<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 June 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 June 30, 2000, there were 101,468,524 shares of common stock outstanding.
There is only one class of common stock.
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PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(Dollars in millions, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------- ------------------------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Sales $1,380.9 $1,463.4 $2,759.1 $2,875.2
Operating Costs and Expenses:
Cost of sales 988.0 1,043.6 1,974.6 2,050.7
Selling and administrative expenses 204.6 216.7 408.2 433.8
Merger-related and consolidation costs 15.2 10.1 20.6 36.3
-------- -------- -------- --------
1,207.8 1,270.4 2,403.4 2,520.8
-------- -------- -------- --------
Operating income 173.1 193.0 355.7 354.4
Interest expense (37.3) (34.2) (73.8) (68.2)
Interest income 1.7 1.6 2.9 2.3
Other income (expense) - net (1.6) (0.1) (6.1) (2.5)
-------- -------- -------- --------
Income before
income taxes and Trust distributions 135.9 160.3 278.7 286.0
Income tax expense (49.6) (57.8) (101.7) (102.6)
Distributions on Trust preferred
securities (4.6) (4.6) (9.2) (9.2)
-------- -------- -------- --------
Net Income $ 81.7 $ 97.9 $ 167.8 $ 174.2
======== ======== ======== ========
Earnings per share:
Basic $ 0.77 $ 0.89 $ 1.56 $ 1.59
Diluted $ 0.75 $ 0.87 $ 1.53 $ 1.56
Dividends declared per common share $ 0.275 $ 0.275 $ 0.55 $ 0.55
</TABLE>
See notes to condensed consolidated financial statements.
2
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THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
JUNE 30, December 31,
2000 1999
-------- --------
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 81.5 $ 66.4
Accounts and notes receivable, less allowances
for doubtful receivables (June 30, 2000:
$28.3; December 31, 1999: $28.2) 972.8 845.1
Inventories 1,024.0 989.5
Deferred income taxes 131.0 129.7
Prepaid expenses and other assets 59.3 58.7
-------- --------
Total Current Assets 2,268.6 2,089.4
-------- --------
Property, plant and equipment 1,542.5 1,577.3
Prepaid Pension 219.5 212.1
Goodwill 1,036.5 1,031.1
Identifiable intangible assets 106.8 114.0
Other Assets 520.8 431.7
-------- --------
$5,694.7 $5,455.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank debt $ 598.6 $ 229.1
Accounts payable 475.4 476.2
Accrued expenses 692.8 712.2
Income taxes payable 143.3 78.9
Current maturities of long-term debt
and capital lease obligations 6.9 14.5
-------- --------
Total Current Liabilities 1,917.0 1,510.9
-------- --------
Long-term debt and capital lease obligations 1,515.2 1,516.9
Pension obligations 62.9 80.4
Postretirement benefits other than pensions 342.9 347.7
Deferred income taxes 134.3 126.7
Other non-current liabilities 340.3 308.5
Commitments and contingent liabilities -- --
Mandatorily redeemable preferred securities of trust 272.6 271.3
Shareholders' Equity
Common stock - $5 par value
Authorized 200,000,000 shares; issued 112,390,627 shares at June 30,
2000, and 112,064,927 shares at December 31, 1999 (excluding 14,000,000
shares held by a wholly owned subsidiary) 561.9 560.3
Additional capital 898.3 895.8
Income retained in the business 56.2 (52.3)
Accumulated other comprehensive income (47.4) (44.2)
Unearned portion of restricted stock awards (1.2) (1.2)
Common stock held in treasury, at cost (10,922,103 shares at June 30, 2000,
and 1,832,919 shares at December 31, 1999) (358.3) (65.2)
-------- --------
Total Shareholders' Equity 1,109.5 1,293.2
-------- --------
$5,694.7 $5,455.6
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
3
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THE B.F.GOODRICH COMPANY
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(Dollars in millions)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
--------------------
2000 1999
------- -------
<S> <C> <C>
OPERATING ACTIVITIES
Net Income $ 167.8 $ 174.2
Adjustments to reconcile net income to net
cash provided by operating activities:
Merger related and consolidation:
Expenses 20.6 36.3
Payments (38.5) (50.1)
Depreciation and amortization 137.5 115.0
Deferred income taxes 6.3 15.9
Net gains on sales of businesses (2.0) (6.2)
Gain on sale of investment -- (3.2)
Change in assets and liabilities, net of effects of
acquisitions and dispositions of businesses:
Receivables (125.0) (103.8)
Inventories (41.1) 38.8
Other current assets (1.3) (63.4)
Accounts payable 2.0 (29.2)
Accrued expenses (20.0) 75.5
Income taxes payable 64.1 34.1
Other non-current assets and liabilities (74.3) (28.1)
------- -------
Net cash provided by operating activities 96.1 205.8
INVESTING ACTIVITIES
Purchases of property (89.3) (111.2)
Proceeds from sale of property 17.6 1.6
Proceeds from sale of businesses 4.8 3.9
Sale of short-term investments -- 3.5
Payments made in connection with acquisitions,
net of cash acquired (36.5) (36.4)
------- -------
Net cash used by investing activities (103.4) (138.6)
FINANCING ACTIVITIES
Increase (decrease) in short-term debt 370.3 (101.5)
Proceeds from issuance of long-term debt -- 200.0
Decrease in revolving credit facility, net -- (35.5)
Repayment of long-term debt and capital lease obligations (9.3) (12.5)
Proceeds from sale of receivables, net 0.1 --
Proceeds from issuance of capital stock -- 4.5
Purchases of treasury stock (275.2) (0.3)
Dividends (60.5) (40.9)
Distributions on Trust preferred securities (9.2) (9.2)
Other 8.0 --
------- -------
Net cash provided by financing activities 24.2 4.6
Effect of Exchange Rate Changes on Cash and Cash Equivalents (1.8) 0.4
------- -------
Net Increase in Cash and Cash Equivalents 15.1 72.2
Cash and Cash Equivalents at Beginning of Period 66.4 53.5
------- -------
Cash and Cash Equivalents at End of Period $ 81.5 $ 125.7
======= =======
Supplemental Cash Flow Information:
Income taxes paid $ 23.1 $ 58.7
======= =======
Interest paid, net of amounts capitalized $ 72.8 $ 65.4
======= =======
</TABLE>
See notes to condensed consolidated financial statements
4
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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 six months ended June 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 six 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; and a personal care business. Total consideration
aggregated $32.4 million, of which $25.0 million represented goodwill and other
intangible assets. The purchase price allocation for these acquisitions has been
based on preliminary estimates.
