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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, 1999.
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)
New York 34-0252680
(State of incorporation) (I.R.S. Employer Identification No.)
3 Coliseum Centre
2550 West Tyvola Road 28217
Charlotte, North Carolina (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (704) 423-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME AND EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ----------------------
Common Stock, $5 par value New York Stock Exchange
8.30% Cumulative Quarterly Income
Preferred Securities, Series A* New York Stock Exchange
* 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 [ ]
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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 21, 2000
was $2.5 billion ($22.6875 per share). On such date, 110,237,864 of such shares
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1999 Annual Report to Shareholders are
incorporated by reference into Part I (Item 1), Part II (Items 6, 7, 7a and 8)
and Part IV (Item 14) hereof. Portions of the proxy statement dated March 3,
2000 are also incorporated by reference into Part III.
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PART I
ITEM 1. BUSINESS
Merger
On July 12, 1999, The BFGoodrich Company ("the Company" or
"BFGoodrich") completed its merger with Coltec Industries Inc. The merger has
been accounted for as a pooling-of-interests. Accordingly, all prior period
consolidated financial statements have been restated to include the results of
operations, financial position and cash flows of Coltec as though Coltec had
always been a part of BFGoodrich. As such, results for the three years ended
December 31, 1999, 1998 and 1997 represent the combined results of BFGoodrich
and Coltec (see Note A to the Consolidated Financial Statements within the 1999
Financial Review Section of the Annual Report to Shareholders, which is
incorporated herein by reference).
As a result of the merger, Coltec became a wholly-owned subsidiary of
the Company. In accordance with the terms of the merger, each share of Coltec
common stock was converted into the right to receive 0.56 shares of BFGoodrich
common stock, totaling 35.5 million shares of BFGoodrich common stock.
In addition, the Company issued options to purchase 3.0 million shares
of BFGoodrich common stock in exchange for options to purchase Coltec common
stock outstanding immediately prior to the merger. These options vest and become
exercisable in accordance with the terms and conditions of the original Coltec
options. Also, as a result of the merger, each 5 1/4% Convertible Preferred
Security issued by Coltec Capital Trust became convertible into 0.955248 of a
share of BFGoodrich common stock, subject to certain adjustments.
General Development of Business
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.
Aerospace consists of four business groups: Aerostructures; Landing
Systems; Sensors and Integrated Systems (as a result of the Coltec merger this
business group will be renamed Electronics and Engine Systems in 2000); 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;
flight attendant and cockpit seats; 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.
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. 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 Engineered Industrial Products' and
Performance Materials' products are principally sold to customers in North
America and Europe.
The principal executive offices of BFGoodrich are located at 3 Coliseum
Centre, 2550 West Tyvola Road, Charlotte, North Carolina 28217 (telephone (704)
423-7000).
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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.
Acquisitions
POOLING-OF-INTERESTS
COLTEC
As noted above, on July 12, 1999, the Company completed its merger with
Coltec. The merger has been accounted for as a pooling-of-interests.
Accordingly, all prior period consolidated financial statements have been
restated to include the results of operations, financial position and cash flows
of Coltec as though Coltec had always been a part of BFGoodrich. As such,
results for the three years ended December 31, 1999, 1998 and 1997 represent the
combined results of BFGoodrich and Coltec.
ROHR
On December 22, 1997, BFGoodrich completed a merger with Rohr, Inc. by
exchanging 18.6 million shares of BFGoodrich common stock for all of the common
stock of 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.
PURCHASES
The following acquisitions were recorded using the purchase method of
accounting. Their results of operations have been included in the Company's
results since their respective dates of acquisition.
During 1999, the Company acquired a manufacturer of spacecraft attitude
determination and control systems and sensor and imaging instruments; the
remaining 50 percent interest in a joint venture, located in Singapore, that
overhauls and repairs thrust reversers, nacelles and nacelle components; an
ejection seat business; a textile coatings business; and a manufacturer and
developer of micro-electromechanical systems, which integrate electrical and
mechanical components to form "smart" sensing and control devises. Total
consideration aggregated $76.1 million, of which $69.4 million represented
goodwill.
The purchase agreement for the manufacturer and developer of
micro-electromechanical systems provides for additional consideration to be paid
over the next six years based on a percentage of net sales. The additional
consideration for the first five years, however, is guaranteed not to be less
than $3.5 million. As the $3.5 million of additional consideration is not
contingent on future events, it has been included in the purchase price and
allocated to the net assets acquired. All additional contingent amounts payable
under the purchase agreement will be recorded as additional purchase price when
earned and amortized over the remaining useful life of the goodwill.
During 1998, the Company acquired a global manufacturer of specialty
and fine chemicals; a manufacturer of flexible graphite and
polytetrafluoroethylene ("PTFE") products; a business that manufactures,
machines and distributes PTFE products; and another business that reprocesses
PTFE compounds. The Company also acquired a manufacturer of sealing products; a
small manufacturer of textile chemicals used for fabric preparation and
finishing; the remaining 20 percent not previously owned of a subsidiary that
produces self-lubricating bearings; and a small manufacturer of energetic
materials systems during 1998. Total consideration aggregated $521.5 million, of
which $308.7 million represented goodwill.
During 1997, the Company acquired seven businesses for cash
consideration of $194.1 million in the aggregate, which included $84.4 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. A fifth
business manufactures flight attendant and cockpit seats and the sixth business
is a sheet rubber and conveyer belt business. The remaining acquisition is a
small specialty chemicals business.
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The purchase agreement for the flight attendant and cockpit seat
business includes contingent payments based on earnings levels for the years
ended December 31, 1997-2000. These contingent payments will be recorded as
additional purchase price consideration when made and will be amortized over the
remaining life of the goodwill.
The impact of these acquisitions was not material in relation to the
Company's results of operations. Consequently, pro forma information is not
presented.
Dispositions
In May 1998, the Company sold the capital stock of its Holley
Performance Products subsidiary for $100 million in cash. The pre-tax gain of
$58.3 million, net of liabilities retained, has been recorded with other income
(expense), net. The proceeds from this divestiture were applied toward reducing
debt in 1997. Holley had gross revenues and operating income of approximately
$99.0 million and $8.0 million, respectively.
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 pre-tax gain of $26.4 million reported within other income
(expense), net.
Financial Information About Industry Segments
For financial information concerning the sales, operating income, total
assets, capital expenditures, depreciation and amortization and geographic
information by segment, see Note L to the Consolidated Financial Statements
within the 1999 Financial Review Section of the Annual Report to Shareholders,
which is incorporated herein by reference.
Narrative Description of Businesses
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; flight attendant and cockpit
seats; 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; gas turbine engine
components; 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.
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.
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ENGINEERED INDUSTRIAL PRODUCTS
The Company's Engineered Industrial Products Segment is conducted as
one business group. The segment is a leading manufacturer of industrial seals,
gaskets, self-lubricating bearings, air compressors and technologically advanced
spray nozzles for agricultural home heating and industrial applications. The
segment also produces diesel, gas and dual fuel engines used in naval ships,
locomotives and electric power plants.
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.
Backlog
At December 31, 1999, the Company had a backlog of approximately $3.9
billion, principally related to the Aerospace Segment, of which approximately 47
percent is expected to be filled during 2000. The amount of backlog at December
31, 1998 was approximately $3.7 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 and Engineered
Industrial 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 2000. 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 business. Although it cannot predict accurately how these
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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 within the 1999 Financial Review Section of
the Annual Report to Shareholders, which is incorporated herein by reference.
Research and Development
The Company conducts research and development under Company-funded
programs for commercial products and under contracts with others. Total research
and development expense amounted to $238.0 million, $240.6 million and $187.7
million in 1999, 1998 and 1997, respectively. Of these amounts, $43.7 million,
$63.1 million and $39.4 million, respectively related to amounts funded by
customers. For additional information concerning research and development
expense, see Note B to the Consolidated Financial Statements within the 1999
Financial Review Section of the Annual Report to Shareholders, which is
incorporated herein by reference.
Patents and Licenses
The Company has many patents of its own and has acquired licenses under
patents of others. While such patents in the aggregate are important to the
Company, neither the primary business of the Company nor any of its industry
segments is dependent on any single patent or group of related patents. The
Company uses a number of trademarks important either to its business as a whole
or to its industry segments considered separately. The Company believes that
these trademarks are adequately protected.
Human Resources
As of December 31, 1999, the Company had 23,522 employees in the United
States. An additional 3,522 people were employed by the Company in other
countries. Approximately 13,400 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 February 2000 to September 2004. There were no
material work stoppages during 1999.
Foreign Operations
The Company is engaged in business in foreign markets. Manufacturing
and service facilities are located in Australia, Belgium, Canada, England,
France, Germany, Hong Kong, India, Japan, Korea, Mexico, The Netherlands,
Poland, 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 L to Consolidated Financial Statements within the 1999 Financial Review
Section of the Annual Report to Shareholders, which is incorporated herein by
reference.
ITEM 2. PROPERTIES
The Company operates manufacturing plants and service facilities in 29
states in the U.S. and in Australia, Belgium, Canada, England, France, Germany,
Hong Kong, India, Japan, Korea, Mexico, The Netherlands, Poland, Scotland,
Singapore,
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and Spain. In addition, the Company has other facilities throughout the United
States and in various foreign countries, which include sales offices,
administrative offices and warehouses.
Certain information with respect to the Company's significant facilities that
are owned is set forth below:
Approximate
Number of
Segment Location Square Feet
------- -------- -----------
Aerospace Chula Vista, California 2,721,000
Everett, Washington (b) 1,200,000
Riverside, California 1,171,000
West Hartford, Connecticut (a) 549,800
Industrial Palmyra, New York 682,000
Beloit, Wisconsin 856,000
Longview, Texas 205,000
Quincy, IL 323,000
Performance Materials Avon Lake, Ohio 250,000
Cincinnati, Ohio (b) 493,700
Louisville, Kentucky 236,000
Akron, Ohio 236,000
(a) Approximately 250,000 square feet are utilized by the Aerospace Segment
with the balance leased to third parties.
(b) Although the building is owned, the land at this facility is leased.
In addition to the owned facilities, certain manufacturing activities
are conducted within leased premises, the largest of which is in the Industrial
Segment, located in Germany, and covers approximately 137,000 square feet. Some
of these leases provide for options to purchase or to renew such leases.
The Company also leases approximately 35,000 square feet at its
headquarters in Charlotte, North Carolina, for its executive offices. In the
spring of 2000, the Company will be moving the executive offices to a new office
building in Charlotte that is currently under construction. The Company will
lease approximately 108,500 square feet for an initial term of ten years, with
annual options to 2020. The new offices will provide space for the Corporate
headquarters and also for the executive offices of the Aerospace and Engineered
Industrial Products Segments.
In the opinion of management, the Company's principal properties,
whether owned or leased, are suitable and adequate for the purposes for which
they are used and are suitably maintained for such purposes. See Item I,
"Business-Environmental Matters" for a description of proceedings under
applicable environmental laws regarding certain of the Company's properties.
In addition, 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 I to the Consolidated Financial
Statements within the 1999 Financial Review Section of the Annual Report to
Shareholders, which is incorporated herein by reference).
ITEM 3. LEGAL PROCEEDINGS
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
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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 December 31, 1999 and 1998, the Company had recorded in Accrued
Expenses and in Other Non-current Liabilities a total of $125.5 million and
$129.7 million, respectively, to cover future environmental expenditures. These
amounts are 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.
ASBESTOS
As of December 31, 1999 and 1998, two subsidiaries of the Company were
among a number of defendants (typically 15 to 40) in approximately 96,000 and
101,400 actions (including approximately 8,300 and 4,700 actions, respectively
in advanced stages of processing) filed in various states by plaintiffs alleging
injury or death as a result of exposure to asbestos fibers. During 1999, 1998
and 1997, these two subsidiaries of the Company received approximately 30,200,
34,400 and 38,200 new actions, respectively. Through December 31, 1999,
approximately 280,400 of the approximately 376,400 total actions brought had
been settled or otherwise disposed.
Payments were made by the Company with respect to asbestos liability
and related costs aggregating $84.5 million in 1999, $53.7 million in 1998, and
$59.2 million in 1997, 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 $8.0 million in each of 1999, 1998 and 1997.
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
December 31, 1999, 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 $163.1 million and the Company expects that this cost will be
substantially covered by insurance.
With respect to the 87,700 outstanding actions as of December 31, 1999,
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
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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 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:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1999 1998
------------ ------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Accounts and notes receivable $ 146.9 $ 95.4
Other assets 36.7 32.6
Accrued expenses 134.6 89.7
Other liabilities 28.5 22.8
</TABLE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The number of common shareholders of record at December 31, 1999, was
11,089. The discussions of the limitations and restrictions on the payment of
dividends on common stock are included in Notes H and R to the Consolidated
Financial Statements within the 1999 Financial Review Section of the Annual
Report to Shareholders, which is incorporated herein by reference.
Common Stock Prices and Dividends The Company's common stock (symbol
GR) is listed on the New York Stock Exchange. The table below lists dividends
per share and quarterly price ranges for the Company's common stock based on New
York Stock Exchange closing prices.
<TABLE>
<CAPTION>
1999 1998
---- ----
QUARTER HIGH LOW DIVIDEND QUARTER HIGH LOW DIVIDEND
- ------- ---- --- -------- ------- ---- --- --------
<S> <C> <C> <C> <C> <C> <C> <C>
First 36 1/8 31 1/2 $ .275 First 53 13/16 39 $ .275
Second 45 32 7/8 .275 Second 54 13/16 45 1/16 .275
Third 44 5/8 26 15/16 .275 Third 49 11/16 27 1/16 .275
Fourth 27 15/16 21 .275 Fourth 39 15/16 29 .275
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The tabular information appearing under "Selected Financial Data" on
page 41 of the 1999 Financial Review Section of the Annual Report to
Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information appearing under "Management's Discussion and Analysis"
on pages 1 through 14 of the 1999 Financial Review Section of the Annual Report
to Shareholders is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearing under "Financial Instruments Sensitivity
Analysis" on page 15 the 1999 Financial Review Section of the Annual Report to
Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes thereto,
together with the report thereon by Ernst & Young LLP dated February 14, 2000,
except for Note W, as to which the date is February 21, 2000, appearing on pages
16 through 40 of the 1999 Financial Review Section of the Annual Report to
Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
12
<PAGE> 13
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" and information under the caption
"Section 16(a) Beneficial Ownership Reporting Compliance" in the Company's proxy
statement dated March 3, 2000 is incorporated herein by reference. Biographical
information concerning the Company's Executive Officers is as follows:
David L. Burner, Age 60, 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 51, 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 received 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 54, 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.
John W. Guffey, Jr., Age 62, Executive Vice President
Mr. Guffey served as Executive Vice President of the Company from July 1999
until his retirement in December 1999. Prior to the Company's merger with Coltec
Industries Inc in July 1999, Mr. Guffey served as Chairman and Chief Executive
Officer of Coltec. Mr. Guffey became President of Garlock Mechanical Packaging
Division of Coltec in 1985 and Group President in 1987. He became President and
Chief Operating Officer in 1991. Mr. Guffey was named Chairman and Chief
Executive Officer of Coltec in 1995. He is a director of Gleason Corporation and
is a Trustee of the Manufacturers Alliance. Mr. Guffey received a B.S. in
engineering from Youngstown State University.
Ernest F. Schaub, Age 56, Executive Vice President and President and Chief
Operating Officer, BFGoodrich Engineered Industrial Products
Mr. Schaub joined the Company in November 1971 as a Key Industrial Engineer. He
served in various management positions until 1987 when he was named Group Vice
President, Braking Systems of BFGoodrich Aerospace. In January 1995 Mr. Schaub
was named Group President, Landing Systems of BFGoodrich Aerospace. In September
1999 he was elected Executive Vice President of the Company and President and
Chief Operating Officer of BFGoodrich Engineered Industrial Products. Mr. Schaub
received a B.S. in industrial engineering from the University of New Haven and
an MBA from Case Western Reserve University.
13
<PAGE> 14
Laurence A. Chapman, Age 50, Senior Vice President and Chief Financial Officer
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 B.A. in accounting from McGill University and
an M.B.A. from Harvard Graduate School of Business.
Terrence G. Linnert, Age 53, Senior Vice President, Human Resources and
Administration, General Counsel and Secretary
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. At BFGoodrich, Mr.
Linnert has responsibilities for the Company's human resources, administration,
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 B.S. 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.
Robert D. Koney, Jr., Age 43, 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. from Case Western
Reserve University.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation appearing under the
captions "Executive Compensation" and "Governance of the Company - Compensation
of Directors" in the Company's proxy statement dated March 3, 2000 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 3, 2000 is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information concerning indebtedness of management appearing under the
caption "Executive Compensation -- Indebtedness" in the Company's proxy
statement dated March 3, 2000 is incorporated herein by reference.
14
<PAGE> 15
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) The 1999 Financial Review Section of the Company's
1999 Annual Report to Shareholders. The following
financial information is incorporated herein by
reference:
(PAGE REFERENCES TO 1999 FINANCIAL REVIEW SECTION OF
THE ANNUAL REPORT)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Management's Discussion and Analysis 1
Management's Responsibility for Financial Statements 16
Report of Independent Auditors 16
Consolidated Statement of Income for the years ended
December 31, 1999, 1998 and 1997 17
Consolidated Balance Sheet at December 31, 1999 and 1998 18
Consolidated Statement of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 19
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997 20
Notes to Consolidated Financial Statements 21
Quarterly Financial Data (Unaudited) 40
Selected Financial Data 41
</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 17 to 19 of this Form 10-K.
(b) Reports on Form 8-K filed in the fourth quarter of 1999:
Current Report on Form 8-K filed October 29, 1999 (relating to the
announcement of the Company's earnings for the three-month and
nine-month periods ended September 30, 1999).
Current Report on Form 8-K filed December 17, 1999 (relating to the
filing of the Company's consolidated financial statements at
December 31, 1998 and 1997 and for the years ended December 31,
1998, 1997 and 1996, which have been restated to reflect the merger
with Coltec Industries Inc).
15
<PAGE> 16
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 21, 2000.
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 21, 2000 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/ROBERT D. KONEY, JR.
- ------------------------------------------------- ---------------------------------
(David L. Burner) (Robert D. Koney, Jr.)
Chairman and Chief Executive Officer Vice President and Controller
And Director (Principal Executive Officer) (Principal Accounting Officer)
/s/ LAURENCE A. CHAPMAN /s/ DAVID I. MARGOLIS
- ------------------------------------------------- ---------------------------------
(Laurence A. Chapman) (David I. Margolis)
Senior Vice President and Chief Financial Officer Director
(Principal Financial Officer)
/s/ DIANE C. CREEL /s/ DOUGLAS E. OLESEN
- ------------------------------------------------- ---------------------------------
(Diane C. Creel) (Douglas E. Olesen)
Director Director
/s/ GEORGE A. DAVIDSON, JR. /s/ RICHARD DE J. OSBORNE
- ------------------------------------------------- ---------------------------------
(George A. Davidson, Jr.) (Richard De J. Osborne)
Director Director
/s/ JAMES J. GLASSER /s/ ALFRED M. RANKIN, JR.
- ------------------------------------------------- ---------------------------------
(James J. Glasser) (Alfred M. Rankin, Jr.)
Director Director
/s/ JODIE K. GLORE /s/ ROBERT H. RAU
- ------------------------------------------------- ---------------------------------
(Jodie K. Glore) (Robert H. Rau)
Director Director
/s/ JOHN W. GUFFEY, JR. /s/ JAMES R. WILSON
- ------------------------------------------------- ---------------------------------
(John W. Guffey, Jr.) (James R. Wilson)
Director Director
/s/ WILLIAM R. HOLLAND /s/ A. THOMAS YOUNG
- ------------------------------------------------- ---------------------------------
(William R. Holland) (A. Thomas Young)
Director Director
</TABLE>
16
<PAGE> 17
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3(A) The Company's Restated Certificate of Incorporation, with
amendments filed August 4, 1997 and May 6, 1998, filed as
Exhibit 3(A) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, is incorporated herein by
reference.
3(B) The Company's By-Laws, as amended, through April 20, 1998,
filed as Exhibit 3(B) to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, is
incorporated herein by reference.
4 Information relating to the Company's long-term debt is set
forth in Note H -- "Financing Arrangements" to the Company's
financial statements, which are filed as Exhibit 13 to this
Annual Report on 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, filed as Exhibit 10(A) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
10(B) Form of Disability Income Agreement, filed as Exhibit 10(B)(4)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference.
10(C) Form of Supplemental Executive Retirement Plan Agreement,
filed as Exhibit 10(C) to the Company's Annual Report on Form
10-K for the year ended December 31, 1998, is incorporated
herein by reference.
10(D) Management Incentive Program, filed as Exhibit 10(D) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference.
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, filed as Appendix
B to the Company's 1995 Proxy Statement dated March 2, 1995,
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, filed as Exhibit 1 to the
Company's Registration Statement on Form 8-A filed June 19,
1997, is incorporated herein by reference.
10(H) Employee Protection Plan, filed as Exhibit 10(I) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, is incorporated herein by reference.
10(I) Benefit Restoration Plan, filed as Exhibit 10(J) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
10(J) The B.F.Goodrich Company Savings Benefit Restoration Plan,
filed as Exhibit 4(b) to the Company's Registration Statement
on Form S-8 (No. 333-19697), is incorporated herein by
reference.
10(K) 1998 - 2000 Long-Term Incentive Plan Summary Plan Description
and form of award, filed as Exhibit 10(K) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
17
<PAGE> 18
10(L) 1999 - 2001 Long-Term Incentive Plan Summary Plan Description
and form of award. *
10(M) Amended and Restated Assumption of Liabilities and
Indemnification Agreement between the Company and The Geon
Company, filed as Exhibit 10.3 to the Registration Statement
on Form S-1 (No. 33-70998) of The Geon Company, is
incorporated herein by reference.
10(N) Outside Directors' Phantom Share Plan, filed as Exhibit 10(M)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference.
10(O) Directors Deferred Compensation Plan, filed as Exhibit 10(N)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference.
10(P) Rohr, Inc. Supplemental Retirement Plan (Restated 1997), filed
as an exhibit to Rohr, Inc.'s Quarterly Report on Form 10-Q
for the quarterly period ended May 4, 1997, is incorporated
herein by reference.
10(Q) Rohr, Inc. 1991 Stock Compensation for Non-Employee Directors,
filed as an exhibit to Rohr, Inc.'s Annual Report on Form 10-K
for the fiscal year ended July 31, 1992, is incorporated
herein by reference.
10(R) Rohr Industries, Inc., Management Incentive Plan (Restated
1982), as amended through the Fifteenth Amendment, filed as an
exhibit to Rohr, Inc.'s Annual Report on Form 10-K for the
fiscal year ended July 31, 1994, is incorporated herein by
reference.
10(S) Sixteenth Amendment to Rohr, Inc. Management Incentive Plan
(Restated 1982), dated June 7, 1996, filed as an exhibit to
Rohr, Inc.'s Annual Report on Form 10-K for the fiscal year
ended July 31, 1996, is incorporated herein by reference.
10(T) Seventeenth Amendment to Rohr Industries, Inc. Management
Incentive Plan (Restated 1982), dated September 13, 1996,
filed as an exhibit to Rohr, Inc.'s Annual Report on Form 10-K
for the fiscal year ended July 31, 1996, is incorporated
herein by reference.
10(U) Employment Agreement with Robert H. Rau, filed as an exhibit
to Rohr, Inc.'s Quarterly Report on Form 10-Q for the fiscal
quarter ended May 2, 1993, is incorporated herein by
reference.
