<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended September 30, 2000
--------------------------
Commission file number 1-892
-------------
THE B.F.GOODRICH COMPANY
------------------------------------
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 34-0252680
------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Four Coliseum Centre, 2730 West Tyvola Road, Charlotte, N.C. 28217
------------------------------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-423-7000
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
As of September 30, 2000, there were 101,842,138 shares of common stock
outstanding. There is only one class of common stock.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE B.F. GOODRICH COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Sales $ 1,378.2 $ 1,332.1 $ 4,137.3 $ 4,207.3
Operating Costs and Expenses:
Cost of sales 988.2 953.3 2,962.8 3,004.0
Selling and administrative expenses 198.4 200.3 606.6 634.1
Merger-related and consolidation costs 8.3 204.7 28.9 241.0
------------ ------------ ------------ ------------
1,194.9 1,358.3 3,598.3 3,879.1
------------ ------------ ------------ ------------
Operating income 183.3 (26.2) 539.0 328.2
Interest expense (44.1) (34.5) (117.9) (102.7)
Interest income 1.1 1.1 4.0 3.4
Other income (expense) - net (7.2) (3.6) (13.3) (6.1)
------------ ------------ ------------ ------------
Income before
income taxes and Trust distributions 133.1 (63.2) 411.8 222.8
Income tax expense (48.6) (3.1) (150.3) (105.7)
Distributions on Trust preferred
securities (4.6) (4.6) (13.8) (13.8)
------------ ------------ ------------ ------------
Net Income $ 79.9 $ (70.9) $ 247.7 $ 103.3
============ ============ ============ ============
Earnings per share:
Basic $ 0.79 $ (0.64) $ 2.34 $ 0.94
Diluted $ 0.77 $ (0.64) $ 2.30 $ 0.93
Dividends declared per common share $ 0.275 $ 0.275 $ 0.825 $ 0.825
</TABLE>
See notes to condensed consolidated financial statements.
2
<PAGE> 3
THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
2000 1999
------------- ------------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 90.2 $ 66.4
Accounts and notes receivable, less allowances
for doubtful receivables (September 30, 2000:
$29.7; December 31, 1999: $28.2) 1,030.4 845.1
Inventories 1,047.9 989.5
Deferred income taxes 130.9 129.7
Prepaid expenses and other assets 65.6 58.7
---------- ----------
Total Current Assets 2,365.0 2,089.4
---------- ----------
Property, plant and equipment 1,519.4 1,577.3
Prepaid Pension 224.0 212.1
Goodwill 1,034.8 1,031.1
Identifiable intangible assets 161.5 114.0
Other Assets 559.7 431.7
---------- ----------
$ 5,864.4 $ 5,455.6
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank debt $ 752.7 $ 229.1
Accounts payable 451.9 476.2
Accrued expenses 725.7 712.2
Income taxes payable 52.8 78.9
Current maturities of long-term debt
and capital lease obligations 183.1 14.5
---------- ----------
Total Current Liabilities 2,166.2 1,510.9
---------- ----------
Long-term debt and capital lease obligations 1,315.0 1,516.9
Pension obligations 64.7 80.4
Postretirement benefits other than pensions 341.8 347.7
Deferred income taxes 135.5 126.7
Other non-current liabilities 408.1 308.5
Commitments and contingent liabilities -- --
Mandatorily redeemable preferred securities of trust 273.2 271.3
Shareholders' Equity
Common stock - $5 par value
Authorized 200,000,000 shares; issued 112,765,738 shares
at September 30, 2000, and 112,064,927 shares at
December 31, 1999 (excluding 14,000,000 shares
held by a wholly owned subsidiary) 563.8 560.3
Additional capital 910.0 895.8
Income retained in the business 108.1 (52.3)
Accumulated other comprehensive income (62.5) (44.2)
Unearned portion of restricted stock awards (0.9) (1.2)
Common stock held in treasury, at cost (10,923,600 shares
at September 30, 2000, and 1,832,919 shares
at December 31, 1999) (358.6) (65.2)
---------- ----------
Total Shareholders' Equity 1,159.9 1,293.2
---------- ----------
$ 5,864.4 $ 5,455.6
========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
3
<PAGE> 4
THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------
2000 1999
---------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 247.7 $ 103.3
Adjustments to reconcile net income to net
cash provided by operating activities:
Merger related and consolidation:
Expenses 28.9 241.0
Payments (46.6) (172.3)
Depreciation and amortization 209.5 172.6
Deferred income taxes 7.6 11.5
Net gains on sales of businesses (2.0) (8.6)
Asset Impairment -- 6.6
Gain on sale of investment -- (3.2)
Change in assets and liabilities, net of effects
of acquisitions and dispositions of
businesses:
Receivables (184.0) (87.3)
Inventories (70.7) (7.7)
Other current assets (7.2) (1.8)
Accounts payable (16.1) (17.9)
Accrued expenses 41.2 (11.7)
Income taxes payable (20.4) 27.3
Other non-current assets and liabilities (107.7) (46.0)
-------- --------
Net cash provided by operating activities 80.2 205.8
INVESTING ACTIVITIES
Purchases of property (132.1) (166.7)
Proceeds from sale of property 22.8 5.2
Proceeds from sale of businesses 4.8 15.8
Sale of short-term investments -- 3.5
Payments made in connection with acquisitions,
net of cash acquired (49.2) (69.3)
-------- --------
Net cash used by investing activities (153.7) (211.5)
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 500.7 136.9
Proceeds from issuance of long-term debt -- 202.2
Repayment of long-term debt and capital lease obligations (9.6) (251.6)
Proceeds from sale of receivables, net (3.0) --
Proceeds from issuance of capital stock 16.1 6.0
Purchases of treasury stock (300.1) (0.3)
Dividends (89.5) (61.6)
Distributions on Trust preferred securities (13.8) (13.8)
-------- --------
Net cash provided by financing activities 100.8 17.8
Effect of Exchange Rate Changes on Cash and Cash Equivalents (3.5) (0.4)
-------- --------
Net Increase in Cash and Cash Equivalents 23.8 11.7
Cash and Cash Equivalents at Beginning of Period 66.4 53.5
-------- --------
Cash and Cash Equivalents at End of Period $ 90.2 $ 65.2
======== ========
Supplemental Cash Flow Information:
Income taxes paid $ 156.9 $ 63.4
======== ========
Interest paid, net of amounts capitalized $ 112.7 $ 57.0
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 5
THE B.F.GOODRICH COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A: BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION - The accompanying
unaudited condensed consolidated financial statements of The B.F.Goodrich
Company ("BFGoodrich" or the "Company") have been prepared in accordance with
the instructions to Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Certain amounts in prior year financial statements have been
reclassified to conform to the current year presentation. Operating results for
the three and nine months ended September 30, 2000 are not necessarily
indicative of the results that may be achieved for the year ending December 31,
2000. For further information, refer to the consolidated financial statements
and footnotes included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
NOTE B: ACQUISITIONS - In the first nine months of 2000, the Company acquired a
manufacturer of earth and sun sensors in attitude determination and control
subsystems of spacecraft; ejection seat technology; intellectual property
related to certain dyes; a personal care business; a manufacturer of fuel
nozzles; a developer of avionics and displays; and the assets of a developer of
video camera systems used on space vehicles and tactical aircraft. Total
consideration aggregated $45.0 million, of which $39.2 million represented
goodwill and other intangible assets. The purchase price allocation for these
acquisitions has been based on preliminary estimates.