NOTE C: INVENTORIES - Inventories included in the accompanying condensed
consolidated balance sheet consist of:
(Dollars in millions)
-------------------------------
June 30, December 31,
2000 1999
-------- ------------
FIFO or average cost
(which approximates current costs):
Finished products $ 346.7 $ 278.0
In process 604.9 608.4
Raw materials and supplies 229.4 257.5
-------- --------
1,181.0 1,143.9
Less:
Reserve to reduce certain
inventories to LIFO (74.6) (70.8)
Progress payments and advances (82.4) (83.6)
-------- --------
Total $1,024.0 $ 989.5
======== ========
In-process inventories include significant deferred costs related to production,
pre-production and excess-over-average costs for long-term contracts. The
Company has pre-production inventory of $82.1 million related to design and
development costs on the 717-200 program at June 30, 2000. In addition,
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the Company has excess-over-average inventory of $58.7 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 later 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 Six Months Ended
June 30, June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Sales
Aerospace $ 900.2 $ 965.9 $1,793.2 $1,892.1
Engineered Industrial Products 182.2 186.5 359.8 372.1
Performance Materials 298.5 311.0 606.1 611.0
-------- -------- -------- --------
Total Sales $1,380.9 $1,463.4 $2,759.1 $2,875.2
======== ======== ======== ========
Segment Operating Income
Aerospace $ 141.9 $ 144.9 $ 280.6 $ 287.4
Engineered Industrial Products 32.6 37.0 66.2 71.2
Performance Materials 30.9 39.2 65.0 68.8
-------- -------- -------- --------
205.4 221.1 411.8 427.4
Corporate General and
Administrative Expenses (17.1) (18.0) (35.5) (36.7)
Merger Related and
Consolidation Costs (15.2) (10.1) (20.6) (36.3)
-------- -------- -------- --------
Total Operating Income $ 173.1 $ 193.0 $ 355.7 $ 354.4
======== ======== ======== ========
</TABLE>
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June 30, 2000 December 31, 1999
------------- -----------------
Assets
Aerospace $ 3,191.3 $ 3,021.8
Engineered Industrial Products 390.9 390.3
Performance Materials 1,388.6 1,408.4
Corporate 723.9 635.1
--------- ---------
Total Assets $ 5,694.7 $ 5,455.6
========= =========
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 Six Months Ended
June 30, June 30,
----------------- -----------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator:
Numerator for basic earnings per share
- income available to common shareholders $ 81.7 $ 97.9 $167.8 $174.2
Effect of dilutive securities:
Convertible preferred securities 1.6 1.6 3.2 3.2
------ ------ ------ ------
Numerator for diluted earnings per
share-income available to common
shareholders after assumed conversions $ 83.3 $ 99.5 $171.0 $177.4
====== ====== ====== ======
Denominator:
Denominator for basic earnings per
share - weighted-average shares 106.1 109.9 107.8 109.8
------ ------ ------ ------
Effect of dilutive securities:
Stock options, warrants and restricted shares 1.6 1.1 1.0 0.9
Convertible preferred securities 2.9 2.9 2.9 2.9
------ ------ ------ ------
Dilutive potential common shares 4.5 4.0 3.9 3.8
------ ------ ------ ------
Denominator for diluted earnings per
share - adjusted weighted-average shares
and assumed conversions 110.6 113.9 111.7 113.6
====== ====== ====== ======
Earnings per share:
Basic $ 0.77 $ 0.89 $ 1.56 $ 1.59
====== ====== ====== ======
Diluted $ 0.75 $ 0.87 $ 1.53 $ 1.56
====== ====== ====== ======
</TABLE>
The Company's Board of Directors approved a $300 million share repurchase
program during the first quarter. The Company has repurchased 9.3 million shares
of its common stock for $300.0 million through June 30, 2000.
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NOTE F: COMPREHENSIVE INCOME
Total comprehensive income consists of the following:
<TABLE>
<CAPTION>
(Dollars in millions) Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net Income $81.7 $97.9 $167.8 $174.2
Other Comprehensive Income
Unrealized translation adjustments
during period (5.4) (5.2) (3.1) (19.4)
----- ----- ------ ------
Total Comprehensive Income $76.3 $92.7 $164.7 $154.8
===== ===== ====== ======
</TABLE>
Accumulated other comprehensive income consists of the following (dollars in
millions):
June 30, 2000 December 31, 1999
------------- -----------------
Cumulative unrealized translation adjustments $(40.6) $(37.5)
Minimum pension liability adjustment (6.7) (6.7)
------ ------
$(47.3) $(44.2)
====== ======
NOTE G: MERGER RELATED AND CONSOLIDATION COSTS
Through June 30, 2000, the Company recorded charges totaling $20.6 million
($13.0 million after-tax), of which $15.2 million ($9.6 million after-tax) was
recorded in the second quarter. The charges were recorded across the Company's
segments as follows:
(Dollars in millions) Three Months Ended Six Months Ended
June 30, 2000 June 30, 2000
------------- -------------
Aerospace $ 5.2 $ 9.6
Performance Materials (0.2) (0.2)
Corporate 10.2 11.2
----- -----
$15.2 $20.6
===== =====
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Merger related and consolidation reserves at December 31, 1999 and June 30,
2000, as well as activity during the six months ended June 30, 2000, consisted
of:
<TABLE>
<CAPTION>
(Dollars in millions)
---------------------------------------------------------------
Balance Reserve Balance
December 31, 1999 Provision Reduction June 30, 2000
----------------- --------- --------- -------------
<S> <C> <C> <C> <C>
Personnel related costs $41.3 $13.2 $36.8 $17.7
Transaction costs 2.0 -- 0.1 1.9
Consolidation 7.9 8.1 7.2 8.8
---- ----- ----- -----
$51.2 $21.3 $44.1 $28.4
===== ===== ===== =====
</TABLE>
During the six months ended June 30, 2000, the Company recorded net merger
related and consolidation costs of $20.6 million consisting of $13.2 million in
personnel related costs and $8.1 million in consolidation costs, offset by a
credit of $0.7 million representing a revision of prior estimates. The $13.2
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 $1.7
million in employee relocation costs associated with the Coltec merger, $1.4
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 a $4.9 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
$3.2 million for realignment activities. Of the $44.1 million reduction in
reserves, $38.5 million related to cash payments, $4.9 million related to the
write-off of assets and accelerated depreciation and $0.7 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.
