.8
Income retained in the business 3.6 (52.3)
Accumulated other comprehensive income (42.1) (44.2)
Unearned portion of restricted stock awards (1.1) (1.2)
Common stock held in treasury, at cost
(4,766,122 shares at March 31, 2000, and
1,832,919 shares at December 31, 1999) (139.3) (65.2)
---------- ----------
Total Shareholders' Equity 1,278.0 1,293.2
---------- ----------
$ 5,574.8 $ 5,455.6
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
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THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------
2000 1999
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 86.1 $ 76.3
Adjustments to reconcile net income to net
cash provided by operating activities:
Merger related and consolidation:
Expenses 5.4 26.2
Payments (23.8) --
Depreciation and amortization 70.6 57.4
Deferred income taxes 2.4 4.2
Net gains on sales of businesses (1.1) --
Gain on sale of investment -- (3.2)
Change in assets and liabilities, net of effects of acquisitions and
dispositions of businesses:
Receivables (57.0) (69.3)
Inventories (15.7) (17.0)
Other current assets (9.4) 0.7
Accounts payable (25.0) 1.9
Accrued expenses (14.7) (26.8)
Income taxes payable 44.5 35.2
Other non-current assets and liabilities (53.3) (1.6)
-------- -------
Net cash provided by operating activities 9.0 84.0
INVESTING ACTIVITIES
Purchases of property (42.1) (51.6)
Proceeds from sale of property 12.2 0.3
Proceeds from sale of businesses 1.4 --
Sale of short-term investments -- 3.5
Payments made in connection with acquisitions,
net of cash acquired (34.3) (26.1)
-------- -------
Net cash used by investing activities (62.8) (73.9)
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 181.5 47.1
Decrease in revolving credit facility, net -- (17.5)
Repayment of long-term debt and capital lease obligations (1.0) (5.0)
Proceeds from sale of receivables, net (8.0) --
Proceeds from issuance of capital stock -- 1.7
Purchases of treasury stock (73.7) --
Dividends (30.3) (20.5)
Distributions on Trust preferred securities (4.6) (4.6)
Other 0.2 --
-------- -------
Net cash provided by financing activities 64.1 1.2
EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 0.1 (0.4)
-------- -------
Net Increase (Decrease) in Cash and Cash Equivalents 10.4 10.9
Cash and Cash Equivalents at Beginning of Period 66.4 53.5
-------- -------
Cash and Cash Equivalents at End of Period $ 76.8 $ 64.4
======== =======
Supplemental Cash Flow Information:
Income taxes paid $ 12.6 $ 8.1
======== =======
Interest paid, net of amounts capitalized $ 21.6 $ 25.1
======== =======
</TABLE>
See notes to condensed consolidated financial statements.
4
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A: BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION - The accompanying
unaudited condensed consolidated financial statements of The B.F.Goodrich
Company ("BFGoodrich" or the "Company") have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Certain amounts in prior year financial statements have been
reclassfied to conform to the current year presentation. Operating results for
the three months ended March 31, 2000 are not necessarily indicative of the
results that may be achieved for the year ending December 31, 2000. For further
information, refer to the consolidated financial statements and footnotes
included in the Company's Annual Report on Form 10-K for the year ended December
31, 1999.
NOTE B: ACQUISITIONS - In the first quarter of 2000, the Company acquired a
manufacturer of earth and sun sensors in attitude determination and control
subsystems of spacecraft; ejection seat technology; intellectual property
related to certain dyes; and a personal care business. Total consideration
aggregated $34.3 million, of which $25.0 million represented goodwill and other
intangible assets. The purchase price allocation for these acquisitions has been
based on preliminary estimates.
NOTE C: INVENTORIES - Inventories included in the accompanying condensed
consolidated balance sheet consist of:
(Dollars in millions)
--------------------------
March 31, December 31,
2000 1999
--------- ------------
FIFO or average cost (which
approximates current costs):
Finished products $ 271.1 $ 278.0
In process 667.7 608.4
Raw materials and supplies 226.6 257.5
-------- --------
1,165.4 1,143.9
Less:
Reserve to reduce certain
inventories to LIFO (69.1) (70.8)
Progress payments and advances (92.7) (83.6)
-------- --------
Total $1,003.6 $ 989.5
======== ========
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 $83.2 million related to design and
development costs on the 717-200 program at March 31, 2000. In
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addition, the Company has excess-over-average inventory of $57.3 million related
to costs associated with the production of the flight test inventory and the
first production units on this program. The aircraft was certified by the FAA on
September 1, 1999, and Boeing is actively marketing the aircraft. Recovery of
these costs will depend on the ultimate number of aircraft delivered and
successfully achieving the Company's cost projections in future years.
NOTE D: BUSINESS SEGMENT INFORMATION - The Company's operations are classified
into three reportable business segments: BFGoodrich Aerospace ("Aerospace"),
BFGoodrich Engineered Industrial Products ("Engineered Industrial Products") and
BFGoodrich Performance Materials ("Performance Materials"). The Company's three
reportable business segments are managed separately based on fundamental
differences in their operations.
Segment operating income is total segment revenue reduced by operating expenses
identifiable with that business segment. Corporate includes general corporate
administrative costs. Merger related and consolidation costs are discussed in
Note G of these unaudited condensed consolidated financial statements. The
accounting policies of the reportable segments are the same as those for the
consolidated Company. There are no significant intersegment sales.
Three Months Ended March 31,
----------------------------
2000 1999
-------- --------
Sales
Aerospace $ 893.0 $ 926.2
Engineered Industrial Products 177.6 185.6
Performance Materials 307.6 300.0
-------- --------
Total Sales $1,378.2 $1,411.8
======== ========
Operating Income
Aerospace $ 138.7 $ 142.5
Engineered Industrial Products 33.6 34.2
Performance Materials 34.1 29.6
-------- --------
$ 206.4 $ 206.3
Corporate General and
Administrative Expenses (18.4) (18.7)
Merger Related and
Consolidation Costs (5.4) (26.2)
-------- --------
Total Operating Income $ 182.6 $ 161.4
======== ========
March 31, 2000 December 31, 1999
-------------- -----------------
Assets
Aerospace $ 3,138.1 $ 3,021.8
Engineered Industrial Products 395.0 390.3
Performance Materials 1,413.3 1,408.4
Corporate 628.4 635.1
--------- ---------
Total Assets $ 5,574.8 $ 5,455.6
========= =========
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NOTE E: EARNINGS PER SHARE - The computation of basic and diluted earnings per
share is as follows:
(In millions, except per share amounts) Three Months Ended
March 31,
----------------------
2000 1999
---- ----
Numerator:
Numerator for basic earnings per share
- income available to common shareholders $ 86.1 $ 76.3
Effect of dilutive securities:
Convertible preferred securities 1.6 1.6
--------- ---------
Numerator for diluted earnings per
share - income available to common
shareholders after assumed conversions $ 87.7 $ 77.9
========= =========
Denominator:
Denominator for basic earnings per
share - weighted-average shares 109.5 109.7
--------- ---------
Effect of dilutive securities:
Stock options, warrants and restricted shares 0.5 0.7
Convertible preferred securities 2.9 2.9
--------- ---------
Dilutive potential common shares 3.4 3.6
--------- ---------
Denominator for diluted earnings per
share - adjusted weighted-average shares
and assumed conversions 112.9 113.3
========= =========
Earnings per share:
Basic $ 0.79 $ 0.70
========= =========
Diluted $ 0.78 $ 0.69
========= =========
The Company's Board of Directors approved a $300 million share repurchase
program during the quarter. The Company has repurchased 2.9 million shares of
its common stock for $73.7 million through March 31, 2000.