NOTE C: INVENTORIES - Inventories included in the accompanying condensed
consolidated balance sheet consist of:
<TABLE>
<CAPTION>
(Dollars in millions) September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
FIFO or average cost (which approximates current costs):
Finished products $ 351.9 $ 278.0
In process 611.8 608.4
Raw materials and supplies 225.3 257.5
-------- --------
1,189.0 1,143.9
Less:
Reserve to reduce certain
inventories to LIFO (76.4) (70.8)
Progress payments and advances (64.7) (83.6)
-------- --------
Total $1,047.9 $ 989.5
======== ========
</TABLE>
In-process inventories include significant deferred costs related to production,
pre-production and excess-over-average costs for long-term contracts. The
Company has pre-production inventory of $77.1
5
<PAGE> 6
million related to design and development costs on the 717-200 program at
September 30, 2000. In addition, the Company has excess-over-average inventory
of $59.2 million related to costs associated with the production of the flight
test inventory and the first production units on this program. The aircraft was
certified by the FAA on September 1, 1999, and Boeing is actively marketing the
aircraft. Recovery of these costs will depend on the ultimate number of aircraft
delivered and successfully achieving the Company's cost projections in future
years.
NOTE D: BUSINESS SEGMENT INFORMATION - The Company's operations are classified
into three reportable business segments: BFGoodrich Aerospace ("Aerospace"),
BFGoodrich Engineered Industrial Products ("Engineered Industrial Products") and
BFGoodrich Performance Materials ("Performance Materials"). The Company's three
reportable business segments are managed separately based on fundamental
differences in their operations.
On April 17, 2000, the Company announced that it intends to divest its
Performance Materials Segment. The Company expects to meet the criteria for
accounting for the disposition as a discontinued operation this year. At such
time, all periods will be restated to reflect Performance Materials' results as
a discontinued operation. The proceeds of the divestiture will be used primarily
to reduce debt and repurchase additional shares of stock with the latter
requiring approval of the Company's Board of Directors. Strategic acquisitions
will also be considered on a case by case basis.
Segment operating income is total segment revenue reduced by operating expenses
identifiable with that business segment. Merger-related and consolidation costs
are discussed in Note G of these unaudited condensed consolidated financial
statements. The accounting policies of the reportable segments are the same as
those for the consolidated Company. There are no significant intersegment sales.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales
Aerospace $ 926.0 $ 855.2 $2,719.2 $2,747.3
Engineered Industrial Products 167.4 170.6 527.2 542.7
Performance Materials 284.8 306.3 890.9 917.3
-------- -------- -------- --------
Total Sales $1,378.2 $1,332.1 $4,137.3 $4,207.3
======== ======== ======== ========
Segment Operating Income
Aerospace $ 154.1 $ 130.9 $ 434.7 $ 418.3
Engineered Industrial Products 29.0 28.1 95.2 99.3
Performance Materials 25.9 36.1 90.9 104.9
-------- -------- -------- --------
209.0 195.1 620.8 622.5
Corporate General and
Administrative Expenses (17.4) (16.6) (52.9) (53.3)
Merger-related and
Consolidation Costs (8.3) (204.7) (28.9) (241.0)
-------- -------- -------- --------
Total Operating Income $ 183.3 $ (26.2) $ 539.0 $ 328.2
======== ======== ======== ========
</TABLE>
6
<PAGE> 7
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
Assets
Aerospace $3,340.2 $3,021.8
Engineered Industrial Products 384.0 390.3
Performance Materials 1,365.2 1,408.4
Corporate 775.0 635.1
-------- --------
Total Assets $5,864.4 $5,455.6
======== ========
</TABLE>
NOTE E: EARNINGS PER SHARE - The computation of basic and diluted earnings per
share is as follows:
<TABLE>
<CAPTION>
(In millions, except per share amounts) Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share
- income available to common shareholders $ 79.9 $ (70.9) $ 247.7 $ 103.3
Effect of dilutive securities:
Convertible preferred securities 1.6 -- 4.7 --
-------- -------- -------- --------
Numerator for diluted earnings per
share-income available to common
shareholders after assumed conversions $ 81.5 $ (70.9) $ 252.4 $ 103.3
======== ======== ======== ========
Denominator:
Denominator for basic earnings per
share - weighted-average shares 101.6 110.1 105.7 109.9
-------- -------- -------- --------
Effect of dilutive securities:
Stock options, performance shares and
restricted shares 1.8 -- 1.3 0.9
Convertible preferred securities 2.9 -- 2.9 --
-------- -------- -------- --------
Dilutive potential common shares 4.7 -- 4.2 0.9
-------- -------- -------- --------
Denominator for diluted earnings per
share - adjusted weighted-average shares
and assumed conversions 106.3 110.1 109.9 110.8
======== ======== ======== ========
Earnings per share:
Basic $ 0.79 $ (0.64) $ 2.34 $ 0.94
======== ======== ======== ========
Diluted $ 0.77 $ (0.64) $ 2.30 $ 0.93
======== ======== ======== ========
</TABLE>
The computation of diluted earnings per share for the three and nine months
ended September 30, 1999 exclude the effects of 2.9 million potential common
shares for assumed conversions of convertible preferred securities because the
effect would be anti-dilutive. The computation of diluted earnings per share for
the three months ended September 30, 1999 also excludes 0.9 incremental shares
for assumed exercises of stock options, performance shares and restricted shares
because the effect would be anti-dilutive.
7
<PAGE> 8
The Company's Board of Directors approved a $300 million share repurchase
program during the first quarter of 2000. The Company has repurchased 9.3
million shares of its common stock for $300.0 million pursuant to the program.
NOTE F: COMPREHENSIVE INCOME
Total comprehensive income consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Income (Loss) $ 79.9 $ (70.9) $ 247.7 $ 103.3
Other Comprehensive Income -
Unrealized translation adjustments
during period (15.2) 0.6 (18.3) (18.8)
------- ------- ------- -------
Total Comprehensive Income $ 64.7 $ (70.3) $ 229.4 $ 84.5
======= ======= ======= =======
</TABLE>
Accumulated other comprehensive income consists of the following (dollars in
millions):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------- -------
<S> <C> <C>
Cumulative unrealized translation adjustments $ (55.8) $ (37.5)
Minimum pension liability adjustment (6.7) (6.7)
------- -------
$ (62.5) $ (44.2)
======= =======
</TABLE>
NOTE G: MERGER-RELATED AND CONSOLIDATION COSTS
Through September 30, 2000, the Company recorded charges totaling $28.9 million
($18.3 million after-tax), of which $8.3 million ($5.3 million after-tax) was
recorded in the third quarter. The charges were recorded across the Company's
segments as follows:
<TABLE>
<CAPTION>
(Dollars in millions) Three Months Nine Months
Ended Ended
September 30, September 30,
2000 2000
------- -------
<S> <C> <C>
Aerospace $ 7.6 $ 17.2
Performance Materials -- (0.2)
Corporate 0.7 11.9
------- -------
$ 8.3 $ 28.9
======= =======
</TABLE>
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<PAGE> 9
Merger-related and consolidation reserves at December 31, 1999 and September 30,
2000, as well as activity during the nine months ended September 30, 2000,
consisted of:
<TABLE>
<CAPTION>
(Dollars in millions)
------------------------------------------------------
Balance Balance
December 31, Reserve September 30,
1999 Provision Reduction 2000
---- --------- --------- ----
<S> <C> <C> <C> <C>
Personnel-related costs $41.3 $14.5 $42.7 $13.1
Transaction costs 2.0 -- 0.1 1.9
Consolidation 7.9 17.2 18.2 6.9
----- ----- ----- -----
$51.2 $31.7 $61.0 $21.9
===== ===== ===== =====
</TABLE>
During the nine months ended September 30, 2000, the Company recorded net
merger-related and consolidation costs of $28.9 million consisting of $14.5
million in personnel-related costs and $17.2 million in consolidation costs,
offset by a credit of $2.8 million representing a revision of prior estimates.