10(V) First Amendment to Employment Agreement with Robert H. Rau,
filed as an exhibit to Rohr, Inc.'s Annual Report on Form 10-K
for the fiscal year ended July 31, 1996, is incorporated
herein by reference.
10(W) Rohr, Inc. 1989 Stock Option Plan, filed as Exhibit 10.18 to
the Rohr Industries, Inc. Annual Report on Form 10-K for the
fiscal year ended July 31, 1990, is incorporated herein by
reference.
10(X) Rohr, Inc. 1995 Stock Incentive Plan, filed as Exhibit 4.1 to
Rohr, Inc.'s Registration Statement on Form S-_ (File No.
33-65447) filed on December 28, 1995, is incorporated herein
by reference.
10(Y) Employment Agreement with Robert H. Rau, filed as Exhibit
10(X) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1997, is incorporated herein by reference.
10(Z) Consulting Agreement with Robert H. Rau, filed as Exhibit
10(Y) to the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, is incorporated herein by reference.
10(AA) Family Protection Plan of Coltec Industries Inc filed as
Exhibit 4.28 to Coltec Industries Inc's Quarterly Report on
Form 10-Q for the quarter ended September 27, 1998, is
incorporated herein by reference.
10(BB) Form of Split Dollar Insurance Agreement dated May 8, 1997
between Coltec Industries Inc and certain executive officers,
filed as Exhibit 10.2 to Coltec Industries Inc's Annual Report
on Form 10-K for the year ended December 31, 1997, is
incorporated herein by reference.
18
<PAGE> 19
10(CC) Benefits Equalization Plan of Coltec Industries Inc effective
January 1, 1976 and Amended and Restated as of January 1,
1989, filed as Exhibit 10.3 to Coltec Industries Inc's Annual
Report on Form 10-K for the year ended December 31, 1997, is
incorporated herein by reference.
10(DD) Employment Agreement between Coltec Industries Inc and John W.
Guffey, Jr., dated July 15, 1998, filed as Exhibit 10.28 to
Coltec Industries Inc's Quarterly Report on Form 10-Q for the
quarter ended June 28, 1998, is incorporated herein by
reference.
10(EE) 1992 Stock Option and Incentive Plan of Coltec Industries Inc,
filed as Exhibit 10.24 to Coltec Industries Inc's Annual
Report on Form 10-K for the year ended December 31, 1991, is
incorporated herein by reference.
10(FF) Amendment No. 1 to Coltec Industries Inc's 1992 Stock Option
and Incentive Plan, filed as Exhibit 10.15 to Coltec
Industries Inc's Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
10(GG) Second Amendment to Coltec Industries Inc's 1992 Stock Option
and Incentive Plan, filed as Exhibit 10.3 to Coltec Industries
Inc's Quarterly Report on Form 10-Q for the quarter ended
September 28, 1997, is incorporated herein by reference.
10(HH) Amendment No. 3 to Coltec Industries Inc's 1992 Stock Option
and Incentive Plan, filed as Exhibit A to Coltec Industries
Inc's definitive proxy statement filed March 26, 1997, is
incorporated herein by reference.
10(II) 1994 Long-Term Incentive Plan of Coltec Industries Inc, filed
as Exhibit 10.16 to Coltec Industries Inc's Annual Report on
Form 10-K for the year ended December 31, 1993, is
incorporated herein by reference.
10(JJ) Resolutions of the Board of Directors of Coltec Industries Inc
adopted July 13, 1995 amending Section 6(a) of Coltec
Industries Inc's 1994 Long-Term Incentive Plan, filed as
Exhibit 10.17 to Coltec Industries Inc's Annual Report on Form
10-K for the year ended December 31, 1995, is incorporated
herein by reference.
10(KK) Resolution of the Board of Directors of Coltec Industries Inc
adopted on May 30, 1995 establishing a change-in-control
arrangement for non-employee directors, filed as Exhibit 10.21
to Coltec Industries Inc's Annual Report on Form 10-K for the
year ended December 31, 1995, is incorporated herein by
reference.
13 1999 Financial Review Section of the Annual Report to
Shareholders.
21 Subsidiaries. *
23(a) Consent of Independent Auditors - Ernst & Young LLP. *
23(b) Consent of Independent Auditors - Arthur Andersen LLP. *
27.1 Financial Data Schedules - Three Months ended March 31, 1999 *
- Six Months ended June 30, 1999 *
27.2 Financial Data Schedule - Year ended December 31, 1999 *
99 Independent Auditors Report - Arthur Andersen LLP. *
- -----------
* Filed herewith.
The Company will supply copies of the foregoing exhibits to any shareholder upon
receipt of a written request addressed to the Assistant Secretary of The
B.F.Goodrich Company, 2550 West Tyvola Road, Charlotte, NC 28217, and the
payment of $.50 per page to help defray the costs of handling, copying and
postage. The Company is currently planning to move into a new headquarters
facility in May 2000. The new address will be Four Coliseum Centre, 4000 North
Falls Drive, Charlotte, NC 28217.
19
<PAGE> 1
EXHIBIT 10(E)
MANAGEMENT CONTINUITY AGREEMENT
THIS AGREEMENT dated as of this [ ] day of [ ], 199[ ] between [ ](the
"Executive") and The B.F. Goodrich Company, a New York corporation (the
"Company").
WHEREAS, the Executive and the Company desire to set forth certain
compensation and benefits that the Executive shall receive upon the happening of
certain events affecting the Executive and the Company, and
WITNESSETH:
NOW, THEREFORE, in consideration of the foregoing and the mutual
promises herein contained, the parties agree as follows:
1. TERM. This Agreement shall commence on the date hereof and shall
continue until the Date of Termination as set forth in Section 8 hereof.
2. PERIOD OF EMPLOYMENT. Executive's "Period of Employment" shall
commence on the date on which a Change in Control occurs and shall end on the
date that is 24 months after the date on which such Change in Control occurs.
Notwithstanding the foregoing, however, Executive's Period of Employment shall
not extend beyond any Mandatory Retirement Date (as hereinafter defined in
Section 3) applicable to Executive.
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 company with respect to which,
following such acquisition, more than 70% of, respectively,
the then outstanding Shares of
<PAGE> 2
common stock of such company and the combined voting power of
the then outstanding voting securities of such company
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 acquisition in substantially the
same proportions as their ownership, solely in their capacity
as Shareholders of the Company, immediately prior to such
acquisition, of the Outstanding Company Common Stock and
Outstanding Company Voting Securities, as the case may be; or
(ii) 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 is used
in Rule 14A-11 of Regulation 14A promulgated under the
Exchange Act); or
(iii) Consummation 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,
solely in their capacity as Shareholders of the Company, 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 company
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) Consummation 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 company, with respect to which following such
sale or other disposition, more than 70% of, respectively, the
then outstanding Shares of common stock of such company and
the combined voting power of the then outstanding voting
securities of such company entitled to vote generally in the
election of directors is then
2
<PAGE> 3
beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities, solely in
their capacity as Shareholders of the Company, 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.
(c) The term "Payment Period" shall mean [twenty-four (24)]
[thirty-six (36)] months.
4. COMPENSATION DURING PERIOD OF EMPLOYMENT. For so long during
Executive's period of Employment as Executive is an employee of the Company, the
Company shall be obligated to compensate Executive as follows:
(a) Executive shall continue to receive Executive's full base
salary at the rate in effect immediately prior to the Change in Control.
Executive's base salary shall be increased annually, with each such increase due
on the anniversary date of Executive's 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.
(b) Executive 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 Executive was 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 Executive under the plans in which Executive was participating
immediately prior to the Change in Control;
(c) Executive shall continue to receive all fringe benefits,
perquisites, and similar arrangements which Executive was entitled to receive
immediately prior to the Change in Control; and
3
<PAGE> 4
(d) Executive shall continue to receive annually the number of
paid vacation days and holidays Executive was 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 Executive's employment for any reason
(other than for a reason and as expressly provided in Section 6 hereof), or if
Executive shall terminate Executive's employment for "Good Reason" (as
hereinafter defined in Section 6(b)) then the Company shall be obligated to
compensate Executive as follows and no payments or benefits received pursuant to
this Section 5 shall be reduced or terminated as a result of Executive reaching
the Mandatory Retirement Date:
(a) In lieu of any salary payments that the Executive would
have received if he had continued in the employment of the Company during the
Payment Period, the Company shall pay to Executive in a lump sum, by not later
than the fifth business day following the Date of Termination (as hereinafter
defined in Section 8), an amount equal to one-twelfth of Executive's annualized
base salary in effect immediately prior to the Date of Termination, multiplied
by the number of months in the Payment Period.
(b) By not later than the fifth day following the Date of
Termination, the Company shall pay Executive in a lump sum an amount equal to
the product of (x) the number of months in the Payment Period and (y) the sum of
(i) under the Company's Management Incentive Program
(the "MIP"), and in lieu of any further grants under
the MIP that the Executive would have received if he
had continued in the employment of the Company during
the Payment Period, the greatest of one-twelfth of :
(A) the amount most recently paid to Executive for a
full calendar year; (B) Executive's "target incentive
amount" for the calendar year in which his Date of
Termination occurs; or (C) Executive's "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 "LTIP"), and in lieu of any further grants under
the LTIP that the Executive would have received if he
had continued in the employment of the Company during
the Payment Period, the greatest of (A) 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 Executive
(including the value of any Performance Shares
Executive may have elected to defer under the
Performance Share Deferred Compensation Plan); (B)
with respect to the most recently commenced Plan
Cycle under the Long-Term Incentive Plan (if
Executive is a participant in such Plan Cycle) prior
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to your Date of Termination, one-twelfth of the
"calculated market value" of the phantom Performance
Shares, if any, awarded to Executive; or (C) with
respect to the most recently commenced Plan Cycle
prior to the date of the occurrence of the Change in
Control, one-twelfth of the "calculated market value"
of the phantom Performance shares, if any, awarded to
Executive. Any payment received pursuant to this
Section 5 (b)(ii) shall be in addition to and not in
lieu of any payments required to be made to Executive
as the result of the happening of an event that would
constitute a change in control pursuant to the
provisions of the LTIP
Executive's "target incentive amount" under the
Management Incentive Program is determined by multiplying Executive's salary
range midpoint by the incentive target percentage, which is applicable to
Executive's incentive category under such Program. For purposes of this Section
5, the "calculated market value" of Performance Shares, shares deferred under
the Performance Share Deferred Compensation Plan, phantom Performance Shares
under the LTIP or stock options under the Stock Option 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)(B) and
5(b)(ii)(C) is the date upon which the Compensation Committee ("Committee") of
the Board of Directors awarded the shares of stock in question; for clause
5(b)(ii)(A) is the date on which the Committee made a determination of
attainment of financial objectives and awarded Performance Shares (including any
Performance Shares Executive may have elected to defer under the Performance
Share Deferred Compensation Plan).
Any payment received pursuant to Section 5 (b)(i)
shall be in addition to and not in lieu of any payments required to be made to
Executive as the result of the happening of an event that would constitute a
change in control pursuant to the provisions of the MIP.
(c) If Executive is 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 Executive's continued benefit, for the Payment
Period, all health and welfare benefit plans and programs or arrangements in
which Executive was entitled to participate immediately prior to the Date of
Termination (or such other comparable plans, programs or arrangements that
provide, in the aggregate, benefits which have an economic value at least as
favorable to the Executive as those plans, programs and arrangements in which
Executive participated prior to the Date of Termination, as long as Executive's
continued participation is possible under the general terms and provisions of
such plans and programs. In the event that Executive's participation in any such
plan or program is barred [or modified], the Company shall provide Executive
with benefits substantially similar to those to which Executive would have been
entitled to receive under such plans and programs, had Executive continued to
participate in them as an Executive of the
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Company plus an amount in cash equal to the amount necessary to cause the amount
of the aggregate after-tax compensation and employee benefits Executive receive
pursuant to this provision to be equal to the aggregate after-tax value of the
benefits which Executive would have received if Executive continued to receive
such benefits as an employee. If Executive is age 55 or over and eligible to
retire on the Date of Termination, the Company shall provide Executive with
those health and welfare benefits to which Executive would be entitled under the
Company's general retirement policies if Executive 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 Executive's actual age on the Termination Date, provided such
benefits would be at least equal to those which would have been payable if
Executive 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
Executive shall be entitled to receive fringe benefit programs, perquisites, and
similar arrangements (which, by way of illustration and not limitation, shall
include: company car, health, dining and country club memberships, financial
planning services, telecommunications services, home security systems and the
like) which in the aggregate have an economic value at least as favorable to the
Executive as those the Executive was entitled to receive or participate in
immediately prior to the Date of Termination; and
(e) In lieu of further grants of stock options that would have
been received by the Executive if he had remained employed by the Company during
the Payment Period, the Company shall pay to the Executive a sum equal to one
twelfth of the number of stock options in the last annual grant of stock options
made by the Company to the Executive ("stock option grant"), multiplied by the
number of months in the Payment Period, multiplied by the calculated market
value of the Common Stock of the Company on the date of the stock option grant,
multiplied by a factor used by the Company in valuing fully vested options with
a 10 year life in the Company's most recent Annual Report on Form 10-K for
options held by senior executives pursuant to the Black-Scholes method of
valuing stock options, or, if such valuation was not made in the Form 10-K, then
under the Black-Scholes method assuming options would be outstanding for 10
years.
The Company shall, in addition to the benefits to which Executive is entitled
under the retirement plans or programs in which Executive participates, pay
Executive in a lump sum in cash at Executive's normal retirement date (or
earlier retirement date should Executive so elect), as such date is defined in
the retirement plans or programs in which Executive participates, an amount
equal to the actuarial equivalent of the retirement pension to which Executive
would have been entitled under the terms of such retirement plans or programs
had Executive accumulated additional years of continuous service under such
plans equal in length to Executive's 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 Executive 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
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of calculating benefit accrual, the amount of compensation Executive will be
deemed to have received during each month of Executive's Payment Period shall be
equal to the sum of Executive's annual base salary prorated on a monthly basis
as provided for under subsection 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 (which amount shall reduced by
the actuarial equivalent of any amounts to which Executive is actually entitled
pursuant to the provisions of said retirement plans and programs):
(i) the amount most recently paid to Executive for a full
calendar year,
(ii) Executive's "target incentive amount" for the
calendar year in which Executive's Date of
Termination occurs, or
(iii) Executive's "target incentive amount" in effect prior
to the Change in Control for the calendar year in
which the Change in Control occurs
Attached as Exhibit 1 is an illustration, not intending to be exhaustive, of
examples of how inclusion of the Payment Period may affect the calculation of
Executive's retirement benefit.
6. TERMINATION.
(a) TERMINATION WITHOUT COMPENSATION. If Executive's
employment or the term of this Agreement is terminated for any of the following
reasons and in accordance with the provisions of this Section 6, Executive shall
not be entitled by virtue of this Agreement to any of the benefits provided in
the foregoing Section 5:
(i) If prior to the Commencement of the Period of
Employment, as a result of Executive's incapacity due
to physical or mental illness, Executive shall have
been absent from Executive's 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
Section 7) is given, Executive shall not have
returned to the full-time performance of Executive's
duties ("Incapacity Discharge");
(ii) If prior to the Commencement of the Period of
Employment, the Company shall desire to terminate
this Agreement without reason ("Convenience
Termination").
(iii) If the Company shall have Cause. For the
purposes of this Agreement, the Company shall have
"Cause" to terminate Executive's employment hereunder
upon (A) the willful and continued failure by
Executive to substantially perform Executive's
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duties with the Company, which failure causes
material and demonstrable injury to the Company
(other than any such failure resulting from
Executive's incapacity due to physical or mental
illness), after a demand for substantial performance
is delivered to Executive by the Board which
specifically identifies the manner in which the Board
believes that Executive has not substantially
performed Executive's duties, and after Executive has
been given a period (hereinafter known as the "Cure
Period") of at least thirty (30) days to correct
Executive's performance, or (B) the willful engaging
by Executive in other gross misconduct materially and
demonstrably injurious to the Company. For purposes
of this section, no act, or failure to act, on
Executive's part shall be considered "willful" unless
conclusively demonstrated to have been done, or
omitted to be done, by Executive not in good faith
and without reasonable belief that Executive's action
or omission was in the best interests of the Company.
Notwithstanding the foregoing, Executive shall not be
deemed to have been terminated for Cause unless and
until there shall have been delivered to Executive 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
Executive and an opportunity for Executive, together
with Executive's counsel, to be heard before the
Board), finding that in the good faith opinion of the
Board Executive was guilty of conduct set forth above
in clauses (i), including the expiration of the Cure
Period without the correction of Executive's
performance, or (ii) of the preceding subsection and
specifying the particulars thereof in detail.
(iv) This Agreement shall terminate upon the death,
retirement or voluntary resignation of the Executive
prior to the commencement of the Period of
Employment.
(b) TERMINATION WITH COMPENSATION. If Executive terminates his
employment or his employment terminates for any of the following reasons and in
accordance with the provisions of this Section 6, Executive shall be entitled by
virtue of this Agreement to the benefits provided in the foregoing Section 5 as
described below:
(i) The Executive may terminate his employment with
the Company at any time during the Period of
Employment for Good Reason ("Good Reason
Termination") and shall receive all of the benefits
and payments provided in Section 5. For purposes of
this Agreement, the term "Good Reason" shall mean:
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(A) without Executive's express written
consent, (1) any involuntary
termination of the Executive's
employment, except pursuant to
Section 6 hereof, during the
Employment Period, (2) the
assignment to Executive of any new
duties or responsibilities
inconsistent in character with
Executive's positions, duties,
responsibilities, and reporting
relationships and status within the
Company immediately prior to a
Change in Control, (3) any change
in Executive's duties,
responsibilities, reporting
relationships, titles or offices as
in effect immediately prior to a
Change in Control, including, but
not limited to, a reduction in
duties or responsibilities which
occurs because the Company is no
longer an independent publicly-held
entity (4) any removal of Executive
from or any failure to re-elect
Executive to any officer or
director position of the Company,
(5) a change in the annual or long
term incentive plan in which
Executive currently participates
such that Executive's opportunity
to earn incentive compensation is
impaired, (6) a material reduction
in the aggregate value of Company
perquisites made available to
Executive, (7) an elimination or
material impairment of Executive's
ability to participate in
retirement plans comparable to
those in which Executive currently
participates, (8) any increase in
Executive's obligation to travel on
the Company's business over
Executive's present business travel
obligations, (9) an elimination or
material impairment of Executive's
ability to receive stock options
with values comparable to those
Executive was granted within the
one year period preceding the
commencement of the Employment
Period;
(B) the failure of the Company to
comply with any other of its
obligations under Section 4 herein;
(C) the relocation of the offices of
the Company at which Executive were
employed immediately prior to the
Change in Control to a location
which is more than fifty (50) miles
from such prior location, or the
failure of the Company to (A) pay
or reimburse Executive, in
accordance with the Company's
relocation policy for its employees
in existence immediately prior to a
Change in Control, for all
reasonable costs and expenses, plus
"gross-ups" referred to in such
policy incurred by Executive
relating to a change of Executive's
principal residence in connection
with any relocation of the
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Company's offices to which
Executive consents, and (B)
indemnify Executive against any
loss (defined as the difference
between the actual sale price of
such residence and the higher of
(1) Executive's aggregate
investment in such residence of
(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 Executive and
reasonably satisfactory to the
Company)) realized in the sale of
Executive's principal residence in
connection with any such change of
residence;
(D) the failure of the Company to
obtain the assumption of and the
agreement to perform this Agreement
by any successor as contemplated in
Section 11 hereof; or
(E) any purported termination of
Executive's employment which is not
effected pursuant to a Notice of
Termination satisfying the
requirements of Section 7 hereof.
(F) Convenience Termination after
Commencement of the Period of
Employment
(ii) If Executive dies while employed by the Company
during the Period of Employment while having cause to
terminate his employment as a Good Reason Termination
(whether or not Executive has provided Notice of
Termination to the Company pursuant to Section 7),
Executive's beneficiary or beneficiaries named on
Exhibit 2 to this Agreement (or Executive's estate if
he has not named a beneficiary) shall be entitled to
receive those payments provided under Sections 5(a)
and 5(b) of this Agreement in addition to any
benefits that such beneficiaries would be entitled
under any other plan, program or policy of the
Company as a result of Executive's employment with
the Company.
(iii) If, during the Period of Employment, Executive
either (A) retires from employment with the Company
or (B) if the Company discharges the Executive due to
an Incapacity Discharge, in either case while having
cause to terminate his employment as a Good Reason
Termination (whether or not Executive has provided
Notice of Termination to the Company pursuant to
Section 7) the Executive shall receive all of the
benefits and payments provided in Section 5.
7. NOTICE OF TERMINATION. Any termination of Executive's employment by
the Company or any termination by Executive as a Good Reason Termination shall
be
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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 Executive's
employment under the provision so indicated.
8. DATE OF TERMINATION. "Date of Termination" shall mean:
(a) If Executive terminates Executive's employment as a Good
Reason Termination, 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 Executive's employment is terminated for Cause under
subsection 6(a)(iii), 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 Executive's performance.
(c) If Executive's employment pursuant to this Agreement is
terminated following absence due to physical incapacity, under subsection
6(a)(i), then the Date of Termination shall be thirty (30) days after Notice of
Termination is given (provided that Executive shall not have returned to the
performance of Executive's duties on a full-time basis during such thirty (30)
day period).
(d) If the Company desires to terminate this Agreement as a
Convenience Termination, then the date specified in the Notice of Termination,
shall be at least [twelve (12)] [thirty-six (36)] months after Notice of
Termination is given.
(e) A termination of employment by either the Company or by
Executive shall not affect any rights Executive or Executive's surviving spouse
or beneficiaries may have pursuant to any other agreement or plan of the Company
providing benefits to Executive, 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 Executive or for Executive's 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 section 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 penalty is incurred by
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, is hereinafter collectively referred to as the
"Excise Tax"), then Executive shall be entitled to receive an additional payment
(a "Gross-Up Payment") in an amount such that after payment by Executive 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
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Excise Tax imposed on the Gross-Up Payment, Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
(b) Subject to the provisions of subsection 9(c), all
determinations required to be made under this section 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 Executive
within fifteen (15) business days of the receipt of notice from Executive 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, Executive 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 section 9, shall be paid by the Company to Executive 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 Executive, it shall furnish
Executive with a written opinion that failure to report the Excise Tax on
Executive's 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 Executive. 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"). In the event that the Company exhausts its remedies
pursuant to Section 9(c) and Executive thereafter is required to make a payment
of any Excise Tax, the Accounting Firm shall determine the amount of the
Underpayment that has occurred and any such Underpayment shall be promptly paid
by the Company to Executive or for Executive's benefit.
(c) Executive 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 Executive or his
representative is 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. Executive shall not pay such claim prior to the expiration
of the thirty (30) day period following the date on which Executive 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
Executive in writing prior to the expiration of such period that it desires to
contest such claim, Executive 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,
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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 Executive 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 subsection 9(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forego 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 Executive to pay the tax claimed and sue for a refund or contest
the claim in any permissible manner, and Executive 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 Executive to pay such
claim and sue for a refund, the Company shall advance the amount of such payment
to Executive, on an interest-free basis and shall indemnify and hold Executive
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 Executive's 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 Executive 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.
(d) If, after the receipt by Executive of an amount advanced
by the Company pursuant to subsection 9(c), Executive become entitled to receive
any refund with respect to such claim, Executive shall (subject to the Company's
complying with the requirements of subsection 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 Executive of an amount
advanced by the Company pursuant to subsection 9(c), a determination is made
that Executive shall not be entitled to any refund with respect to such claim
and the Company does not notify Executive 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.