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NOTE F: COMPREHENSIVE INCOME
Total comprehensive income consists of the following:
(Dollars in millions) Three Months Ended
March 31,
------------------
2000 1999
---- ----
Net Income $ 86.1 $ 76.3
Other Comprehensive Income
Unrealized translation adjustments
during period 2.1 (14.2)
------ ------
Total Comprehensive Income $ 88.2 $ 62.1
====== ======
Accumulated other comprehensive income consists of the following (dollars in
millions):
March 31, 2000 December 31, 1999
-------------- -----------------
Cumulative unrealized translation adjustments $ (35.4) $ (37.5)
Minimum pension liability adjustment (6.7) (6.7)
------- -------
$ (42.1) $ (44.2)
======= =======
NOTE G: MERGER RELATED AND CONSOLIDATION COSTS - Merger related and
consolidation reserves at December 31, 1999 and March 31, 2000, as well as
activity during the first quarter, consisted of:
(Dollars in millions)
-------------------------------------------------------
Balance Reserve Balance
December 31, 1999 Provision Reduction March 31, 2000
----------------- --------- --------- --------------
Personnel related costs $ 41.3 $ 2.0 $ 21.1 $ 22.2
Transaction costs 2.0 -- -- 2.0
Consolidation 7.9 3.4 4.2 7.1
------- ------- ------- -------
$ 51.2 $ 5.4 $ 25.3 $ 31.3
======= ======= ======= =======
During the first quarter of 2000, the Company recorded merger related and
consolidation costs of $5.4 million consisting of $2.0 million in personnel
related costs and $3.4 million in consolidation costs. The $2.0 million in
personnel related costs consists of $1.0 million in employee relocation costs
associated with the Coltec merger and $1.0 million for work force reductions in
the Company's Aerospace Segment. Consolidation costs include a $1.5 million
non-cash charge related to the write-off of certain assets and accelerated
depreciation related to assets whose useful lives had been reduced as a
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result of consolidation activities and $1.9 million for realignment activities
in Aerospace. Of the $25.3 million reduction in reserves, $23.8 million related
to cash payments and $1.5 million related to the write-off of assets during the
quarter.
NOTE H: CONTINGENCIES
GENERAL
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, asbestos and
environmental matters, which seek remedies or damages. BFGoodrich believes that
any liability that may finally be determined with respect to commercial and
product liability claims should not have a material effect on the Company's
consolidated financial position or results of operations. From time to time, the
Company is also involved in legal proceedings as a plaintiff involving contract,
patent protection, environmental and other matters. Gain contingencies, if any,
are recognized when they are realized.
ENVIRONMENTAL
The Company and its subsidiaries are generators of both hazardous wastes and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party ("PRP") by
the U.S. Environmental Protection Agency ("EPA"), or similar state agencies, in
connection with several sites.
The Company initiates corrective and/or preventive environmental projects of its
own to ensure safe and lawful activities at its current operations. It also
conducts a compliance and management systems audit program. 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
environmental issues at past and existing operating sites, as well as off-site
disposal sites at which the Company has been identified as a PRP. This process
includes investigation and remedial selection and implementation, as well as
negotiations with other PRPs and governmental agencies.
At March 31, 2000, the Company has recorded in Accrued Expenses and in Other
Non-current Liabilities a total of $120.1 million to cover future environmental
expenditures. This amount is recorded on an undiscounted basis.
The Company believes that its reserves are adequate 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.
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ASBESTOS
As of March 31, 2000 two subsidiaries of the Company were among a number of
defendants (typically 15 to 40) in approximately 94,300 actions (including
approximately 9,600 actions in advanced stages of processing) filed in various
states by plaintiffs alleging injury or death as a result of exposure to
asbestos fibers. During the first three months of 2000, these two subsidiaries
of the Company received approximately 6,900 new actions compared to
approximately 10,400 new actions received during the first three months of 1999.
Through March 31, 2000, approximately 292,100 of the approximately 386,400 total
actions brought have been settled or otherwise disposed.
Payments were made by the Company with respect to asbestos liability and related
costs aggregating $26.3 million and $16.5 million for the first three months of
2000 and 1999, respectively, substantially all of which were covered by
insurance. Settlements are generally made on a group basis with payments made to
individual claimants over periods of one to four years. Related to payments not
covered by insurance, the Company recorded charges to operations amounting to
approximately $2.0 million during the first three months of 2000 and 1999.
In accordance with the Company's internal procedures for the processing of
asbestos product liability actions and due to the proximity to trial or
settlement, certain outstanding actions have progressed to a stage where the
Company can reasonably estimate the cost to dispose of these actions. As of
March 31, 2000, the Company estimates that the aggregate remaining cost of the
disposition of the settled actions for which payments remain to be made and
actions in advanced stages of processing, including associated legal costs, is
approximately $164.7 million and the Company expects that this cost will be
substantially covered by insurance.
With respect to the 84,700 outstanding actions as of March 31, 2000, which are
in preliminary procedural stages, as well as any actions that may be filed in
the future, the Company lacks sufficient information upon which judgments can be
made as to the validity or ultimate disposition of such actions, thereby making
it difficult to estimate with reasonable certainty what, if any, potential
liability or costs may be incurred by the Company. However, the Company believes
that its subsidiaries are in a favorable position compared to many other
defendants because, among other things, the asbestos fibers in its
asbestos-containing products were encapsulated. Subsidiaries of the Company
continue to distribute encapsulated asbestos-bearing product in the United
States with annual sales of less than $1.5 million. All sales are accompanied by
appropriate warnings. The end users of such product are sophisticated users who
utilize the product for critical applications where no known substitutes exist
or have been approved.
Insurance coverage of a small non-operating subsidiary formerly distributing
asbestos-bearing products is nearly depleted. Considering the foregoing, as well
as the experience of the Company's subsidiaries and other defendants in asbestos
litigation, the likely sharing of judgments among multiple responsible
defendants, and given the substantial amount of insurance coverage that the
Company expects to be available from its solvent carriers to cover the majority
of its exposure, the Company believes that pending and reasonably anticipated
future actions are not likely to have a materially adverse effect on the
Company's consolidated results of operations or financial condition, but could
be material to the Company's results of operations in a given period. Although
the insurance coverage which the Company has is substantial, it should be noted
that insurance coverage for asbestos claims is not available to cover exposures
initially occurring on and after July 1, 1984. The Company's subsidiaries
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continue to be named as defendants in new cases, some of which allege initial
exposure after July 1, 1984.