The $14.5 million in personnel-related costs includes $9.5 million in settlement
charges related to lump sum payments made under a nonqualified pension plan that
were triggered by the Coltec merger. Personnel-related costs also include $2.4
million in employee relocation costs associated with the Coltec merger, $2.1
million for work force reductions in the Company's Aerospace Segment and $0.5
million for work force reductions in the Company's Performance Materials
Segment. Consolidation costs include an $11.3 million non-cash charge related to
the write-off of certain assets and accelerated depreciation related to assets
whose useful lives had been reduced as a result of consolidation activities and
$5.9 million for realignment activities. Of the $61.0 million reduction in
reserves, $46.6 million related to cash payments, $11.6 million related to the
write-off of assets and accelerated depreciation and $2.8 million related to
revision of estimates.
NOTE H: CONTINGENCIES
GENERAL
There are pending or threatened against BFGoodrich or its subsidiaries various
claims, lawsuits and administrative proceedings, all arising from the ordinary
course of business with respect to commercial, product liability, asbestos and
environmental matters, which seek remedies or damages. BFGoodrich believes that
any liability that may finally be determined with respect to commercial and
product liability claims should not have a material effect on the Company's
consolidated financial position or results of operations. From time to time, the
Company is also involved in legal proceedings as a plaintiff involving contract,
patent protection, environmental and other matters. Gain contingencies, if any,
are recognized when they are realized.
ENVIRONMENTAL
The Company and its subsidiaries are generators of both hazardous wastes and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party ("PRP") by
the U.S. Environmental Protection Agency ("EPA"), or similar state agencies, in
connection with several sites.
The Company initiates corrective and/or preventive environmental projects of its
own to ensure safe and lawful activities at its current operations. It also
conducts a compliance and management systems audit
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<PAGE> 10
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 September 30, 2000, the Company has recorded in Accrued Expenses and in Other
Non-current Liabilities a total of $116.6 million to cover future environmental
expenditures. This amount is recorded on an undiscounted basis.
The Company believes that its reserves are adequate based on currently available
information. Management believes that it is reasonably possible that additional
costs may be incurred beyond the amounts accrued as a result of new information.
However, the amounts, if any, cannot be estimated and management believes that
they would not be material to the Company's financial condition but could be
material to the Company's results of operations in a given period.
ASBESTOS
As of September 30, 2000, two subsidiaries of the Company were among a number of
defendants (typically 15 to 40) in approximately 97,900 actions (including
approximately 13,400 actions in advanced stages of processing) filed in various
states by plaintiffs alleging injury or death as a result of exposure to
asbestos fibers. During the first nine months of 2000, these two subsidiaries of
the Company received approximately 29,500 new actions compared to approximately
25,900 new actions received during the first nine months of 1999. Through
September 30, 2000, approximately 315,300 of the approximately 413,200 total
actions brought have been settled or otherwise disposed.
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
September 30, 2000, the Company estimates that the aggregate remaining cost of
the disposition of the settled actions for which payments remain to be made and
actions in advanced stages of processing, including associated legal costs, is
$252.8 million and the Company expects that this cost will be substantially
covered by insurance. The increase in the Company's estimate of the cost of
disposition of these actions from prior periods is due primarily to an
aggressive settlement program initiated by the Company. The result is increased
predictability and lower transaction costs to the Company.
Payments were made by the Company with respect to asbestos liability and related
costs aggregating $90.3 million and $58.0 million for the first nine months of
2000 and 1999, respectively, substantially all of which were covered by
insurance (see comment related to increased costs of disposition above).
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
$6.0 million during the first nine months of 2000 and 1999.
With respect to the 84,500 outstanding actions as of September 30, 2000, which
are in preliminary procedural stages, as well as any actions that may be filed
in the future, the Company lacks sufficient
10
<PAGE> 11
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 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 Sheet are as follows:
<TABLE>
<CAPTION>
(Dollars in millions)
September 30, December 31,
2000 1999
---- ----
<S> <C> <C>
Accounts and notes receivable $ 223.9 $ 146.9
Other assets 90.1 36.7
Accrued expenses 169.1 134.6
Other liabilities 83.7 28.5
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS
OF OPERATIONS
SIGNIFICANT EVENTS
- Net income, excluding special items, for the quarter was $85.2 million,
or $0.82 per share, compared to $83.0 million, or $0.74 per share, in
the year-ago quarter.
- Net income, excluding special items, for the first nine months of 2000
was $266.0 million, or $2.46 per share, compared to $276.0 million, or
$2.47 per share, for the first nine months of 1999.
- EBITDA, excluding special items, was approximately $246 million and
$754 million for the quarter and nine month periods ended September 30,
2000 respectively. During the same periods of 1999, EBITDA, excluding
special items, approximated $230 million and $727 million,
respectively.
PROPOSED DIVESTITURE OF PERFORMANCE MATERIALS SEGMENT
On April, 17, 2000, the Company announced that it intends to focus on its
Aerospace and Engineered Industrial Products businesses and divest its
Performance Materials segment. The Company anticipates that the divestiture will
be completed by year-end 2000. The proceeds of the divestiture will be used
primarily to reduce debt and repurchase additional shares of stock with the
latter requiring approval of the Company's Board of Directors. Strategic
acquisitions will also be considered on a case by case basis.
RESULTS OF OPERATIONS
TOTAL COMPANY
THIRD QUARTER OF 2000 COMPARED WITH THIRD QUARTER OF 1999
Sales during the quarter ended September 30, 2000, increased by $46.1 million,
or 3.5 percent, from sales during the same period last year. Sales increased by
8.3 percent for the Aerospace Segment, but decreased by 1.9 percent for the
Engineered Industrial Products Segment and by 7.0 percent for the Performance
Materials Segment as compared to the 1999 third quarter. The reasons for these
fluctuations as compared to last year are discussed by segment below.
Cost of sales as a percent of sales increased from 71.6 percent in 1999 to 71.7
percent in 2000. Increases in certain raw material costs and the negative impact
of foreign exchange rates were offset by productivity increases and lower
spending.