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10. NO OBLIGATION TO MITIGATE DAMAGES; NO EFFECT ON OTHER CONTRACTUAL
RIGHTS. Executive 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 or accepting other employment or otherwise, nor shall the amount of
any payment required to be made under this Agreement be reduced by any
compensation earned by Executive as the result of any employment by another
employer after the date of termination of Executive's employment with the
Company, or otherwise. Upon receipt of written notice from Executive that
Executive has been reemployed by another company or entity on a full-time basis,
benefits, fringe benefits and perquisites otherwise receivable by Executive
pursuant to Sections 5(c) or 5(d) related to life, health, disability and
accident insurance plans and programs and other similar benefits, company cars,
financial planning, country club memberships, and the like (but not Incentive
Compensation, LTIP, Pension Plans or other similar plans and programs) shall be
reduced to the extent comparable benefits are made available to Executive at his
new employment and any such benefits actually received by Executive shall be
reported to the Company by the Executive.
The provisions of the Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amount otherwise payable, or in any
way diminish Executive's 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 Executive, 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 Executive and Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If Executive should die while any amounts would still be payable to
Executive pursuant to Section 5 hereunder if Executive had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's devisee, legatee, or other
designee or, if there be no such designee, to Executive's estate.
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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, 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, 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
North Carolina, 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 Executive 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 is 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, Executive's 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 Executive's 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 Executive to
successfully (in whole or in part and
15
<PAGE> 16
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 secure the foregoing obligation, the Company shall, within
90 days after being requested by Executive 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 Executive.
20. EMPLOYMENT RIGHTS. Nothing expressed or implied in this Agreement
shall create any right or duty on Executive's part or on the part of the Company
to have Executive remain in the employment of the Company prior to the
commencement of the Period of Employment; provided, however, that any
termination or purported termination of Executive's employment or of this
Agreement, for any reason other than those set forth in Sections 6(a)(i),
6(a)(iii) or 6(a)(iv), 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 Executive's 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 day prior to 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 Executive or Executive's
designated beneficiary or beneficiaries provided for in this Agreement in
respect of any claim against Executive or any debt or obligation owed by
Executive, whether arising hereunder or otherwise.
22. RIGHTS TO OTHER BENEFITS. The existence of the Agreement and
Executive's rights hereunder shall be in addition to, and not in lieu of,
Executive's rights under any other of the Company's compensation and benefit
plans and programs, and under any other contract or agreement between Executive
and the Company.
23. POOLING OF INTERESTS. In the event that the independent accountants
of the Company shall determine that this Agreement or anything contained herein
shall prevent the Company from consummating any business combination approved by
the Board of Directors which combination is intended to be accounted for under
the pooling of interests method of accounting ("Pooling"), then Participant
agrees that this Agreement may at any time and in the sole discretion of the
Board of Directors either be: a) amended in such fashion as may be requested by
the Company so as to allow such business combination to be accounted for as a
Pooling, or, if this Agreement cannot be so amended, or (b) terminated.
Provided, however, that any such amendment shall: (x) be as limited in scope as
is absolutely necessary in the opinion of the Company's advisors to allow the
business combination to be accounted for as a Pooling; and (y) be designed to
have as minimal an economic detriment to the Participant as is possible while
still allowing the business combination to be accounted for as a Pooling.
16
<PAGE> 17
[24. SUPERCEDED EMPLOYEE PROTECTION PLAN. If this Agreement is either
(a) amended pursuant to Section 23, and if such amendment reduces the benefits
to be received by the Executive or his Beneficiaries pursuant to any section of
this Agreement in any way deemed material by the Executive, or (b) terminated
pursuant to Section 23, the Executive shall receive, in place of and not in
addition to, the benefits under the Company's Employee Protection Plan ("EPP")
or Employee Termination Protection Plan ("ETPP"), in effect at the time of such
amendment or termination, not withstanding any provision of the EPP or ETPP
which would make the Executive ineligible to receive benefits under the EPP or
ETPP.]
[The following Section 24 is included in the form of Management Continuity
Agreement provided to those executives who had Management Continuity Agreements
in place prior to October 1999:
24. SUPERCEDED AGREEMENT. Except as provided herein, the agreement
between Executive and the Company originally dated ____________________, and
thereafter amended from time to time, relating to the same subject matter as
this Agreement (the "Original Agreement"), is hereby superceded in its entirety
by this Agreement, shall be of no further force or effect as of the date of this
Agreement and any rights that Executive may have under the Original Agreement
which have accrued prior to the date hereof, to the extent not previously waived
by the Executive, are hereby waived. If, however, this Agreement is either (a)
amended pursuant to Section 23 above, and if such amendment reduces the benefits
to be received by the Executive or his Beneficiaries pursuant to any section of
this Agreement in any way deemed material by the Executive, or (b) terminated
pursuant to Section 23 above, then the Original Agreement shall continue in full
force and effect as if unmodified and not superceded and the Executive shall
receive all the benefits of the Original Agreement accruing after the date
hereof in accordance with its terms.]
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
Effective Date.
THE BFGOODRICH COMPANY
By
-----------------------------------------
-----------------------------------------
EXECUTIVE
17
<PAGE> 18
EXHIBIT 1
A. If as of Executive's Date of Termination Executive's actual years of
service plus the length of Executive's Payment Period is at least 10, then
1. If as of Executive's Date of termination Executive's age
plus the length of Executive's Payment Period is at least 65,
Executive's retirement benefit under section 5(e) will be calculated as
a "normal retirement" benefit to which Executive would have been
entitled under the terms of the retirement plan in which Executive
participate had Executive accumulated continuous service equal to such
sum; and
2. If as of Executive's Date of Termination Executive's age
plus the length of Executive's Payment Period is at least 55 but less
than 65, Executive's retirement benefit under section 5(e) will be
calculated as an "early retirement" benefit to which Executive would
have been entitled under the terms of the retirement plan in which
Executive participate had Executive accumulated continuous service
equal to such sum. The actuarial reduction used shall be the actuarial
reduction factor for early retirement, calculated to Executive's actual
age plus the length of Executive's Payment Period at Executive's Date
of Termination.
Furthermore, if Executive were on the active rolls of the
Company as of December 31, 1989 and if the sum of Executive's actual
years of service plus the length of Executive's Payment Period is at
least 10 but less than 24, then for purposes of section 5(e) Executive
will also receive an Additional Credit for up to 4 years. The
Additional Credit Executive will receive will depend upon the sum of
the years of Executive's actual service plus the length of Executive's
Payment Period and 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 Executive's actual years of service plus the
length of Executive's Payment Period, it will create a total of
exactly 24.
No Additional Credit will be applied if the sum of Executive's
actual years of service plus the length of Executive's Payment Period
if 24 or greater. Executive will not receive any Additional Credit if
Executive commenced employment with the Company on or after January 1,
1990.
B. If as of Executive's Date of Termination the sum of Executive's
actual years of service plus the length of Executive's Payment Period is less
than 10, or Executive's age plus the length of Executive's Payment Period is
less than 55, Executive's retirement benefit under section 5(e) will be
calculated as a "deferred vested pension" to which Executive would have been
entitled under the terms of the retirement
18
<PAGE> 19
plan in which Executive participate had Executive accumulated continuous service
equal to such sum. The actuarial reduction used shall be the actuarial reduction
factor for a deferred vested pension, calculated to Executive's actual age at
Executive's Date of Termination plus the length of Executive's Payment Period.
For purposes of section 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.
19
<PAGE> 20
EXHIBIT 2
BENEFICIARY DESIGNATION
I hereby designate the following person(s) as a beneficiary for the purposes of
Section 6(e) to the extent of the percentage interest listed next to their name:
- --------------------------------------------------------------------------------
NAME PERCENTAGE INTEREST
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TOTAL (cannot exceed 100%)
- --------------------------------------------------------------------------------
20
<PAGE> 1
EXHIBIT 10(L)
SUMMARY PLAN DESCRIPTION
LONG-TERM INCENTIVE PLAN
THE BFGOODRICH COMPANY
MARCH, 1999
<PAGE> 2
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.
2
<PAGE> 3
PLAN OVERVIEW
- - Participation in the LTIP will be approved by the Compensation Committee of
the Board of Directors.
- - 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 200% 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.
3
<PAGE> 4
- - 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. However, an Agreement and Plan of Merger with Coltec Industries Inc
was made prior to the release of this grant. As it relates to this LTIP
grant (but not to any prior grants), the approval of the merger shall not
constitute a change of control and the shares shall not become immediately
payable.
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.
4
<PAGE> 5
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
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 200% 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 (or is deemed to retire) 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
5
<PAGE> 6
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.
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.
At the time the Compensation Committee made this grant, the Agreement and Plan
of Merger dated as of November 22, 1998 among The B.F.Goodrich Company, Runway
Acquisition Corporation and Coltec Industries Inc ("Coltec") had been executed,
and provided that, subject to certain conditions, Coltec would become a
wholly-owned subsidiary of the Company and the existing shareholders of Coltec
would receive shares of Company stock which will constitute approximately
one-third of the outstanding shares of the Company following the merger.
Approval by the Company's shareholders of the issuance
6
<PAGE> 7
of the Company shares in connection with this transaction (the "Approval") would
constitute a change in control under the Plan. It is agreed that for the
purposes of this long-term incentive plan grant (but not for any prior grants),
the Approval shall not constitute a change in control and the shares granted
hereby shall not become immediately payable upon the Approval.
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.
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.
7
<PAGE> 8
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.
8
<PAGE> 9
1999 - 2001
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 1999 through 2001:
________ 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:
Total Company Percent Payout of
Three-Year Phantom Performance
Average ROE Share Account
------------- -------------------
Below 15.0% 0%
(Threshold) 15.0% 50%
(Target) 16.0% 100%
17.0% 150%
(Maximum) 18.0% and above 200%
9
<PAGE> 10
(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 1999 - 2001 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 extraordinary items, accounting
principle changes and discontinued operations which are not included in the
operating plan for 1999 (as such terms are defined under United States
generally accepted accounting principles ("GAAP") as in effect from time to
time). Accounting principle changes result from the adoption of GAAP
different from GAAP at the start of the Plan year.
- - Exclude the income and equity effect of nonrecurring items which are not
included in the operating plan for 1999. Nonrecurring items are material
events or transactions that are unusual in nature or occur infrequently.
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 1999 - 2001 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 200% of your total
phantom Performance Share account (including shares credited through
dividend equivalents), based on attainment against goals set by the
Compensation Committee.
10
<PAGE> 11
- - 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 2000.
- - 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.
11
<PAGE> 1
1999 FINANCIAL REVIEW EXHIBIT 13
TABLE OF CONTENTS
<TABLE>
<S> <C>
Management's Discussion and Analysis........................ 1
Management's Responsibility for Financial Statements........ 16
Report of Independent Auditors.............................. 16
Consolidated Statement of Income for the years ended
December 31, 1999, 1998 and 1997......................... 17
Consolidated Balance Sheet at December 31, 1999
and 1998................................................. 18
Consolidated Statement of Cash Flows for the years
ended December 31, 1999, 1998 and 1997................... 19
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 1999, 1998 and 1997............. 20
Notes to Consolidated Financial Statements.................. 21
Quarterly Financial Data (unaudited)........................ 40
Selected Financial Data..................................... 41
</TABLE>
<PAGE> 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
WE BELIEVE THIS MANAGEMENT'S DISCUSSION AND ANALYSIS CONTAINS FORWARD-LOOKING
STATEMENTS. SEE THE LAST SECTION FOR CERTAIN RISKS AND UNCERTAINTIES.
RESULTS OF OPERATIONS
MERGER
On July 12, 1999, The BFGoodrich Company ("the Company" or "BFGoodrich")
completed its merger with Coltec Industries Inc. The merger has been accounted
for as a pooling-of-interests. Accordingly, all prior period consolidated
financial statements have been restated to include the results of operations,
financial position and cash flows of Coltec as though Coltec had always been a
part of BFGoodrich. As such, results for the three years ended December 31,
1999, 1998 and 1997 represent the combined results of BFGoodrich and Coltec (see
Note A to the Consolidated Financial Statements).
As a result of the merger, Coltec became a wholly-owned subsidiary of the
Company. In accordance with the terms of the merger, each share of Coltec common
stock was converted into the right to receive 0.56 shares of BFGoodrich common
stock, totaling 35.5 million shares of BFGoodrich common stock.
In addition, the Company issued options to purchase 3.0 million shares of
BFGoodrich common stock in exchange for options to purchase Coltec common stock
outstanding immediately prior to the merger. These options vest and become
exercisable in accordance with the terms and conditions of the original Coltec
options. Also, as a result of the merger, each 5 1/4% Convertible Preferred
Security issued by Coltec Capital Trust became convertible into 0.955248 of a
share of BFGoodrich common stock, subject to certain adjustments.
MERGER-RELATED AND CONSOLIDATION COSTS
(SEE NOTE D TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR ADDITIONAL DISCUSSION)
During 1999, the Company recorded merger related and consolidation costs of
$269.4 million before tax ($196.4 million after-tax, or $1.77 per share), of
which $12.3 million represents non-cash asset impairment charges. These costs
related primarily to personnel related costs, transaction costs and
consolidation costs. The merger related and consolidation reserves were reduced
by $218.2 million during the year, of which $207.1 million represented cash
payments.
During 1998, the Company recorded merger related and consolidation costs of
$10.5 million before tax ($6.5 million after tax, or $.06 per share), related to
costs associated with the closure of three facilities and an asset impairment
charge.
During 1997, the Company recorded merger-related and consolidation costs of
$77.0 million before tax ($69.5 million after tax, or $0.62 per diluted share)
in connection with the Rohr merger. In addition to the $77.0 million recorded as
merger - related and consolidation costs, the Company also recorded $28.0
million of debt extinguishment costs ($16.7 million after tax, or $0.15 per
diluted share) related to the Rohr merger which were reported as an
extraordinary item.
The Company has identified additional merger related and consolidation costs of
approximately $35 million that will be recorded throughout 2000. The timing of
these costs is dependent on the finalization of management's plans. These
charges consist primarily of costs associated with the consolidation of its
landing gear facilities, the reorganization of operating facilities and for the
relocation of personnel.
The Company expects to achieve costs savings of approximately $60 million per
year by 2002 related to the merger with Coltec.
SHARE REPURCHASE PROGRAM
On February 21, 2000, the Company's Board of Directors authorized the repurchase
of up to $300 million of the Company's common stock. Repurchases under the
program, which may not exceed 10 percent of the Company's issued shares of
common stock, may be made from time to time in the open market or in negotiated
transactions at price levels that the Company considers attractive. The program
will be funded from the Company's operating cash flows and short term borrowings
under existing credit lines.
2000 OUTLOOK
The Company expects the same market issues that have affected results during the
second half of 1999 to continue in 2000 (see segment discussion below). These
pressures, together with a further decline in commercial aircraft production,
will most likely result in relatively flat financial performance in 2000 as
compared to 1999. This outlook includes $25 million in annual headquarters cost
savings beginning in 2000 and significant operational savings through
consolidation of businesses and facilities. The Company is also currently
exploring ways to increase shareholder value, including the evaluation of
various financial and strategic alternatives related to our portfolio of
businesses.
TOTAL COMPANY
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
SALES:
Aerospace....................... $3,617.4 $3,479.3 $3,026.1
Engineered Industrial
Products...................... 702.4 779.9 757.1
Performance Material............ 1,217.7 1,195.6 904.7
- ----------------------------------------------------------------
Total......................... $5,537.5 $5,454.8 $4,687.9
================================================================
</TABLE>
1
<PAGE> 3
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME:
Aerospace....................... $ 558.7 $ 500.0 $ 325.8
Engineered Industrial
Products...................... 118.2 131.6 147.0
Performance Materials........... 150.4 145.8 128.2
- ----------------------------------------------------------------
Total Reportable Segments....... 827.3 777.4 601.0
Merger Related and Consolidation
Costs......................... (269.4) (10.5) (77.0)
Corporate....................... (84.6) (83.7) (93.1)
- ----------------------------------------------------------------
Total......................... $ 473.3 $ 683.2 $ 430.9
================================================================
</TABLE>
Cost of sales was 71.4 percent of sales in 1999 compared with 71.8 percent in
1998 and 72.7 percent in 1997. The decrease in cost of sales as a percent of
sales in 1999 as compared to 1998 was a result of the Company's efforts to
improve productivity and to lower manufacturing and material costs. Margin
improvement in the Aerospace Segment in 1998 was partially offset by a margin
decline in the Engineered Industrial Products and Performance Materials Segments
as compared to 1997. Cost of sales in 1997 was also negatively impacted by the
MD-90 write-off as compared to 1998 levels (see detailed group discussions
below).
Selling and administrative costs were 15.2 percent of sales in 1999, compared
with 15.4 percent in 1998 and 16.5 percent in 1997. An increased focus on
controlling and reducing costs in 1999 resulted in the decrease in selling and
administrative costs between years despite level to declining sales at the
Engineered Industrial Products and Performance Materials Segments. 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 Company's three
year targets and achieving a maximum payout under the plan. (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 1999 was $361.7 million, or
$3.24 per diluted share, compared with $327.6 million, or $2.91 per diluted
share in 1998, and $261.1 million, or $2.34 per diluted share in 1997. The
following table presents the impact of special items on earnings per diluted
share.
<TABLE>
<CAPTION>
(EARNINGS PER DILUTED SHARE) 1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations....... $1.53 $3.19 $1.75
Net (gain) on sold businesses......... (.04) (.34) (.15)
Gain on issuance of subsidiary
stock............................... -- -- (.07)
MD-90 write-off....................... -- -- .19
Merger-related and consolidation
costs............................... 1.77 .06 .62
Dilutive impact of convertible
preferred securities................ (.02) -- --
- ---------------------------------------------------------------
Income from continuing operations,
excluding special items............. $3.24 $2.91 $2.34
===============================================================
</TABLE>
Income from continuing operations for the year ended December 31, 1999 includes
(i) $162.2 million ($1.47 per share) for costs associated with the Coltec merger
and an additional charge of $34.2 million ($0.30 per share) related to segment
restructuring activities; (ii) a net gain on the sale of businesses of $4.3
million ($0.04 per share); and (iii) the dilutive impact of convertible
preferred securities that were anti-dilutive on an as reported basis of $0.02
per share.
Income from continuing operations for the year ended December 31, 1998 includes
$6.5 million ($0.06 per share) for costs associated with the Aerostructures
Group's closure of three facilities and the impairment of a fourth facility and
a $38.5 million ($0.34 per share) gain on the sale of Holley Performance
Products.
Income from continuing operations for the year ended December 31, 1997 includes
(i) merger costs of $69.5 million ($0.62 per share) in connection with the
merger with Rohr, Inc., (ii) a net gain of $8.0 million ($0.07 per share)
resulting from an initial public offering of common stock by the Company's
subsidiary, DTM Corporation, (iii) a net gain of $16.4 million ($0.15 per share)
from the sale of a business, and (iv) a charge of $21.0 million ($0.19 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.
NET INTEREST EXPENSE Net interest expense increased by $5.5 million in 1999,
from $128.0 million in 1998 to $133.5 million in 1999. The increase in interest
expense-net was due to increased average borrowings during 1999 as a result of
the Coltec merger ($3 million), reduced interest income ($1 million) and a
reduction in capital expenditures between periods that resulted in a reduction
in capitalized interest ($1 million). Net interest expense increased by $12.1
million in 1998 as compared to 1997. The increase in interest expense-net in
1998 was due to increased indebtedness resulting from acquisitions during the
latter part of 1997 and early portion of 1998, partially offset by savings that
resulted from refinancing 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. The Company recognized a pretax gain
of $13.7 million ($8.0 million after tax, or $0.07 per diluted share) 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 was recorded within Other Income
(Expense) during the first quarter of 1999.
2
<PAGE> 4
OTHER INCOME (EXPENSE) -- NET Excluding the impact of net gains (losses) on sale
of businesses, other income (expense) net was expense of $15.2 million, $19.3
million and $11.4 million in 1999, 1998 and 1997, respectively. The decrease in
expense during 1999 was due primarily to gains related to the demutualization of
certain insurance companies with which the Company does business. The increase
in expense from 1997 to 1998 relates primarily to increased costs associated
with the Company's executive life insurance program.
INCOME TAX EXPENSE The Company's effective tax rate was 43.8, 36.8 and 40.2
percent in 1999, 1998 and 1997. The increase in the Company's effective tax rate
in 1999 as compared to 1998 was primarily attributable to the significant amount
of non-deductible merger costs incurred during 1999 related to the Coltec
merger.
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 a 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 T to the
Consolidated Financial Statements.
EXTRAORDINARY ITEMS The Company has recorded extraordinary items during 1998 and
1997, net of tax, related to the extinguishment of debt.
ACQUISITIONS
POOLING-OF-INTERESTS
COLTEC As noted above, on July 12, 1999, the Company completed its merger with
Coltec. The merger has been accounted for as a pooling-of-interests.
Accordingly, all prior period consolidated financial statements have been
restated to include the results of operations, financial position and cash flows
of Coltec as though Coltec had always been a part of BFGoodrich. As such,
results for the three years ended December 31, 1999, 1998 and 1997 represent the
combined results of BFGoodrich and Coltec.
ROHR On December 22, 1997, BFGoodrich completed a merger with Rohr, Inc. by
exchanging 18.6 million shares of BFGoodrich common stock for all of the common
stock of 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.
PURCHASES
The following acquisitions were recorded using the purchase method of
accounting. Their results of operations have been included in the Company's
results since their respective dates of acquisition.
During 1999, the Company acquired a manufacturer of spacecraft attitude
determination and control systems and sensor and imaging instruments; the
remaining 50 percent interest in a joint venture, located in Singapore, that
overhauls and repairs thrust reversers, nacelles and nacelle components; an
ejection seat business; a textile coatings business; and a manufacturer and
developer of micro-electromechanical systems, which integrate electrical and
mechanical components to form "smart" sensing and control devises. Total
consideration aggregated $76.1 million, of which $69.4 million represented
goodwill.
The purchase agreements for the manufacturer and developer of
micro-electromechanical systems provides for additional consideration to be paid
over the next six years based on a percentage of net sales. The additional
consideration for the first five years, however, is guaranteed not to be less
than $3.5 million. As the $3.5 million of additional consideration is not
contingent on future events, it has been included in the purchase price and
allocated to the net assets acquired. All additional contingent amounts payable
under the purchase agreement will be recorded as additional purchase price when
earned and amortized over the remaining useful life of the goodwill.
During 1998, the Company acquired a global manufacturer of specialty and fine
chemicals; a manufacturer of flexible graphite and polytetrafluoroethylene
("PTFE") products; a business that manufactures, machines and distributes PTFE
products; and another business that reprocesses PTFE compounds. The Company also
acquired a manufacturer of sealing products; a small manufacturer of textile
chemicals used for fabric preparation and finishing; the remaining 20 percent
not previously owned of a subsidiary that produces self-lubricating bearings;
and a small manufacturer of energetic materials systems. Total consideration
aggregated $521.5 million, of which $308.7 million represented goodwill.
During 1997, the Company acquired seven businesses for cash consideration of
$194.1 million in the aggregate, which included $84.4 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. A fifth business manufactures
flight attendant and cockpit seats and the sixth business is a sheet rubber and
conveyer belt business. The remaining acquisition is a small specialty chemicals
business.
The purchase agreement for the flight attendant and cockpit seat business
includes contingent payments based on earnings levels
3
<PAGE> 5
for the years ended December 31, 1997-2000. These contingent payments will be
recorded as additional purchase price consideration when made and will be
amortized over the remaining life of the goodwill.