The Company has recorded an accrual for its liabilities for asbestos-related
matters that are deemed probable and can be reasonably estimated (settled
actions and actions in advanced stages of processing), and has separately
recorded an asset equal to the amount of such liabilities that is expected to be
recovered by insurance. In addition, the Company has recorded a receivable for
that portion of payments previously made for asbestos product liability actions
and related litigation costs that is recoverable from its insurance carriers.
Liabilities for asbestos-related matters and the receivable from insurance
carriers included in the Consolidated Balance Sheets are as follows:
(Dollars in millions)
March 31, December 31,
2000 1999
------ ------
Accounts and notes receivable $171.8 $146.9
Other assets 32.0 36.7
Accrued expenses 140.7 134.6
Other liabilities 24.0 28.5
NOTE I: SUBSEQUENT EVENTS
On April 17, 2000, the Company announced that it intends to divest its
Performance Materials Segment. The Company expects to meet the criteria for
accounting for the disposition as a discontinued operation later this year. At
such time, all periods will be restated to reflect Performance Materials'
results as a discontinued operation. The Company anticipates using the proceeds
from the divestiture to grow the aerospace and industrial businesses, to fund
its current share buy back program and for the reduction of debt. In April 2000,
the Company also announced its intention to close its landing gear facility in
Euless, Texas.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND
RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
o Net income, excluding special items, was $89.5 million, or
$0.81 per share, compared to $92.8 million, or $0.84 per
share, in the year-ago quarter.
o Operating income margins increased to 15.0%
o EBITDA, excluding special items, increased to $254.1 million.
o Announced intention to divest the Performance Materials
Segment during 2000 (see further discussion below and in Note
I of the accompanying unaudited condensed consolidated
financial statements).
o Announced authorization to repurchase up to $300 million of
the Company's outstanding common stock (repurchased $73.7
million, or 2.9 million shares, through March 31, 2000).
o Reorganized the Company's Aerospace and Performance Materials
Segments.
o Announced intention to close its landing gear facility in
Euless, Texas.
PROPOSED DIVESTITURE OF PERFORMANCE MATERIALS SEGMENT
On April, 17, 2000, the Company announced that it intends to focus on its
Aerospace and Engineered Industrial Products businesses and divest its
Performance Materials segment. The Company anticipates that the divestiture will
be completed by year-end 2000. The proceeds of the divestiture will be available
for growing the Company's Aerospace and Engineered Industrial Products
businesses, for its current share repurchase program, and for reducing debt.
RESULTS OF OPERATIONS
TOTAL COMPANY
Sales during the quarter ended March 31, 2000, decreased by $33.6 million, or
2.4 percent, from sales during the same period last year. Sales decreased by 3.6
percent for the Aerospace Segment and by 4.3 percent for the Engineered
Industrial Products Segment and increased by 2.5 percent for the Performance
Materials Segment as compared to the 1999 first quarter. The reasons for these
fluctuations as compared to last year are discussed by segment below.
Cost of sales as a percent of sales increased from 71.3 percent in 1999 to 71.6
percent in 2000. Given the reduction in sales between periods noted above, the
increase would have been larger absent management's ability to lower its
controllable costs through operating improvement initiatives.
Selling and administrative costs as a percent of sales decreased from 15.4
percent in 1999 to 14.8 percent in 2000. This is due primarily to the Company's
efforts to control costs (previously announced layoffs, lean manufacturing
initiatives, plant closures, etc.), especially given the decrease in sales noted
above.
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Merger related and consolidation costs of $5.4 million and $26.2 million were
recorded during the first quarter of 2000 and 1999, respectively (see further
discussion in Note G of the accompanying unaudited condensed consolidated
financial statements). The Company expects to incur an additional $20 to $30
million of merger related and consolidation costs during the remainder of 2000.
The timing of these costs is dependent on the finalization of management's plans
and on the nature of the costs (accruable or period costs). These charges will
consist primarily of costs associated with the consolidation of landing gear
facilities, the reorganization of operating facilities and for employee
relocation and severance costs.
Excluding merger related and consolidation costs, operating income in the first
quarter increased $0.4 million, or 0.2 percent, from $187.6 million in 1999 to
$188.0 million in 2000. Operating income decreased by $3.8 million in the
Aerospace Segment and by $0.6 million in the Engineered Industrial Products
Segment and increased by $4.5 million in the Performance Materials Segment.
Unallocated corporate general and administrative costs decreased slightly
between periods. Operating income by segment is discussed in greater detail
below.
Interest expense-net increased $2.0 million from $33.3 million in 1999 to $35.3
million in 2000. The increase is a direct result of additional short-term
borrowings due primarily to acquisitions and the repurchase of the Company's
common stock during the first quarter of 2000. The Company repurchased
approximately 2.9 million shares of its common stock at an aggregate cost of
$73.7 million during the first quarter. The Company's board of directors has
authorized the repurchase of up to $300 million of the Company's outstanding
common stock.
Other expense-net increased $2.1 million from $2.4 million in the first quarter
of 1999 to $4.5 million in the first quarter of 2000. Excluding gains from the
sale of businesses of $1.1 million in 2000 and $3.2 million in 1999, other
expense-net remained unchanged at $5.6 million.
The Company's effective tax rate increased from 35.6 percent to 36.5 percent,
quarter to quarter. The effective tax rate in the first quarter of 2000
approximates the rate for all of 1999, excluding special items, and is
consistent with the rate expected for 2000.
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BUSINESS SEGMENT PERFORMANCE
SEGMENT ANALYSIS
Three Months Ended March 31,
(Dollars in Millions) 2000 1999
- --------------------------------------------------------------------------------
SALES:
Aerospace $ 893.0 $ 926.2
Engineered Industrial Products 177.6 185.6
Performance Materials 307.6 300.0
-------------------------------------------------------------------------------
Total $ 1,378.2 $ 1,411.8
================================================================================
OPERATING INCOME:
Aerospace $ 138.7 $ 142.5
Engineered Industrial Products 33.6 34.2
Performance Materials 34.1 29.6
- --------------------------------------------------------------------------------
Total Reportable Segments 206.4 206.3
Corporate (18.4) (18.7)
Merger Related and Consolidation Costs (5.4) (26.2)
- --------------------------------------------------------------------------------
Total $ 182.6 $ 161.4
================================================================================
The Company's operations are classified into three reportable business segments:
BFGoodrich Aerospace ("Aerospace"), BFGoodrich Engineered Industrial Products
("Engineered Industrial Products") and BFGoodrich Performance Materials
("Performance Materials"). The Aerospace Segment reorganized during the first
quarter creating the following new operating groups: Aerostructures and Aviation
Services, Landing Systems, Engine and Safety Systems and Electronic Systems. The
segment's maintenance, repair and overhaul businesses are now being reported
with their respective original equipment businesses. Prior period amounts have
been reclassified to conform with this new group structure. These groups serve
commercial, military, regional, business and general aviation markets.