Selling and administrative costs as a percent of sales decreased from 15.0
percent in 1999 to 14.4 percent in 2000. The decrease was primarily attributable
to the Company's efforts to control costs (previously announced lay-offs, lean
manufacturing initiatives and plant closures).
Merger-related and consolidation costs of $8.3 million and $204.7 million were
recorded during the third quarter of 2000 and 1999, respectively (see further
discussion in Note G of the accompanying unaudited
12
<PAGE> 13
condensed consolidated financial statements). The Company expects to incur an
additional $20 million to $25 million of merger-related and consolidation costs
during the remainder of 2000. The timing of these costs is dependent on the
finalization of management's plans and on the nature of the costs (accruable or
period costs). These charges will consist primarily of costs associated with the
consolidation of landing gear facilities, the reorganization of operating
facilities and for employee relocation and severance costs.
Excluding merger-related and consolidation costs, operating income in the third
quarter increased $13.1 million, or 7.3 percent, from $178.5 million in 1999 to
$191.6 million in 2000. Operating income increased by $23.2 million in the
Aerospace Segment and by $0.9 million in the Engineered Industrial Products
Segment, but decreased by $10.2 million in the Performance Materials Segment.
Unallocated corporate general and administrative costs increased by $0.8
million, or 4.8 percent, between periods. Operating income by segment is
discussed in greater detail below.
Interest expense-net increased $9.6 million from $33.4 million in 1999 to $43.0
million in 2000. The increase is a result of additional short-term borrowings
due primarily to the repurchase of the Company's common stock during 2000.
Other expense-net increased $3.6 million from $3.6 million in the third quarter
of 1999 to $7.2 million in the third quarter of 2000. Excluding gains from the
sale of businesses during both periods, other expense-net increased by $1.1
million from $6.1 million in 1999 to $7.2 million in 2000. The increase was due
primarily to increased amounts attributable to minority shareholders as a result
of higher reported earnings at certain subsidiaries, year over year.
The Company's effective tax rate, excluding special items, decreased from 37.0
percent to 36.5 percent, quarter to quarter. The effective tax rate in the third
quarter of 2000 approximates the rate for all of 1999, excluding special items,
and is consistent with the rate expected for 2000.
FIRST NINE MONTHS OF 2000 AS COMPARED TO THE FIRST NINE MONTHS OF 1999
Sales during the first nine months of 2000 decreased by $70.0 million, or 1.7
percent, from sales during the same period last year. Sales decreased by 1.0
percent for the Aerospace Segment, by 2.9 percent for the Engineered Industrial
Products Segment and by 2.9 percent for the Performance Materials Segment as
compared to the first nine months of 1999. The reasons for these fluctuations as
compared to last year are discussed by segment below.
Cost of sales as a percent of sales increased from 71.4 percent in 1999 to 71.6
percent in 2000. The reason for the change is consistent with the explanation
above for the third quarter.
Selling and administrative costs as a percent of sales was 15.1 percent in 1999
and 14.7 percent in 2000. The decrease was primarily attributable to the
Company's efforts to control costs (previously announced lay-offs, lean
manufacturing initiatives and plant closures).
Merger-related and consolidation costs of $28.9 million and $241.0 million were
recorded during the first nine months of 2000 and 1999, respectively (see
further discussion in Note G of the accompanying
13
<PAGE> 14
unaudited condensed consolidated financial statements). The Company expects to
incur an additional $20 million to $25 million of merger-related and
consolidation costs during the remainder of 2000. The timing of these costs is
dependent on the finalization of management's plans and on the nature of the
costs (accruable or period costs). These charges will consist primarily of costs
associated with the consolidation of landing gear facilities, the reorganization
of operating facilities and for employee relocation and severance costs (see
additional comments above).
Excluding merger-related and consolidation costs, operating income for the first
nine months of 2000 decreased $1.3 million, or 0.2 percent, from $569.2 million
in 1999 to $567.9 million in 2000. Operating income increased by $16.4 million
in the Aerospace Segment, but decreased by $4.1 million in the Engineered
Industrial Products Segment and by $14.0 million in the Performance Materials
Segment. Unallocated corporate general and administrative costs decreased $0.4
million between periods. Operating income by segment is discussed in greater
detail below.
Interest expense-net increased $14.6 million from $99.3 million during the first
nine months of 1999 to $113.9 million during the first nine months of 2000. The
increase is primarily a result of additional short-term borrowings due primarily
to the repurchase of the Company's common stock during 2000. The Company
repurchased approximately 9.3 million shares at an average price of
approximately $32.20 per share.
Other expense-net increased $7.2 million from $6.1 million during the first nine
months of 1999 to $13.3 million during the first nine months of 2000. Excluding
gains from the sale of businesses other expense-net decreased by $0.7 million
from $18.0 million during the first nine months of 1999 to $17.3 million during
the first nine months of 2000. The decrease was due primarily to increased
amounts attributable to minority shareholders resulting from higher reported
earnings at certain subsidiaries, year over year.
The Company's effective tax rate of 36.5 percent for the first nine months of
2000 approximates the rate for the first nine months and for all of 1999,
excluding special items, and is consistent with the rate expected for 2000.
14
<PAGE> 15
BUSINESS SEGMENT PERFORMANCE
SEGMENT ANALYSIS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
(Dollars in Millions) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES:
Aerospace $ 926.0 $ 855.2 $ 2,719.2 $ 2,747.3
Engineered Industrial
Products 167.4 170.6 527.2 542.7
Performance Materials 284.8 306.3 890.9 917.3
---------------------------------------------------------------------------------------------------------
Total $ 1,378.2 $ 1,332.1 $ 4,137.3 $ 4,207.3
=========================================================================================================
OPERATING INCOME:
Aerospace $ 154.1 $ 130.9 $ 434.7 $ 418.3
Engineered Industrial
Products 29.0 28.1 95.2 99.3
Performance Materials 25.9 36.1 90.9 104.9
---------------------------------------------------------------------------------------------------------
Total Reportable
Segments 209.0 195.1 620.8 622.5
Corporate General and
Administrative Costs (17.4) (16.6) (52.9) (53.3)
Merger-related and
Consolidation Costs (8.3) (204.7) (28.9) (241.0)
---------------------------------------------------------------------------------------------------------
Total $ 183.3 $ (26.2) $ 539.0 $ 328.2
=========================================================================================================
</TABLE>
The Company's operations are classified into three reportable business segments:
BFGoodrich Aerospace ("Aerospace"), BFGoodrich Engineered Industrial Products
("Engineered Industrial Products") and BFGoodrich Performance Materials
("Performance Materials"). The Aerospace Segment reorganized during the first
quarter of 2000 creating the following new operating groups: Aerostructures and
Aviation Services, Landing Systems, Engine and Safety Systems and Electronic
Systems. The segment's maintenance, repair and overhaul businesses are now being
reported with their respective original equipment businesses. Prior period
amounts have been reclassified to conform with this new group structure. These
groups serve commercial, military, regional, business and general aviation
markets.
15
<PAGE> 16
Engineered Industrial Products is a single business group. This group
manufactures industrial seals; gaskets; packing products; self-lubricating
bearings; diesel, gas and dual fuel engines; air compressors; spray nozzles and
vacuum pumps.
Performance Materials consists of three business groups: Textile and Coatings
Solutions; Polymer Additives and Specialty Plastics; and Consumer Specialties.