The impact of these acquisitions was not material in relation to the Company's
results of operations. Consequently, pro forma information is not presented.
DISPOSITIONS
During 1999, the Company sold all or a portion of its interest in four
businesses, resulting in a pre-tax gain of $9.8 million, which has been reported
in other income (expense) net.
In May 1998, the Company sold the capital stock of its Holley Performance
Products subsidiary for $100 million in cash. The sale resulted in a pre-tax
gain of $58.3 million, net of liabilities retained, which has been reported
within other income (expense) net. The proceeds from this divestiture were
applied toward reducing debt. In 1997, Holley had gross revenues and operating
income of approximately $99.0 million and $8.0 million, respectively.
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 reported within other income
(expense) net.
For dispositions accounted for as discontinued operations during 1998 and 1997
refer to Note T to the Consolidated Financial Statements.
BUSINESS SEGMENT PERFORMANCE
SEGMENT ANALYSIS
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"). Aerospace consists of four business groups:
Aerostructures; Landing Systems; Sensors and Integrated Systems (as a result of
the Coltec merger, this business group will be renamed Electronics and Engine
Systems in 2000); and Maintenance, Repair and Overhaul ("MRO"). They serve
commercial, military, regional, business and general aviation markets.
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.
Corporate includes general corporate administrative costs and certain
undistributed research and development expenses. Beginning in 2000, such
undistributed research and development expenses will be reported within segment
operating income. 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 and are discussed above
(see further discussion under merger related and consolidation costs section and
Note D to the accompanying Consolidated Financial Statements).
An expanded analysis of sales and operating income by business segment follows:
1999 COMPARED WITH 1998
AEROSPACE
<TABLE>
<CAPTION>
% of Sales
(IN MILLIONS) 1999 1998 % CHANGE 1999 1998
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES
Aerostructures.............................................. $1,139.1 $1,144.2 (0.4)
Landing Systems............................................. 1,032.9 963.2 7.2
Sensors and Integrated Systems.............................. 938.4 911.3 3.0
MRO......................................................... 507.0 460.6 10.1
- ------------------------------------------------------------------------------------
Total Sales............................................... $3,617.4 $3,479.3 4.0
====================================================================================
OPERATING INCOME
Aerostructures.............................................. $ 191.5 $ 189.1 1.3 16.8 16.5
Landing Systems............................................. 157.7 117.9 33.8 15.3 12.2
Sensors and Integrated Systems.............................. 174.4 170.3 2.4 18.6 18.7
MRO......................................................... 35.1 22.7 54.6 6.9 4.9
- ------------------------------------------------------------------------------------
Total Operating Income.................................... $ 558.7 $ 500.0 11.7 15.4 14.4
====================================================================================
</TABLE>
4
<PAGE> 6
MARKET OVERVIEW
The aerospace industry enjoyed another strong year of jet aircraft deliveries in
1999. Large commercial jet deliveries increased 15% and regional jet deliveries
increased 39% over 1998 levels. Revenue passenger miles, a key metric measuring
demand, increased in 1999 over 1998. World airline passenger traffic increased
an estimated 5.4% and US domestic airline passenger traffic increased an
estimated 4.3% in 1999. 1999 military spending remained relatively flat from
1998.
Approximately 36% of BFGoodrich Aerospace's 1999 sales were tied to the original
equipment ("OE") commercial transport market, most specifically aircraft
production which often leads aircraft delivery by as much as several quarters.
Because of this lead time effect, BFGoodrich Aerospace commercial sales began to
feel the impact in 1998 of the year to year delivery improvement noted above.
SEGMENT PERFORMANCE
Sales by BFGoodrich Aerospace increased by $138.1 million, or 4.0 percent, from
$3,479.3 million in 1998 to $3,617.4 million during 1999. The increase is
primarily attributable to the PW4000 settlement, strong after-market demand for
wheels and brakes as well as maintenance, repair and overhaul services and
several small acquisitions.
Aerospace operating income increased $58.7 million, or 11.7 percent, from $500.0
million in 1998 to $558.7 million during 1999 The higher sales volume noted
above in combination with a better after-market sales mix and ongoing
operational improvements positively impacted 1999 results.
AEROSTRUCTURES GROUP Sales during 1999 decreased $5.1 million, or 0.4 percent,
from $1,144.2 million in 1998 to $1,139.1 million in 1999. Higher production
spares, after-market sales and the PW4000 settlement only partially offset lower
OE sales.
Operating income increased $2.4 million, or 1.3 percent, from $189.1 million
during 1998 to $191.5 million in 1999. The increase is primarily attributable to
higher after-market sales that generally carry a higher margin than OE sales, a
gain resulting from an exchange of land and the settlement of the PW4000 claim,
partially offset by higher manufacturing costs associated with the restructuring
of several of the Group's facilities and the start-up of the Group's Arkadelphia
facility.
LANDING SYSTEMS GROUP Sales during 1999 increased $69.7 million, or 7.2 percent,
from $963.2 million in 1998 to $1,032.9 million in 1999. The increase is
attributable to higher after-market demand for wheels and brakes ($34.7
million), improved penetration into the aircraft seating market ($7.7 million)
and a product line acquisition completed in late 1998 ($26.8 million). Demand
for commercial transport OE products such as landing gear and evacuation slides
which are tied more closely to the OE production cycle, was largely flat year to
year.
Operating income increased $39.8 million, or 33.8 percent, from $117.9 million
in 1998 to $157.7 million in 1999. An overall favorable sales mix, increased
volume, acquisitions and operating efficiency improvements all contributed to
the higher results.
SENSORS & INTEGRATED SYSTEMS GROUP Sales during 1999 increased $27.1 million, or
3.0 percent, from $911.3 million in 1998 to $938.4 million in 1999. The increase
resulted from higher unit volume sales of sensor, launch vehicle electronic,
cockpit avionic, aircraft lighting, and gas turbine products, partially offset
by lower sales of fuel control products.
Operating income increased $4.1 million, or 2.4 percent, from $170.3 million
during 1998 to $174.4 million in 1999. This increase reflects the impact of
higher sales volumes and a favorable sales mix of higher margin after-market
spares, partially offset by increased R&D spending on the development of new
products for Health, Usage and Monitoring systems (HUMS).
MRO GROUP Sales during 1999 increased $46.4 million, or 10.1 percent, from
$460.6 million in 1998 to $507.0 million in 1999. The increase reflects higher
demand for airframe, component and landing gear overhaul maintenance services
($19 million) in addition to the acquisition of the remaining interest of a
joint venture business in the Asia Pacific region ($27 million).
Operating income increased by $12.4 million, or 54.6 percent, from $22.7 million
in 1998 to $35.1 million during 1999. The increase is principally due to the
higher demand experienced in all of the MRO markets served by the Company, as
well as the impact of the acquisition noted above and continued operational
improvements.
MARKET OUTLOOK
Aerospace has built a diversified portfolio of businesses that does not
correlate directly with the cyclical upturns and downturns of its airframe
customers. The expected decline in Boeing commercial jet aircraft deliveries of
over 22% in 2000 will negatively affect BFGoodrich's OE businesses, most notably
in the Segment's Aerostructures and Landing Systems Groups. The Company believes
that Aerospace sales for 2000 will be consistent with sales levels achieved in
1999. Expected decreases in OE sales are anticipated to be offset by a higher
content of aftermarket products, space and specialty products and by a
significant increase in sales by the MRO services group.
ENGINEERED INDUSTRIAL PRODUCTS
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 % CHANGE
- --------------------------------------------------------------
<S> <C> <C> <C>
Sales............................. $702.4 $779.9 (9.9)%
Operating Income.................. $118.2 $131.6 (10.2)%
Operating Income as a percent of
Sales........................... 16.8% 16.9%
</TABLE>
5
<PAGE> 7
MARKET OVERVIEW
Several of the Segment's primary markets, including the chemical and petroleum
process industries (including oil and gas drilling), industrial machinery &
equipment (construction, mining and material handling), and the defense capital
goods markets, experienced weakness throughout 1999. The majority of the
Segment's business is in these areas of the domestic economy. Sales growth was
noted in several of the Segment's secondary markets, including the heavy-duty
vehicles, automotive and the semiconductor markets, though not at a level to
offset the reduction in business in the Segment's primary markets.
SEGMENT PERFORMANCE
Sales decreased $77.5 million, or 9.9 percent, from $779.9 million in 1998 to
$702.4 million in 1999. The decrease in sales is primarily attributable to a
1998 disposition of a division ($37 million) and reduced volume in most of the
Segment's businesses ($38 million), partially offset by favorable prices ($3
million). As previously discussed, the reduced volume is attributable to
weakness in most markets served by the Segment, especially in the businesses
serving the domestic chemical and petroleum process industries, industrial
machinery and equipment, and the defense capital goods markets. The Segment did
experience growth in European sales in its sealing business following the 1998
acquisition of a French company (Cefilac). Further, the operations serving the
automotive and heavy-duty vehicle markets experienced modest growth during 1999.
Operating income decreased by $13.4 million, or 10.2 percent, from $131.6
million in 1998 to $118.2 million in 1999. Excluding the impact of a 1998
disposition ($6 million) and non-recurring charges ($13 million) during 1998,
operating income decreased by approximately $20 million. The non-recurring
charges in 1998 related to Y2K costs and a warranty issue related to previously
sold diesel engines. Overall, the decrease in operating income between periods
was due to the market weakness noted above. Management was able to partially
offset the decline in business with various initiatives designed to lower costs
including facility consolidation, six sigma projects and the application of lean
manufacturing initiatives.
MARKET OUTLOOK
The Engineered Industrial Products segment will continue to face market
challenges in 2000. While the Segment anticipates some level of volume growth in
the year 2000 in its primary markets, including the chemical and petroleum
process markets, these will be partially offset by anticipated decreased demand
in the defense capital goods market and heavy-duty vehicle markets. The Segment
anticipates a continued focus on cost initiatives and facility consolidation
during 2000.
PERFORMANCE MATERIALS
<TABLE>
<CAPTION>
% of Sales
(IN MILLIONS) 1999 1998 % CHANGE 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES
Textile and Coatings Solutions.............................. $ 619.7 $ 606.2 2.2
Polymer Additives and Specialty Plastics.................... 422.2 431.3 (2.1)
Consumer Specialties........................................ 175.8 158.1 11.2
- ----------------------------------------------------------------------------------
Total Sales............................................... $ 1,217.7 $1,195.6 1.8
==================================================================================
OPERATING INCOME
Textile and Coatings Solutions.............................. $ 44.4 $ 63.0 (29.5) 7.2 10.4
Polymer Additives and Specialty Plastics.................... 73.6 58.8 25.2 17.4 13.6
Consumer Specialties........................................ 32.4 24.0 35.0 18.4 15.2
- ----------------------------------------------------------------------------------
Total Operating Income.................................... $ 150.4 $ 145.8 3.2 12.4 12.2
==================================================================================
</TABLE>
MARKET OVERVIEW
Performance Materials is a worldwide leader in water-based thickeners and
high-performance polymers used in everything from toothpaste, food ingredients,
shampoo, and time-release pharmaceutical products to plastics and coatings for
wood, paper, and fabrics. Key markets served include consumer, textile,
industrial, construction, transportation, and paper.
Volumes for many of the Segment's products were down during 1999 as
recession-like conditions continued, perpetuating market stagnation,
consolidation, and intense competition. In addition, inexpensive imports and
pockets of foreign economic weakness put significant pressure on pricing.
Fortunately, the cost of many of the Segment's key raw materials was also lower
as compared to 1998 costs, allowing for some recovery against the negative
impact of reduced volumes and prices. The Segment's construction related
products, however, were helped by a strong housing market in the US. The Segment
also continued its aggressive focus on cost reduction and improved productivity
to maintain its overall margins.
SEGMENT PERFORMANCE
Sales increased $22.1 million, or 1.8 percent, from $1,195.6 million in 1998 to
$1,217.7 million in 1999. Acquisitions
6
<PAGE> 8
(primarily Freedom Chemical, which was acquired in March of 1998) accounted for
$80 million of the sales increase, offset by $58 million of unfavorable volume,
price, and mix. Volumes for many of the Segment's products have been down due to
a deterioration of end markets served by the Segment and increased competition
and consolidation that has resulted. Inexpensive imports and certain areas of
foreign economic weakness have put additional pressure on pricing, causing year-
to-date prices to be down approximately 4 percent versus 1998.
Operating income increased by $4.6 million, or 3.2 percent, from $145.8 million
in 1998 to $150.4 million in 1999. The increase was attributable to
acquisitions, reduced raw material costs, increased manufacturing productivity
and overhead cost controls, which more than offset the income erosion from the
price and volume declines mentioned above. Fluctuations in foreign exchange
rates did not have a significant impact on the Segment.
TEXTILE AND COATINGS SOLUTIONS GROUP Sales increased by $13.5 million, or 2.2
percent, from $606.2 million in 1998 to $619.7 million in 1999. The increase in
sales was primarily related to acquisitions ($60 million), partially offset by
volume, price and mix declines ($45 million).
Operating income decreased by $18.6 million, or 29.5 percent, from $63.0 million
in 1998 to $44.4 million in 1999. The decrease was due to the unfavorable volume
and price declines noted above, particularly in regards to the textile markets
served by the Group, partially offset by acquisitions.
POLYMER ADDITIVES AND SPECIALTY PLASTICS GROUP Sales decreased by $9.1 million,
or 2.1 percent, from $431.3 million in 1998 to $422.2 million in 1999. The
decrease was caused primarily by price reductions ($18 million), offset by
favorable volume/mix ($9 million). The price reductions impacted most of the
Group's products, while the volume increase was driven primarily by the Group's
TempRite high-heat resistant plastics plumbing products.
Operating income increased $14.8 million, or 25.2 percent, from $58.8 million in
1998 to $73.6 million in 1999. The increase was primarily driven by higher
demand in the Group's TempRite business, lower raw material costs, and effective
overhead cost controls, partially offset by decreased volumes and prices for the
Group's other products.
CONSUMER SPECIALTIES GROUP Sales increased $17.7 million, or 11.2 percent, from
$158.1 million in 1998 to $175.8 million in 1999. The increase in sales was
driven by the Freedom acquisition ($20 million), partially offset by volume and
price declines in some of the remaining businesses ($2 million).
Operating income increased $8.4 million, or 35.0 percent, from $24.0 million in
1998 to $32.4 million in 1999. The increase in operating income was attributable
to the Freedom acquisition noted above, manufacturing efficiencies, overhead
cost controls and a favorable settlement from a patent infringement lawsuit.
MARKET OUTLOOK
The Performance Materials Segment faces a challenging 2000. Most key indices
suggest US industrial production will be flat, while housing starts and auto
sales will be decreasing from 1999 levels. Many of the industries served by the
segment are projecting flat to down years in 2000 limiting our volume
expectations. In addition, our raw material costs have risen dramatically and at
a much faster rate than we believe can be offset through selectively raising
prices.
Continued strong productivity performance will be necessary to help fill the
gap. Given the economic environment, emphasis in 2000 will be on: strategic
top-line growth, improving efficiency by optimizing production assets, and
re-evaluating any low margin product lines.
1998 COMPARED WITH 1997
AEROSPACE
<TABLE>
<CAPTION>
% of Sales
(IN MILLIONS) 1998 1997 % CHANGE 1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SALES
Aerostructures.............................................. $1,144.2 $1,039.7 10.1
Landing Systems............................................. 963.2 765.8 25.8
Sensors and Integrated Systems.............................. 911.3 833.9 9.3
MRO......................................................... 460.6 386.7 19.1
- ---------------------------------------------------------------------------------
Total Sales............................................... $3,479.3 $3,026.1 15.0
=================================================================================
OPERATING INCOME
Aerostructures.............................................. $ 189.1 $ 102.6 84.3 16.5 9.9
Landing Systems............................................. 117.9 90.3 30.6 12.2 11.8
Sensors and Integrated Systems.............................. 170.3 133.9 27.2 18.7 16.1
MRO......................................................... 22.7 (1.0) N/A 4.9 (0.3)
- ---------------------------------------------------------------------------------
Total Operating Income.................................... $ 500.0 $ 325.8 53.5 14.4 10.8
=================================================================================
</TABLE>
7
<PAGE> 9
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 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 increased by $86.5 million or
84.3 percent, from $102.6 million in 1997 to $189.1 million in 1998. Operating
income of $102.6 million in 1997 was adversely impacted by a $35.2 million
pretax charge on the MD-90 contract. Excluding this special item, operating
income increased in 1998 by $51.3 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 increased $197.4
million, or 25.8 percent, from $765.8 million in 1997 to $963.2 million in 1998.
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. 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 AMI acquisition in June 1997 resulted in approximately $24 million
of additional revenue in 1998 as well. 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 $27.6 million, or 30.6
percent, from $90.3 million in 1997 to $117.9 million in 1998. Higher sales, a
favorable product mix, the AMI acquisition and favorable fluctuations in foreign
exchange rates associated with our Canadian operations benefited the Group's
operating income in 1998. These increases were partially offset by 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
increased $77.4 million, or 9.3 percent, from $833.9 million in 1997 to $911.3
million in 1998. This group serves the large commercial transport; regional,
business and general aviation; military; and space markets. All four of these
markets experienced increased sales during 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 the Company's
StormScope(R) line of lightning detectors.
Expansion of the Company's 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) driven by expansion of our
capabilities and product offerings and by increased demand for aircraft engine
components.
The Group's operating income increased $36.4 million, or 27.2 percent, from
$133.9 million in 1997 to $170.3 million in 1998. 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 increased
$73.9 million, or 19.1 percent, from $386.7 million in 1997 to $460.6 million in
1998. 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 and nacelles services. New
business assisting Boeing in paint and other component services also contributed
to the improved results.
Operating income increased $23.7 million, from $(1.0) million in 1997 to $22.7
million in 1998. Excluding a $11.8 million bad debt charge recognized in 1997
due to the bankruptcy of Western Pacific Airlines, operating income increased by
$11.9 million. The 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 (4.9 percent versus 3.0 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
8
<PAGE> 10
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. 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 4.9 percent.
ENGINEERED INDUSTRIAL PRODUCTS
<TABLE>
<CAPTION>
(IN MILLIONS) 1998 1997 % CHANGE
- --------------------------------------------------------------
<S> <C> <C> <C>
Sales............................. $779.9 $757.1 3.0
Operating Income.................. 131.6 147.0 (10.5)
Operating Income as Percent of
Sales........................... 16.9% 19.4%
</TABLE>
Sales increased $22.8 million, or 3.0 percent, from $757.1 million in 1997 to
$779.9 million in 1998. Acquisitions accounted for a $66.0 million increase in
sales between periods, while dispositions reduced sales by $62.0 million. The
resulting net increase in sales between periods was due to increased volumes of
compressors, heavy duty wheel-end systems and diesel/gas engines. Continued
economic weakness in Asia and South America and slower growth in key markets,
including pulp and paper, chemical, refining and steel, adversely affected sales
growth.
Operating income decreased $15.4 million, or 10.5 percent, from $147.0 million
in 1997 to $131.6 million in 1998. The decrease was primarily attributable to
the divestitures noted above as well as additional warranty and legal reserves
($12.0 million) that were recorded in 1998.
PERFORMANCE MATERIALS
<TABLE>
<CAPTION>
Comparable % of Sales
(IN MILLIONS) 1998 1997 % Change % Change 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
SALES
Textile and Coatings Solutions.............................. $ 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 Coatings Solutions.............................. $ 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 COATINGS SOLUTIONS GROUP Sales in the Textile and Coatings Solutions
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 Coatings Solutions 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
9
<PAGE> 11
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.
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.
SHORT-TERM DEBT
During 1999, the Company increased its committed domestic revolving credit
agreements from $300.0 million to $600.0 million. These loan agreements are with
various domestic banks. Lines of credit totaling $300.0 million were amended in
1999 to extend the expiration date to the year 2004. The $300.0 million of lines
of credit added in 1999 are 364-day agreements that expire in March 2000. The
Company intends to renew the 364-day agreements on an annual basis and does not
anticipate any problems therein. At December 31, 1999, and throughout the year,
these facilities were not in use. In addition, the Company had available formal
foreign lines of credit and overdraft facilities, including the committed
multi-currency revolver, of $236.5 million at December 31, 1999, of which $84.3
million was available.
During 1999, the Company increased the committed multi-currency revolving credit
facility from $75.0 million to $125.0 million. The loan agreements are with
various international banks and expire 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, 1999, the Company had borrowed
$103.6 million ($80.5 million on a short-term basis and $23.1 million on a
long-term basis) denominated in various currencies at floating rates. The
Company has effectively converted the $23.1 million long-term debt portion into
fixed-rate debt with an interest rate swap.
The Company also maintains $367.5 million of uncommitted domestic money market
facilities with various banks to meet its short-term borrowing requirements. As
of December 31, 1999, $266.3 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
During 1999, the Company issued $200.0 million of 6.6 percent senior notes due
in 2009. A previously existing revolving credit facility, which had provided a
commitment of up to $600 million, was terminated subsequent to the consummation
of the merger with Coltec.
The Company believes that its credit facilities are sufficient to meet long-term
capital requirements, including normal maturities of long-term debt.
At December 31, 1999, the Company's debt-to-capitalization ratio was 52.8
percent. For purposes of this ratio, the TIDES and QUIPS (see Note R to the
Consolidated Financial Statements) are treated as capital.
EBITDA
EBITDA is income from continuing operations before distributions on preferred
securities of trusts, income tax expense, net interest expense, depreciation and
amortization and special items. EBITDA for the Company is summarized as follows:
<TABLE>
<CAPTION>
1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations
before taxes and distributions of
trusts............................. $334.5 $594.2 $343.7
Add:
Net interest expense............... 133.5 128.0 115.9
Depreciation and amortization...... 230.6 210.2 169.1
Special items...................... 262.8 (47.7) 72.1
- ---------------------------------------------------------------
EBITDA............................... $961.4 $884.7 $700.8
===============================================================
</TABLE>
OPERATING CASH FLOWS
Operating cash flows decreased $126.5 million from $499.1 million in 1998 to
$372.6 million in 1999. The decrease between periods was primarily due to merger
related and consolidation expenses paid during each of the years -- $207.1
million in 1999 and $68.6 million in 1998. The 1998 expenses related to the Rohr
merger that was consummated in December 1997.
INVESTING CASH FLOWS
The Company used $285.8 million of cash in 1999 related to investing activities,
primarily in the acquisition of various businesses and purchases of property. In
1998, investing activities used cash of $679.3 million, also primarily in the
acquisition of various businesses and purchases of property. The Company expects
to acquire additional businesses as circumstances warrant and as opportunities
arise.
10
<PAGE> 12
FINANCING CASH FLOWS
Financing activities used $72.2 million in cash in 1999, as compared to
providing $171.6 million in cash in 1998. Excess operating cash flows in 1999
were used to assist with the payment of dividends and distributions on trust
preferred securities. The Company increased its borrowings in 1998 to finance
the acquisitions discussed above. 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
2000.
On February 21, 2000, the Company's Board of Directors authorized the repurchase
of up to $300 million of the Company's common stock. The program will be funded
from the Company's operating cash flows and short term borrowings under existing
credit lines.
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.
At December 31, 1999, approximately 20 percent of the Company's labor force was
covered by collective bargaining agreements. Approximately 10 percent of the
labor force is covered by collective bargaining agreements that will expire
during 2000.
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 December 31, 1999 and 1998, the Company had recorded in Accrued Expenses and
in Other Non-current Liabilities a total of $125.5 million and $129.7 million,
respectively, to cover future environmental expenditures. These amounts are
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.