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Engineered Industrial Products is a single business group. This group
manufactures industrial seals; gaskets; packing products; self-lubricating
bearings; diesel, gas and dual fuel engines; air compressors; spray nozzles and
vacuum pumps.
Performance Materials consists of three business groups: Textile and Coatings
Solutions; Polymer Additives and Specialty Plastics; and Consumer Specialties.
These groups provide materials for a wide range of end use market applications
including textiles, coatings, food & beverage, personal care, pharmaceuticals,
graphic arts, industrial piping, plumbing and transportation. Certain research
and development expenses previously reported within corporate general and
administrative costs are now included within the segment's results. The segment
also reorganized how it accounts and reports the results for certain product
lines within its groups during the quarter. Prior period results have been
reclassified for consistency.
Corporate includes general and administrative costs. Segment operating income is
total segment revenue reduced by operating expenses directly identifiable with
that business segment. Merger related and consolidation costs are presented
separately (see further discussion in Note G to the accompanying unaudited
condensed consolidated financial statements).
15
<PAGE> 16
An expanded analysis of sales and operating income by business segment follows.
AEROSPACE
(Dollars in millions)
Three Months Ended March 31,
-----------------------------------
2000 1999 % Change
---- ---- --------
SALES
Aerostructures and Aviation Services $357.6 $387.5 (7.7)
Landing Systems 260.1 262.5 (0.9)
Engine and Safety Systems 147.8 143.5 3.0
Electronic Systems 127.5 132.7 (3.9)
------ ------
Total Sales $893.0 $926.2 (3.6)
====== ======
OPERATING INCOME
Aerostructures and Aviation Services $ 48.9 $ 56.5 (13.5)
Landing Systems 37.3 36.8 1.4
Engine and Safety Systems 27.3 24.7 10.5
Electronic Systems 25.2 24.5 2.9
------ ------
Total Operating Income $138.7 $142.5 (2.7)
====== ======
OPERATING INCOME AS A PERCENT OF SALES
Aerostructures and Aviation Services 13.7 14.6
Landing Systems 14.3 14.0
Engine and Safety Systems 18.5 17.2
Electronic Systems 19.8 18.5
Total Aerospace 15.5 15.4
Aerospace sales during the first quarter of 2000 decreased by $33.2 million, or
3.6 percent, from $926.2 million in 1999 to $893.0 million in 2000. The decrease
was attributable to lower sales in the Landing Systems, Electronic Systems and
Aerostructures and Aviation Services groups, partially offset by a slight
increase in sales in the Engine and Safety Systems group.
16
<PAGE> 17
Aerospace operating income of $138.7 million during the first quarter of 2000
was $3.8 million, or 2.7 percent, lower than the first quarter of 1999. The
decrease in operating income was attributable to the Aerostructures and Aviation
Services group, partially offset by a slight increase in operating income at the
Landing Systems, Engine and Safety Systems, and Electronic Systems groups.
AEROSTRUCTURES AND AVIATION SERVICES: Sales for the first quarter of 2000
decreased $29.9 million, or 7.7 percent, from $387.5 million in the first
quarter of 1999 to $357.6 million in the first quarter of 2000. Most of the
decrease resulted from the MD-90 program no longer being in production, as well
as from lower aftermarket sales. This decrease was partially offset by a
significant increase in sales within the aerostructures services business.
Aviation Services sales during the quarter were flat as compared with the first
quarter of 1999.
Aerostructures and Aviation Services operating income for the first quarter of
2000 decreased $7.6 million, or 13.5 percent, from $56.5 million in the first
quarter of 1999 to $48.9 million in the first quarter of 2000. The decrease is
predominantly due to lower volume in the group's aerostructures market,
partially mitigated by a settlement with a commercial customer for cancellation
of an ongoing program, favorable mix, and improved operating performance on some
long-term production contracts. Aviation Services recorded a slight loss during
the period primarily due to the postponement of scheduled work by a major
customer.
LANDING SYSTEMS: Sales for the first quarter of 2000 decreased $2.4 million, or
0.9 percent, from $262.5 million in the first quarter of 1999 to $260.1 million
in the first quarter of 2000. Landing Gear sales were lower than the same period
a year ago as increases in commercial and military spares sales did not fully
offset decreased commercial OEM production, particularly on the Boeing 747 and
Boeing 777 programs. Aftermarket sales of wheels and brakes were higher than the
same period a year ago as a result of increased sales on the Boeing 737, Boeing
747 and on the Airbus 330/340 and Airbus 319/320 programs, as well as increased
sales in the regional, business and military market segment. The landing gear
and wheel and brake service businesses both had stronger sales than the same
period a year ago.
Landing Systems operating income for the first quarter of 2000 increased $0.5
million, or 1.4 percent, from $36.8 million in the first quarter of 1999 to
$37.3 million in the first quarter of 2000. The increase was attributable to a
more favorable mix and increased military, regional and service volume of wheels
and brakes, partially offset by lower operating income resulting from the
reduced sale of landing gear as discussed above.
ENGINE AND SAFETY SYSTEMS: Sales for the first quarter of 2000 increased $4.3
million, or 3.0 percent, from $143.5 million in the first quarter of 1999 to
$147.8 million in the first quarter of 2000. Significantly stronger sales in
engine products, especially power generation products, more than made up for the
weakness in safety products. The weakness in safety product sales was due to
lower commercial OEM shipments on the Boeing 747 program and on certain military
programs.
Engine and Safety Systems group operating income for the first quarter of 2000
increased $2.6 million, or 10.5 percent, from $24.7 million in the first quarter
of 1999 to $27.3 million in the first quarter of 2000. Favorable manufacturing
variances and reduced spending enhanced operating income in addition to the
increased volume in engine products noted above.
17
<PAGE> 18
ELECTRONIC SYSTEMS: Sales for the first quarter of 2000 decreased $5.2 million,
or 3.9 percent, from $132.7 million in the first quarter of 1999 to $127.5
million in the first quarter of 2000. Sales of aircraft sensors and fuel and
utility systems to the military were weaker, period over period. Sales of
avionics and space flight systems increased from the same period a year ago, but
were not enough to offset the decrease in sales of aircraft sensors and fuel and
utility systems noted above.
Electronic Systems group operating income for the first quarter of 2000
increased $0.7 million, or 2.9 percent, from $24.5 million in the first quarter
of 1999 to $25.2 million in the first quarter of 2000. Increased volume in space
flight systems, combined with a very favorable product mix in fuel and utility
systems, accounted for the increased operating income.
ENGINEERED INDUSTRIAL PRODUCTS:
(IN MILLIONS)
Three Months Ended March 31,
----------------------------
2000 1999
------- -------
Sales $ 177.6 $ 185.6
Operating Income $ 33.6 $ 34.2
Operating Income as a percent of Sales 18.9% 18.4%
Sales were lower by $8.0 million, or 4.3 percent, from $185.6 million in the
first quarter of 1999 to $177.6 million in the first quarter of 2000. The
decrease in sales was attributable to the completion of a large engine project
during 1999 and the initiation of sales on a similar but lower revenue producing
project during 2000 and lower sales at the segment's foreign operations due in
part to foreign currency changes. Operations serving the domestic automotive
market also experienced lower sales compared to first quarter 1999. These
declines were offset, in part, by operations serving the air products and the
heavy-duty truck markets. The air compressors division sales during the quarter
also exceeded sales during the first quarter of 1999.