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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 June 30, 2000, the Company has recorded in Accrued Expenses and in Other
Non-current Liabilities a total of $118.2 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 June 30, 2000, two subsidiaries of the Company were among a number of
defendants (typically 15 to 40) in approximately 96,800 actions (including
approximately 11,400 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 six months of 2000, these two subsidiaries of
the Company received approximately 19,200 new actions compared to approximately
18,100 new actions received during the first six months of 1999. Through June
30, 2000, approximately 303,600 of the approximately 400,400 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 June
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
$238.6 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
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$59.0 million and $30.6 million for the first six 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 $4.0 million during
the first six months of 2000 and 1999.
With respect to the 85,400 outstanding actions as of June 30, 2000, which are in
preliminary procedural stages, as well as any actions that may be filed in the
future, the Company lacks sufficient information upon which judgments can be
made as to the validity or ultimate disposition of such actions, thereby making
it difficult to estimate with reasonable certainty what, if any, potential
liability or costs may be incurred by the Company. However, the Company believes
that its subsidiaries are in a favorable position compared to many other
defendants because, among other things, the asbestos fibers in its
asbestos-containing products were encapsulated. Subsidiaries of the Company
continue to distribute encapsulated asbestos-bearing product in the United
States with annual sales of less than $1.5 million. All sales are accompanied by
appropriate warnings. The end users of such product are sophisticated users who
utilize the product for critical applications where no known substitutes exist
or have been approved.
Insurance coverage of a small non-operating subsidiary formerly distributing
asbestos-bearing products is nearly depleted. Considering the foregoing, as well
as the experience of the Company's subsidiaries and other defendants in asbestos
litigation, the likely sharing of judgments among multiple responsible
defendants, and given the substantial amount of insurance coverage that the
Company expects to be available from its solvent carriers to cover the majority
of its exposure, the Company believes that pending and reasonably anticipated
future actions are not likely to have a materially adverse effect on the
Company's consolidated results of operations or financial condition, but could
be material to the Company's results of operations in a given period. Although
the insurance coverage which the Company has is substantial, it should be noted
that insurance coverage for asbestos claims is not available to cover exposures
initially occurring on and after July 1, 1984. The Company's subsidiaries
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
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recoverable from it's insurance carriers. Liabilities for asbestos-related
matters and the receivable from insurance carriers included in the Consolidated
Balance Sheet are as follows:
(Dollars in millions)
June 30, December 31,
2000 1999
------- --------
Accounts and notes receivable $202.5 $146.9
Other assets 80.3 36.7
Accrued expenses 165.8 134.6
Other liabilities 72.8 28.5
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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 $91.3 million,
or $0.84 per share, compared to $100.2 million, or $0.89 per share, in
the year-ago quarter.
- Net income, excluding special items, for the first six months of 2000
was $180.8 million, or $1.65 per share, compared to $193.0 million, or
$1.73 per share, for the first six months of 1999.
- EBITDA, excluding special items, was approximately $254 million and
$508 million for the quarter and six month periods ended June 30, 2000
respectively. During the same periods of 1999, EBITDA, excluding
special items, approximated $255 million and $497 million,
respectively.
- The share repurchase program that was authorized during the first
quarter of 2000 was completed.
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
SECOND QUARTER OF 2000 COMPARED WITH SECOND QUARTER OF 1999
Sales during the quarter ended June 30, 2000, decreased by $82.5 million, or 5.6
percent, from sales during the same period last year. Sales decreased by 6.8
percent for the Aerospace Segment, by 2.3 percent for the Engineered Industrial
Products Segment and by 4.0 percent for the Performance Materials Segment as
compared to the 1999 second 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 percent in 1999 to 72
percent in 2000. Given the reduction in sales between periods noted above, the
increase would have been larger absent management's ability to lower its
controllable costs through operating improvement initiatives.
Selling and administrative costs as a percent of sales was 15 percent in 1999
and in 2000. Given the decrease in sales noted above, the Company was able to
keep selling and administrative costs as a percent of sales constant between
periods due to its efforts to control costs (previously announced lay-offs, lean
manufacturing initiatives and plant closures).
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Merger related and consolidation costs of $15.2 million and $10.1 million were
recorded during the second quarter of 2000 and 1999, respectively (see further
discussion in Note G of the accompanying unaudited condensed consolidated
financial statements). The Company expects to incur an additional $20 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 second
quarter decreased $14.8 million, or 7.3 percent, from $203.1 million in 1999 to
$188.3 million in 2000. Operating income decreased by $3.0 million in the
Aerospace Segment, by $4.4 million in the Engineered Industrial Products Segment
and by $8.3 million in the Performance Materials Segment. Unallocated corporate
general and administrative costs decreased by $0.9 million, or 5.0 percent,
between periods. Operating income by segment is discussed in greater detail
below.
Interest expense-net increased $3.0 million from $32.6 million in 1999 to $35.6
million in 2000. The increase is a direct result of additional short-term
borrowings due primarily to the repurchase of the Company's common stock during
the second quarter of 2000.
Other expense-net increased $1.5 million from $0.1 million in the second quarter
of 1999 to $1.6 million in the second quarter of 2000. Excluding gains from the
sale of businesses during both periods, other expense-net decreased by $1.6
million from $6.3 million in 1999 to $4.7 million in 2000. The decrease was due
primarily to lower costs associated with previously sold businesses.