These groups provide materials for a wide range of end use market applications
including textiles, coatings, food & beverage, personal care, pharmaceuticals,
graphic arts, industrial piping, plumbing and transportation. Certain research
and development expenses previously reported within corporate general and
administrative costs are now included within the segment's results. The segment
also reorganized how it accounts and reports the results for certain product
lines within its groups during the year. Prior period results have been
reclassified for consistency.
Corporate includes general and administrative costs. Segment operating income is
total segment revenue reduced by operating expenses directly identifiable with
that business segment. Merger-related and consolidation costs are presented
separately (see further discussion in Note G to the accompanying unaudited
condensed consolidated financial statements).
16
<PAGE> 17
An expanded analysis of sales and operating income by business segment follows.
AEROSPACE
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
2000 1999 % Change 2000 1999 % Change
------ ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
SALES
Aerostructures and Aviation
Services $375.4 $332.4 12.9 $1,081.4 $1,141.1 (5.2)
Landing Systems 265.9 261.5 1.7 785.0 803.9 (2.4)
Engine and Safety Systems 152.3 136.4 11.7 453.6 417.7 8.6
Electronic Systems 132.4 124.9 6.0 399.2 384.6 3.8
------ ------ -------- --------
Total Sales $926.0 $855.2 8.3 $2,719.2 $2,747.3 (1.0)
====== ====== ======== ========
OPERATING INCOME
Aerostructures and Aviation
Services $ 57.3 $ 44.8 27.9 $ 155.2 $ 156.7 (1.0)
Landing Systems 35.7 36.5 (2.2) 108.1 115.8 (6.6)
Engine and Safety Systems 28.0 24.5 14.3 85.5 74.4 14.9
Electronic Systems 33.1 25.1 31.9 85.9 71.4 20.3
------ ------ -------- --------
Total Operating Income $154.1 $130.9 17.7 $ 434.7 $ 418.3 3.9
====== ====== ======== ========
OPERATING INCOME AS A
PERCENT OF SALES
Aerostructures and Aviation
Services 15.3 13.5 14.4 13.7
Landing Systems 13.4 14.0 13.8 14.4
Engine and Safety Systems 18.4 18.0 18.8 17.8
Electronic Systems 25.0 20.1 21.5 18.6
Total Aerospace 16.6 15.3 16.0 15.2
</TABLE>
17
<PAGE> 18
THIRD QUARTER 2000 COMPARED WITH THIRD QUARTER 1999
Aerospace sales of $926.0 million were $70.8 million or 8.3 percent above the
third quarter of 1999. All of the segment's groups reported increased sales than
the same quarter last year, with Aerostructures and Aviation Services and Engine
and Safety Systems reporting double digit growth.
Aerospace operating income of $154.1 million was $23.2 million or 17.7 percent
higher than the third quarter of 1999. The increase was primarily attributable
to strong performances within the segment's Aerostructures and Aviation
Services, Engine and Safety Systems and Electronic Systems groups.
AEROSTRUCTURES AND AVIATION SERVICES GROUP: Sales for the third quarter of 2000
increased $43.0 million, or 12.9 percent, from $332.4 million in the third
quarter of 1999 to 375.4 million in the third quarter of 2000. The increase was
primarily attributable to greater sales on the Super 27 program, higher
aftermarket sales on the PW4000 and V2500 programs and the favorable settlement
of a contract claim. Original equipment ("OE") production sales were lower in
the B757, MD-11 and MD-80 programs (the MD-11 and MD-80 programs are no longer
in production), partially offset by an increase in B717-200 sales. Aviation
Services sales were down from the third quarter of 1999 due to lower volume from
two major customers.
Operating income increased $12.5 million, or 27.9 percent, from $44.8 million in
the third quarter of 1999 to $57.3 million in the third quarter of 2000. The
increase was primarily attributable to the increased volumes noted above, a
favorable sales mix, the favorable settlement of a contract claim and site
consolidation costs in 1999 which were not incurred in 2000.
LANDING SYSTEMS GROUP: Sales increased $4.4 million, or 1.7 percent, from $261.5
million in the third quarter of 1999 to $265.9 million in the third quarter of
2000. The increase was attributable to increased sales of wheels and brakes,
partially offset by lower sales of landing gear and aftermarket landing gear and
wheel and brake services. Sales of wheel and brakes were higher than the same
period one year ago as a result of significantly stronger sales in the regional,
business and military market segments as well as increased aftermarket sales to
commercial airline customers. Landing gear sales were lower than the same period
a year ago as Boeing OE production deliveries declined on the B777 and B757
aircraft. New production of MD11 and B737 classic aircraft have ended, thus
recording no sales in the third quarter of 2000. Sales of aftermarket landing
gear services and wheel and brake services were slightly lower than the same
period a year ago.
Operating income decreased $0.8 million, or 2.2 percent, from $36.5 million in
the third quarter of 1999 to $35.7 million in the third quarter of 2000. Landing
gear recorded lower operating income than the previous year's quarter consistent
with their decreased OE volumes, increased nonrecurring engineering costs and an
unfavorable mix, partially offset by favorable inventory adjustments recorded
during the current quarter. Despite higher sales of wheel and brakes, quarter
over quarter, operating income decreased due to the impact of a customer
bankruptcy, increased sales incentives and higher raw material costs. Landing
gear and wheel brake services had higher operating income as a result of
productivity improvements and lower spending.
18
<PAGE> 19
ENGINE AND SAFETY SYSTEMS GROUP: Sales increased $15.9 million, or 11.7 percent,
from $136.4 million in the third quarter of 1999 to $152.3 million in the third
quarter of 2000. The increase was attributable to significantly higher sales in
virtually all of the group's products. Engine system's products accounted for
approximately $12 million of the increase with the remainder coming from safety
system products.
Operating income increased $3.5 million, or 14.3 percent, from $24.5 million in
the third quarter of 1999 to $28.0 million during the third quarter of 2000.
Operating income was favorably affected by the stronger sales volume noted above
and from a gain on the sale of land recorded in the quarter, partially offset by
an unfavorable mix and increased R&D spending on the SmartBelt(TM) systems the
group is developing.
ELECTRONIC SYSTEMS GROUP: Sales increased $7.5 million, or 6.0 percent, from
$124.9 million in the third quarter of 1999 to $132.4 million in the third
quarter of 2000. The increase in sales was primarily attributable to greater
sales of space/satellite and avionics products, partially offset by decreased
sales of aircraft sensors and a product line divestiture. The increase in
satellite products was due to acquisitions while the increased sales of avionics
products was attributable to increased market penetration and new product
introductions within the general aviation market.
Operating income increased $8.0 million, or 31.9 percent, from $25.1 million in
the third quarter of 1999 to $33.1 million in the third quarter of 2000. Higher
volume in space/satellite products, increased demand for general aviation
products, a gain on the sale of a building, a favorable sales mix and the
reimbursement of certain development costs related to the helicopter health and
usage monitoring system accounted for the increase in operating income.
FIRST NINE MONTHS OF 2000 COMPARED WITH FIRST NINE MONTHS OF 1999
Aerospace sales of $2,719.2 million were $28.1 million, or 1.0 percent, lower
than the first nine months of 1999. The decrease was primarily attributable to
sales declines at Aerostructures and Aviation Services and Landing Systems.