Operating income decreased $0.6 million, or 1.8 percent from $34.2 million in
the first quarter of 1999 to $33.6 million in the first quarter of 2000. The
decline in operating income was due primarily to volume declines. Operating
income as a percentage of sales, however, increased during the period from 18.4
percent to 18.9 percent as a result of manufacturing efficiencies and other cost
improvements.
18
<PAGE> 19
PERFORMANCE MATERIALS
(Dollars in millions)
Three Months Ended March 31,
-----------------------------------
2000 1999 % Change
---- ---- --------
SALES
Textile and Coatings
Solutions $133.7 $131.5 1.7
Polymer Additives and
Specialty Plastics 114.4 109.3 4.7
Consumer Specialties 59.5 59.2 0.5
------ ------
Total $307.6 $300.0 2.5
====== ======
OPERATING INCOME
Textile and Coatings
Solutions $ 8.0 $6.2 29.0
Polymer Additives and
Specialty Plastics 19.3 18.3 5.5
Consumer Specialties 6.8 5.1 33.3
------ ------
Total Operating Income $ 34.1 $ 29.6 15.2
====== ======
OPERATING INCOME AS A PERCENT OF SALES
Textile and Coating Solutions 6.0 4.7
Polymer Additives and
Specialty Plastics 16.9 16.7
Consumer Specialties 11.4 8.6
Total Performance
Materials 11.1 9.9
19
<PAGE> 20
Sales increased $7.6 million, or 2.5 percent, from $300.0 million in 1999 to
$307.6 million in 2000. The increase was due to a nearly 10 percent increase in
volume, with each of the groups showing volume gains. Continued downward pricing
pressure in most market segments offset a portion of the volume gains. Product
mix was slightly unfavorable to last year as well, with unfavorable foreign
currency exchange rates also negatively impacting sales for the quarter.
Operating income increased by $4.5 million, or 15.2 percent, from $29.6 million
in 1999 to $34.1 million in 2000. The increase in income can be attributed to
the impact of higher sales, the lower costs achieved through the restructuring
announced during the first quarter of 1999 and tight cost controls in place
during the quarter. The increase was partially offset by higher raw material
costs.
TEXTILE AND COATINGS SOLUTIONS: Sales increased by $2.2 million, or 1.7 percent,
from $131.5 million in 1999 to $133.7 million in 2000. The sales impact of
higher volume and the Mydrin acquisition (March 1999) offset unfavorable pricing
and continued softness in textile markets. The coatings business had a strong
quarter due to new business with significant existing customers.
Operating income increased by $1.8 million, or 29.0 percent, from $6.2 million
in 1999 to $8.0 million in 2000. The increase was attributable to higher volumes
($3.1 million) and cost control efforts ($5.7 million).
POLYMER ADDITIVES AND SPECIALTY PLASTICS: Sales increased by $5.1 million, or
4.7 percent, from $109.3 million in 1999 to $114.4 million in 2000. The increase
in sales was caused primarily by favorable volume ($18.2 million), offset by
unfavorable price and mix ($10.3 million). The higher volumes occurred at most
of the Group's businesses, particularly in the plumbing, industrial, and rubber
chemical markets.
Operating income increased $1.0 million, or 5.5 percent, from $18.3 million in
1999 to $19.3 million in 2000. The improvement was due to higher volumes and
cost reductions in SG&A, partially offset by unfavorable price, mix and
manufacturing costs.
CONSUMER SPECIALTIES: Sales increased $0.3 million, or 0.5 percent, from $59.2
million in 1999 to $59.5 million in 2000. The increase was due primarily to
higher volume of Carbopol(R) sales, particularly in Asia and Latin America,
partially offset by lower volume in colors, lower volume and pricing in phenol,
unfavorable mix and foreign currency exchange rates.
Operating income increased $1.7 million, or 33.3 percent, from $5.1 million in
1999 to $6.8 million in 2000. As noted above, sales were relatively flat between
periods. Thus, the increase in operating income was mostly attributable to
overall favorable volume, manufacturing efficiencies and continued productivity
improvements.
20
<PAGE> 21
CAPITAL RESOURCES AND LIQUIDITY
Current assets less current liabilities decreased $68.7 million from December
31, 1999 to March 31, 2000. The decrease resulted primarily from an increase in
short-term debt related to acquisitions and the Company's share repurchase
program, partially offset by an increase in accounts receivable. The Company
expects to have adequate cash flow from operations and has the credit facilities
(described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999) to satisfy its operating requirements and capital spending
programs, repurchase shares of its common stock and to finance growth
opportunities as they arise.
The Company's debt-to-capitalization ratio was 55.5 percent at March 31, 2000,
compared with 52.8 percent at December 31, 1999. For purposes of this ratio, the
trust preferred securities are treated as capital.
CASH FLOWS
Cash flow from operating activities decreased $75.0 million from $84 million in
the first three months of 1999 to $9 million in the first three months of 2000,
primarily as a result of merger related and consolidation costs, a decrease in
accounts payable and an increase in long-term assets (rotables and joint venture
investments). EBITDA, excluding special items, increased $11.5 million from
$242.6 million in the first three months of 1999 to $254.1 million in the first
three months of 2000.
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 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 its tax
books, but will do so later this year. The financial institutions in which the
Company has relationships have transitioned to the Euro successfully and are
issuing statements in dual currencies.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities", which,
as amended by FASB
21
<PAGE> 22
Statement No. 137, is required to be adopted in years beginning after June 15,
2000. The Statement permits early adoptions 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. However, the Statement could increase
volatility in earnings and comprehensive income.
In September 1999, the EITF reached a consensus on Issue 99-5, "Accounting for
Pre-Production Costs Related to Long-Term Supply Arrangements." The consensus
requires design and development costs for products to be sold under long-term
supply arrangements incurred subsequent to December 31, 1999, to be expensed as
incurred unless contractually recoverable. The consensus did not have an impact
on the Company's results or financial position.
In December 1999, the SEC staff issued Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements". The SEC staff has delayed the
effective date of SAB 101 until the second quarter of 2000. The Company does not
believe the SAB will have a significant impact on the Company's results or
financial position.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
This document includes statements that reflect projections or expectations of
our future financial condition, results of operations or business that are
subject to risk and uncertainty. We believe such statements to be "forward
looking" statements within the meaning of the Private Securities Litigation
Reform Act of 1995. BFGoodrich's actual results may differ materially from those
included in the forward-looking statements. Forward-looking statements are
typically identified by words or phrases such as "believe", "expect",
"anticipate", "intend", "estimate", "are likely to be" and similar expressions.