The Company's effective tax rate increased from 36.0 percent to 36.5 percent,
quarter to quarter. The effective tax rate in the second quarter of 2000
approximates the rate for all of 1999, excluding special items, and is
consistent with the rate expected for 2000.
FIRST SIX MONTHS OF 2000 AS COMPARED TO THE FIRST SIX MONTHS OF 1999
Sales during the first six months of 2000 decreased by $116.1 million, or 4.0
percent, from sales during the same period last year. Sales decreased by 5.2
percent for the Aerospace Segment, by 3.3 percent for the Engineered Industrial
Products Segment and by 0.8 percent for the Performance Materials Segment as
compared to the first six 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 percent in 1999 to 72
percent in 2000. The reason for the change is consistent with the explanation
above for the second quarter.
Selling and administrative costs as a percent of sales was 15 percent in 1999
and in 2000. Given the decrease in sales noted above, the Company was able to
keep selling and administrative costs as a percent of sales constant between
periods due to its efforts to control costs (previously announced lay-offs, lean
manufacturing initiatives, plant closures, etc.).
Merger related and consolidation costs of $20.6 million and $36.3 million were
recorded during the first six months of 2000 and 1999, respectively (see further
discussion in Note G of the accompanying unaudited condensed consolidated
financial statements). The Company expects to incur an additional
14
<PAGE> 15
$20 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 for the first
six months of 2000 decreased $14.4 million, or 3.7 percent, from $390.7 million
in 1999 to $376.3 million in 2000. Operating income decreased by $6.8 million in
the Aerospace Segment, by $5.0 million in the Engineered Industrial Products
Segment and by $3.8 million in the Performance Materials Segment. Unallocated
corporate general and administrative costs decreased $1.2 million between
periods. Operating income by segment is discussed in greater detail below.
Interest expense-net increased $5.0 million from $65.9 million during the first
six months of 1999 to $70.9 million during the first six months of 2000. The
increase is a direct 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 $3.6 million from $2.5 million during the first six
months of 1999 to $6.1 million during the first six months of 2000. Excluding
gains from the sale of businesses other expense-net decreased by $1.6 million
from $11.9 million during the first six months of 1999 to $10.3 million during
the first six months of 2000. The decrease was due primarily to lower costs
associated with previously sold businesses.
The Company's effective tax rate of 36.5 percent for the first six months of
2000 approximates the rate for all of 1999, excluding special items, and is
consistent with the rate expected for 2000.
15
<PAGE> 16
BUSINESS SEGMENT PERFORMANCE
SEGMENT ANALYSIS
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in Millions) 2000 1999 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES:
Aerospace $ 900.2 $ 965.9 $1,793.2 $1,892.1
Engineered Industrial
Products 182.2 186.5 359.8 372.1
Performance Materials 298.5 311.0 606.1 611.0
---------------------------------------------------------------------------------------------------
Total $1,380.9 $1,463.4 $2,759.1 $2,875.2
===================================================================================================
OPERATING INCOME:
Aerospace $ 141.9 $ 144.9 $ 280.6 $ 287.4
Engineered Industrial
Products 32.6 37.0 66.2 71.2
Performance Materials 30.9 39.2 65.0 68.8
---------------------------------------------------------------------------------------------------
Total Reportable
Segments 205.4 221.1 411.8 427.4
Corporate General and
Administrative Costs (17.1) (18.0) (35.5) (36.7)
Merger Related and
Consolidation Costs (15.2) (10.1) (20.6) (36.3)
---------------------------------------------------------------------------------------------------
Total $ 173.1 $ 193.0 $ 355.7 $ 354.4
===================================================================================================
</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.
16
<PAGE> 17
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).
17
<PAGE> 18
An expanded analysis of sales and operating income by business segment follows.
AEROSPACE
<TABLE>
<CAPTION>
(Dollars in millions)
Three Months Ended June 30, Six Months Ended June 30,
----------------------------- --------------------------------
2000 1999 %Change 2000 1999 %Change
---- ---- ------- ---- ---- -------
<S> <C> <C> <C> <C> <C> <C>
SALES
Aerostructures and Aviation
Services $348.4 $421.2 (17.3) $ 706.0 $ 808.7 (12.7)
Landing Systems 259.0 279.9 (7.5) 519.1 542.4 (4.3)
Engine and Safety Systems 153.5 137.8 11.4 301.3 281.3 7.1
Electronic Systems 139.3 127.0 9.7 266.8 259.7 2.7
------ ------ -------- --------
Total Sales $900.2 $965.9 (6.8) $1,793.2 $1,892.1 (5.2)
====== ====== ======== ========
OPERATING INCOME
Aerostructures and Aviation
Services $ 49.0 $ 55.4 (11.6) $ 97.9 $ 111.9 (12.5)
Landing Systems 35.1 42.5 (17.4) 72.4 79.3 (8.7)
Engine and Safety Systems 30.2 25.2 19.8 57.5 49.9 15.2
Electronic Systems 27.6 21.8 26.6 52.8 46.3 14.0
------ ------ -------- --------
Total Operating Income $141.9 $144.9 (2.1) $ 280.6 $ 287.4 (2.4)
====== ====== ======== ========
OPERATING INCOME AS A PERCENT OF SALES
Aerostructures and Aviation
Services 14.1 13.2 13.9 13.8
Landing Systems 13.6 15.2 13.9 14.6
Engine and Safety Systems 19.7 18.3 19.1 17.7
Electronic Systems 19.8 17.2 19.8 17.8
Total Aerospace 15.8 15.0 15.6 15.2
</TABLE>
18
<PAGE> 19
SECOND QUARTER 2000 COMPARED WITH SECOND QUARTER 1999
Aerospace sales decreased $65.7 million, or 6.8 percent, from $965.9 million
during the second quarter of 1999 to $900.2 million during the second quarter of
2000. The decrease was primarily attributable to lower sales at Aerostructures
and Aviation Services and Landing Systems partially offset by higher sales at
the Engine and Safety Systems and the Electronic Systems groups.