Aerospace operating income of $434.7 million was $16.4 million, or 3.9 percent,
higher than the first nine months of 1999. The increase was primarily
attributable to the Engine and Safety Systems and Electronic Systems groups.
AEROSTRUCTURES AND AVIATION SERVICES GROUP: Sales decreased $59.7 million, or
5.2 percent, from $1,114.1 million in the first nine months of 1999 to $1,081.4
million in the first nine months of 2000. The decrease was primarily
attributable to the favorable settlement of a contract claim during 1999 that
resulted in approximately $60 million in sales, lower sales on the B757, MD-11
and MD-80 programs (MD-11 and MD-80 programs are no longer in production), lower
sales of post-production spares and lower aftermarket aviation services. These
decreases were partially offset by increased sales on the Super 27 program and
additional aftermarket aerostructures services. Aviation services sales were
down from the first nine months of 1999 on lower volume out of two major
customers. Aerostructrures services posted higher sales than a year ago due to
increased volume in its Asian facility.
Operating income decreased $1.5 million, or 1.0 percent, from $156.7 million in
the first nine months of 1999 to $155.2 million in the first nine months of
2000. Aerostructures operating income increased by
19
<PAGE> 20
approximately $8 million period to period while aviation services operating
income decreased by approximately $10 million. The increase in aerostructures
operating income, despite the decrease in sales, is attributable to higher
margins on certain contracts due to productivity improvements and cost controls,
a favorable mix of spares to OE, site consolidation costs in 1999 which were not
incurred in 2000 and increased sales on the Super 27 program. These increases
were partially offset by the impact of contract claim settlements in 1999 and
2000. The decrease in operating income at aviation services is primarily
attributable to increased labor and overhead costs, most of which relates to
retaining and training its work force and lower volumes.
LANDING SYSTEMS GROUP: Sales decreased $18.9 million, or 2.4 percent, from
$803.9 million in the first nine months of 1999 to $785.0 million in the first
nine months of 2000. Landing gear sales were significantly lower than the same
period a year ago as decreases in commercial OE production, due to lower
requirements on most Boeing programs, were not offset by increases in spares and
military OE sales. Wheel and brake sales were higher than the same period a year
ago in all market segments, but strongest in the regional, business and military
segment.
Operating income decreased $7.7 million, or 6.6 percent, from $115.8 million in
the first nine months of 1999 to $108.1 million in the first nine months of
2000. The decrease was primarily attributable to the lower landing gear sales
noted above, partially offset by a favorable sales mix and a favorable
settlement of claims for increased work scope on engineering changes related to
existing products. Wheel and brake operating income increased primarily as a
result of the increased sales noted above.
ENGINE AND SAFETY SYSTEMS GROUP: Sales increased $35.9 million, or 8.6 percent,
from $417.7 million in the first nine months of 1999 to $453.6 million in the
first nine months of 2000. Increased sales of power generation, spray nozzle,
turbine blades and de-icing products more than offset weaknesses in safety
systems and fuel controls.
Operating income increased $11.1 million, or 14.9 percent, from $74.4 million in
the first nine months of 1999 to $85.5 million in the first nine months of 2000.
The increase was primarily attributable to the increase in sales noted above,
partially offset by increased R&D spending on the SmartBelt(TM) system.
ELECTRONIC SYSTEMS GROUP: Sales increased $14.6 million, or 3.8 percent, from
$384.6 million in the first nine months of 1999 to $399.2 million in the first
nine months of 2000. Increased requirements for satellite launch vehicle
components and two small acquisitions in the space/satellite industry, together
with robust demand for general aviation products more than offset the impact of
lower sales of sensors and fuel management systems and a product line
divestiture.
Operating income increased $14.5 million, or 20.3 percent, from $71.4 million in
the first nine months of 1999 to $85.9 million in the first nine months of 2000.
Higher volume in space/satellite products, both from core products and
acquisitions, increased demand for general aviation products, a favorable sales
mix and the reimbursement of certain development costs on the helicopter health
and usage management system accounted for the increase in operating income.
20
<PAGE> 21
ENGINEERED INDUSTRIAL PRODUCTS:
(Dollars in millions)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales $ 167.4 $ 170.6 $ 527.2 $ 542.7
Operating Income $ 29.0 $ 28.1 $ 95.2 $ 99.3
Operating Income as a Percent
of Sales 17.3% 16.5% 18.1% 18.3%
</TABLE>
THIRD QUARTER OF 2000 COMPARED WITH THIRD QUARTER OF 1999
Sales decreased by $3.2 million, or 1.9 percent, from $170.6 million during the
third quarter of 1999 to $167.4 million in the third quarter of 2000. The
decrease was due to the completion of a significant diesel-engine program during
1999 and the initiation of sales of a similar but lower revenue-producing
program during 2000, lower sales to the automotive market and unfavorable
foreign exchange rate changes, partially offset by increased sales of sealing
related and compressed air products.
Operating income increased by $0.9 million, or 3.2 percent, from $28.1 million
during the third quarter of 1999 to $29.0 million during the third quarter of
2000. The increase in operating income was primarily due to a reduction in
nonrecurring engineering costs, productivity improvements and favorable physical
inventory adjustments, partially offset by the impact of reduced sales period
over period and unfavorable foreign currency exchange rates. Operating income as
a percentage of sales increased during the period from 16.5 percent to 17.3
percent as a result of these factors.
FIRST NINE MONTHS OF 2000 COMPARED WITH FIRST NINE MONTHS OF 1999
Sales decreased by $15.5 million, or 2.9 percent, from $542.7 million during the
first nine months of 1999 to $527.2 million during the first nine months of
2000. The decrease was primarily due to the completion of a significant
diesel-engine program during 1999 and the initiation of sales of a similar but
lower revenue-producing program during 2000 and lower sales of sealing products
due in part to a weaker Euro, partially offset by an increase in sales of air
compressors.
Operating income decreased by $4.1 million, or 4.1 percent, from $99.3 million
during the first nine months of 1999 to $95.2 million during the first nine
months of 2000. The decline in operating income was primarily due to sales
volume (described above), product mix, and pressures related to foreign
currency, partially offset by productivity improvements and reduced nonrecurring
engineering costs. Operating income as a percentage of sales decreased slightly
during the period from 18.3 percent to 18.1 percent as a result of these
factors.