Our Annual Report on Form 10-K for the year ended December 31, 1999 lists
various risks and uncertainties that could cause actual results to differ
materially from those discussed in the forward-looking statements. These risks
and uncertainties are detailed in the Management's Discussion and Analysis
section of that Form 10-K under the heading "Forward-Looking Information is
Subject to Risk and Uncertainty", which is incorporated by reference herein. You
should understand that it is not possible to predict or identify all such risks
and uncertainties. Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
We caution you not to place undue reliance on the forward-looking statements
contained in this document, which speak only as of the date on which such
statements were made. We undertake no obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date on which such statements were made or to reflect the occurrence
of unanticipated events.
22
<PAGE> 23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are defendants in various lawsuits
involving asbestos-containing products. In addition, the Company has been
notified that it is among potentially responsible parties under federal
environmental laws, or similar state laws, relative to the cost of investigating
and in some cases remediating contamination by hazardous materials at several
sits. See Note H to the accompanying unaudited condensed consolidated financial
statements, which is incorporated herein by reference.
23
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
Exhibit 10(LL) Performance Share Deferred Compensation Plan Summary
Plan Description.
Exhibit 27. Financial Data Schedules.
(b) Reports on Form 8-K.
The following Current Reports on Form 8-K were filed by the Company
during the quarter ended March 31, 2000:
Current Report on Form 8-K filed February 3, 2000 (relating to the
announcement of the Company's earnings for the fiscal year ended
December 31, 1999).
Current Report on Form 8-K filed February 22, 2000 (relating to the
announcement of the Company's share repurchase program).
24
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
May 11, 2000 The B.F.Goodrich Company
/S/LAURENCE A. CHAPMAN
-----------------------------------
Laurence A. Chapman
Senior Vice President and
Chief Financial Officer
/S/ROBERT D. KONEY, JR.
-----------------------------------
Robert D. Koney, Jr.
Vice President & Controller
(Chief Accounting Officer)
25
<PAGE> 1
EXHIBIT 10(LL)
SUMMARY PLAN DESCRIPTION
PERFORMANCE SHARE
DEFERRED COMPENSATION PLAN
THE BFGOODRICH COMPANY 1999-2001 LTIP
MARCH, 1999
<PAGE> 2
SUMMARY PLAN DESCRIPTION
PERFORMANCE SHARE
DEFERRED COMPENSATION PLAN
________________________________________________________________________________
THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933.
The BFGoodrich Performance Share Deferred Compensation Plan provides certain
employees, as designated by the Compensation Committee of the Board of
Directors, with the opportunity to defer receipt of certain Performance Share
awards under the Long-Term Incentive Plan.
The following is a summary of the main provisions of the Performance Share
Deferred Compensation Plan as established, effective June 2, 1997. As with any
plan summary, the official and controlling provisions of the Plan are contained
in the Plan Document. In case of any discrepancies, the Plan Document will
govern. In this summary, BFGoodrich is referred to as the "Company", the
Performance Share Deferred Compensation Plan is referred to as the "Plan", and
the Long-Term Incentive Plan is referred to as the "LTIP".
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 terminate the Plan
at any time, provided that such action does not result in any reduction of your
vested account balance (except for future investment losses).
OVERVIEW
o The Plan allows you to defer receipt of certain Performance Shares which
may be earned and payable to you pursuant to the terms of the LTIP.
o Your deferrals of Performance Shares will be credited as phantom shares to
a bookkeeping account in your name and will accumulate on a tax-deferred
basis. Each phantom share will be equal at all times to one share of
BFGoodrich common stock.
1
<PAGE> 3
o The bookkeeping account will be used solely for record keeping purposes.
This will be an unfunded account and no assets will be placed into an
account in your name. You will be an unsecured general creditor of
BFGoodrich with respect to your Plan benefits.
o Dividend equivalents will be accrued on all phantom shares under this Plan.
Such dividend equivalents will be credited to your account under the Plan
in the form of additional phantom shares at the same time and in the same
amount as actual dividend payments on BFGoodrich common stock.
o At distribution, your Plan benefits will be paid in actual BFGoodrich
common shares, less applicable withholding taxes.
o On termination of employment on or after age 55, you may choose to receive
your benefits in a lump sum, or in quarterly installments paid over 5, 10
or 15 years.
o Upon your death, your beneficiary will receive any benefits not yet paid to
you in a single lump sum payment in BFGoodrich common shares.
o Upon a Change in Control or termination of employment prior to age 55, your
Plan benefits will be paid to you in BFGoodrich common shares in a lump sum
promptly following your termination.
o Federal and state income taxes will not be payable until you, or your
beneficiary, receives benefits in the future.
o Performance Share deferrals are subject to FICA taxes in the year when
payouts from the LTIP otherwise would have occurred, had you not elected
the deferral.
PLAN PROVISIONS
ELIGIBILITY
You are eligible to participate in the Plan if you are a participant in the LTIP
and:
o You are designated by the Compensation Committee of the Board of Directors
as eligible to participate.
PARTICIPATION
In order to participate in this Plan, you must:
1. Complete enrollment forms.
2. Submit all forms in a timely fashion to Gary Habegger,
BFGoodrich Human Resources.
2
<PAGE> 4
DEFERRALS
You may choose to defer 0%, 25%, 50%, 75% or 100% of all Performance Shares that
may be earned and payable to you pursuant to the terms of the 1999-2001 LTIP.
You will have an opportunity prior to the earning of future Performance Shares
to elect to defer 25%, 50%, 75% or 100% of the final payout at completion of the
future performance period.
DEFERRAL ELECTION
Participation in the Plan is voluntary. You may elect to participate by
completing a Participation and Distribution Election Form.
On the Participation and Distribution Election Form, you will indicate whether
you wish to defer 0%, 25%, 50%, 75% or 100% of all Performance Shares that may
be earned and payable to you pursuant to theo terms of the 1999-2001 LTIP.
PAYOUT ELECTION
If you are a new Plan participant, you will also be asked on the Participation
and Distribution Election Form to elect how you want your benefit to be paid to
you when your employment terminates. This election will apply to Deferral of
Performance Shares under the 1999-2001 LTIP, as well as to any future deferral
election. If you are a current Plan participant and have previously selected a
benefit payout option, your previous election will apply to your entire account
balance, including the 1999-2001 LTIP, as well as all future deferrals to your
account. You may not change your payout election.
MINIMUM DEFERRAL AMOUNT
If you elect to defer Performance Shares under the 1999-2001 LTIP, you must
elect to defer at least 25% of the final payout at completion of the performance
period.
TIMING OF DEFERRALS
Your deferrals will be credited to your Plan account as of the same date the
Compensation Committee of the Board of Directors approves your payout under the
LTIP.
ELECTIONS IRREVOCABLE
You may not change or revoke your deferral election once it is made.
FICA WITHHOLDING
Performance Share deferrals are subject to withholding for FICA taxes in the
year when payouts from the LTIP otherwise would have occurred had you not
elected deferral.