Aerospace operating income decreased $3.0 million, or 2.1 percent, from $144.9
million during the second quarter of 1999 to $141.9 million during the second
quarter of 2000. The same groups as noted above were primarily responsible for
the net decrease in operating income.
AEROSTRUCTURES AND AVIATION SERVICES GROUP: Sales for the second quarter of 2000
decreased $72.8 million, or 17.3 percent, from $421.2 million during the second
quarter of 1999 to $348.4 million during the second quarter of 2000. The
decrease was primarily attributable to the settlement of a contract claim during
the second quarter of 1999 that resulted in approximately $60 million of sales,
lower sales on the MD-11 and MD-80 resulting from the end of production of these
programs and lower volume from two major customers for aircraft maintenance
services. These decreases were partially offset by increased sales on the super
27 program.
Operating income for the second quarter of 2000 decreased $6.4 million, or 11.6
percent, from $55.4 million during the second quarter of 1999 to $49.0 million
during the second quarter of 2000. The decrease was predominantly due to a
settlement with a customer for cancellation of an ongoing program recorded in
1999, lost production volume on MD-11 and MD-80 and lower aircraft maintenance
volume.
LANDING SYSTEMS GROUP: Sales decreased $20.9 million, or 7.5 percent, from
$279.9 million during the second quarter of 1999 to $259.0 million during the
second quarter of 2000. The decrease was primarily attributable to lower landing
gear sales partially offset by an increase in after-market demand for wheels and
brakes. The decrease in sales of landing gear resulted from an expected
reduction in Boeing's original equipment ("OE") production rates on the B777,
B747, and B757 aircraft, as well as the end of production of the MD11 and B737
classic aircraft. The increased demand for wheels and brakes came primarily from
the regional, business and military market.
Operating income decreased $7.4 million, or 17.4 percent, from $42.5 million
during the second quarter of 1999 to $35.1 million during the second quarter of
2000. The decrease was primarily attributable to the lower landing gear sales
noted above partially offset by higher after-market sales of wheels and brakes
and a favorable sales mix.
ENGINE AND SAFETY SYSTEMS GROUP: Sales increased $15.7 million, or 11.4 percent,
from $137.8 million during the second quarter of 1999 to $153.5 million during
the second quarter of 2000. The increase was primarily attributable to stronger
sales in engine products, especially power generation and fuel nozzle products,
partially offset by lower sales of fuel control products due to lower helicopter
after-market shipments.
Operating income increased $5.0 million, or 19.8 percent, from $25.2 million
during the second quarter of 1999 to $30.2 million during the second quarter of
2000. The increase was primarily attributable to the increase in sales of engine
products noted above as well as a favorable sales mix.
19
<PAGE> 20
ELECTRONIC SYSTEMS GROUP: Sales increased $12.3 million, or 9.7 percent, from
$127.0 million during the second quarter of 1999 to $139.3 million during the
second quarter of 2000. The increase was primarily attributable to greater sales
of satellite and avionics products, partially offset by decreased sales of
aircraft sensors. The increase in sales to the satellite market related to the
Delta IV and Atlas V programs as well as the acquisition of two small
businesses. Sales of avionics over the same period a year ago increased as a
result of favorable market conditions in regards to general aviation aircraft.
The decrease in sales of aircraft sensors was primarily related to orders from
the United States Air Force that slipped into the third quarter and the
divestiture of a small product line.
Operating income increased $5.8 million, or 26.6 percent, from $21.8 million
during the second quarter of 1999 to $27.6 million during the second quarter 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 lower new product development costs on the helicopter health and usage
monitoring system accounted for the increase in operating income.
FIRST SIX MONTHS OF 2000 COMPARED WITH FIRST SIX MONTHS OF 1999
Aerospace sales decreased $98.9 million, or 5.2 percent, from $1,892.1 million
during the first six months of 1999 to $1,793.2 million for the first six months
of 2000. The decrease was primarily attributable to Aerostructures and Aviation
Services with offsetting increases/decreases associated with the other groups.
Aerospace operating income decreased $6.8 million, or 2.4 percent, from $287.4
million during the first six months of 1999 to $280.6 million during the first
six months of 2000. The decrease was primarily attributable to Aerostructures
and Aviation Services and Landing Systems, partially offset by increases in
Engine and Safety Systems and Electronic Systems.
AEROSTRUCTURES AND AVIATION SERVICES GROUP: Sales decreased $102.7 million, or
12.7 percent, from $808.7 million during the first six months of 1999 to $706.0
million during the first six months of 2000. The decrease was primarily
attributable to the settlement of a contract claim during the second quarter of
1999 that resulted in approximately $60 million of sales, lower sales on the
MD-11 and MD-80 resulting from the end of production of these programs and lower
volume from two major customers for aircraft maintenance services. These
decreases were partially offset by increased sales on the super 27 program.
Operating income decreased $14.0 million, or 12.5 percent, from $111.9 million
during the first six months of 1999 to $97.9 million during the first six months
of 2000. The decrease was predominantly due to a settlement with a customer for
cancellation of an ongoing program recorded in 1999, lost production volume on
MD-11 and MD-80 and lower aircraft maintenance volume.
LANDING SYSTEMS GROUP: Sales decreased $23.3 million, or 4.3 percent, from
$542.4 million during the first six months of 1999 to $519.1 million during the
first six months of 2000. The decrease was primarily attributable to
significantly lower sales of landing gear, partially offset by increased
after-market sales of wheels and brakes. Landing gear sales were significantly
lower than the same period last year as decreases in commercial OE production
due to lower requirements on most Boeing programs were not offset by increases
in spares or military OE sales. After-market wheel and brake sales were
20
<PAGE> 21
higher than the same period last year in all market segments, but strongest in
the regional, business and military segment.
Operating income decreased $6.9 million, or 8.7 percent, from $79.3 million
during the first six months of 1999 to $72.4 million during the first six months
of 2000. The decrease was primarily attributable to the lower landing gear sales
noted above partially offset by higher after-market sales of wheels and brakes
and a favorable sales mix.