21
<PAGE> 22
PERFORMANCE MATERIALS
(Dollars in millions)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
% %
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
SALES
Textile and Coatings
Solutions $119.9 $133.2 (10.0) $383.3 $403.8 (5.1)
Polymer Additives and
Specialty Plastics 101.0 111.3 (9.3) 321.4 330.6 (2.8)
Consumer Specialties 63.9 61.8 3.4 186.2 182.9 1.8
------ ------ ------ ------
Total Sales $284.8 $306.3 (7.0) $890.9 $917.3 (2.9)
====== ====== ====== ======
OPERATING INCOME
Textile and Coatings
Solutions $ 4.5 $ 10.4 (56.7) $ 21.9 $ 27.5 (20.4)
Polymer Additives and
Specialty Plastics 13.8 20.5 (32.7) 48.4 55.5 (12.8)
Consumer Specialties 7.6 5.2 46.2 20.6 21.9 (5.9)
------ ------ ------ ------
Total Operating Income $ 25.9 $ 36.1 (28.3) $ 90.9 $104.9 (13.3)
====== ====== ====== ======
OPERATING INCOME AS A
PERCENT OF SALES
Textile and Coating Solutions 3.8 7.8 5.7 6.8
Polymer Additives and
Specialty Plastics 13.7 18.4 15.1 16.8
Consumer Specialties 11.9 8.4 11.1 12.0
Total Performance
Materials 9.1 11.8 10.2 11.4
</TABLE>
22
<PAGE> 23
THIRD QUARTER OF 2000 COMPARED WITH THIRD QUARTER OF 1999
Sales for the Performance Materials Segment decreased $21.5 million, or 7.0
percent, from $306.3 million during the third quarter last year to $284.8
million during the third quarter this year. The decrease in sales was driven
primarily by reduced volumes ($12 million), particularly in the carpet, flock,
dyes and finishing components of the Textile and Coatings Solutions Group and
the exclusion of sales from the Telene(C) business ($5 million) from the Polymer
Additives and Specialty Plastics Group as it was contributed to a joint venture
on April 1, 2000. Unfavorable currency exchange (Euro - $8 million) also
contributed to the decrease versus last year. These decreases were partially
offset by strong volumes in personal care markets, as well as a favorable sales
mix.
Operating income for the Performance Materials Segment decreased $10.2 million,
or 28.3 percent, from $36.1 million during the third quarter of 1999 to $25.9
million during the third quarter of 2000. The decrease was due to significantly
higher variable costs (primarily raw materials), volume decreases as noted
above, and the impact of unfavorable foreign exchange rate changes. These
decreases were partially offset by the volume strength in personal care markets.
TEXTILE AND COATINGS SOLUTIONS GROUP: Sales in the Group decreased $13.3
million, or 10.0 percent, from $133.2 million during the third quarter of 1999
to $119.9 million during the third quarter of 2000. The decrease is attributable
to softening demand, a decision by the Company to discontinue sales of certain
low margin products and unfavorable foreign exchange. These decreases were
partially offset by a favorable sales mix and some price increases.
Operating income decreased by $5.9 million, or 56.7 percent, from $10.4 million
in the third quarter of 1999 to $4.5 million during the third quarter of 2000.
The decrease was due primarily to lower volumes and higher raw material costs,
partially offset by a favorable mix and improved pricing.
POLYMER ADDITIVES AND SPECIALTY PLASTICS GROUP: Sales decreased by $10.3
million, or 9.3 percent, from $111.3 million during the third quarter of 1999 to
$101.0 million during the third quarter of 2000. The decrease was driven
primarily by the exclusion of Telene(C) sales in the quarter as this business
was contributed April 1, 2000 to a joint venture that is accounted for as an
equity method investment. The remaining decrease was a result of lower volume in
the plumbing markets due to the reduction in housing starts and the foreign
exchange impact of the weaker Euro.
Operating income for the Group decreased $6.7 million, or 32.7 percent, from
$20.5 million during the third quarter of 1999 to $13.8 million during the third
quarter of 2000. The decrease was primarily attributable to the lower volumes
noted above, sharply higher raw material costs (especially PVC), and the
unfavorable impact of foreign exchange rate changes.
CONSUMER SPECIALTIES GROUP: Sales increased $2.1 million, or 3.4 percent, from
$61.8 million during the third quarter of 1999 to $63.9 million in the third
quarter of 2000. The increase is primarily attributable to strong volumes in the
Group's Personal Care (Carbopol(C)) product line. This strength was partially
offset by reductions in volume and price in the food and beverage markets, lower
intermediate sales, the exchange rate impact of the weaker Euro and competitive
pricing pressures.
23
<PAGE> 24
Operating income increased $2.4 million, or 46.2 percent, from $5.2 million
during the third quarter of 1999 to $7.6 million in the third quarter of 2000.
The increase is primarily attributed to strong sales to the personal care
market, and favorable manufacturing and overhead spending compared to 1999.
These increases were partially offset by higher raw material costs (particularly
toluene) and the exchange rate impact of the weaker Euro.
FIRST NINE MONTHS OF 2000 COMPARED WITH FIRST NINE MONTHS OF 1999
During the first nine months of 2000, sales for the Performance Materials
Segment decreased $26.4 million, or 2.9 percent, from $917.3 million in 1999 to
$890.9 million in 2000. The decrease was primarily the result of unfavorable
foreign currency exchange rates (Euro - $24 million), volume declines ($20
million), exclusion of Telene(C) Sales ($10 million), and reduced selling prices
($7 million - primarily in Food & Beverage, Intermediates, and Rubber Additives
markets). The decreases were partially offset by strong volumes in other
businesses (particularly Personal Care and the entire Plastics Group), favorable
sales mix, and incremental sales from acquisitions made earlier in the year.
Operating income for the Segment was down $14.0 million, or 13.3 percent, from
$104.9 million during the first nine months of 1999 to $90.9 million during the
first nine months of 2000. The decrease in operating income was primarily
attributable to significantly higher raw material costs ($19 million), textile
volume declines ($8 million), reduced selling prices noted above ($7 million),
and a weaker Euro ($3 million). These decreases were partially offset by volume
strength in other businesses, reductions in manufacturing/overhead costs ($10
million) and a favorable sales mix. ($13 million).
TEXTILE AND COATINGS SOLUTIONS GROUP: Sales decreased $20.5 million, or 5.1
percent, from $403.8 million during the first nine months of 1999 to $383.3
million during the first nine months of 2000. The decrease is primarily
attributable to a decline in demand in the Textile markets and the unfavorable
exchange impact of the weakened Euro This decrease was partially offset by a
favorable sales mix, volume strength in the coatings business, and incremental
sales from acquisitions.
Operating income for the Group decreased $5.6 million, or 20.4 percent, from
$27.5 million during the first nine months of 1999 to $21.9 million during the
first nine months of 2000. The decrease is primarily due to the volume declines
noted above and higher raw material costs. These decreases were partially offset
by volume strength in the group's coatings business, productivity initiatives,
overhead cost reductions/plant consolidations, and a favorable sales mix.
POLYMER ADDITIVES AND SPECIALTY PLASTICS GROUP: Sales decreased by $9.2 million,
or 2.8 percent, from $330.6 million during the first nine months of 1999 to
$321.4 million during the first nine months of 2000. The decrease is primarily
attributable to the unfavorable exchange impact of the weakened Euro, reduced
prices in the Group's Polymer Additives products, and the exclusion of the
Telene business that was contributed to a joint venture on April 1, 2000. These
decreases were partially offset by strong volume and favorable mix in most of
the Group's other products.
Operating income for the Group decreased $7.1 million, or 12.8 percent, from
$55.5 million during the first nine months of 1999 to $48.4 million during the
first nine months of 2000. The decrease was primarily the result of sharply
higher raw material costs, and the impact of the above mentioned sales price
decreases and unfavorable foreign exchange. These decreases were partially
offset by volume gains in most businesses,
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plus reductions in manufacturing/overhead costs.