3
<PAGE> 5
BOOKKEEPING ACCOUNT
The Company will maintain an account of your benefits. The account is used
solely for record keeping purposes. To comply with tax rules, no assets will be
placed into an account in your name.
Your account or other interest under the Plan may not be alienated, assigned,
transferred, pledged or hypothecated in any manner.
ACCOUNT VESTING
You are fully vested at all times in your deferrals and dividends on your
deferrals as represented by the number of phantom shares in your account.
INVESTMENT OF YOUR ACCOUNT
Your deferral of each Performance Share will be credited as one phantom share in
an account for you under the Plan. Each phantom share will be equal at all times
to one share of BFGoodrich common stock.
Dividend equivalents will be accrued on all phantom shares in your account. Such
dividend equivalents will be credited to your account under the Plan in the form
of additional phantom shares at the same time and in the same amount as actual
dividend payments on BFGoodrich common stock.
It is important to note that your deferrals may not actually be invested in
BFGoodrich common stock. The Company will, however, establish a Rabbi Trust
which is described in further detail later in this document. Each phantom share
in your account will be equal at all times to the one share of BFGoodrich common
stock, but no actual shares will be placed into an account in your name. This is
necessary to preserve the tax-deferred status of your account.
Your account is subject to investment risk. If the rate of return in BFGoodrich
common stock is positive, you will experience growth in the market value of your
account balance. If the rate of return is negative, you will experience a loss.
BENEFIT DISTRIBUTIONS
TERMINATION ON OR AFTER AGE 55
You are eligible for extended payment benefits under this Plan when you
terminate employment on or after age 55.
Your account balance at termination of employment on or after age 55 will be
paid in BFGoodrich common stock and may be receivedo in quarterly installments
or a lump sum. As long as you have an account balance, dividends will continue
to be credited until the distribution valuation date.
4
<PAGE> 6
Benefit Payout Options
The first time you enroll in this Plan, you will indicate how you want your
vested account balance paid out when you terminate employment on or after age
55. You may choose:
o A lump sum payment in BFGoodrich common shares, or
o Quarterly installments in BFGoodrich common shares over 5, 10 or
15 years.
Your election as to the form of payout will apply to your entire account
balance, including all future deferrals to your account. If you do not make an
election, your account balance will be paid in quarterly installments over 15
years.
Changing Your Election
You may not change your payout election.
Benefit Commencement
Benefit payments will begin in the January following your termination of
employment on or after age 55.
At the time of your initial deferral election, you may choose a commencement
year for Plan benefits that would be later than the year following your date of
termination of employment on or after age 55. Your benefits must commence no
later than January of the year in which you attain age 70. Once made, this
election is irrevocable.
FOR EXAMPLE: YOU MAY ELECT TO HAVE PLAN BENEFITS COMMENCE IN
JANUARY, 2010, EVEN THOUGH YOU TERMINATE EMPLOYMENT IN 2005 AT
AGE 65.
Small Account Rules
If the market value of your account at termination of employment on or after age
55 is less than $10,000, your benefits will be paid in a lump sum in BFGoodrich
common shares. If, at the time benefits are to commence, your quarterly
installment payment is less than 100 shares per quarter, the Company may shorten
the payout period until the payments equal or exceed 100 shares per quarter.
Account Valuation
The value of your account balance for tax purposes will be calculated using the
fair market value of BFGoodrich common stock as reported on the New York Stock
Exchange (NYSE) Composite Transactions (or similar) listing as follows:
1. For lump sum payments at termination of employment
5
<PAGE> 7
on or after age 55, the value of your account will be
calculated as of the January 2 in the year immediately
following your year of termination (or, if the NYSE is closed
on January 2, the first business day following January 2 on
which the NYSE is open).
2. For quarterly installment payments, the value of each
installment payment will be calculated as of the first
business day of each calendar year quarter on which the NYSE
is open.
3. For lump sum payments in the event you die, in the event of a
Change in Control of the Company, or in the event you
terminate your BFGoodrich employment prior to your age 55, the
value of your account will be calculated as of the first
business day of the month immediately following the date of
the event requiring the calculation.
Adjustment of Installment Payments
Your account will continue to be credited with dividends as described earlier
(see "Investment of Your Account") during the payment period you elect.
Installment payments will be made as of the first business day of each calendar
year quarter.
The number of BFGoodrich common shares in your account balance as of the first
day of each calendar year quarter will be divided by the number of remaining
installment payments to determine the number of BFGoodrich common shares that
will be distributed for such calendar year quarter. For this purpose, other than
with respect to the last installment, the number of shares actually distributed
will be rounded up to the next whole share.
For the last installment payment, your entire remaining account balance will be
distributed, with any fractional shares paid in cash.
TERMINATION BEFORE AGE 55
If your employment terminates before your age 55, your account balance will be
distributed to you in a lump sum payment in BFGoodrich common shares.
Your benefit will be paid to you as soon as practical after termination, and
dividends will be credited to your account up to the date on which your
termination occurs.
DISABILITY
If you are totally disabled under the Company's Long-Term Disability Plan, you
will be entitled to receive payment of your account when your Long-Term
Disability benefits begin. Your
6
<PAGE> 8
benefit payments will be calculated and paid in the same manner as if you had
terminated employment on or after age 55.
SURVIVOR BENEFITS
Before Commencement of Plan Benefit Payments
In the event of your death before Plan benefits commence, your account balance
will be paid to your designated beneficiary in a single lump sum payment in
BFGoodrich common shares.
After Commencement of Installment Payments
If your quarterly installment payments have commenced at the time of your death,
your beneficiary will receive your remaining account balance in a single lump
sum payment in BFGoodrich common shares as soon as practical after your death.
CHANGE IN CONTROL
Upon a Change in Control of BFGoodrich, your account balance will be paid out in
a lump sum payment (less any applicable withholding taxes) in BFGoodrich common
shares. This will apply even though you may be receiving quarterly installments
as your payout election.
OTHER PROVISIONS
ABOUT YOUR BENEFICIARY
At the time you first elect to participate in the Plan, you should designate any
person(s), trust or organization as beneficiaries to receive any Plan benefits
remaining unpaid upon your death. You may change your designation at any time by
completing a Designation of Beneficiary Form.
To request a form, you may contact the Corporate Benefits Department
(330-659-7848; facsimile 330-659-7850).
In the event there is no beneficiary designation on file with the Company or all
designated beneficiaries have predeceased you, the Company will pay any
remaining value in your account to your estate.
BENEFIT STATEMENTS
You will receive a benefit statement after the end of each calendar year quarter
summarizing the activity and value of your account.
7
<PAGE> 9
IMPORTANT INFORMATION
UNSECURED GENERAL CREDITOR
You are an unsecured general creditor of BFGoodrich with respect to your Plan
benefits. Benefits are payable solely from the Company's general assets. Your
benefits are subject to the risk of corporate insolvency, in which case they may
be subject to a lien or security interest of other creditors.