ASBESTOS
As of December 31, 1999 and 1998, two subsidiaries of the Company were among a
number of defendants (typically 15 to 40) in approximately 96,000 and 101,400
actions (including approximately 8,300 and 4,700 actions, respectively in
advanced stages of processing) filed in various states by plaintiffs alleging
injury or death as a result of exposure to asbestos fibers. During 1999, 1998
and 1997, these two subsidiaries of the Company received approximately 30,200,
34,400 and 38,200 new actions, respectively. Through December 31, 1999,
approximately 280,400 of the approximately 376,400 total actions brought had
been settled or otherwise disposed.
Payments were made by the Company with respect to asbestos liability and related
costs aggregating $84.5 million in 1999, $53.7 million in 1998, and $59.2
million in 1997, 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 $8.0 million in each of 1999, 1998 and 1997.
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
December 31, 1999, 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 $163.1 million and the Company expects that this cost will be
substantially covered by insurance.
11
<PAGE> 13
With respect to the 87,700 outstanding actions as of December 31, 1999, 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
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:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(DOLLARS IN MILLIONS) 1999 1998
- -------------------------------------------------------------
<S> <C> <C>
Accounts and notes receivable... $ 146.9 $ 95.4
Other assets.................... 36.7 32.6
Accrued expenses................ 134.6 89.7
Other liabilities............... 28.5 22.8
</TABLE>
CERTAIN AEROSPACE CONTRACTS
The Company's Aerostructures Group has a contract with Boeing on the 717-200
program that is subject to certain risks and uncertainties. The Company has
pre-production inventory of $84.9 million related to design and development
costs on the 717-200 program through December 31, 1999. In addition, the Company
has excess-over-average inventory of $53.9 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 plane. Recovery of these costs will depend on
the ultimate number of aircraft delivered and successfully achieving the
Company's cost projections in future years.
The Company's Aerostructures Group has also entered the market for re-engining
727 aircraft. The purpose of this endeavor is to assist the operators of these
aircraft meet new sound attenuation requirements along with improving fuel
efficiency. Many of the airplanes in this market are operated in emerging market
countries. The Aerostructures Group has entered into several collateralized
financing arrangements to assist its customers.
YEAR 2000 COMPUTER COSTS
The Company did not experience any significant malfunctions or errors in its
operating or business systems when the date changed from 1999 to 2000. Based on
operations since January 1, 2000, the Company does not expect any significant
impact to its ongoing business as a result of the Y2K issue. The Company is not
aware of any significant Y2K issues or problems that may have arisen for its
significant customers and suppliers.
The Company expended approximately $114 million through December 31, 1999, on
its Y2K readiness efforts. These efforts included replacing outdated,
noncompliant hardware and software as well as remediating other Y2K problems.
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
12
<PAGE> 14
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
early 2000. 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 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.
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.
Factors that could cause actual results of our Aerospace segment to differ
materially from those discussed in the forward-looking statements include, but
are not limited to, the following:
- - 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.
- - If the decline in future new aircraft build rates is greater than anticipated,
there could be a material adverse impact on 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 if the
Company does not successfully achieve its cost projections in future years, it
could adversely affect the Company's business.
- - If the Company is unable to continue to acquire and develop new systems and
improvements, it could affect future growth rates.
- - In the immediate past 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.
- - If the Company does not experience continued growth in demand for its
higher-margin aftermarket aerospace products or is unable to continue to
achieve improved operating margins in its MRO business, it could have an
adverse effect on operating results. 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. Various industry estimates of future growth of revenue passenger
miles, new
13
<PAGE> 15
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.
Factors that could cause actual results of our Engineered Industrial Products
segment to differ materially from those discussed in the forward-looking
statements include, but are not limited to, the following:
- - If maintenance schedules are reduced or delayed in the segment's key customer
base, including the petrochemical industry in the US, then results could be
adversely impacted. A significant decline in the price of oil would also
negatively impact the results of the segment.
- - The segment could be adversely impacted if capital spending for products used
in the manufacture of industrial products in the US declines.
- - If decreases in Federal funding cause orders for large engines to decline or
be delayed, then the results of segment could be adversely impacted.
- - The results could be adversely impacted if orders in the automotive/heavy-duty
truck market decline.
Factors that could cause actual results of our Performance Materials segment to
differ materially from those discussed in the forward-looking statements
include, but are not limited to, the following:
- - Expected sales increases in the Far East and Latin America could be adversely
impacted by recent turmoil in financial markets in those regions.
- - If volume does not increase or cost reduction benefits do not materialize, the
results of the Performance Materials Segment could be adversely affected.
- - If raw material costs increase beyond the Company's expectations the results
of the Performance Materials Segment could be 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.
- - The segment may not be able to achieve the $15 million in annualized savings
in 2000 from the 1999 realignment of the Performance Materials organization.
Factors that could cause actual results of the entire Company to differ
materially from those discussed in the forward-looking statements include, but
are not limited to, the following:
- - Future claims against the Company's subsidiaries with respect to asbestos
exposure and insurance and related costs may result in future liabilities that
are significant and may be material.
- - If there are unexpected developments with respect to environmental matters
involving the Company, it could have an adverse effect upon the Company.
- - The Company anticipates $60 million in annualized savings from the Coltec
merger by 2002. If the Company is unable to achieve these savings, it could
have an adverse impact upon the Company.
- - If the Company's tax planning is not as effective as anticipated, the
Company's effective tax rate could increase.
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.
14
<PAGE> 16
FINANCIAL INSTRUMENTS SENSITIVITY ANALYSIS
INTEREST RATE EXPOSURE The table below provides information about the Company's
derivative financial instruments and other financial instruments that are
sensitive to changes in interest rates, including interest rate swaps and debt
obligations. For debt obligations, the table represents principal cash flows and
related weighted average interest rates by expected (contractual) maturity
dates. Notional values are used to calculate the contractual payments to be
exchanged under the contract. Weighted average variable (receive) rates are
based on implied forward rates in the yield curve at December 31, 1999.
EXPECTED MATURITY DATE
<TABLE>
<CAPTION>
Fair
2000 2001 2002 2003 2004 Thereafter Total Value
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt
Fixed Rate................................ $ 12.8 $179.0 $3.8 $1.9 $0.9 $ 1,301.3 $1,499.7 $1,394.0
Average Interest Rate................... 7.4% 9.5% 0.4% 0.7% 1.2% 7.0% 7.3%
Variable Rate............................. 229.1 23.1 -- -- -- 252.2 252.2
Average Interest Rate................... 6.4% 3.7% -- -- -- 6.2%
Interest Rate Swaps
Variable to Fixed......................... 23.1 23.1 (0.8)
Average Pay Rate........................ 6.3% 6.3%
Average Receive Rate.................... 4.3% 4.3%
Fixed to Variable......................... 200.0 200.0 (15.8)
Average Pay Rate........................ 7.2% 7.2%
Average Receive Rate.................... 6.0% 6.0%
================================================================================================================================
</TABLE>
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. 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 B and N to the Consolidated Financial Statements for a discussion of
the Company's exposure to foreign currency transaction risk. At December 31,
1999 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.
15
<PAGE> 17
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
<TABLE>
<S> <C>
D. L. BURNER
Chairman
and Chief Executive Officer
</TABLE>
/s/ L. A. Chapman
<TABLE>
<S> <C>
L. A. CHAPMAN
Senior Vice President
and Chief Financial Officer
</TABLE>
/s/ R. D. Koney, Jr.
<TABLE>
<S> <C>
R. D. KONEY, JR.
Vice President
and Controller
</TABLE>
REPORT OF ERNST & YOUNG LLP, 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, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1999. 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 of Coltec Industries Inc,
which statements reflect total assets constituting 20% in 1998, and total sales
constituting 28% in both 1998 and 1997 of the related consolidated totals. Those
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for Coltec Industries
Inc for 1998 and 1997, 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 1998 and 1997, 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, 1999 and 1998, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1999, in conformity with generally accepted accounting
principles.
/S/ Ernst & Young LLP
Charlotte, North Carolina
February 14, 2000,
except for Note W, as to which the date is
February 21, 2000
16
<PAGE> 18
CONSOLIDATED STATEMENT OF INCOME
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts)
YEAR ENDED DECEMBER 31 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
SALES....................................................... $5,537.5 $5,454.8 $4,687.9
Operating costs and expenses:
Cost of sales............................................. 3,953.3 3,919.2 3,372.7
Charge for MD-90 contract................................. -- -- 35.2
Selling and administrative costs.......................... 841.5 841.9 772.1
Merger-related and consolidation costs.................... 269.4 10.5 77.0
- --------------------------------------------------------------------------------------------
5,064.2 4,771.6 4,257.0
- --------------------------------------------------------------------------------------------
OPERATING INCOME............................................ 473.3 683.2 430.9
Interest expense............................................ (138.3) (134.1) (127.9)
Interest income............................................. 4.8 6.1 12.0
Gain on issuance of subsidiary stock........................ -- -- 13.7
Other income (expense) -- net............................... (5.3) 39.0 15.0
- --------------------------------------------------------------------------------------------
Income from continuing operations before income taxes and
Trust distributions....................................... 334.5 594.2 343.7
Income tax expense.......................................... (146.5) (218.5) (138.2)
Distributions on Trust preferred securities................. (18.4) (16.1) (10.5)
- --------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS........................... 169.6 359.6 195.0
Income (loss) from discontinued operations -- net of
taxes..................................................... -- (1.6) 84.3
- --------------------------------------------------------------------------------------------
Income Before Extraordinary Items........................... 169.6 358.0 279.3
Extraordinary losses on debt extinguishment -- net of
taxes..................................................... -- (4.3) (19.3)
- --------------------------------------------------------------------------------------------
NET INCOME.................................................. $ 169.6 $ 353.7 $ 260.0
============================================================================================
BASIC EARNINGS PER SHARE:
Continuing operations..................................... $ 1.54 $ 3.26 $ 1.81
Discontinued operations................................... -- (0.01) 0.78
Extraordinary losses...................................... -- (0.04) (0.18)
- --------------------------------------------------------------------------------------------
NET INCOME................................................ $ 1.54 $ 3.21 $ 2.41
============================================================================================
DILUTED EARNINGS PER SHARE:
Continuing operations..................................... $ 1.53 $ 3.19 $ 1.75
Discontinued operations................................... -- (0.01) 0.75
Extraordinary losses...................................... -- (0.04) (0.17)
- --------------------------------------------------------------------------------------------
NET INCOME................................................ $ 1.53 $ 3.14 $ 2.33
============================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
17
<PAGE> 19
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
(dollars in millions, except per share amounts)
DECEMBER 31 1999 1998
- ---------------------------------------------------------------------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents................................... $ 66.4 $ 53.5
Accounts and notes receivable............................... 845.1 777.2
Inventories................................................. 1,000.6 967.7
Deferred income taxes....................................... 129.7 162.6
Prepaid expenses and other assets........................... 58.7 54.8
- ---------------------------------------------------------------------------------
TOTAL CURRENT ASSETS.................................... 2,100.5 2,015.8
Property.................................................... 1,577.3 1,562.5
Prepaid pension............................................. 212.1 193.3
Goodwill.................................................... 1,031.1 985.6
Identifiable intangible assets.............................. 107.0 112.4
Other assets................................................ 427.6 343.4
- ---------------------------------------------------------------------------------
TOTAL ASSETS............................................ $5,455.6 $5,213.0
=================================================================================
CURRENT LIABILITIES
Short-term bank debt........................................ $ 229.1 $ 144.4
Accounts payable............................................ 476.2 456.0
Accrued expenses............................................ 712.2 617.0
Income taxes payable........................................ 78.9 45.2
Current maturities of long-term debt and capital lease
obligations............................................... 14.5 7.6
- ---------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES............................... 1,510.9 1,270.2
Long-term debt and capital lease obligations................ 1,516.9 1,572.7
Pension obligations......................................... 63.4 76.6
Postretirement benefits other than pensions................. 347.7 358.5
Deferred income taxes....................................... 126.7 100.2
Other non-current liabilities............................... 325.5 328.5
Commitments and contingent liabilities...................... -- --
Mandatorily redeemable preferred securities of trusts....... 271.3 268.9
SHAREHOLDERS' EQUITY
Common stock -- $5 par value
Authorized, 200,000,000 shares; issued, 112,064,927 shares
in 1999 and 111,524,852 shares in 1998 (excluding
14,000,000 shares held by a wholly-owned
subsidiary)............................................... 560.3 557.7
Additional capital.......................................... 895.8 883.5
Accumulated deficit......................................... (52.3) (120.4)
Accumulated other comprehensive income...................... (44.2) (15.1)
Unearned compensation....................................... (1.2) (2.7)
Common stock held in treasury, at cost (1,832,919 shares in
1999 and 1,846,894 shares in 1998)........................ (65.2) (65.6)
- ---------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY.............................. 1,293.2 1,237.4
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $5,455.6 $5,213.0
=================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
18
<PAGE> 20
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(dollars in millions)
YEAR ENDED DECEMBER 31 1999 1998 1997
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 169.6 $ 353.7 $ 260.0
Adjustments to reconcile net income to net cash provided by
operating activities:
Merger related and consolidation:
Expenses................................................ 269.4 10.5 77.0
Payments................................................ (207.1) (68.6) (12.4)
Extraordinary losses on debt extinguishment............... -- 4.3 19.3
Depreciation and amortization............................. 230.6 210.2 177.2
Deferred income taxes..................................... 59.4 83.3 57.1
Net gains on sale of businesses........................... (6.7) (58.3) (138.8)
Gain on sale of investment................................ (3.2) -- --
Change in assets and liabilities, net of effects of
acquisitions and dispositions of businesses:
Receivables............................................. (67.6) (45.2) (47.9)
Inventories............................................. (28.5) (79.2) (84.9)
Other current assets.................................... (4.8) 2.8 (1.6)
Accounts payable........................................ 10.1 (6.9) 63.3
Accrued expenses........................................ 45.2 104.8 11.7
Income taxes payable.................................... 36.6 46.0 4.7
Other non-current assets and liabilities................ (130.4) (58.3) (113.5)
- -----------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............... 372.6 499.1 271.2
- -----------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property....................................... (246.3) (262.0) (241.1)
Proceeds from sale of property.............................. 15.5 4.2 8.5
Proceeds from sale of businesses............................ 17.6 100.0 395.9
Sale of short-term investments.............................. 3.5 -- 8.0
Payments made in connection with acquisitions, net of cash
acquired.................................................. (76.1) (521.5) (194.1)
- -----------------------------------------------------------------------------------------
NET CASH USED BY INVESTING ACTIVITIES................... (285.8) (679.3) (22.8)
- -----------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Increase (decrease) in short-term debt, net................. 85.4 (52.3) 68.9
Proceeds from issuance of long-term debt.................... 203.9 724.5 150.8
Increase (decrease) in revolving credit facility, net....... (239.5) (458.0) 39.5
Repayment of long-term debt and capital lease obligations... (18.6) (33.1) (551.1)
Proceeds from sale of receivables, net...................... -- 12.5 87.5
Termination of a receivable sales program................... -- (40.0) --
Proceeds from issuance of convertible preferred securities,
net....................................................... -- 144.0 --
Proceeds from issuance of capital stock..................... 6.9 28.8 23.0
Purchases of treasury stock................................. (0.3) (64.7) (52.4)
Dividends................................................... (91.6) (75.7) (59.5)
Distributions on Trust preferred securities................. (18.4) (16.1) (10.5)
Other....................................................... -- 1.7 1.1
- -----------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES........ (72.2) 171.6 (302.7)
- -----------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... (1.7) 0.4 (2.4)
- -----------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents........ 12.9 (8.2) (56.7)
Cash and Cash Equivalents at Beginning of Year.............. 53.5 61.7 118.4
- -----------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year.................... $ 66.4 $ 53.5 $ 61.7
=========================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
19
<PAGE> 21
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Unearned
Portion
Accumulated of
(in millions) Other Restricted
THREE YEARS ENDED Common Stock Additional Accumulated Comprehensive Stock Treasury
DECEMBER 31, 1999 Shares Amount Capital Deficit Income Awards Stock Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE DECEMBER 31, 1996........ 108.171 $540.9 $ 852.2 $ (575.4) $ (24.9) $ (11.1) $ (32.2) $ 749.5
Net income....................... 260.0 260.0
Other comprehensive income:
Unrealized translation
adjustments, net of
reclassification adjustment
for loss included in net
income of $2.3............... (13.2) (13.2)
Minimum pension liability
adjustment................... (0.2) (0.2)
-------
TOTAL COMPREHENSIVE INCOME....... 246.6
Repurchase of stock by pooled
company........................ (0.831) (4.2) (27.9) (32.1)
Employee award programs.......... 0.884 4.4 12.1 7.7 (0.7) 23.5
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........ 110.814 554.0 880.3 (392.9) (11.9) (3.4) (35.1) 991.0
Net income....................... 353.7 353.7
Other comprehensive income:
Unrealized translation
adjustments.................. (2.5) (2.5)
Minimum pension liability
adjustment................... (0.7) (0.7)
-------
TOTAL COMPREHENSIVE INCOME....... 350.5
Repurchase of stock by pooled
company........................ (1.602) (8.0) (40.4) (48.4)
Employee award programs.......... 1.078 5.5 31.5 0.7 (0.7) 37.0
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........ 111.525 557.7 883.5 (120.4) (15.1) (2.7) (65.6) 1,237.4
Net income....................... 169.6 169.6
Other comprehensive income:
Unrealized translation
adjustments net of
reclassification adjustments
for loss included in net
income of $0.6............... (26.6) (26.6)
Minimum pension liability
adjustment................... (2.5) (2.5)
-------
TOTAL COMPREHENSIVE INCOME....... 140.5
Employee award programs.......... 0.540 2.6 12.3 1.5 0.7 17.1
Purchases of stock for
treasury....................... (0.3) (0.3)
Dividends (per share -- $1.10)... (101.5) (101.5)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 1999........ 112.065 $560.3 $ 895.8 $ (52.3) $ (44.2) $ (1.2) $ (65.2) $1,293.2
=================================================================================================================================
</TABLE>
See Notes to Consolidated Financial Statements.
20
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(A) COLTEC MERGER
On July 12, 1999, the Company completed its merger with Coltec Industries Inc
("Coltec"). The merger has been accounted for as a pooling-of-interests.
Accordingly, all prior period consolidated financial statements have been
restated to include the results of operations, financial position and cash flows
of Coltec as though Coltec had always been a part of BFGoodrich. As such,
results for the three years ended December 31, 1999, 1998 and 1997 represent the
combined results of BFGoodrich and Coltec.
As a result of the merger, Coltec became a wholly-owned subsidiary of the
Company. In accordance with the terms of the merger agreement, each share of
Coltec common stock was converted into the right to receive 0.56 shares of
BFGoodrich common stock, totaling 35.5 million shares of BFGoodrich common
stock.
In addition, the Company issued options to purchase 3.0 million shares of
BFGoodrich common stock in exchange for options to purchase Coltec common stock
outstanding immediately prior to the merger. These options vest and become
exercisable in accordance with the terms and conditions of the original Coltec
options. Also, the holders of the 5 1/4% Convertible Preferred Securities issued
by Coltec Capital Trust, received the right to convert each such convertible
preferred security into 0.955248 of a share of BFGoodrich common stock, subject
to certain adjustments.
The following table presents sales, income from continuing operations and net
income for the previously separate companies and the combined amounts presented
within the income statement for the six months ended June 30, 1999 and the years
ended December 31, 1998 and 1997. The conforming accounting adjustments conform
Coltec's accounting policies to BFGoodrich's accounting policies, the more
significant of which include: (1) Coltec's landing gear business was changed
from percentage of completion contract accounting to accrual accounting; (2)
non-recurring engineering costs that were capitalized are now expensed unless
they are contractually recoverable from the customer; and (3) Coltec's SFAS 106
transition obligation that was previously deferred and being amortized to income
over twenty years has now been recognized immediately upon initial adoption of
SFAS 106.
<TABLE>
<CAPTION>
SIX MONTHS Year Ended Year Ended
ENDED December 31, December 31,
(DOLLARS IN MILLIONS) JUNE 30, 1999 1998 1997
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Sales:
BFGoodrich............ $ 2,117.3 $ 3,950.8 $ 3,373.0
Coltec................ 757.9 1,504.0 1,314.9
- ---------------------------------------------------------------------
Combined.............. $ 2,875.2 $ 5,454.8 $ 4,687.9
=====================================================================
Income from continuing
operations:
BFGoodrich............ $ 110.9 $ 228.1 $ 113.2
Coltec................ 63.3 122.3 94.9
Conforming accounting
adjustments......... (0.1) 9.2 (13.1)
- ---------------------------------------------------------------------
Combined.............. $ 174.1 $ 359.6 $ 195.0
=====================================================================
Net Income:
BFGoodrich............ $ 110.9 $ 226.5 $ 178.2
Coltec................ 63.3 118.0 94.9
Conforming accounting
adjustments......... (0.1) 9.2 (13.1)
- ---------------------------------------------------------------------
Combined.............. $ 174.1 $ 353.7 $ 260.0
=====================================================================
</TABLE>
The conforming accounting adjustments have also resulted in the following
changes applicable to the Coltec balance sheet accounts: a decrease in
inventories, income taxes payable and income retained in the business and an
increase in postretirement benefits other than pensions and accrued expenses.
(B) 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.
SALE OF ACCOUNTS RECEIVABLE The Company accounts for the sale of receivables in
accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Trade accounts receivable
sold are removed from the balance sheet at the time of transfer.
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
21
<PAGE> 23
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.
If 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
over which goodwill is being amortized is 25 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.
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
22
<PAGE> 24
payable and short-term bank debt approximates fair value. Fair value of
long-term investments is based on quoted market prices. Fair value of long-term
debt is based on quoted market prices or on rates available to the Company for
debt with similar terms and maturities.
Off balance sheet derivative financial instruments at December 31, 1999, include
interest rate swap agreements, foreign currency forward contracts and foreign
currency swap agreements. All derivatives are entered into with major commercial
banks that have high credit ratings. Interest rate swap agreements are used by
the Company, from time to time, to manage interest rate risk on its floating and
fixed rate debt portfolio and its floating rate agreement to sell accounts
receivable on a revolving basis (See Note F). 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 utilizes forward exchange contracts (principally against the
Canadian dollar, British pound, Euro and U.S. dollar) to hedge U.S.
dollar-denominated sales of certain Canadian subsidiaries, the net
receivable/payable position arising from trade sales and purchases and
intercompany transactions by its European businesses. Foreign currency forward
contracts reduce the Company's exposure to the risk that the eventual net cash
inflows and outflows resulting from the sale of products and purchases from
suppliers denominated in a currency other than the functional currency of the
respective businesses will be adversely affected by changes in exchange rates.
Foreign currency gains and losses under the above arrangements are not deferred
and are reported as part of cost of sales and accrued expenses. 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.
The Company also enters into foreign currency swap agreements (principally for
the British pound, Euro and U.S. dollar) to eliminate foreign exchange risk on
intercompany loans between the Company's 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 1999, 1998 and 1997 were
$238.0 million, $240.6 million and $187.7 million, respectively. Of these
amounts, $43.7 million, $63.1 million and $39.4 million, respectively, were
funded by customers.
RECLASSIFICATIONS Certain amounts in prior year financial statements have been
reclassified to conform to the current year presentation.
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
("FASB") issued Statement No. 133, "Accounting for Derivative Instruments and
Hedging Activities", which, as amended by FASB 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.