CONSUMER SPECIALTIES GROUP: Sales increased $3.3 million, or 1.8 percent, from
$182.9 million during the first nine months of 1999 to $186.2 million during the
first nine months of 2000. The increase was driven by strong sales for the
Group's Personal Care (Carbopol(C)) product line in all regions of the world,
partially offset by lower pricing in the food and beverage business, lower sales
of intermediates for non-food applications and the unfavorable exchange impact
of the weakened Euro.
Operating income decreased $1.3 million, or 5.9 percent, from $21.9 million
during the first nine months of 1999 to $20.6 million during the first nine
months of 2000. The decrease is a result of a one-time favorable settlement from
a patent infringement lawsuit recorded in 1999, the weak Euro, and higher raw
material costs (primarily toluene, driven by higher oil prices), partially
offset by the strength in personal care sales noted above, incremental
acquisition income, and ongoing productivity initiatives to reduce overhead
costs.
CAPITAL RESOURCES AND LIQUIDITY
Current assets less current liabilities decreased $379.7 million from December
31, 1999 to September 30, 2000. The decrease resulted primarily from an increase
in short-term debt related to acquisitions and the Company's share repurchase
program and the reclassification of $175 million from long-term to short-term
indebtedness as the underlying debt matures on July 1, 2001, partially offset by
an increase in accounts receivable. The Company expects to have adequate cash
flow from operations and has the credit facilities (described in the Company's
Annual Report on Form 10-K for the year ended December 31, 1999) to satisfy its
operating requirements and capital spending programs, and to finance growth
opportunities as they arise.
The Company's debt-to-capitalization ratio was 61.0 percent at September 30,
2000, compared with 52.8 percent at December 31, 1999. For purposes of this
ratio, the trust preferred securities are treated as capital.
CASH FLOWS
Cash flow from operating activities decreased $125.6 million from $205.8 million
in the first nine months of 1999 to $80.2 million in the first nine months of
2000, primarily as a result of increased working capital requirements, and an
increase in long-term receivables associated with certain leasing activities
(Super 27 program), partially offset by lower merger-related and consolidation
payments. Included within the changes in working capital is a payment of $113.7
million that was made to the Internal Revenue Service during the quarter for an
income tax assessment and related accrued interest. The Company intends to
pursue its administrative and judicial remedies for a refund of this payment. A
reasonable estimation of the Company's potential refund cannot be made at this
time; accordingly, no receivable has been recorded.
EBITDA, excluding special items, increased $27 million from $727 million in the
first nine months of 1999 to $754 million in the first nine months of 2000.
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TRANSITION TO THE EURO
Although the Euro was successfully introduced on January 1, 1999, the legacy
currencies of those countries participating will continue to be used as legal
tender through January 1, 2002. Thereafter, the legacy currencies will be
canceled and Euro bills and coins will be used in the eleven participating
countries.
Transition to the Euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. Finance and accounting issues
include the conversion of bank accounts and other treasury and cash management
activities.
The Company continues to address these transition issues and does not expect the
transition to the Euro to have a material effect on the results of operations or
financial condition of the Company. Actions taken to date include the ability to
quote its prices; invoice when requested by the customer; and issue pay checks
to its employees on a dual currency basis. The Company has not yet set
conversion dates for its accounting systems, statutory reporting and its tax
books. The financial institutions with which the Company has relationships have
transitioned to the Euro successfully and are issuing statements in dual
currencies.
NEW ACCOUNTING STANDARDS
In March 2000, the Financial Accounting Standards Board ("FASB") issued
Interpretation No. 44, "Accounting for Certain Transactions Involving Stock
Compensation--an interpretation of APB Opinion No. 25" ("FIN 44"). FIN 44
clarifies the application of APB Opinion No. 25 and among other issues clarifies
the following: the definition of an employee for purposes of applying APB
Opinion No. 25; the criteria for determining whether a plan qualifies as a
noncompensatory plan; the accounting consequence of various modifications to the
terms of previously fixed stock options or awards; and the accounting for an
exchange of stock compensation awards in a business combination. FIN 44 is
effective July 1, 2000, but certain conclusions in FIN 44 cover specific events
that occurred after either December 15, 1998 or January 12, 2000. FIN 44 did not
have a material impact on the Company's financial position or results of
operations.
In September 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in years
beginning after June 15, 2000. Because of the Company's minimal use of
derivatives, management does not anticipate that the adoption of the new
Statement will have a significant effect on the Company's financial position or
results of operations.
In December 1999, the SEC staff issued Staff Accounting Bulletin (SAB) 101,
"Revenue Recognition in Financial Statements". The SEC staff has delayed the
effective date of SAB 101 until the fourth quarter of 2000. The Company does not
believe the SAB will have a significant impact on the Company's financial
position or results of operations.
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FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
This document includes statements that reflect projections or expectations of
our future financial condition, results of operations or business that are
subject to risk and uncertainty. We believe such statements to be "forward
looking" statements within the meaning of the Private Securities Litigation
Reform Act of 1995. BFGoodrich's actual results may differ materially from those
included in the forward-looking statements. Forward-looking statements are
typically identified by words or phrases such as "believe", "expect",
"anticipate", "intend", "estimate", "are likely to be" and similar expressions.
Our Annual Report on Form 10-K for the year ended December 31, 1999 lists
various risks and uncertainties that could cause actual results to differ
materially from those discussed in the forward-looking statements. These risks
and uncertainties are detailed in the Management's Discussion and Analysis
section of that Form 10-K under the heading "Forward-Looking Information is
Subject to Risk and Uncertainty", which is incorporated by reference herein. You
should understand that it is not possible to predict or identify all such risks
and uncertainties. Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
We caution you not to place undue reliance on the forward-looking statements
contained in this document, which speak only as of the date on which such
statements were made. We undertake no obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date on which such statements were made or to reflect the occurrence
of unanticipated events.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are defendants in various lawsuits
involving asbestos-containing products. In addition, the Company has been
notified that it is among potentially responsible parties under federal
environmental laws, or similar state laws, relative to the cost of investigating
and in some cases remediating contamination by hazardous materials at several
sits. See Note H to the accompanying unaudited condensed consolidated financial
statements, which is incorporated herein by reference.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 27. Financial Data Schedules.
(b) Reports on Form 8-K.
The following Current Reports on Form 8-K were filed by the Company
during the quarter ended September 30, 2000:
Current Report on Form 8-K filed July 21, 2000 (relating to the
announcement of the Company's earnings for the three-months and
six-months periods ended June 30, 2000).
Current Report on Form 8-K filed August 9, 2000 (relating to the
announcement that Laurence Chapman, the Company's Senior Vice President
and Chief Financial Officer, had decided to leave the Company and that
Ulrich (Rick) Schmidt, Vice President of Finance and Business
Development for the Company's aerospace segment, would succeed him).
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
October 30, 2000 The B.F.Goodrich Company
---------------- ------------------------
/S/ ULRICH SCHMIDT
---------------------------
Ulrich Schmidt
Senior Vice President and
Chief Financial Officer
/S/ ROBERT D. KONEY, JR.
---------------------------
Robert D. Koney, Jr.
Vice President & Controller
(Chief Accounting Officer)
29