ENGINE AND SAFETY SYSTEMS GROUP: Sales increased $20.0 million, 7.1 percent,
from $281.3 million during the first six months of 1999 to $301.3 million during
the first six months of 2000. Increased demand for power generation, fuel
nozzles, turbine blades and de-icing products more than offset weaknesses in
safety systems and fuel controls.
Operating income increased $7.6 million, or 15.2 percent, from $49.9 million
during the first six months of 1999 to $57.5 million during the first six months
of 2000. The increase was primarily attributable to the increase in sales noted
above as well as a favorable sales mix.
ELECTRONIC SYSTEMS GROUP: Sales increased $7.1 million, or 2.7 percent, from
$259.7 million during the first six months of 1999 to $266.8 million during the
first six months of 2000. The increase was primarily attributable to increased
demand for satellite launch vehicle components and two small acquisitions in the
space/satellite industry and increased demand for general aviation avionics
products, partially offset by decreased sales of sensors and fuel management
systems.
Operating income increased $6.5 million, or 14.0 percent, from $46.3 million
during the first six months of 1999 to $52.8 million during the first six 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 lower new product development costs on the helicopter health and usage
monitoring system accounted for the increase in operating income.
ENGINEERED INDUSTRIAL PRODUCTS:
(IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------- ---------------
2000 1999 2000 1999
---- ---- ---- ----
Sales $ 182.2 $ 186.5 $ 359.8 $ 372.1
Operating Income $ 32.6 $ 37.0 $ 66.2 $ 71.2
Operating Income as a percent
of sales 17.9% 19.8% 18.4% 19.1%
21
<PAGE> 22
SECOND QUARTER OF 2000 COMPARED WITH SECOND QUARTER OF 1999
Sales decreased by $4.3 million, or 2.3 percent, from $186.5 million during the
second quarter of 1999 to $182.2 million during the second quarter of 2000. The
decrease was primarily attributable to lower sales of medium-speed diesel
engines, sealing products due in part to a weaker Euro, and self-lubricating
bearings and dies. These decreases were partially offset by an increase in sales
of products serving the compressed air markets.
Operating income decreased by $4.4 million, or 11.9 percent, from $37.0 million
during the second quarter of 1999 to $32.6 million during the second quarter of
2000. The decline in operating income was due to the decrease in sales noted
above. Operating income as a percentage of sales decreased during the period
from 19.8 percent to 17.9 percent as a result of these factors.
FIRST SIX MONTHS OF 2000 COMPARED WITH FIRST SIX MONTHS OF 1999
Sales decreased by $12.3 million, or 3.3 percent, from $372.1 million during the
first six months of 1999 to $359.8 million during the first six months of 2000.
This reduction was due primarily 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 $5.0 million, or 7.0 percent, from $71.2 million
during the first six months of 1999 to $66.2 million during the first six months
of 2000. The decline in operating income was due to pressures related to foreign
currency and product/program mix. Operating income as a percentage of sales
decreased during the period from 19.1 percent to 18.4 percent as a result of
these factors.
22
<PAGE> 23
PERFORMANCE MATERIALS
<TABLE>
<CAPTION>
(Dollars in millions)
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
----------------------------- -----------------------------
% %
2000 1999 CHANGE 2000 1999 CHANGE
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
SALES
Textile and Coatings
Solutions $129.7 $139.1 (6.8) $263.4 $270.6 (2.7)
Polymer Additives and
Specialty Plastics 106.0 110.0 (3.6) 220.4 219.3 0.5
Consumer Specialties 62.8 61.9 1.5 122.3 121.1 1.0
------ ------ ------ ------
Total Sales $298.5 $311.0 (4.0) $606.1 $611.0 (0.8)
====== ====== ====== ======
OPERATING INCOME
Textile and Coatings
Solutions $ 9.4 $ 10.9 (13.8) $ 17.4 $ 17.1 1.8
Polymer Additives and
Specialty Plastics 15.3 16.7 (8.4) 34.6 35.0 (1.1)
Consumer Specialties 6.2 11.6 (46.6) 13.0 16.7 (22.2)
------ ------ ------ ------
Total Operating Income $ 30.9 $ 39.2 (21.2) $ 65.0 $ 68.8 (5.5)
====== ====== ====== ======
OPERATING INCOME AS A PERCENT OF SALES
Textile and Coating Solutions 7.2 7.8 6.6 6.3
Polymer Additives and
Specialty Plastics 14.4 15.2 15.7 16.0
Consumer Specialties 9.9 18.7 10.6 13.8
Total Performance
Materials 10.4 12.6 10.7 11.3
</TABLE>
23
<PAGE> 24
SECOND QUARTER OF 2000 COMPARED WITH SECOND QUARTER OF 1999
Sales for the Performance Materials Segment decreased $12.5 million, or 4.0
percent, from $311.0 million during the second quarter last year to $298.5
million during the second quarter this year. The decrease in sales was driven
primarily by reduced volumes, particularly in the carpet, flock, dyes and
finishing components of the Textile and Coatings Solutions Group ($15 million)
and the exclusion of sales from the Telene(C) business from the Polymer
Additives and Specialty Plastics Group as it was contributed to a joint venture
at the beginning of the quarter. Unfavorable currency exchange (Euro) also
contributed to the decrease versus last year. These decreases were partially
offset by targeted price increases and improved volume in products serving the
coatings, personal care, pharmaceutical and polymer additives markets.
Operating income for the Performance Materials Segment decreased $8.3 million,
or 21.2 percent, from $39.2 million during the second quarter of 1999 to $30.9
million during the second quarter of 2000. The decrease was due to significantly
higher variable costs (primarily raw materials-approximately $15 million), a
decrease in volume for products serving the textile market ($9 million) and a
favorable one-time patent infringement lawsuit claim recorded in 1999. The
decreases were partially offset by an improvement in sales price and mix ($10
million), reductions in manufacturing/overhead costs ($6 million) related to
productivity improvements and the savings generated from the 1999 restructuring
of the Segment.
TEXTILE AND COATINGS SOLUTIONS GROUP: Sales in the Group decreased $9.4 million,
or 6.8 percent, from $139.1 million during the second quarter of 1999 to $129.7
million during the second quarter of 2000. The decrease was attributable to a
decline in demand for textile dyes and SB emulsion products ($23.2 million).
