-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Rz+yIqGd9Nfo98lFEaE7oWw7UKOwdfKIYJ4AGone0HNgK3QmLD3DiD1d8CHJNYWG LLxslvaq+04snpMANXktBw== 0000950144-00-006494.txt : 20000515 0000950144-00-006494.hdr.sgml : 20000515 ACCESSION NUMBER: 0000950144-00-006494 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000512 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOODRICH B F CO CENTRAL INDEX KEY: 0000042542 STANDARD INDUSTRIAL CLASSIFICATION: GUIDED MISSILES & SPACE VEHICLES & PARTS [3760] IRS NUMBER: 340252680 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-00892 FILM NUMBER: 628795 BUSINESS ADDRESS: STREET 1: 3 COLISEUM CENTRE STREET 2: 2550 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217 BUSINESS PHONE: 7044237000 MAIL ADDRESS: STREET 1: 3 COLISEUM CENTRE STREET 2: 2550 WEST TYVOLA ROAD CITY: 2550 WEST TYVOLA ROA STATE: NC ZIP: 28217 10-Q 1 THE B.F.GOODRICH COMPANY 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 March 31, 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.) 3 Coliseum Centre, 2550 West Tyvola Road, Charlotte, N.C. 28217 - ---------------------------------------------------------- ------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 704-423-7000 ---------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of March 31, 2000, there were 107,334,177 shares of common stock outstanding. There is only one class of common stock. 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)
Three Months Ended March 31, ----------------------- 2000 1999 --------- --------- Sales $ 1,378.2 $ 1,411.8 Operating Costs and Expenses: Cost of sales 986.6 1,007.1 Selling and administrative expenses 203.6 217.1 Merger-related and consolidation costs 5.4 26.2 --------- --------- 1,195.6 1,250.4 --------- --------- Operating income 182.6 161.4 Interest expense (36.5) (34.0) Interest income 1.2 0.7 Other income (expense) - net (4.5) (2.4) --------- --------- Income before income taxes and Trust distributions 142.8 125.7 Income tax expense (52.1) (44.8) Distributions on Trust preferred securities (4.6) (4.6) --------- --------- Net Income $ 86.1 $ 76.3 ========= ========= Earnings per share: Basic $ 0.79 $ 0.70 Diluted $ 0.78 $ 0.69 Dividends declared per common share $ 0.275 $ 0.275
See notes to condensed consolidated financial statements. 2 3 THE B.F.GOODRICH COMPANY CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED) (Dollars in millions)
March 31, December 31, 2000 1999 ---------- ----------- ASSETS Current Assets Cash and cash equivalents $ 76.8 $ 66.4 Accounts and notes receivable, less allowances for doubtful receivables (March 31, 2000: $29.2; December 31, 1999: $28.2) 917.3 845.1 Inventories 1,003.6 989.5 Deferred income taxes 131.0 129.7 Prepaid expenses and other assets 59.5 58.7 ---------- ---------- Total Current Assets 2,188.2 2,089.4 ---------- ---------- Property, plant and equipment 1,552.2 1,577.3 Prepaid Pension 215.0 212.1 Goodwill 1,046.0 1,031.1 Identifiable intangible assets 111.2 114.0 Other Assets 462.2 431.7 ---------- ---------- $ 5,574.8 $ 5,455.6 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Short-term bank debt $ 410.7 $ 229.1 Accounts payable 451.5 476.2 Accrued expenses 677.9 712.2 Income taxes payable 123.4 78.9 Current maturities of long-term debt and capital lease obligations 14.9 14.5 ---------- ---------- Total Current Liabilities 1,678.4 1,510.9 ---------- ---------- Long-term debt and capital lease obligations 1,516.4 1,516.9 Pension obligations 80.4 80.4 Postretirement benefits other than pensions 344.6 347.7 Deferred income taxes 130.3 126.7 Other non-current liabilities 274.7 308.5 Commitments and contingent liabilities -- -- Mandatorily redeemable preferred securities of trust 272.0 271.3 Shareholders' Equity Common stock - $5 par value Authorized 200,000,000 shares; issued 112,100,299 shares at March 31, 2000, and 112,064,927 shares at December 31, 1999 (excluding 14,000,000 shares held by a wholly owned subsidiary) 560.5 560.3 Additional capital 896.4 895.8 Income retained in the business 3.6 (52.3) Accumulated other comprehensive income (42.1) (44.2) Unearned portion of restricted stock awards (1.1) (1.2) Common stock held in treasury, at cost (4,766,122 shares at March 31, 2000, and 1,832,919 shares at December 31, 1999) (139.3) (65.2) ---------- ---------- Total Shareholders' Equity 1,278.0 1,293.2 ---------- ---------- $ 5,574.8 $ 5,455.6 ========== ==========