BENEFIT SECURITY
BFGoodrich will adopt an Irrevocable Grantor ("Rabbi") Trust to provide
protection against the risk of the Company refusing to pay benefits such as in
the event of a Change in Control. The Trust does not protect against the risk of
corporate insolvency.
The Company intends that deferred Performance Share awards will be held in the
form of BFGoodrich common stock within the Rabbi Trust. Dividends paid on the
stock held by the Rabbi Trust will be reinvested into BFGoodrich common stock.
The shares will be in the name of the Trust and not in the names of individual
participants.
Distribution of shares will be made from the Rabbi Trust. To the extent you do
not receive shares from the Rabbi Trust, you shall be entitled to receive shares
from BFGoodrich.
Voting rights with respect to shares in the Rabbi Trust will be exercised by the
Company.
PLAN ADMINISTRATION
This Plan is administered by the Company. The Company will appoint a Performance
Share Deferred Compensation Plan Committee, with authority delegated by the
Compensation Committee of the Board of Directors, to interpret the Plan and
determine all other matters that might arise under the terms of the Plan. The
Company's decisions are final and binding on all participants.
The Company reserves the right to amend, modify, suspend, or partially or
completely terminate the Plan on a prospective basis only, provided that the
amendment or termination does not result in any reduction of your vested account
balance (except for future investment losses).
If the Plan is completely terminated prior to a Change in Control, all future
deferrals will stop. Your account balances, including investment gains and
losses and dividend accruals, will be paid to you in a lump sum payment in
BFGoodrich common shares.
For more information about the Plan or its administrators, or to receive a copy
of the Plan, contact the Corporate Benefits Department at BFGoodrich, 4020
Kinross Lakes Parkway, Richfield, Ohio 44286 (330-659-7848; facsimile
330-659-7850).
8
<PAGE> 10
ERISA
The Plan is intended to be an unfunded plan maintained primarily to provide
deferred compensation benefits for "a select group of management or highly
compensated employees" within the meaning of Section 201, 301 and 401 of ERISA
and, therefore, is exempt from parts 2, 3 and 4 of Title I of ERISA.
CLAIMS REVIEW AND PROCEDURES
You should submit a written application to the Company if you believe you are
eligible to receive payments under the Plan. The Company will notify you whether
you are so eligible. If the Company determines that you are not eligible, or you
believe that you are entitled to receive greater or different payments, you may
ask the Company to review your claim.
CONSTRUCTIVE RECEIPT
In the event one or more individuals is proven to be in constructive receipt for
income tax purposes, the Company will distribute that individual's (or all
participants') account in a lump sum payment (less any applicable taxes) in
BFGoodrich common shares.
IRC 162(m) PAYMENT
The Company may postpone any individual's payout until the next fiscal year to
avoid loss of a tax deduction pursuant to Section 162(m) of the Internal Revenue
Code as amended or any similar provision.
FEDERAL SECURITIES LAWS
The Company's obligations under the Plan have been registered under the
Securities Act of 1933 pursuant to a registration statement filed by the
Company. This summary constitutes part of a prospectus covering those
securities. Certain documents filed by the Company pursuant to Section 13(a),
13(c), 14 and 15(d) of the Securities Exchange Act of 1934 are incorporated by
reference in the prospectus. You may obtain copies of these documents, and all
documents which constitute part of the prospectus, without charge, upon written
or oral request to BFGoodrich Corporate Benefits Department, 4020 Kinross Lakes
Parkway, Richfield, Ohio 44286 (330-659-7848; facsimile 330-659-7850).
TAXATION QUESTIONS AND ANSWERS
The following is intended as general information which is based on current law
and is subject to change. It is not to be considered as tax advice. Participants
are advised to consult their tax advisor regarding consequences of participating
in the Plan. The Plan does not qualify under Section 401(a) of the Internal
Revenue Code.
9
<PAGE> 11
DO I PAY FEDERAL INCOME TAXES ON DEFERRALS TO THE PLAN OR
DIVIDENDS WHEN CREDITED TO MY ACCOUNT?
No. For federal income tax purposes, subject to certain rules,
you will not be deemed to be in receipt of the amount deferred
or the earnings thereon. You will not pay federal income taxes
until you actually receive payouts from the Plan.
HOW DOES THIS AFFECT THE WITHHOLDING ON MY PAYCHECK?
Your federal and state W-2 earnings exclude Plan deferrals.
Deferrals are subject to FICA taxes in the year of deferral
until the annual taxable wage base for OASDI under Social
Security law is reached. Medicare earnings include your
deferrals, so there will be Medicare taxes (currently 1.45%)
on all these amounts.
Check with your tax advisor regarding the impact of tax laws
on your personal financial circumstances.
WHEN PAID OUT AFTER TERMINATION OF EMPLOYMENT, HOW ARE PLAN
BENEFITS TAXED TO ME?
Plan benefits paid to you are taxed as ordinary income when
received but, under current law are not subject to income tax
withholding since you will not be employed by BFGoodrich at
the time of receipt of the payments. You may be required to
make estimated tax payments with regard to these benefits. You
should check with your tax advisor in this regard.
WILL I PAY SOCIAL SECURITY FICA TAXES WHEN I TAKE MY DISTRIBUTION?
No, because the deferrals were included in your wage base at
the time they were credited to your account.
IS MY DISTRIBUTION ELIGIBLE TO BE ROLLED OVER TO AN IRA?
No, because this is not an IRS tax-qualified plan. When
electing a Plan distribution, we encourage you to seek
professional advice to determine the best course of action for
your financial circumstances.
WILL THE PLAN BENEFITS PAID TO MY BENEFICIARIES BE INCLUDED IN MY
GROSS ESTATE FOR FEDERAL ESTATE FAX PURPOSES?
10
<PAGE> 12
Yes. The present value of the benefit at the time of your
death is included. If, however, your beneficiary is your
spouse and the benefit qualifies for the estate tax marital
deduction, there will be no federal estate tax. Check with
your tax advisor regarding the impact of estate tax laws on
your personal financial circumstances.
WHEN PAID OUT, HOW ARE PLAN BENEFITS TAXED TO MY BENEFICIARIES?
Plan benefits paid to your beneficiaries are taxed as ordinary
income to them in the year received.
WHEN PAID OUT, CAN PLAN BENEFITS AFFECT THE TAXATION OF MY SOCIAL
SECURITY BENEFITS?
Yes. Plan benefit payments will be included as income
when calculating income tax on Social Security benefits.
WHEN PAID OUT, CAN PLAN BENEFITS REDUCE THE AMOUNT OF MY SOCIAL
SECURITY INCOME?
No. Plan benefit payments will not reduce Social
Security benefit payments (although your income tax
may be affected, as described above).
IF I DEFER WHILE LIVING IN ONE STATE, THEN RETIRE IN A DIFFERENT
STATE, TO WHICH STATE WILL I PAY TAXES?
Benefits as provided under this Plan are subject to income
taxes only in your state of residence at the time payments are
received, only if you elect quarterly installments to be paid
over 10 or more years.
If you have additional questions, please contact the:
BFGoodrich Corporate Benefits
or Corporate Legal Departments
11
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