This decline was partially offset by targeted price increases ($5.7 million) and
a favorable sales mix ($8.1 million). The textile business unit continues to be
challenged with lower volume and competitive market prices in North America as
compared to a year ago. This was due primarily to an increase in global
competition, industry consolidation and the effect of a stronger dollar.
Operating income decreased by $1.5 million, or 13.8 percent, from $10.9 million
in 1999 to $9.4 million during the second quarter of 2000. The decrease was due
primarily to higher raw material costs and lower volumes in the products serving
the textile markets partially offset by targeted price increases, productivity
improvements and reductions in manufacturing/overhead costs.
POLYMER ADDITIVES AND SPECIALTY PLASTICS GROUP: Sales decreased by $4.0 million,
or 3.6 percent, from $110.0 million during the second quarter of 1999 to $106.0
million during the second quarter of 2000. The decrease was driven primarily by
the exclusion of Telene(C) sales in the quarter as this business was contributed
at the beginning of the quarter to a joint venture that is accounted for as an
equity method investment. The remaining decrease was primarily a result of lower
volume in the static control polymers market and price decreases in the polymer
additives rubber chemicals market, partially offset by modest volume increases
in sales of the Group's Polymer Additives and Estane(C) products.
Operating income for the Group decreased $1.4 million, or 8.4 percent, from
$16.7 million during the second quarter of 1999 to $15.3 million during the
second quarter of 2000. The decrease was primarily attributable to higher raw
material costs ($4.7 million), partially offset by a reduction in
24
<PAGE> 25
manufacturing/overhead costs ($4.8 million) from the exclusion of the Telene(C)
business and through cost savings realized from last year's restructuring. The
remaining decrease was the result of the price and sales factors noted above
CONSUMER SPECIALTIES GROUP: Sales increased $0.9 million, or 1.5 percent, from
$61.9 million during the second quarter of 1999 to $62.8 million in the second
quarter of 2000. The increase was primarily attributable to particularly strong
volumes in the Group's Carbopol(C) product line and sales of new products, and
products leveraged from other groups, into the personal care markets. The
strength of personal care sales was partially offset by reductions in volume and
price in the food and beverage markets, lower intermediate sales for non-food
applications and the exchange rate impact of the weaker Euro.
Operating income decreased $5.4 million, or 46.6 percent, from $11.6 million
during the second quarter of 1999 to $6.2 million in the second quarter of 2000.
The decrease resulted from a one-time favorable settlement from a patent
infringement lawsuit recorded in 1999, a weaker Euro and higher raw material and
manufacturing costs partially offset by the favorable impact of the above noted
increase in sales to the personal care market. The increased manufacturing costs
related primarily to costs incurred during the quarter to expand the Group's
production capacity overseas for Carbopol(C).
FIRST SIX MONTHS OF 2000 COMPARED WITH FIRST SIX MONTHS OF 1999
During the first six months of 2000, sales for the Performance Materials Segment
decreased $4.9 million, or 0.8 percent, from $611.0 million in 1999 to $606.1
million in 2000. The decrease was primarily the result of volume declines in the
Textile markets and unfavorable currency exchange. This decrease in sales volume
was partially offset through targeted price and volume increases in several
other markets across all Groups.
Operating income for the Segment is down $3.8 million, or 5.5 percent, from
$68.8 million during the first six months of 1999 to $65.0 million during the
first six months of 2000. The decrease in operating income was primarily
attributable to a decline in demand for products serving the textile markets,
significantly higher raw material costs and a weaker Euro, partially offset by
reductions in manufacturing/overhead costs and a favorable sales mix.
TEXTILE AND COATINGS SOLUTIONS GROUP: Sales decreased $7.2 million, or 2.7
percent, from $270.6 million during the first six months of 1999 to $263.4
million during the first six months of 2000. The decrease was primarily
attributable to a decline in demand ($15.7 million) and reductions in price
($2.7 million). This decrease was partially offset by a favorable sales mix
($7.7 million) and by acquisitions ($3.6 million). The textile business unit
continues to be challenged by lower demand and competitive market prices in
North America as compared to a year ago. This was due primarily to an increase
in global competition, industry consolidation and the effect of a stronger
dollar.
Operating income for the Group increased $0.3 million, or 1.8 percent, from
$17.1 million during the first six months of 1999 to $17.4 million during the
first six months of 2000. The increase was primarily due to productivity
initiatives, managed cost reductions and plant consolidations ($7.6 million), as
well as a favorable sales mix ($3.8 million). These increases were partially
offset by higher raw material costs ($5.1 million), a decrease in volume and
price declines primarily in products serving the textile markets ($6.0 million)
for the reasons noted above.
25
<PAGE> 26
POLYMER ADDITIVES AND SPECIALTY PLASTICS GROUP: Sales increased by $1.1 million,
or 0.5 percent, from $219.3 million during the first six months of 1999 to
$220.4 million during the first six months of 2000. The increase was primarily
attributable to increased volume in the Polymer Additives business ($8.4
million) and a favorable sales mix ($7.3 million). These increases were
partially offset by reduced prices in the Group's Polymer Additives products
($5.0 million), a weaker Euro ($5.6 million) and the exclusion of the Telene
business that was contributed to a joint venture.
Operating income for the Group decreased $0.4 million, or 1.1 percent, from
$35.0 million during the first six months of 1999 to $34.6 million during the
first six months of 2000. The decrease was a result of higher raw material costs
across the Group and the impact of the above mentioned decreases in price,
partially offset by a reduction in manufacturing/overhead costs as a result of
last year's restructuring and the exclusion of the Telene business.
CONSUMER SPECIALTIES GROUP: Sales increased $1.2 million, or 1.0 percent, from
$121.1 million during the first six months of 1999 to $122.3 million during the
first six months of 2000. The increase was driven by strong sales in the
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 impact of a weaker Euro.