See notes to condensed consolidated financial statements. 3 4 THE B.F.GOODRICH COMPANY CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) (Dollars in millions)
Three Months Ended March 31, --------------------- 2000 1999 -------- -------- OPERATING ACTIVITIES Net Income $ 86.1 $ 76.3 Adjustments to reconcile net income to net cash provided by operating activities: Merger related and consolidation: Expenses 5.4 26.2 Payments (23.8) -- Depreciation and amortization 70.6 57.4 Deferred income taxes 2.4 4.2 Net gains on sales of businesses (1.1) -- Gain on sale of investment -- (3.2) Change in assets and liabilities, net of effects of acquisitions and dispositions of businesses: Receivables (57.0) (69.3) Inventories (15.7) (17.0) Other current assets (9.4) 0.7 Accounts payable (25.0) 1.9 Accrued expenses (14.7) (26.8) Income taxes payable 44.5 35.2 Other non-current assets and liabilities (53.3) (1.6) -------- ------- Net cash provided by operating activities 9.0 84.0 INVESTING ACTIVITIES Purchases of property (42.1) (51.6) Proceeds from sale of property 12.2 0.3 Proceeds from sale of businesses 1.4 -- Sale of short-term investments -- 3.5 Payments made in connection with acquisitions, net of cash acquired (34.3) (26.1) -------- ------- Net cash used by investing activities (62.8) (73.9) FINANCING ACTIVITIES Increase (decrease) in short-term debt 181.5 47.1 Decrease in revolving credit facility, net -- (17.5) Repayment of long-term debt and capital lease obligations (1.0) (5.0) Proceeds from sale of receivables, net (8.0) -- Proceeds from issuance of capital stock -- 1.7 Purchases of treasury stock (73.7) -- Dividends (30.3) (20.5) Distributions on Trust preferred securities (4.6) (4.6) Other 0.2 -- -------- ------- Net cash provided by financing activities 64.1 1.2 EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS 0.1 (0.4) -------- ------- Net Increase (Decrease) in Cash and Cash Equivalents 10.4 10.9 Cash and Cash Equivalents at Beginning of Period 66.4 53.5 -------- ------- Cash and Cash Equivalents at End of Period $ 76.8 $ 64.4 ======== ======= Supplemental Cash Flow Information: Income taxes paid $ 12.6 $ 8.1 ======== ======= Interest paid, net of amounts capitalized $ 21.6 $ 25.1 ======== =======
See notes to condensed consolidated financial statements. 4 5 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) NOTE A: BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION - The accompanying unaudited condensed consolidated financial statements of The B.F.Goodrich Company ("BFGoodrich" or the "Company") have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Certain amounts in prior year financial statements have been reclassfied to conform to the current year presentation. Operating results for the three months ended March 31, 2000 are not necessarily indicative of the results that may be achieved for the year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1999. NOTE B: ACQUISITIONS - In the first quarter of 2000, the Company acquired a manufacturer of earth and sun sensors in attitude determination and control subsystems of spacecraft; ejection seat technology; intellectual property related to certain dyes; and a personal care business. Total consideration aggregated $34.3 million, of which $25.0 million represented goodwill and other intangible assets. The purchase price allocation for these acquisitions has been based on preliminary estimates. NOTE C: INVENTORIES - Inventories included in the accompanying condensed consolidated balance sheet consist of: (Dollars in millions) -------------------------- March 31, December 31, 2000 1999 --------- ------------ FIFO or average cost (which approximates current costs): Finished products $ 271.1 $ 278.0 In process 667.7 608.4 Raw materials and supplies 226.6 257.5 -------- -------- 1,165.4 1,143.9 Less: Reserve to reduce certain inventories to LIFO (69.1) (70.8) Progress payments and advances (92.7) (83.6) -------- -------- Total $1,003.6 $ 989.5 ======== ======== In-process inventories include significant deferred costs related to production, pre-production and excess-over-average costs for long-term contracts. The Company has pre-production inventory of $83.2 million related to design and development costs on the 717-200 program at March 31, 2000. In 5 6 addition, the Company has excess-over-average inventory of $57.3 million related to costs associated with the production of the flight test