(C) ACQUISITIONS AND DISPOSITIONS
ACQUISITIONS
POOLING-OF-INTERESTS
COLTEC As noted above, on July 12, 1999, the Company completed its merger with
Coltec. The merger has been
23
<PAGE> 25
accounted for as a pooling-of-interests. Accordingly, all prior period
consolidated financial statements have been restated to include the results of
operations, financial position and cash flows of Coltec as though Coltec had
always been a part of BFGoodrich. As such, results for the three years ended
December 31, 1999, 1998 and 1997 represent the combined results of BFGoodrich
and Coltec.
ROHR On December 22, 1997, BFGoodrich completed a merger with Rohr, Inc. by
exchanging 18.6 million shares of BFGoodrich common stock for all of the common
stock of 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.
PURCHASES
The following acquisitions were recorded using the purchase method of
accounting. Their results of operations have been included in the Company's
results since their respective dates of acquisition.
During 1999, the Company acquired a manufacturer of spacecraft attitude
determination and control systems and sensor and imaging instruments; the
remaining 50 percent interest in a joint venture, located in Singapore, that
overhauls and repairs thrust reversers, nacelles and nacelle components; an
ejection seat business; a textile coatings business; and a manufacturer and
developer of micro-electromechanical systems, which integrate electrical and
mechanical components to form "smart" sensing and control devises. Total
consideration aggregated $76.1 million, of which $69.4 million represented
goodwill.
The purchase agreements for the manufacturer and developer of
micro-electromechanical systems provides for additional consideration to be paid
over the next six years based on a percentage of net sales. The additional
consideration for the first five years, however, is guaranteed not to be less
than $3.5 million. As the $3.5 million of additional consideration is not
contingent on future events, it has been included in the purchase price and
allocated to the net assets acquired. All additional contingent amounts payable
under the purchase agreement will be recorded as additional purchase price when
earned and amortized over the remaining useful life of the goodwill.
During 1998, the Company acquired a global manufacturer of specialty and fine
chemicals; a manufacturer of flexible graphite and polytetrafluoroethylene
("PTFE") products; a business that manufactures, machines and distributes PTFE
products; and another business that reprocesses PTFE compounds. The Company also
acquired a manufacturer of sealing products; a small manufacturer of textile
chemicals used for fabric preparation and finishing; the remaining 20 percent
not previously owned of a subsidiary that produces self-lubricating bearings;
and a small manufacturer of energetic materials systems during 1998. Total
consideration aggregated $521.5 million, of which $308.7 million represented
goodwill.
During 1997, the Company acquired seven businesses for cash consideration of
$194.1 million in the aggregate, which included $84.4 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. A fifth business manufactures
flight attendant and cockpit seats and the sixth business is a sheet rubber and
conveyer belt business. The remaining acquisition is a small specialty chemicals
business.
The purchase agreement for the flight attendant and cockpit seat business
includes contingent payments based on earnings levels for the years ended
December 31, 1997-2000. These contingent payments will be recorded as additional
purchase price consideration when made and will be amortized over the remaining
life of the goodwill.
The impact of these acquisitions was not material in relation to the Company's
results of operations. Consequently, pro forma information is not presented.
DISPOSITIONS
During 1999, the Company sold all or a portion of its interest in four
businesses, resulting in a pre-tax gain of $9.8 million, which has been reported
in other income (expense) net.
In May 1998, the Company sold the capital stock of its Holley Performance
Products subsidiary for $100 million in cash. The pre-tax gain of $58.3 million,
net of liabilities retained, has been recorded within other income (expense),
net. The proceeds from this divestiture were applied toward reducing debt. In
1997, Holley had gross revenues and operating income of approximately $99.0
million and $8.0 million, respectively.
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 reported within other income
(expense) net.
For dispositions accounted for as discontinued operations during 1998 and 1997
refer to Note T to the Consolidated Financial Statements.
24
<PAGE> 26
(D) MERGER RELATED AND CONSOLIDATION COSTS
The Company has incurred $269.4 million of merger related and consolidation
costs in 1999, $215.6 million of which were related to the Coltec merger. Merger
related and consolidation reserves at December 31, 1999, as well as activity
during the year, consisted of:
<TABLE>
<CAPTION>
Balance Balance
December 31, Reserve December 31,
(dollars in millions) 1998 Provision Reduction 1999
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Personnel related costs..................................... $ -- $ 162.3 $ (121.0) $ 41.3
Transaction costs........................................... -- 79.2 (77.2) 2.0
Consolidation............................................... -- 27.9 (20.0) 7.9
- -----------------------------------------------------------------------------------------------------------------
$ -- $ 269.4 $ (218.2) $ 51.2
=================================================================================================================
</TABLE>
During 1999, the Company recorded merger related and consolidation costs of
$269.4 million, of which $12.3 million represents non-cash asset impairment
charges. These costs related primarily to personnel related costs, transaction
costs and consolidation costs. The merger related and consolidation reserves
were reduced by $218.2 million during the year, of which $207.1 million
represented cash payments.
Personnel related costs include severance, change in control and relocation
costs. Personnel related costs associated with the Coltec merger were $120.8
million, consisting of $61.8 million incurred under change in control provisions
in employment agreements, $53.4 million in employee severance costs and $5.6
million of relocation costs. Personnel related costs also include employee
severance costs of $26.5 million for reductions in Performance Materials
(approximately 265 positions), $2.1 million for reductions in Engineered
Industrial Products (approximately 125 positions), $7.3 million for reductions
in Aerospace (approximately 400 positions) and $5.6 million for reductions in
the Company's Advanced Technology Group (approximately 15 positions).
Transaction costs were associated with the Coltec merger and include investment
banking fees, accounting fees, legal fees, litigation settlement costs,
registration and listing fees and other transaction costs.
Consolidation costs include facility consolidation costs and asset impairment
charges. Consolidation costs associated with the Coltec merger were $15.6
million, consisting primarily of $6.6 million non-cash impairment charge for the
former BFGoodrich and Aerospace headquarters buildings in Ohio and $3.7 million
related to realignment activities at Landing Gear facilities. Consolidation
costs also included a $2.9 million non-cash charge related to the write-off of
the Company's investment in a research and development joint venture and $2.0
million, $1.7 million and $5.7 million related to realignment activities at
Performance Materials, Engineered Industrial Products and Aerospace,
respectively.
The Aerostructures Group's fourth quarter special charge in 1998 of $10.5
million before tax ($6.5 million after tax, or $.06 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 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
were made to approximately 700 employees (approximately 600 wage and 100
salaried).
The shutdowns affected a composite bonding facility in Hagerstown, Maryland and
two assembly sites in Heber Springs and Sheridan, Arkansas. Production work
performed at these facilities has been absorbed by the Aerostructures Group's
remaining facilities.
During 1997, the Company recorded merger-related and consolidation costs of
$77.0 million before tax ($69.5 million after tax, or $0.62 per diluted share)
in connection with the Rohr merger, substantially all of which was paid in 1998.
In addition to the $77.0 million recorded as merger-related and consolidation
costs, the Company also recorded $28.0 million of debt extinguishment costs
($16.7 million after tax, or $0.15 per diluted share) related to the Rohr merger
which were reported as an extraordinary item.
Also during 1997, the Company reversed a $10.0 million accrual related to a 1995
Aerospace charge primarily related to the closure of a facility in Canada.
During the same year, the Company's Engineered Industrial Products segment
recorded a $10.0 million charge. This special charge included the costs of
closing its FMD Electronics operations in Roscoe, Illinois and its Ortman Fluid
Power operations in Hammond, Indiana. The special charge also included the costs
to restructure the segment's businesses in Canada and Germany and certain
termination costs related to the relocation of the Delavan Commercial Spray
Technologies headquarters to North Carolina. The third quarter 1997 charge
included costs resulting from cancellation of contractual obligations, asset
writedowns, severance and employee-related costs and other costs to shut down
these facilities that will not benefit future operations.
25
<PAGE> 27
(E) EARNINGS PER SHARE
The computation of basic and diluted earnings per share for income from
continuing operations is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Numerator:
Numerator for basic earnings per
share -- income from continuing
operations...................... $169.6 $359.6 $195.0
Effect of dilutive securities:
7.75% Convertible Notes........... -- 4.5 .9
- -----------------------------------------------------------------
Numerator for diluted earnings per
share -- income from continuing
operations available to common
stockholders after assumed
conversions................. $169.6 $364.1 $195.9
=================================================================
Denominator:
Denominator for basic earnings per
share -- weighted-average shares... 110.0 110.2 107.9
Effect of dilutive securities:
Stock options, warrants and
restricted stock issued........... 0.7 1.1 2.2
Contingent shares................... -- .1 .7
7.75% Convertible Notes............. -- .5 1.3
Convertible preferred securities.... -- 2.0 --
- -----------------------------------------------------------------
Dilutive potential common shares...... 0.7 3.7 4.2
- -----------------------------------------------------------------
Denominator for diluted earnings per
share -- adjusted weighted-average
shares and assumed conversions... 110.7 113.9 112.1
=================================================================
Per share income from continuing
operations:
Basic............................... $ 1.54 $ 3.26 $ 1.81
=================================================================
Diluted............................. $ 1.53 $ 3.19 $ 1.75
=================================================================
</TABLE>
The computation of diluted earnings per share in 1999 excludes the effects of
the assumed exercise of approximately 4.2 million stock options and 2.9 million
potential common shares for assumed conversions of convertible preferred
securities because the effect would be anti-dilutive.
(F) SALE OF ACCOUNTS RECEIVABLE
The Company has entered into agreements to sell certain trade accounts
receivable, up to a maximum of $100.5 million and $95.0 million at December 31,
1999 and 1998, respectively. At December 31, 1999 and December 31, 1998, $96.0
million and $95.0 million, respectively, of the Company's receivables were sold
under these agreements and the sale was reflected as a reduction of accounts
receivable in the 1999 and 1998 balance sheet. The receivables were sold at a
discount, which was included in interest expense in the 1999 and 1998 income
statement.
(G) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998
- --------------------------------------------------------------
<S> <C> <C>
FIFO or average cost (which approximates
current costs):
Finished products.................... $ 289.1 $ 289.9
In process........................... 608.4 587.2
Raw materials and supplies........... 257.5 229.0
- --------------------------------------------------------------
1,155.0 1,106.1
Reserve to reduce certain inventories
to LIFO basis........................ (70.8) (73.4)
Progress payments and advances......... (83.6) (65.0)
- --------------------------------------------------------------
TOTAL............................ $1,000.6 $ 967.7
==============================================================
</TABLE>
Approximately 33 and 31 percent of inventory was valued by the LIFO method in
1999 and 1998, respectively.
26
<PAGE> 28
In-process inventories as of December 31, 1999, 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 (4)Year Pro-
Contract Airlines Orders Options Quantity Delivered Orders Complete duction
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
737-700............................. 425 794 1,062 1,000 486 514 2002 $ 5.6
717-200............................. 9 109 100 350 16 68 2007 13.4
Others.............................. 97.3
- -----------------------------------------------------------------------------------------------------------------------------
In-process inventory related to
long-term contracts............... $ 116.3
In-process inventory not related to
long-term contracts...............
- -----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999........
=============================================================================================================================
<CAPTION>
In-Process Inventory
Pre- Excess-
Pro- Over-
Contract duction Average Total
- ------------------------------------ --------------------------
<S> <C> <C> <C>
737-700............................. $ -- $ 1.1 $ 6.7
717-200............................. 84.9 53.9 152.2
Others.............................. 7.4 1.0 105.7
- ----------------------------------------------------------------
In-process inventory related to
long-term contracts............... $ 92.3 $ 56.0 264.6
In-process inventory not related to
long-term contracts............... 343.8
- ----------------------------------------------------------------
Balance at December 31, 1999........ $608.4
================================================================
</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) 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.
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 $84.9 million related to design and
development costs on the 717-200 program at December 31, 1999. In addition, the
Company has excess-over-average inventory of $53.9 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 plane. Recovery of these
costs will depend on the ultimate number of aircraft delivered and successfully
achieving the Company's cost projections in future years.
(H) FINANCING ARRANGEMENTS
SHORT-TERM BANK DEBT At December 31, 1999 the Company had separate committed
revolving credit agreements with certain banks providing for domestic lines of
credit aggregating $600.0 million, an increase of $300.0 million from the prior
year. Lines of credit totaling $300.0 million were amended in 1999 to extend the
expiration date to February 18, 2004. During 1999, the Company entered into
$300.0 million of 364-day agreements that expire on March 13, 2000. The Company
has renewed these lines of credit prior to this expiration date. Borrowings
under these agreements bear interest, at the Company's option, at rates tied to
the banks' certificate of deposit, Eurodollar or prime rates. Under the
agreements expiring in 2004, the Company is required to pay a facility fee of
10.5 basis points per annum on the total $300.0 million committed line.
According to the 364-day agreements, the Company is required to pay a facility
fee of 9 basis points per annum on the total $300.0 million committed line. If
the amount outstanding on any bank's line of credit exceeds fifty percent of the
applicable commitment, a usage fee of 10 basis points per annum on the loan
outstanding is payable by the Company. At December 31, 1999 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 $236.5 million
at December 31, 1999, of which $84.3 million was available.
The Company also maintains uncommitted domestic money market facilities with
various banks aggregating $367.5 million, of which $266.3 million of these lines
were unused and available at December 31, 1999. Weighted-average interest rates
on outstanding short-term borrowings were 6.2 percent, 5.2 percent and 6.4
percent at December 31, 1999, 1998 and 1997, respectively. Weighted-average
interest rates on short-term borrowings were 5.2 percent, 5.6 percent and 5.0
percent during 1999, 1998 and 1997, respectively.
27
<PAGE> 29
LONG-TERM DEBT At December 31, 1999 and 1998, long-term debt and capital lease
obligations payable after one year consisted of:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998
- --------------------------------------------------------------
<S> <C> <C>
Revolving credit facility................ $ -- $ 239.5
9.75% senior notes, maturing in 2000..... -- 7.4
9.625% Notes, maturing in 2001........... 175.0 175.0
MTN notes payable........................ 699.0 699.0
European revolver........................ 23.1 26.8
IDRBs, maturing in 2023, 6.0%............ 60.0 60.0
7.5% senior notes, maturing in 2008...... 300.0 300.0
6.6% senior notes, maturing in 2009...... 200.0 --
Other debt, maturing to 2015 (interest
rates from 3.0% to 11.625%)............ 52.9 58.6
- --------------------------------------------------------------
1,510.0 1,566.3
Capital lease obligations (Note I)....... 6.9 6.4
- --------------------------------------------------------------
TOTAL................................ $1,516.9 $1,572.7
==============================================================
</TABLE>
REVOLVING CREDIT FACILITY During 1999, the Company terminated its revolving
credit facility subsequent to the consummation of the merger with Coltec. The
revolving credit facility provided a total commitment of up to $600 million, of
which up to $125.0 million could be issued for letters of credit. The
weighted-average interest rates on Credit Agreement borrowings was 6.5 percent
and 6.7 percent during 1998 and 1997, respectively.
SENIOR NOTES In 1999, the Company issued $200.0 million of 6.6 percent senior
notes due in 2009. The Company entered into a fixed-to-floating interest rate
swap to manage the Company's interest rate exposure. The settlement and maturity
dates on the swap are the same as those on the notes. The Company may redeem all
or a portion of the notes at any time prior to maturity.
In 1998, the Company purchased in the open market $5.0 million of the 9.75
percent senior notes, which were repaid on November 1, 1999. The 9.75 percent
notes due 2000 are redeemable at maturity on April 1, 2000. In April 1998, the
Company privately placed, with institutional investors, $300.0 million principal
amount of 7.5 percent senior notes due 2008, which are redeemable at a premium
prior to maturity on April 15, 2008.
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, 1999,
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 6.8 percent MTN notes due in 2018 and $200.0 million of 7.0 percent
notes due in 2038, primarily for the financing of acquisitions (see Note C). All
other MTN notes outstanding were issued during 1995, 1996 and 1997, with
interest rates ranging from 7.2 percent to 8.7 percent and maturity dates
ranging from 2025 to 2046.
EUROPEAN REVOLVER The Company has a $125.0 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,
1999, the Company's long-term borrowings under this facility were $23.1 million
denominated in Spanish pesetas at a floating rate that is tied to Spanish LIBOR
(3.6 percent at December 31, 1999). The Company has effectively converted the
$23.1 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, 1999, are as follows (in
millions): 2000 -- $12.8; 2001 -- $202.1; 2002 -- $3.8; 2003 -- $1.9 and
2004 -- $0.9.
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, $422.9 million of income retained in the business and additional
capital was free from such limitations at December 31, 1999.
(I) 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, 1999:
<TABLE>
<CAPTION>
Noncancelable
Capital Operating
(in millions) Leases Leases
- ---------------------------------------------------------------
<S> <C> <C>
2000.................................. $ 2.8 $40.1
2001.................................. 2.5 34.6
2002.................................. 2.2 26.4
2003.................................. 2.0 18.3
2004.................................. 1.4 14.1
Thereafter............................ 0.4 35.3
- ---------------------------------------------------------------
Total minimum payments................ 11.3 $168.8
=============
Amounts representing interest......... (2.7)
- -----------------------------------------------
Present value of net minimum lease
payments............................ 8.6
Current portion of capital lease
obligations......................... (1.7)
- -----------------------------------------------
TOTAL......................... $ 6.9
===============================================
</TABLE>
28
<PAGE> 30
Net rent expense from continuing operations consisted of the following:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Minimum rentals......................... $51.6 $45.9 $37.2
Contingent rentals...................... -- 0.3 3.9
Sublease rentals........................ (0.2) (0.1) (0.1)
- ---------------------------------------------------------------
TOTAL........................... $51.4 $46.1 $41.0
===============================================================
</TABLE>
(J) PENSIONS AND POSTRETIREMENT BENEFITS
The Company has several noncontributory defined benefit pension plans covering
eligible 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, 1999 and 1998. Assets for these plans consist principally
of corporate and government obligations and commingled funds invested in
equities, debt and real estate. At December 31, 1999, the pension plans held 2.8
million shares of the Company's common stock with a fair value of $75.9 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.
29
<PAGE> 31
The following table sets forth the status of the Company's defined benefit
pension plans and defined benefit postretirement plans as of December 31, 1999
and 1998, and the amounts recorded in the Consolidated Balance Sheet at these
dates.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
(IN MILLIONS) 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
CHANGE IN PROJECTED
BENEFIT OBLIGATIONS
Projected benefit obligation at beginning of year......... $2,081.7 $1,999.6 $ 345.7 $ 348.9
Service cost.............................................. 38.6 32.5 3.4 3.0
Interest cost............................................. 142.9 141.5 22.9 23.1
Amendments................................................ 24.6 20.9 3.6 (1.2)
Actuarial (gains) losses.................................. (174.6) 60.2 (1.9) (0.1)
Acquisitions.............................................. -- 4.6 -- 0.9
Benefits paid............................................. (162.8) (177.6) (33.6) (28.9)
- ------------------------------------------------------------------------------------------------------
Projected benefit obligation at end of year............... $1,950.4 $2,081.7 $ 340.1 $ 345.7
- ------------------------------------------------------------------------------------------------------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year............ $2,185.0 $2,036.4 $ -- $ --
Actual return on plan assets.............................. 214.8 261.2 -- --
Acquisitions.............................................. -- 4.6 -- --
Company contributions..................................... 9.4 60.4 33.6 28.9
Benefits paid............................................. (162.8) (177.6) (33.6) (28.9)
- ------------------------------------------------------------------------------------------------------
Fair value of plan assets at end of year.................. $2,246.4 $2,185.0 $ -- $ --
- ------------------------------------------------------------------------------------------------------
FUNDED STATUS (UNDERFUNDED)
Funded status............................................. $ 296.0 $ 103.3 $ (340.1) $(345.7)
Unrecognized net actuarial loss........................... (229.6) (31.8) (34.3) (33.2)
Unrecognized prior service cost........................... 86.9 73.7 (4.6) (9.6)
Unrecognized net transition obligation.................... 7.8 9.3 -- --
- ------------------------------------------------------------------------------------------------------
Prepaid (accrued) benefit cost............................ $ 161.1 $ 154.5 $ (379.0) $(388.5)
======================================================================================================
AMOUNTS RECOGNIZED IN THE
STATEMENT OF FINANCIAL
POSITION CONSIST OF:
Prepaid benefit cost...................................... $ 231.1 $ 179.0 $ -- $ --
Intangible asset.......................................... 4.2 6.3 -- --
Accumulated other comprehensive income.................... 6.7 6.4 -- --
Accrued benefit liability................................. (80.9) (37.2) (379.0) (388.5)
- ------------------------------------------------------------------------------------------------------
NET AMOUNT RECOGNIZED..................................... $ 161.1 $ 154.5 $ (379.0) $(388.5)
======================================================================================================
WEIGHTED-AVERAGE ASSUMPTIONS
AS OF DECEMBER 31
Discount rate............................................. 8.00% 7.00% 8.00% 7.00%
Expected return on plan assets............................ 9.25% 9.00% -- --
Rate of compensation increase............................. 4.00% 3.50% -- --
</TABLE>
For measurement purposes, a 7.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2000. The rate was
assumed to decrease gradually to 5.0 percent for 2005 and remain at that level
thereafter.
For Coltec plans, the assumptions were comparable to the BFGoodrich assumptions,
except for the rate of compensation increase (4.75 percent) and the rate of
increase in the per capita cost of covered health care (7.75 percent assumed to
decrease gradually to 5.25 percent by 2005).
The projected benefit obligation, accumulated benefit obligation and fair value
of plan assets for pension plans with accumulated benefit obligations in excess
of plan assets were $95.4 million, $81.8 million and $11.1 million,
respectively, as of December 31, 1999 and $92.5 million, $79.1 million and $10.0
million, respectively, as of December 31, 1998. These amounts are included in
the above table.
30
<PAGE> 32
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
(IN MILLIONS) 1999 1998 1997 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
COMPONENTS OF NET
PERIODIC BENEFIT COST (INCOME):
Service cost.............................................. $ 38.6 $ 32.5 $ 29.4 $ 3.4 $ 3.0 $ 2.4
Interest cost............................................. 143.2 141.7 141.6 22.9 23.1 25.1
Expected return on plan assets............................ (193.9) (190.6) (207.9) -- -- --
Amortization of prior service cost........................ 11.0 26.5 54.6 (1.2) (0.5) (1.4)
Amortization of transition obligation..................... 0.9 0.1 0.3 -- -- --
Recognized net actuarial (gain) loss...................... (4.9) 5.8 5.5 (0.9) (1.3) (1.0)
- -----------------------------------------------------------------------------------------------------------------
Benefit cost (income)..................................... (5.1) 16.0 23.5 24.2 24.3 25.1
Settlements and curtailments (gain)/loss.................. 0.1 (7.8) 6.6 -- -- (2.5)
- -----------------------------------------------------------------------------------------------------------------
$ (5.0) $ 8.2 $ 30.1 $24.2 $24.3 $22.6
=================================================================================================================
</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 1 Percentage
Point Point
(IN MILLIONS) Increase Decrease
- ---------------------------------------------------------------
<S> <C> <C>
Effect on total of service and
interest cost components in
1999............................ $ 1.7 $ 1.5
Effect on postretirement benefit
obligation as of December 31,
1999............................ $ 21.0 $ 18.3
</TABLE>
The Company also maintains voluntary retirement savings plans for 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. For 1999, 1998 and 1997, Company contributions amounted to $36.0
million, $33.3 million and $32.1 million, respectively.