Operating income decreased $3.7 million, or 22.2 percent, from $16.7 million
during the first six months of 1999 to $13.0 million during the first six months
of 2000. The decrease was partially a result of a one-time favorable settlement
from a patent infringement lawsuit recorded in 1999, a weak Euro, higher raw
material costs (primarily toluene, driven by higher oil prices), partially
offset by the increase in sales noted above and lower manufacturing/overhead
costs as a result of last year's restructuring activities.
CAPITAL RESOURCES AND LIQUIDITY
Current assets less current liabilities decreased $226.9 million from December
31, 1999 to June 30, 2000. The decrease resulted primarily from an increase in
short-term debt related to acquisitions and the Company's share repurchase
program, partially offset by an increase in accounts receivable. The Company
expects to have adequate cash flow from operations and has the credit facilities
(described in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999) to satisfy its operating requirements and capital spending
programs, and to finance growth opportunities as they arise.
The Company's debt-to-capitalization ratio was 60.4 percent at June 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 $109.7 million from $205.8 million
in the first six months of 1999 to $96.1 million in the first six months of
2000, primarily as a result of an increase in working capital and an increase in
long-term receivables associated with certain leasing activities. EBITDA,
excluding special items, increased $10.6 million from $497.1 million in the
first six months of 1999 to $507.7 million in the first six months of 2000.
The Company will make a payment in the third quarter of $113.7 million to the
Internal Revenue Service for an income tax assessment and related accrued
interest. The Company intends to pursue its
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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.
TRANSITION TO THE EURO
Although the Euro was successfully introduced on January 1, 1999, the legacy
currencies of those countries participating will continue to be used as legal
tender through January 1, 2002. Thereafter, the legacy currencies will be
canceled and Euro bills and coins will be used in the eleven participating
countries.
Transition to the Euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. Finance and accounting issues
include the conversion of bank accounts and other treasury and cash management
activities.
The Company continues to address these transition issues and does not expect the
transition to the Euro to have a material effect on the results of operations or
financial condition of the Company. Actions taken to date include the ability to
quote its prices; invoice when requested by the customer; and issue pay checks
to its employees on a dual currency basis. The Company has not yet set
conversion dates for its accounting systems, statutory reporting and its tax
books, but will do so later this year. The financial institutions 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. The Company
does not expect the application of FIN 44 to have a material impact on the
Company's financial position or results of operations.
In June 1998, the 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 adoption as of the beginning of any fiscal quarter after
its issuance. The Statement will require the Company to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If the derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in fair value of the hedged
assets, liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings.
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The Company has not yet determined what the effect of Statement No.133 will be
on its results of operations and financial position. However, the Statement
could increase volatility in earnings and comprehensive income.
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 results of
operations or financial position.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
This document includes statements that reflect projections or expectations of
our future financial condition, results of operations or business that are
subject to risk and uncertainty. We believe such statements to be "forward
looking" statements within the meaning of the Private Securities Litigation
Reform Act of 1995. BFGoodrich's actual results may differ materially from those
included in the forward-looking statements. Forward-looking statements are
typically identified by words or phrases such as "believe", "expect",
"anticipate", "intend", "estimate", "are likely to be" and similar expressions.
Our Annual Report on Form 10-K for the year ended December 31, 1999 lists
various risks and uncertainties that could cause actual results to differ
materially from those discussed in the forward-looking statements. These risks
and uncertainties are detailed in the Management's Discussion and Analysis
section of that Form 10-K under the heading "Forward-Looking Information is
Subject to Risk and Uncertainty", which is incorporated by reference herein. You
should understand that it is not possible to predict or identify all such risks
and uncertainties. Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
We caution you not to place undue reliance on the forward-looking statements
contained in this document, which speak only as of the date on which such
statements were made. We undertake no obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date on which such statements were made or to reflect the occurrence
of unanticipated events.
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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company held its Annual Meeting of Shareholders on April 17, 2000. As
described in the 2000 Proxy Statement, the following actions were taken:
- The eleven nominees for directors were elected.
- The appointment of Ernst & Young LLP as independent auditors for the year
2000 was ratified.
- The Senior Executive Management Incentive Plan was approved.
The votes were as follows:
For Director:
Number of Number of
Shares Shares
Voted For Vote Withheld
----------- ---------------
David L. Burner 98,138,919 3,515,778
Diane C. Creel 98,736,042 2,918,655
George A. Davidson, Jr. 98,840,870 2,813,827
James J. Glasser 98,682,736 2,971,961
Jodie K. Glore 98,578,388 3,076,309
William R. Holland 98,739,435 2,915,262
Douglas E. Olesen 98,741,532 2,913,165
Richard de J. Osborne 98,712,306 2,942,391
Alfred M. Rankin, Jr. 98,850,815 2,803,882
James R. Wilson 98,815,748 2,838,949
A. Thomas Young 98,667,181 2,987,516
For ratification of independent auditors:
100,038,127 shares voted for; 948,523 shares voted against; and 668,047 shares
abstained from voting.
For approval of the Senior Executive Management Incentive Plan:
91,544,373 shares voted for; 8,660,711 shares voted against; and 1,449,613
shares abstained from voting.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 10(MM) Long-Term Incentive Plan Summary Plan
Description.
Exhibit 10(NN) Form of Award Agreement for 2000 -
2001 Long-Term Incentive Plan award.
Exhibit 10(OO) Form of Award Agreement for 2000 -
2002 Long-Term Incentive Plan award.
Exhibit 10(PP) Senior Executive Management Incentive Plan,
filed as Exhibit B to the Company's 2000 Proxy
Statement dated March 3, 2000 is incorporated
herein by reference.
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 June 30, 2000:
Current Report on Form 8-K filed April 17, 2000 (relating to the
announcement of the proposed divestiture of the Company's Performance
Materials segment).
Current Report on Form 8-K filed April 26, 2000 (relating to the
announcement of the Company's earnings for the three months ended
March 31, 2000).
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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.
August 10, 2000 The B.F.Goodrich Company
/S/LAURENCE A. CHAPMAN
---------------------------------
Laurence A. Chapman
Senior Vice President and
Chief Financial Officer
/S/ROBERT D. KONEY, JR.
---------------------------------
Robert D. Koney, Jr.
Vice President & Controller
(Chief Accounting Officer)
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