inventory and the first production units on this program. The aircraft was certified by the FAA on September 1, 1999, and Boeing is actively marketing the aircraft. Recovery of these costs will depend on the ultimate number of aircraft delivered and successfully achieving the Company's cost projections in future years. NOTE D: BUSINESS SEGMENT INFORMATION - The Company's operations are classified into three reportable business segments: BFGoodrich Aerospace ("Aerospace"), BFGoodrich Engineered Industrial Products ("Engineered Industrial Products") and BFGoodrich Performance Materials ("Performance Materials"). The Company's three reportable business segments are managed separately based on fundamental differences in their operations. Segment operating income is total segment revenue reduced by operating expenses identifiable with that business segment. Corporate includes general corporate administrative costs. Merger related and consolidation costs are discussed in Note G of these unaudited condensed consolidated financial statements. The accounting policies of the reportable segments are the same as those for the consolidated Company. There are no significant intersegment sales. Three Months Ended March 31, ---------------------------- 2000 1999 -------- -------- Sales Aerospace $ 893.0 $ 926.2 Engineered Industrial Products 177.6 185.6 Performance Materials 307.6 300.0 -------- -------- Total Sales $1,378.2 $1,411.8 ======== ======== Operating Income Aerospace $ 138.7 $ 142.5 Engineered Industrial Products 33.6 34.2 Performance Materials 34.1 29.6 -------- -------- $ 206.4 $ 206.3 Corporate General and Administrative Expenses (18.4) (18.7) Merger Related and Consolidation Costs (5.4) (26.2) -------- -------- Total Operating Income $ 182.6 $ 161.4 ======== ======== March 31, 2000 December 31, 1999 -------------- ----------------- Assets Aerospace $ 3,138.1 $ 3,021.8 Engineered Industrial Products 395.0 390.3 Performance Materials 1,413.3 1,408.4 Corporate 628.4 635.1 --------- --------- Total Assets $ 5,574.8 $ 5,455.6 ========= ========= 6 7 NOTE E: EARNINGS PER SHARE - The computation of basic and diluted earnings per share is as follows: (In millions, except per share amounts) Three Months Ended March 31, ---------------------- 2000 1999 ---- ---- Numerator: Numerator for basic earnings per share - income available to common shareholders $ 86.1 $ 76.3 Effect of dilutive securities: Convertible preferred securities 1.6 1.6 --------- --------- Numerator for diluted earnings per share - income available to common shareholders after assumed conversions $ 87.7 $ 77.9 ========= ========= Denominator: Denominator for basic earnings per share - weighted-average shares 109.5 109.7 --------- --------- Effect of dilutive securities: Stock options, warrants and restricted shares 0.5 0.7 Convertible preferred securities 2.9 2.9 --------- --------- Dilutive potential common shares 3.4 3.6 --------- --------- Denominator for diluted earnings per share - adjusted weighted-average shares and assumed conversions 112.9 113.3 ========= ========= Earnings per share: Basic $ 0.79 $ 0.70 ========= ========= Diluted $ 0.78 $ 0.69 ========= ========= The Company's Board of Directors approved a $300 million share repurchase program during the quarter. The Company has repurchased 2.9 million shares of its common stock for $73.7 million through March 31, 2000. 7 8 NOTE F: COMPREHENSIVE INCOME Total comprehensive income consists of the following: (Dollars in millions) Three Months Ended March 31, ------------------ 2000 1999 ---- ---- Net Income $ 86.1 $ 76.3 Other Comprehensive Income Unrealized translation adjustments during period 2.1 (14.2) ------ ------ Total Comprehensive Income $ 88.2 $ 62.1 ====== ====== Accumulated other comprehensive income consists of the following (dollars in millions): March 31, 2000 December 31, 1999 -------------- ----------------- Cumulative unrealized translation adjustments $ (35.4) $ (37.5) Minimum pension liability adjustment (6.7) (6.7) ------- ------- $ (42.1) $ (44.2) ======= ======= NOTE G: MERGER RELATED AND CONSOLIDATION COSTS - Merger related and consolidation reserves at December 31, 1999 and March 31, 2000, as well as activity during the first quarter, consisted of: (Dollars in millions) ------------------------------------------------------- Balance Reserve Balance December 31, 1999 Provision Reduction March 31, 2000 ----------------- --------- --------- -------------- Personnel related costs $ 41.3 $ 2.0 $ 21.1 $ 22.2 Transaction costs 2.0 -- -- 2.0 Consolidation 7.9 3.4 4.2 7.1 ------- ------- ------- ------- $ 51.2 $ 5.4 $ 25.3 $ 31.3 ======= ======= ======= ======= During the first quarter of 2000, the Company recorded merger related and consolidation costs of $5.4 million consisting of $2.0 million in personnel related costs and $3.4 million in consolidation costs. The $2.0 million in personnel related costs consists of $1.0 million in employee relocation costs associated with the Coltec merger and $1.0 million for work force reductions in the Company's Aerospace Segment. Consolidation costs include a $1.5 million non-cash charge related to the write-off of certain assets and accelerated depreciation related to assets whose useful lives had been reduced as a 8 9 result of consolidation activities and $1.9 million for realignment activities in Aerospace. Of the $25.3 million reduction in reserves, $23.8 million related to cash payments and $1.5 million related to the write-off of assets during the quarter. NOTE H: CONTINGENCIES GENERAL There are pending or threatened against BFGoodrich or its subsidiaries various claims, lawsuits and administrative proceedings, all arising from the ordinary course of business with respect to commercial, product liability, asbestos and environmental matters, which seek remedies or damages. BFGoodrich believes that any liability that may finally be determined with respect to commercial and product liability claims should not have a material effect on the Company's consolidated financial position or results of operations. From time to time, the Company is also involved in legal proceedings as a plaintiff involving contract, patent protection, environmental and other matters. Gain contingencies, if any, are recognized when they are realized. ENVIRONMENTAL The Company and its subsidiaries are generators of both hazardous wastes and non-hazardous wastes, the treatment, storage, transportation and disposal of which are subject to various laws and governmental regulations. Although past operations were in substantial compliance with the then-applicable regulations, the Company has been designated as a potentially responsible party ("PRP") by the U.S. Environmental Protection Agency ("EPA"), or similar state agencies, in connection with several sites. The Company initiates corrective and/or preventive environmental projects of its own to ensure safe and lawful activities at its current operations. It also conducts a compliance and management systems audit program. The Company believes that compliance with current governmental regulations will not have a material adverse effect on its capital expenditures, earnings or competitive position. The Company's environmental engineers and consultants review and monitor environmental issues at past and existing operating sites, as well as off-site disposal sites at which the Company has been identified as a PRP. This process includes investigation and remedial selection and implementation, as well as negotiations with other PRPs and governmental agencies. At March 31, 2000, the Company has recorded in Accrued Expenses and in Other Non-current Liabilities a total of $120.1 million to cover future environmental expenditures. This amount is recorded on an undiscounted basis. The Company believes that its reserves are adequate based on currently available information. Management believes that it is reasonably possible that additional costs may be incurred beyond the amounts accrued as a result of new information. However, the amounts, if any, cannot be estimated and management believes that they would not be material to the Company's financial condition but could be material to the Company's results of operations in a given period. 