(K) INCOME TAXES
Income from continuing operations before income taxes and Trust distributions as
shown in the Consolidated Statement of Income consists of the following:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ---------------------------------------------------------------
<S> <C> <C> <C>
Domestic............................. $269.2 $551.0 $311.7
Foreign.............................. 65.3 43.2 32.0
- ---------------------------------------------------------------
TOTAL............................ $334.5 $594.2 $343.7
===============================================================
</TABLE>
A summary of income tax (expense) benefit from continuing operations in the
Consolidated Statement of Income is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Current:
Federal.......................... $ (65.3) $ (99.3) $ (61.3)
Foreign.......................... (11.5) (13.6) (12.7)
State............................ (10.3) (22.3) (7.1)
- ----------------------------------------------------------------
(87.1) (135.2) (81.1)
- ----------------------------------------------------------------
Deferred:
Federal.......................... (48.3) (75.4) (49.0)
Foreign.......................... (11.1) (8.5) (7.5)
State............................ -- 0.6 (0.6)
- ----------------------------------------------------------------
(59.4) (83.3) (57.1)
- ----------------------------------------------------------------
TOTAL.......................... $(146.5) $(218.5) $(138.2)
================================================================
</TABLE>
Significant components of deferred income tax assets and liabilities at December
31, 1999 and 1998, are as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998
- --------------------------------------------------------------
<S> <C> <C>
Deferred income tax assets:
Accrual for postretirement benefits other
than pensions............................ $135.8 $128.8
Inventories................................ 30.8 30.7
Other nondeductible accruals............... 85.1 62.7
Tax credit and net operating loss
carryovers............................... 65.6 91.8
Employee benefits plans.................... 9.1 11.6
Other...................................... 71.1 60.7
- --------------------------------------------------------------
Total deferred income tax assets......... 397.5 386.3
- --------------------------------------------------------------
Deferred income tax liabilities:
Tax over book depreciation................. (134.5) (127.3)
Tax over book intangible amortization...... (44.0) (40.3)
Pensions................................... (41.0) (41.0)
Capital transactions, net.................. (62.7) (61.8)
Other...................................... (112.3) (53.5)
- --------------------------------------------------------------
Total deferred income tax liabilities.... (394.5) (323.9)
- --------------------------------------------------------------
NET DEFERRED INCOME TAXES.................. $ 3.0 $ 62.4
==============================================================
</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
31
<PAGE> 33
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. The tax credit and
net operating loss carryovers, principally relating to Rohr, are primarily
comprised of federal net operating loss carryovers of $155.6 million which
expire in the years 2005 through 2013, and investment tax credit and other
credits of $11.2 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.
The effective income tax rate from continuing operations varied from the
statutory federal income tax rate as follows:
<TABLE>
<CAPTION>
Percent of Pretax
Income
1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Statutory federal income tax rate........ 35.0% 35.0% 35.0%
Amortization of nondeductible goodwill... 1.9 0.8 0.6
Difference in rates on consolidated
foreign subsidiaries................... -- 0.5 0.8
State and local taxes, net of federal
benefit................................ 2.0 2.1 0.8
Tax exempt income from foreign sales
corporation............................ (2.5) (1.0) (2.1)
Trust distributions...................... (1.9) (0.5) (1.1)
Merger-related costs..................... 6.7 -- 5.9
Repatriation of non-U.S. earnings........ 0.7 (0.3) (0.3)
Other items.............................. 1.9 0.2 0.6
- -------------------------------------------------------------
Effective income tax rate................ 43.8% 36.8% 40.2%
=============================================================
</TABLE>
The Company has not provided for U.S. federal and foreign withholding taxes on $
255.8 million of foreign subsidiaries' undistributed earnings as of December 31,
1999, 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 $12.1 million.
(L) 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.
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; flight attendant and cockpit seats;
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.
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.
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 Engineered Industrial Products' 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.
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>
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
SALES
Aerospace....................... $3,617.4 $3,479.3 $3,026.1
Engineered Industrial
Products...................... 702.4 779.9 757.1
Performance Materials........... 1,217.7 1,195.6 904.7
- ----------------------------------------------------------------
TOTAL SALES................. $5,537.5 $5,454.8 $4,687.9
================================================================
OPERATING INCOME
Aerospace....................... $ 558.7 $ 500.0 $ 325.8
Engineered Industrial
Products...................... 118.2 131.6 147.0
Performance Materials........... 150.4 145.8 128.2
- ----------------------------------------------------------------
827.3 777.4 601.0
Corporate General and
Administrative Expenses....... (84.6) (83.7) (93.1)
Merger Related and Consolidation
Costs......................... (269.4) (10.5) (77.0)
- ----------------------------------------------------------------
TOTAL OPERATING INCOME...... $ 473.3 $ 683.2 $ 430.9
================================================================
</TABLE>
32
<PAGE> 34
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Aerospace....................... $3,021.8 $2,844.9 $2,816.3
Engineered Industrial
Products...................... 390.3 404.0 320.6
Performance Materials........... 1,398.4 1,380.2 877.3
Corporate....................... 645.1 583.9 319.5
- ----------------------------------------------------------------
TOTAL ASSETS................ $5,455.6 $5,213.0 $4,333.7
================================================================
CAPITAL EXPENDITURES
Aerospace....................... $ 139.6 $ 157.9 $ 128.8
Engineered Industrial
Products...................... 29.4 29.6 31.4
Performance Materials........... 70.8 70.6 73.2
Corporate....................... 6.5 3.9 7.7
- ----------------------------------------------------------------
TOTAL CAPITAL
EXPENDITURES.............. $ 246.3 $ 262.0 $ 241.1
================================================================
DEPRECIATION AND AMORTIZATION
EXPENSE
Aerospace....................... $ 117.3 $ 106.6 $ 101.3
Engineered Industrial
Products...................... 23.4 21.1 15.7
Performance Materials........... 85.1 75.3 48.2
Corporate....................... 4.8 7.2 12.0
- ----------------------------------------------------------------
TOTAL DEPRECIATION AND
AMORTIZATION.............. $ 230.6 $ 210.2 $ 177.2
================================================================
GEOGRAPHIC AREAS
NET SALES
United States................... $3,776.8 $3,795.4 $3,362.1
Canada.......................... 221.8 240.5 171.0
Europe(1)....................... 1,052.2 970.1 802.8
Other Foreign................... 486.7 448.8 352.0
- ----------------------------------------------------------------
TOTAL....................... $5,537.5 $5,454.8 $4,687.9
================================================================
</TABLE>
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
PROPERTY
United States................... $1,362.7 $1,347.1 1,172.4
Canada.......................... 51.2 53.9 54.8
Europe.......................... 147.6 153.6 116.9
Other Foreign................... 15.8 7.9 8.6
- ----------------------------------------------------------------
TOTAL....................... $1,577.3 $1,562.5 $1,352.7
================================================================
</TABLE>
(1) European sales in 1999, 1998 and 1997 included $384.0 million, $298.4
million and $431.0 million, respectively, of sales to customers in France.
Sales were allocated to geographic areas based on where the product was
shipped to.
In 1999, 1998 and 1997, sales to Boeing, solely by the Aerospace Segment,
totaled 16 percent, 16 percent and 14 percent, respectively, of consolidated
sales. Sales to Boeing include sales to McDonnell Douglas which merged with
Boeing in 1997.
(M) 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 was recorded within Other Income
(Expense) during the first quarter of 1999.
(N) SUPPLEMENTAL BALANCE SHEET INFORMATION
<TABLE>
<CAPTION>
Charged
Balance to Costs Balance
Beginning and at End
(dollars in millions) of Year Expense Other Deductions(1) of Year
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE ALLOWANCE
Year ended December 31, 1999................................ $25.7 $5.7 $0.2(2) $(3.4) $28.2
Year ended December 31, 1998................................ 24.2 6.8 0.9(2) (6.2) 25.7
Year ended December 31, 1997................................ 28.2 16.8 0.7(2)
(2.1)(3) (19.4) 24.2
====================================================================================================================
</TABLE>
(1) Write-off of doubtful accounts, net of recoveries
(2) Allowance related to acquisitions
(3) Allowance related to operations that were sold
33
<PAGE> 35
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998
- ---------------------------------------------------------------
<S> <C> <C>
PROPERTY
Land.................................... $ 57.2 $ 66.0
Buildings and improvements.............. 867.0 820.6
Machinery and equipment................. 2,047.4 1,924.8
Construction in progress................ 167.6 191.5
- ---------------------------------------------------------------
$ 3,139.2 $ 3,002.9
Less allowances for depreciation........ (1,561.9) (1,440.4)
- ---------------------------------------------------------------
TOTAL............................... $ 1,577.3 $ 1,562.5
===============================================================
</TABLE>
Property includes assets acquired under capital leases, principally buildings
and machinery and equipment, of $21.1 million and $17.0 million at December 31,
1999 and 1998, respectively. Related allowances for depreciation and
amortization are $7.1 million and $5.4 million, respectively. Interest costs
capitalized from continuing operations were $3.5 million in 1999, $5.1 million
in 1998 and $6.8 million in 1997.
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998
- --------------------------------------------------------------
<S> <C> <C>
GOODWILL
Accumulated amortization..................... $228.0 $183.3
===============================================================
IDENTIFIABLE INTANGIBLE ASSETS
Accumulated amortization..................... $ 37.8 $ 29.3
===============================================================
ACCRUED EXPENSES
Wages, vacations, pensions and other
employment costs........................... $195.8 $169.9
Postretirement benefits other than
pensions................................... 31.3 31.8
Taxes, other than federal and foreign taxes
on income.................................. 63.9 68.3
Accrued environmental liabilities............ 12.5 18.9
Accrued asbestos liability................... 134.6 89.7
Accrued interest............................. 44.3 44.3
Merger costs................................. 51.2 --
Other........................................ 178.6 194.1
- --------------------------------------------------------------
TOTAL................................ $712.2 $617.0
===============================================================
</TABLE>
FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's accounting policies with
respect to financial instruments are described in Note B.
The carrying amounts of the Company's significant on balance sheet financial
instruments approximate their respective fair values at December 31, 1999 and
1998, except for the Company's long-term investments and long-term debt.
<TABLE>
<CAPTION>
1999 1998
CARRYING FAIR Carrying Fair
(IN MILLIONS) VALUE VALUE Value Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Long-term investments....................................... $ 20.4 $ 21.2 $ 13.4 $ 20.2
Long-term debt.............................................. 1,531.5 1,425.7 1,580.6 1,781.9
</TABLE>
Off balance sheet derivative financial instruments at December 31, 1999 and 1998
were as follows:
<TABLE>
<CAPTION>
1999 1998
CONTRACT/ Contract/
NOTIONAL FAIR Notional Fair
(IN MILLIONS) AMOUNT VALUE Amount Value
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest rate swaps......................................... $ 223.1 $ (16.6) $ 306.8 $(13.0)
Foreign currency forward contracts.......................... 26.3 0.3 124.7 (12.4)
</TABLE>
During 1999 the Company entered into an interest rate swap agreement to manage
the Company's fixed interest rate exposure on its $200.0 million senior notes,
wherein the Company pays a LIBOR-based floating rate of interest and receives a
fixed rate. At December 31, 1999 the Company also had an interest rate swap
agreement, hedging a portion of the variable interest expense for the European
Revolver, according to which the Company pays a fixed rate and receives a
floating rate of interest tied to Spanish LIBOR.
At December 31, 1998 the Company had various interest rate swap agreements
wherein the Company paid fixed rates of interest and received LIBOR-based
floating rates. During 1999 the Company terminated $280.0 million of the
interest rate swaps that existed at December 31, 1998. The fair market value at
December 31, 1998 of the terminated swaps was ($9.4) million.
At December 31, 1999 the Company had forward exchange contracts to hedge trade
receivables and payables as well as intercompany transactions. These contracts
mature within one year.
At December 31, 1998 the Company had $120.5 million of forward exchange
contracts denominated in Canadian dollars to hedge the U.S. dollar denominated
sales of certain Canadian subsidiaries. During 1999 the Company terminated $94.0
million of these contracts which at December 31, 1998 had a fair market value of
($12.0) million. The remaining forward exchange contracts at December 31, 1998
relate to trade receivables and payables.
The counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
The Company has an outstanding contingent liability for guaranteed debt and
lease payments of $41.6 million, and for letters of credit of $42.2 million. It
was not practical to obtain independent estimates of the fair values for the
contingent liability for guaranteed debt and lease payments and for letters
34
<PAGE> 36
of credit without incurring excessive costs. In the opinion of management,
non-performance by the other parties to the contingent liabilities will not have
a material effect on the Company's results of operations or financial condition.
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
ACCUMULATED OTHER COMPREHENSIVE
INCOME
Unrealized foreign currency
translation...................... $(37.5) $(10.9) $ (8.4)
Minimum pension liability.......... (6.7) (4.2) (3.5)
- ----------------------------------------------------------------
TOTAL.......................... $(44.2) $(15.1) $(11.9)
================================================================
</TABLE>
(O) SUPPLEMENTAL CASH FLOW INFORMATION
The following table sets forth non-cash financing and investing activities and
other cash flow information. Acquisitions accounted for under the purchase
method are summarized as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1999 1998 1997
- ----------------------------------------------------------------
<S> <C> <C> <C>
Estimated fair value of
tangible assets acquired.... $ 26.2 $ 266.0 $ 106.2
Goodwill and identifiable
intangible assets
acquired.................... 72.6 380.7 105.4
Cash paid..................... (76.1) (521.5) (194.1)
- ----------------------------------------------------------------
Liabilities assumed or
created..................... $ 22.7 $ 125.2 $ 17.5
================================================================
Interest paid (net of amount
capitalized)................ $126.9 $ 120.7 $ 131.7
Income taxes paid............. 66.3 45.9 165.2
Exchange of 7.75% Convertible
Notes....................... -- -- (1.3)
Change in equity due to
exchange of 7.75%
Convertible Notes........... -- -- 1.5
</TABLE>
(P) 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, 1999,
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, 1999. Series F shares have preferential voting,
dividend and liquidation rights over the Company's common stock. At December 31,
1999, no Series F shares were issued or outstanding and 127,965 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 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.
(Q) COMMON STOCK
During 1999, 1998 and 1997, 0.540 million; 1.078 million and 0.884 million
shares, respectively, of authorized but unissued shares of common stock were
issued under the Stock Option Plan and other employee stock ownership plans.
On July 12, 1999, 35.472 million shares of common stock were issued in
connection with the merger with Coltec (see Note A).
On December 22, 1997, 18.588 million shares of common stock were issued in
connection with the merger with Rohr (see Note C). During 1998, 1.235 million
shares of authorized but previously unissued shares of common stock were issued
upon conversion of Rohr debentures that were extinguished in late 1997.
The Company acquired 0.085 million; 0.628 million and 0.053 million shares of
treasury stock in 1999, 1998 and 1997, respectively, and reissued 0.099 million
and 0.005 million shares in 1999 and 1997, respectively, in connection with the
Stock Option Plan and other employee stock ownership plans. In 1998 and 1997,
0.015 million and 0.020 million shares, respectively, of common stock previously
awarded to employees were forfeited and restored to treasury stock.
During 1998 and 1997, 1.602 million; and 0.831 million shares, respectively,
were repurchased by a pooled company (Coltec).
35
<PAGE> 37
As of December 31, 1999, there were 13.034 million shares of common stock
reserved for future issuance under the Stock Option Plan and 2.866 million
shares of common stock reserved for conversion of the 5 1/4% Trust Convertible
Preferred Securities.
(R) PREFERRED SECURITIES OF TRUST
In April 1998, Coltec privately placed with institutional investors $150 million
(3,000,000 shares at liquidation value of $50 per Convertible Preferred
Security) of 5 1/4% Trust Convertible Preferred Securities ("Convertible
Preferred Securities"). The placement of the Convertible Preferred Securities
was made through Coltec's wholly-owned subsidiary, Coltec Capital Trust
("Trust"), a newly-formed Delaware business trust. The Convertible Preferred
Securities represent undivided beneficial ownership interests in the Trust.
Substantially all the assets of the Trust are the 5 1/4% Convertible Junior
Subordinated Deferrable Interest Debentures due April 15, 2028 which were
acquired with the proceeds from the private placement of the Convertible
Preferred Securities. Coltec's obligations under the Convertible Junior
Subordinated Debentures, the Indenture pursuant to which they were issued, the
Amended and Restated Declaration of Trust of the Trust, the Guarantee of Coltec
and the Guarantee of the Company, taken together, constitute a full and
unconditional guarantee by the Company of amounts due on the Convertible
Preferred Securities. The Convertible Preferred Securities are convertible at
the option of the holders at any time into the common stock of the Company at an
effective conversion price of $52 1/3 per share and are redeemable at the
Company's option after April 20, 2001 at 102.63% of the liquidation amount
declining ratably to 100% after April 20, 2004.
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 Trusts, but only to the extent the Trusts have funds legally available
for such distributions. The only source of funds for the Trusts to make
distributions to preferred security holders is the payment by the Company of
interest on the Junior Subordinated Debentures. The Company has the right to
defer such interest payments for up to five years. If the Company defers any
interest payments, the Company may not, among other things, pay any dividends on
its capital stock until all interest in arrears is paid to the Trusts.
(S) STOCK OPTION PLAN
At December 31, 1999, the Company had stock-based compensation plans described
below that include the pre-merger plans of Coltec and Rohr. Effective with the
mergers, outstanding Coltec and Rohr options were assumed by the Company and
converted to fully-vested options to purchase BFGoodrich common stock at a ratio
of .56 and .7 of one share of BFGoodrich common stock, respectively, for each
Coltec and Rohr option and at an appropriately revised exercise price.
The Stock Option Plan, which will expire on April 19, 2004, unless renewed,
provides for the awarding of or the granting of options to purchase 5,000,000
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>
1999 1998 1997
- -------------------------------------------------------------
<S> <C> <C> <C>
Risk-Free Interest Rate (%).............. 6.7 4.7 5.8
Dividend Yield (%)....................... 3.5 2.8 2.7
Volatility Factor (%).................... 36.0 31.0 16.2
Weighted Average Expected Life of the
Options (years)........................ 7.0 4.5 4.6
</TABLE>
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 1999, 1998 and 1997 were $12.13, $10.36 and $6.99, 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 changes in the market price of the
36
<PAGE> 38
Company's common stock. The Company's pro forma information is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997
- -----------------------------------------------------------------
<S> <C> <C> <C>
Net income:
As reported......................... $169.6 $353.7 $260.0
Pro forma........................... 157.3 345.9 250.4
Earnings per share:
Basic:
As reported....................... $ 1.54 $ 3.21 $ 2.41
Pro forma......................... 1.43 3.14 2.32
Diluted:
As reported....................... $ 1.53 $ 3.14 $ 2.33
Pro forma......................... 1.42 3.04 2.23
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not likely to
be representative of effects on reported net income for future years. The pro
forma effect in 1999 and 1997 includes $2.6 million and $4.5 million of
after-tax expense related to acceleration of vesting in connection with the
Coltec and Rohr mergers, respectively. Additional awards in future years are
anticipated.
A summary of the Company's stock option activity and related information
follows:
<TABLE>
<CAPTION>
(Options in thousands) Weighted Average
Year Ended December 31, 1999 Options Exercise Price
- ---------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of
year............................ 7,093.4 $ 30.18
Granted......................... 1,480.1 35.85
Exercised....................... (477.7) 25.67
Forfeited....................... (193.5) 36.92
Expired......................... (91.2) 42.22
- ---------------------------------------------------------------
Outstanding at end of year...... 7,811.1 30.10
===============================================================
Year Ended December 31, 1998
- ---------------------------------------------------------------
Outstanding at beginning of
year............................ 6,963.6 $ 27.90
Granted......................... 1,286.4 41.24
Exercised....................... (1,054.7) 27.63
Forfeited....................... (99.8) 36.17
Expired......................... (2.1) 38.04
- ---------------------------------------------------------------
Outstanding at end of year...... 7,093.4 30.18
===============================================================
Year Ended December 31, 1997
- ---------------------------------------------------------------
Outstanding at beginning of
year............................ 7,974.5 $ 24.57
Granted......................... 1,445.3 39.33
Exercised....................... (2,223.3) 23.38
Forfeited....................... (218.6) 27.07
Expired......................... (14.3) 43.64
- ---------------------------------------------------------------
Outstanding at end of year...... 6,963.6 27.90
===============================================================
</TABLE>
The following table summarizes information about the Company's stock options
outstanding at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding
Weighted Options Exercisable
Number Weighted Average Average Weighted
Range of Outstanding Remaining Exercise Number Exercisable Average
Exercise Prices (in thousands) Contractual Life Price (in thousands) Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.96 - $19.20.............................. 1,925.3 5.5 years $ 18.05 1,925.3 $ 18.05
$19.42 - $29.11.............................. 1,727.2 4.7 years 23.65 1,697.5 23.62
$30.18 - $39.88.............................. 2,364.8 8.0 years 36.12 1,469.0 36.07
$40.13 - $53.56.............................. 1,793.8 7.7 years 41.32 1,763.4 41.28
- ---------------------------------------------------------------------------------------------------------------------------------
Total.................................... 7,811.1 6,855.2
=================================================================================================================================
</TABLE>
During 1999, 1998 and 1997, restricted stock awards for 89,810; 52,886 and
66,776 shares, respectively, were made. 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 1999, 1998
and 1997, $4.1 million, $2.0 million and $3.3 million, respectively, were
charged to expense for restricted stock awards. Of the $4.1 million of expense
recognized in 1999, $3.6 million related to acceleration of vesting in
connection with the Coltec merger.
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 key
executives in 1998. In 1997, 5,000 performance shares were granted to certain
key executives that commenced employment during the year.
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. Dividends are earned on phantom shares and are
reinvested in additional phantom shares. Under this plan, compensation expense
is recorded based on the extent performance objectives are expected to be met.
During 1999 and 1998, the Company issued 304,780 and 207,800 phantom performance
shares, respectively. During 1999, 1998 and 1997, 34,263; 10,356 and 14,400
performance shares, respectively, were
37
<PAGE> 39
forfeited. In 1999, 1998 and 1997, $4.0 million, $1.7 million and $14.3 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 1999,
1998 and 1997 would have been $ 35.66, $45.47 and $41.44 per share,
respectively.
In 1999, a partial payout (approximately 83,000 shares) of the 1998 plan was
made under change in control provisions as a result of the Coltec merger.
(T) 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 $.13 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. During 1997, the CAO business had sales of $98.0
million and net income of $10.3 million.
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 $.53 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.
(U) EXTRAORDINARY ITEMS
During 1998, the Company incurred an extraordinary charge of $4.3 million (net
of a $2.2 million income tax benefit), or $0.04 per diluted share, in connection
with early debt repayment.
During 1997, the Company incurred an extraordinary charge of $19.3 million (net
of a $13.1 million income tax benefit), or $0.17 per diluted share, to
extinguish certain indebtedness previously held by Rohr.
(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.
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.
At December 31, 1999, approximately 20 percent of the Company's labor force was
covered by collective bargaining agreements. Approximately 10 percent of the
labor force is covered by collective bargaining agreements that will expire
during 2000.
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 December 31, 1999 and 1998, the Company had recorded in Accrued Expenses and
in Other Non-current Liabilities a total of $125.5 million and $129.7 million,
respectively, to cover future environmental expenditures. These amounts are
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.