9 10 ASBESTOS As of March 31, 2000 two subsidiaries of the Company were among a number of defendants (typically 15 to 40) in approximately 94,300 actions (including approximately 9,600 actions in advanced stages of processing) filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. During the first three months of 2000, these two subsidiaries of the Company received approximately 6,900 new actions compared to approximately 10,400 new actions received during the first three months of 1999. Through March 31, 2000, approximately 292,100 of the approximately 386,400 total actions brought have been settled or otherwise disposed. Payments were made by the Company with respect to asbestos liability and related costs aggregating $26.3 million and $16.5 million for the first three months of 2000 and 1999, respectively, substantially all of which were covered by insurance. Settlements are generally made on a group basis with payments made to individual claimants over periods of one to four years. Related to payments not covered by insurance, the Company recorded charges to operations amounting to approximately $2.0 million during the first three months of 2000 and 1999. In accordance with the Company's internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions have progressed to a stage where the Company can reasonably estimate the cost to dispose of these actions. As of March 31, 2000, the Company estimates that the aggregate remaining cost of the disposition of the settled actions for which payments remain to be made and actions in advanced stages of processing, including associated legal costs, is approximately $164.7 million and the Company expects that this cost will be substantially covered by insurance. With respect to the 84,700 outstanding actions as of March 31, 2000, which are in preliminary procedural stages, as well as any actions that may be filed in the future, the Company lacks sufficient information upon which judgments can be made as to the validity or ultimate disposition of such actions, thereby making it difficult to estimate with reasonable certainty what, if any, potential liability or costs may be incurred by the Company. However, the Company believes that its subsidiaries are in a favorable position compared to many other defendants because, among other things, the asbestos fibers in its asbestos-containing products were encapsulated. Subsidiaries of the Company continue to distribute encapsulated asbestos-bearing product in the United States with annual sales of less than $1.5 million. All sales are accompanied by appropriate warnings. The end users of such product are sophisticated users who utilize the product for critical applications where no known substitutes exist or have been approved. Insurance coverage of a small non-operating subsidiary formerly distributing asbestos-bearing products is nearly depleted. Considering the foregoing, as well as the experience of the Company's subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, and given the substantial amount of insurance coverage that the Company expects to be available from its solvent carriers to cover the majority of its exposure, the Company believes that pending and reasonably anticipated future actions are not likely to have a materially adverse effect on the Company's consolidated results of operations or financial condition, but could be material to the Company's results of operations in a given period. Although the insurance coverage which the Company has is substantial, it should be noted that insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. The Company's subsidiaries 10 11 continue to be named as defendants in new cases, some of which allege initial exposure after July 1, 1984. The Company has recorded an accrual for its liabilities for asbestos-related matters that are deemed probable and can be reasonably estimated (settled actions and actions in advanced stages of processing), and has separately recorded an asset equal to the amount of such liabilities that is expected to be recovered by insurance. In addition, the Company has recorded a receivable for that portion of payments previously made for asbestos product liability actions and related litigation costs that is recoverable from its insurance carriers. Liabilities for asbestos-related matters and the receivable from insurance carriers included in the Consolidated Balance Sheets are as follows: (Dollars in millions) March 31, December 31, 2000 1999 ------ ------ Accounts and notes receivable $171.8 $146.9 Other assets 32.0 36.7 Accrued expenses 140.7 134.6 Other liabilities 24.0 28.5 NOTE I: SUBSEQUENT EVENTS On April 17, 2000, the Company announced that it intends to divest its Performance Materials Segment. The Company expects to meet the criteria for accounting for the disposition as a discontinued operation later this year. At such time, all periods will be restated to reflect Performance Materials' results as a discontinued operation. The Company anticipates using the proceeds from the divestiture to grow the aerospace and industrial businesses, to fund its current share buy back program and for the reduction of debt. In April 2000, the Company also announced its intention to close its landing gear facility in Euless, Texas. 11 12 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS SIGNIFICANT EVENTS o Net income, excluding special items, was $89.5 million, or $0.81 per share, compared to $92.8 million, or $0.84 per share, in the year-ago quarter. o Operating income margins increased to 15.0% o EBITDA, excluding special items, increased to $254.1 million. o Announced intention to divest the Performance Materials Segment during 2000 (see further discussion below and in Note I of the accompanying unaudited condensed consolidated financial statements). o Announced authorization to repurchase up to $300 million of the Company's outstanding common stock (repurchased $73.7 million, or 2.9 million shares, through March 31, 2000). o Reorganized the Company's Aerospace and Performance Materials Segments. o Announced intention to close its landing gear facility in Euless, Texas. PROPOSED DIVESTITURE OF PERFORMANCE MATERIALS SEGMENT On April, 17, 2000, the Company announced that it intends to focus on its Aerospace and Engineered Industrial Products businesses and divest its Performance Materials segment. The Company anticipates that the divestiture will be completed by year-end 2000. The proceeds of the divestiture will be available for growing the Company's Aerospace and Engineered Industrial Products businesses, for its current share repurchase program, and for reducing debt. RESULTS OF OPERATIONS TOTAL COMPANY Sales during the quarter ended March 31, 2000, decreased by $33.6 million, or 2.4 percent, from sales during the same period last year. Sales decreased by 3.6 percent for the Aerospace Segment and by 4.3 percent for the Engineered Industrial Products Segment and increased by 2.5 percent for the Performance Materials Segment as compared to the 1999 first quarter. The reasons for these fluctuations as compared to last year are discussed by segment below. Cost of sales as a percent of sales increased from 71.3 percent in 1999 to 71.6 percent in 2000. Given the reduction in sales between periods noted above, the increase would have been larger absent management's ability to lower its controllable costs through operating improvement initiatives. Selling and administrative costs as a percent of sales decreased from 15.4 percent in 1999 to 14.8 percent in 2000. This is due primarily to the Company's efforts to control costs (previously announced layoffs, lean manufacturing initiatives, plant closures, etc.), especially given the decrease in sales noted above. 12 13 Merger related and consolidation costs of $5.4 million and $26.2 million were recorded during the first quarter of 2000 and 1999, respectively (see further discussion in Note G of the accompanying unaudited condensed consolidated financial statements). The Company expects to incur an additional $20 to $30 million of merger related and consolidation costs during the remainder of 2000. The timing of these costs is dependent on the finalization of management's plans and on the nature of the costs (accruable or period costs). These charges will consist primarily of costs associated with the consolidation of landing gear facilities, the reorganization of operating facilities and for employee relocation and severance costs. Excluding merger related and consolidation costs, operating income in the first quarter increased $0.4 million, or 0.2 percent, from $187.6 million in 1999 to $188.0 million in 2000. Operating income decreased by $3.8 million in the Aerospace Segment and by $0.6 million in the Engineered Industrial Products Segment and increased by $4.5 million in the Performance Materials Segment. Unallocated corporate general and administrative costs decreased slightly between periods. Operating income by segment is discussed in greater detail below. Interest expense-net increased $2.0 million from $33.3 million in 1999 to $35.3 million in 2000. The increase is a direct result of additional short-term borrowings due primarily to acquisitions and the repurchase of the Company's common stock during the first quarter of 2000. The Company repurchased approximately 2.9 million shares of its common stock at an aggregate cost of $73.7 million during the first quarter. The Company's board of directors has authorized the repurchase of up to $300 million of the Company's outstanding common stock. Other expense-net increased $2.1 million from $2.4 million in the first quarter of 1999 to $4.5 million in the first quarter of 2000. Excluding gains from the sale of businesses of $1.1 million in 2000 and $3.2 million in 1999, other expense-net remained unchanged at $5.6 million. The Company's effective tax rate increased from 35.6 percent to 36.5 percent, quarter to quarter. The effective tax rate in the first quarter of 2000 approximates the rate for all of 1999, excluding special items, and is consistent with the rate expected for 2000. 