38
<PAGE> 40
ASBESTOS
As of December 31, 1999 and 1998, two subsidiaries of the Company were among a
number of defendants (typically 15 to 40) in approximately 96,000 and 101,400
actions (including approximately 8,300 and 4,700 actions, respectively in
advanced stages of processing) filed in various states by plaintiffs alleging
injury or death as a result of exposure to asbestos fibers. During 1999, 1998
and 1997, these two subsidiaries of the Company received approximately 30,200,
34,400 and 38,200 new actions, respectively. Through December 31, 1999,
approximately 280,400 of the approximately 376,400 total actions brought had
been settled or otherwise disposed.
Payments were made by the Company with respect to asbestos liability and related
costs aggregating $84.5 million in 1999, $53.7 million in 1998, and $59.2
million in 1997, 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 $8.0 million in each of 1999, 1998 and 1997.
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
December 31, 1999, 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 $163.1 million and the Company expects that this cost will be
substantially covered by insurance.
With respect to the 87,700 outstanding actions as of December 31, 1999, 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
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:
<TABLE>
<CAPTION>
DECEMBER 31, December 31,
(DOLLARS IN MILLIONS) 1999 1998
- -------------------------------------------------------------
<S> <C> <C>
Accounts and notes receivable... $ 146.9 $ 95.4
Other assets.................... 36.7 32.6
Accrued expenses................ 134.6 89.7
Other liabilities............... 28.5 22.8
</TABLE>
(W) SUBSEQUENT EVENT
On February 21, 2000, the Company's Board of Directors authorized the repurchase
of up to $300 million of the Company's common stock. Repurchases under the
program, which may not exceed 10 percent of the Company's issued shares of
common stock, may be made from time to time in the open market or in negotiated
transactions at price levels that the Company considers attractive. The program
will be funded from the Company's operating cash flows and short term borrowings
under existing credit lines.
39
<PAGE> 41
QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
1999 QUARTERS 1998 Quarters
(DOLLARS IN MILLIONS) FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BUSINESS SEGMENT SALES:
Aerospace............................... $ 926.2 $ 965.9 $ 855.2 $ 870.1 $ 851.3 $ 852.1 $ 862.4 $ 913.5
Engineered Industrial Prod.............. 185.6 186.5 170.6 159.7 208.4 212.8 179.4 179.3
Performance Materials................... 300.0 311.0 306.3 300.4 252.4 340.9 304.8 297.5
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL SALES....................... $1,411.8 $1,463.4 $1,332.1 $1,330.2 $1,312.1 $1,405.8 $1,346.6 $1,390.3
=================================================================================================================================
GROSS PROFIT.......................... $ 404.7 $ 419.8 $ 378.8 $ 380.9 $ 367.8 $ 379.0 $ 384.8 $ 404.0
=================================================================================================================================
BUSINESS SEGMENT OPERATING INCOME:
Aerospace............................... $ 142.5 $ 144.9 $ 130.9 $ 140.4 $ 112.6 $ 109.9 $ 128.5 $ 149.0
Engineered Industrial Prod.............. 34.2 37.0 28.1 18.9 36.0 25.6 35.2 34.8
Performance Materials................... 33.2 43.0 39.4 34.8 36.6 40.2 37.4 31.6
Corporate............................... (22.3) (21.8) (19.9) (20.6) (21.4) (20.3) (20.4) (21.6)
Merger-Related and Consolidation
Costs................................. (26.2) (10.1) (204.7) (28.4) -- -- -- (10.5)
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME.................... $ 161.4 $ 193.0 $ (26.2) $ 145.1 $ 163.8 $ 155.4 $ 180.7 $ 183.3
=================================================================================================================================
INCOME (LOSS) FROM:
Continuing Operations................... $ 76.3 $ 97.9 $ (70.9) $ 66.3 $ 80.1 $ 106.5 $ 85.1 $ 87.9
Discontinued Operations................. -- -- -- -- (1.6) -- -- --
Extraordinary Items..................... -- -- -- -- -- (4.3) -- --
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME................................ $ 76.3 $ 97.9 $ (70.9) $ 66.3 $ 78.5 $ 102.2 $ 85.1 $ 87.9
=================================================================================================================================
Basic Earnings (Loss) Per Share:
Continuing operations................... $ 0.70 $ 0.89 $ (0.64) $ 0.60 $ 0.73 $ 0.96 $ 0.77 $ 0.80
Net income.............................. $ 0.70 $ 0.89 $ (0.64) $ 0.60 $ 0.72 $ 0.92 $ 0.77 $ 0.80
Diluted Earnings (Loss) Per Share:
Continuing operations................... $ 0.69 $ 0.87 $ (0.64) $ 0.60 $ 0.71 $ 0.94 $ 0.76 $ 0.79
Net income.............................. $ 0.69 $ 0.87 $ (0.64) $ 0.60 $ 0.70 $ 0.90 $ 0.76 $ 0.79
=================================================================================================================================
</TABLE>
The first quarter of 1999 includes a $26.2 million pre-tax charge related to
employee termination payments resulting from realignment of the Performance
Materials Segment headquarters and the Company's Advanced Technology Group as
well as from reductions at certain Performance Materials operating locations.
The second quarter of 1999 includes a $10.1 million pre-tax charge related to
certain executive severance payments and employee relocation costs related to
the Coltec Merger. The second quarter of 1999 also includes a $6.1 million
pre-tax gain in other income (expense) from the sale of businesses.
The third quarter of 1999 includes a $204.7 million pre-tax charge, of which
$8.6 million represented non-cash asset impairment charges. The charge related
to personnel related costs, transaction costs and consolidation costs in
connection with the Coltec merger and restructuring activities at Aerospace,
Engineered Industrial Products and Performance Materials. The third quarter of
1999 also includes a $2.4 million pre-tax gain in other income (expense) from
the sale of a portion of the Company's interest in a business.
The fourth quarter of 1999 includes a $28.4 million pre-tax charge, of which
$3.7 million represented non-cash asset impairment charges. The charge related
to personnel related costs, transaction costs and consolidation costs in
connection with the Coltec merger and restructuring activities at Aerospace and
Performance Materials. The fourth quarter of 1999 also includes a $1.9 million
pre-tax loss in other income (expense) from the sale of a business.
The fourth quarter of 1998 includes a $10.5 million pre-tax loss from a
restructuring charge and a write-down of an impaired asset in the Aerospace
Segment.
40
<PAGE> 42
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 1999 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME DATA:
Sales....................................................... $5,537.5 $5,454.8 $4,687.9 $4,005.5 $3,761.4 $3,601.6
Operating income............................................ 473.3 683.2 430.9 482.0 395.7 368.8
Income from continuing operations........................... 169.6 359.6 195.0 177.0 130.6 103.2
BALANCE SHEET DATA:
Total assets................................................ $5,455.6 $5,213.0 $4,333.7 $4,324.9 $4,229.2 $4,250.7
Total debt.................................................. 1,760.5 1,724.7 1,519.7 1,794.3 2,014.4 2,111.9
Mandatorily redeemable preferred securities of trusts....... 271.3 268.9 123.1 122.6 122.2 --
Total shareholders' equity.................................. 1,293.2 1,237.4 991.0 749.4 455.9 386.0
OTHER FINANCIAL DATA:
Total segment operating income.............................. $ 827.3 $ 777.4 $ 601.0 $ 578.3 $ 523.3 $ 473.7
EBITDA(1),(2)............................................... 961.4 884.7 700.8 624.0 559.6 507.8
Operating cash flow......................................... 372.6 499.1 271.2 315.0 312.0 362.4
Capital expenditures........................................ 246.3 262.0 241.1 241.7 198.3 174.3
Depreciation................................................ 176.5 163.7 140.9 128.2 131.2 n/a
Dividends (common and preferred)............................ 91.6 75.7 59.5 58.8 61.6 64.6
Distributions on preferred securities of trusts............. 18.4 16.1 10.5 10.5 5.1 --
PER SHARE OF COMMON STOCK:
Income from continuing operations, diluted.................. $ 1.53 $ 3.19 $ 1.75 $ 1.63 $ 1.18 $ 0.93
Diluted EPS (2)............................................. 3.24 2.91 2.34 1.74 1.23 0.97
Dividends declared.......................................... 1.10 1.10 1.10 1.10 1.10 1.10
Book value.................................................. 11.74 11.28 9.04 7.00 4.37 2.67
RATIOS:
Segment operating income as a percent of sales (%).......... 14.9 14.3 12.8 14.4 13.9 13.2
Debt-to-capitalization ratio (%)............................ 52.8 53.3 57.7 67.3 77.7 84.5
Effective income tax rate (%)............................... 43.8 36.8 40.2 35.5 36.9 37.5
OTHER DATA:
Common shares outstanding at end of year (millions)......... 110.2 109.7 109.7 107.1 104.4 103.4
Number of employees at end of year.......................... 27,044 27,234 25,910 26,113 25,488 26,679
=============================================================================================================================
</TABLE>
(1) "EBITDA" as used herein means income from continuing operations before
distributions on preferred securities of trusts, income tax expense, net
interest expense, depreciation and amortization and special items.
(2) Excludes special items which for 1999, 1998, and 1997 are described on page
2 herein. Special items in 1996 included a charge of $2.6 million relating
to a voluntary early retirement program; a net gain of $1.0 million from the
sale of a business; a loss of $3.1 million on the sale of a wholly-owned
aircraft leasing subsidiary; a charge of $4.3 million for an impairment
write-down on a facility in Arkadelphia, Arkansas; and a charge of $3.2
million for the exchange of convertible notes. Special items in 1995
included a net gain of $12.5 million from an insurance settlement; a charge
of $17.6 million primarily related to the closure of a facility in Canada
and selected other work force reductions; 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. All amounts within this footnote are presented net of tax.
41
<PAGE> 1
EXHIBIT 21
THE B.F.GOODRICH COMPANY
<TABLE>
<CAPTION>
Parent And Subsidiaries Of Registrant 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
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 .60
BFGoodrich Diamalt, Inc. Delaware 100.00
Freedom Europe B.V. The 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
Coltec Industries Inc Pennsylvania 100.00
AMI Industries, Inc. Colorado 100.00
AMI Industries FSC, Inc. Virgin Islands 100.00
CII Holdings Inc Delaware 100.00
Coltec Canada Inc Delaware 89.00
Coltec Aerospace Canada Ltd Ontario, Canada 100.00
Coltec (Gibraltar) Gibraltar 100.00
Coltec Luxembourg S.A. Luxembourg 1.00
Coltec (Great Britain) Limited United Kingdom 15.00
Coltec Industries France SAS France 25.00
</TABLE>
<PAGE> 2
EXHIBIT 21
THE B.F.GOODRICH COMPANY
<TABLE>
<CAPTION>
Parent And Subsidiaries Of Registrant Percentage Of
- ------------------------------------- Place Of Voting Securities
Consolidated Subsidiary Companies Incorporation Owned
- --------------------------------- ------------- -----------------
<S> <C> <C>
Liard S.A. France 100.00
Coltec Luxembourg S.A. Luxembourg 99.00
Holly Automotive Systems GmbH Germany 5.00
Menasco-Krosno Poland 90.40
Coltec Automotive Inc Delaware 100.00
Coltec do Brasil Produtos Industrias Ltda. Brazil 89.00
Coltec (Great Britain) Limited United Kingdom 85.00
Delavan Limited United Kingdom 100.00
Delavan European Marketing Company Limited United Kingdom 100.00
Delavan Watson Limited United Kingdom 100.00
H. T. Watson Limited United Kingdom 100.00
Spray Fabrications United Kingdom 100.00
Holly Automotive Group Limited United Kingdom 100.00
Garlock (Great Britain) Limited United Kingdom 100.00
Coltec Holdings Inc Delaware 100.00
Coltec Industries International Inc Barbados 100.00
Coltec Industries Korea Inc Korea 89.00
Coltec Industries Pacific Pte Ltd Singapore 100.00
Coltec International Services Co Delaware 100.00
Coltec do Brasil Produtos Industrias Ltda. Brazil 11.00
Coltec Industries Korea Inc Korea 11.00
Coltec Productos y Servicios S.A. de C.V. Mexico 25.00
Coltec North Carolina Inc North Carolina 100.00
CNC Member Inc North Carolina 100.00
CNC Finance LLC North Carolina 1.00
CNC Finance LLC North Carolina 99.00
Coltec Productos y Servicios S.A. de C.V. Mexico 75.00
Coltec Technical Services Inc Delaware 100.00
DM&T, Inc. Michigan 100.00
Delavan Inc. Delaware 100.00
Walbar Inc Delaware 100.00
Coltec Canada Inc Delaware 11.00
Farnam Sealing Systems Inc Delaware 100.00
Garlock Inc Ohio 100.00
Coltec Industrial Products Inc Delaware 100.00
Garlock Bearings Inc Delaware 100.00
Garlock Bearings LLC Delaware 97.00
Garlock International Inc Delaware 100.00
Garlock of Canada Ltd. Ontario, Canada 100.00
Garlock de Mexico, S.A. de C.V. Mexico 65.70
Garlock Overseas Corporation Delaware 100.00
Stemco Truck Products Australia 100.00
Garlock Pty Limited Australia 80.00
Garlock S.A. Panama 100.00
Jamco Products, LLC Texas 100.00
Louis Mulas Sucs, S.A. de C.V. Mexico 67.30
</TABLE>
<PAGE> 3
EXHIBIT 21
THE B.F.GOODRICH COMPANY
<TABLE>
<CAPTION>
Parent And Subsidiaries Of Registrant Percentage Of
- ------------------------------------- Place Of Voting Securities
Consolidated Subsidiary Companies Incorporation Owned
- --------------------------------- ------------- -----------------
<S> <C> <C>
Mainland Sealing Products, LLC. North Carolina 100.00
Stemco Inc Texas 100.00
Garrison Litigation Management Group, Ltd. Delaware 93.70
The Anchor Packing Company Delaware 100.00
Holly Automotive Inc Delaware 100.00
Holly Automotive Systems GmbH Germany 85.00
Garlock GmbH Germany 100.00
Coltec Industries France SAS France 75.00
Cefilac, S.A. France 100.00
Menasco Aerosystems Inc Delaware 100.00
Salt Lick Railroad Company Pennsylvania 100.00
Delfzijl Resin C.V. The Netherlands 99.00
First Charter Insurance Company Vermont 100.00
GKS, Inc. Delaware 100.00
HEJ Holding, Inc. Delaware 39.70
TMM Holdings B.V. The Netherlands 100.00
B.F.Goodrich Chemical Holding B.V. The Netherlands 100.00
B.F.Goodrich Realty Europe N.V. Belgium 100.00
BFGoodrich TempRite Resin B.V. The Netherlands 100.00
B.F.Goodrich Chemical (Belgie) N.V. Belgium 100.00
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
BFGoodrich Chemical Spain, S.A. Spain 99.99996
B.F.Goodrich Europe Coordination Center N.V. Belgium 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
B.F.Goodrich Chemical Sales Company B.V. The Netherlands 100.00
BFGoodrich Chemical Spain, S.A. Spain .00004
Mydrin S.A. South Africa 100.00
JcAir, B.V. The 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
FMQ Sales and Services Inc. Delaware 100.00
Godfrey Engineering, Inc. Florida 100.00
Goodrich Canada Inc. Canada 100.00
Goodrich Holding Corporation Delaware 100.00
</TABLE>
<PAGE> 4
EXHIBIT 21
THE B.F.GOODRICH COMPANY
<TABLE>
<CAPTION>
Parent And Subsidiaries Of Registrant Percentage Of
- ------------------------------------- Place Of Voting Securities
Consolidated Subsidiary Companies Incorporation Owned
- --------------------------------- ------------- -----------------
<S> <C> <C>
BFGoodrich Korea, Inc. Korea 100.00
HEJ Holding, Inc. Delaware 41.80
International BFGoodrich Technology Corporation Delaware 100.00
Goodrich FSC, Inc. Barbados 100.00
Ithaco Space Systems Inc. Delaware 100.00
JcAir, Inc. Kansas 100.00
JMSI Corporation Delaware 100.00
Delfzijl Resin C.V. The 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
B.F.Goodrich Aerospace Europe, Inc. Delaware 100.00
HEJ Holding, Inc. Delaware 17.90
B.F.Goodrich Aerospace Europe GmbH Germany 100.00
Rohr Aero Services-Asia Pte. Ltd. Singapore 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
Rohr Aero Services, Inc. Delaware 100.00
Rohr Aero Services, Europe France 100.00
Rosemount Aerospace Inc. Delaware 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
</TABLE>
<PAGE> 5
EXHIBIT 21
THE B.F.GOODRICH COMPANY
<TABLE>
<CAPTION>
Parent And Subsidiaries Of Registrant Percentage Of
- ------------------------------------- Place Of Voting Securities
Consolidated Subsidiary Companies Incorporation Owned
- --------------------------------- ------------- -----------------
<S> <C> <C>
TSA Holdings Inc. Delaware 100.00
TSA-rina Holding B.V. The Netherlands 100.00
Prosytec S.A. France 100.00
Prosytec Italia S.R.L. Italy 100.00
Universal Propulsion Company, Inc. Delaware 100.00
BFGoodrich Capital Statutory trust in Delaware 100.00
</TABLE>
All of the above subsidiaries are included in the 1999 consolidated financial
statements.
The Registrant also owns 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; Goodrich Holding Corporation owns 21.9% of
Taysung Enterprises Co., Ltd., incorporated in Korea; 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.
<PAGE> 1
EXHIBIT 23(a)
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of The BFGoodrich Company of our report dated February 14, 2000, except for Note
W, as to which the date is February 21, 2000, included in the 1999 Annual Report
to Shareholders of The BFGoodrich Company.
We also consent to the incorporation by reference of our report dated February
14, 2000, except for Note W, as to which the date is February 21, 2000, with
respect to the consolidated financial statements incorporated herein by
reference, in the following Registration Statements and in the related
Prospectuses:
<TABLE>
<CAPTION>
Registration
Number Description of Registration Statement Filing Date
- ------------ ------------------------------------- -----------
<S> <C> <C>
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 March 15, 1993
Plus Savings Plan for Wage Employees - Form S-8
333-03293 The B.F.Goodrich Company May 8, 1996
Stock Option Plan - Form S-8
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 May 29, 1998
of 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
333-74987 5 1/4% Convertible Preferred Securities Term Income March 24, 1999
Deferrable Equity Securities - Form S-3
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
Registration
Number Description of Registration Statement Filing Date
- ------------ ------------------------------------- -----------
<S> <C> <C>
333-76297 Coltec Industries Inc. 1992 Stock Option Plan April 14, 1999
Coltec Industries Inc. 1994 Stock Option Plan for
Outside Directors - Form S-8
333-77023 The B.F.Goodrich Company Stock Option April 26, 1999
Plan - Form S-8
</TABLE>
/s/ ERNST & YOUNG LLP
Charlotte, North Carolina
February 22, 2000
<PAGE> 1
EXHIBIT 23(b)
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to incorporation of our
report dated January 22, 1999, covering our audit of Coltec Industries Inc for
the years ended December 31, 1998 and 1997, included in this Form 10-K
into the following The B.F. Goodrich Company Registration Statements and the
related Prospectuses:
<TABLE>
<CAPTION>
REGISTRATION NUMBER DESCRIPTION OF REGISTRATION STATEMENT FILING DATE
- ------------------- ------------------------------------- -----------
<C> <C> <C>
33-20421 The B.F. Goodrich Company Key Employees' Stock March 1, 1988
Option Plan - Form S-8
2-88940 The B.F. Goodrich Company Retirement Plus Savings April 28, 1989
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' Stock June 26, 1992
Option Plan - Form S-8
33-59580 The B.F. Goodrich Company Retirement Plus Savings March 15, 1993
Plan for Wage Employees - Form S-8
333-03293 The B.F. Goodrich Company Stock Option Plan - May 8, 1996
Form S-8
333-03343 Common Stock - Form S-3 May 8, 1996
333-19697 The B.F. Goodrich Company Savings Benefit January 13, 1997
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, Rohr, Inc. 1989 May 29, 1998
Stock Incentive Plan and Rohr, Inc. 1995 Stock
Incentive Plan - Form S-8
333-74987 Common Stock and Guarantee - Form S-3 March 24, 1999
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
REGISTRATION NUMBER DESCRIPTION OF REGISTRATION STATEMENT FILING DATE
- ------------------- ------------------------------------- -----------
<C> <C> <C>
333-76297 Coltec Industries Inc 1992 Stock Option Plan and April 14, 1999
Coltec Industries Inc 1994 Stock Option Plan for
Outside Directors - Form S-8
333-77023 The B.F Goodrich Company Stock Option Plan - April 26, 1999
Form S-8
</TABLE>
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
February 22, 2000.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS RESTATED SUMMARY FINANCIAL INFORMATION TO REFLECT THE
MERGER WITH COLTEC WHICH OCCURRED IN THE THIRD QUARTER OF 1999 AND WAS ACCOUNTED
FOR AS A POOLING OF INTERESTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999
<PERIOD-END> MAR-31-1999 JUN-30-1999
<CASH> 64 126
<SECURITIES> 0 0
<RECEIVABLES> 868 916
<ALLOWANCES> 27 26
<INVENTORY> 981 935
<CURRENT-ASSETS> 2,117 2,243
<PP&E> 3,048 3,083
<DEPRECIATION> 1,492 1,517
<TOTAL-ASSETS> 5,352 5,493
<CURRENT-LIABILITIES> 1,355 1,237
<BONDS> 1,551 1,731
270 270
0 0
<COMMON> 558 560
<OTHER-SE> 723 803
<TOTAL-LIABILITY-AND-EQUITY> 5,352 5,493
<SALES> 1,412 2,875
<TOTAL-REVENUES> 1,412 2,875
<CGS> 1,007 2,051
<TOTAL-COSTS> 1,007 2,051
<OTHER-EXPENSES> 26 36
<LOSS-PROVISION> 1 1
<INTEREST-EXPENSE> 34 68
<INCOME-PRETAX> 126 286
<INCOME-TAX> 45 103
<INCOME-CONTINUING> 76 174
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 76 174
<EPS-BASIC> 0.70 1.59
<EPS-DILUTED> 0.69 1.56
</TABLE>
<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> 1,000,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 66
<SECURITIES> 0
<RECEIVABLES> 873
<ALLOWANCES> 28
<INVENTORY> 1,001
<CURRENT-ASSETS> 2,101
<PP&E> 3,139
<DEPRECIATION> 1,562
<TOTAL-ASSETS> 5,456
<CURRENT-LIABILITIES> 1,511
<BONDS> 1,517
271
0
<COMMON> 560
<OTHER-SE> 733
<TOTAL-LIABILITY-AND-EQUITY> 5,456
<SALES> 5,538
<TOTAL-REVENUES> 5,538
<CGS> 3,953
<TOTAL-COSTS> 3,953
<OTHER-EXPENSES> 269
<LOSS-PROVISION> 6
<INTEREST-EXPENSE> 138
<INCOME-PRETAX> 335
<INCOME-TAX> 147
<INCOME-CONTINUING> 170
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170
<EPS-BASIC> 1.54
<EPS-DILUTED> 1.53
</TABLE>
<PAGE> 1
EXHIBIT 99
Report of Independent Public Accountants
To the Board of Directors and Shareholders of
Coltec Industries Inc:
We have audited the consolidated balance sheet of Coltec Industries Inc and
subsidiaries (the Company) as of December 31, 1998, and the related consolidated
statements of earnings, shareholders' equity, cash flows and comprehensive
income for each of the two years in the period ended December 31, 1998 (not
presented herein). These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Coltec
Industries Inc and subsidiaries as of December 31, 1998, and the consolidated
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statement schedules (not presented herein) is the responsibility of
the Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
As discussed in Note 21, The B.F. Goodrich Company will acquire the Company
during 1999 and the combined entity will operate under the name B.F.Goodrich.
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
January 22, 1999.