13 14 BUSINESS SEGMENT PERFORMANCE SEGMENT ANALYSIS Three Months Ended March 31, (Dollars in Millions) 2000 1999 - -------------------------------------------------------------------------------- SALES: Aerospace $ 893.0 $ 926.2 Engineered Industrial Products 177.6 185.6 Performance Materials 307.6 300.0 ------------------------------------------------------------------------------- Total $ 1,378.2 $ 1,411.8 ================================================================================ OPERATING INCOME: Aerospace $ 138.7 $ 142.5 Engineered Industrial Products 33.6 34.2 Performance Materials 34.1 29.6 - -------------------------------------------------------------------------------- Total Reportable Segments 206.4 206.3 Corporate (18.4) (18.7) Merger Related and Consolidation Costs (5.4) (26.2) - -------------------------------------------------------------------------------- Total $ 182.6 $ 161.4 ================================================================================ The Company's operations are classified into three reportable business segments: BFGoodrich Aerospace ("Aerospace"), BFGoodrich Engineered Industrial Products ("Engineered Industrial Products") and BFGoodrich Performance Materials ("Performance Materials"). The Aerospace Segment reorganized during the first quarter creating the following new operating groups: Aerostructures and Aviation Services, Landing Systems, Engine and Safety Systems and Electronic Systems. The segment's maintenance, repair and overhaul businesses are now being reported with their respective original equipment businesses. Prior period amounts have been reclassified to conform with this new group structure. These groups serve commercial, military, regional, business and general aviation markets. 14 15 Engineered Industrial Products is a single business group. This group manufactures industrial seals; gaskets; packing products; self-lubricating bearings; diesel, gas and dual fuel engines; air compressors; spray nozzles and vacuum pumps. Performance Materials consists of three business groups: Textile and Coatings Solutions; Polymer Additives and Specialty Plastics; and Consumer Specialties. These groups provide materials for a wide range of end use market applications including textiles, coatings, food & beverage, personal care, pharmaceuticals, graphic arts, industrial piping, plumbing and transportation. Certain research and development expenses previously reported within corporate general and administrative costs are now included within the segment's results. The segment also reorganized how it accounts and reports the results for certain product lines within its groups during the quarter. Prior period results have been reclassified for consistency. Corporate includes general and administrative costs. Segment operating income is total segment revenue reduced by operating expenses directly identifiable with that business segment. Merger related and consolidation costs are presented separately (see further discussion in Note G to the accompanying unaudited condensed consolidated financial statements). 15 16 An expanded analysis of sales and operating income by business segment follows. AEROSPACE (Dollars in millions) Three Months Ended March 31, ----------------------------------- 2000 1999 % Change ---- ---- -------- SALES Aerostructures and Aviation Services $357.6 $387.5 (7.7) Landing Systems 260.1 262.5 (0.9) Engine and Safety Systems 147.8 143.5 3.0 Electronic Systems 127.5 132.7 (3.9) ------ ------ Total Sales $893.0 $926.2 (3.6) ====== ====== OPERATING INCOME Aerostructures and Aviation Services $ 48.9 $ 56.5 (13.5) Landing Systems 37.3 36.8 1.4 Engine and Safety Systems 27.3 24.7 10.5 Electronic Systems 25.2 24.5 2.9 ------ ------ Total Operating Income $138.7 $142.5 (2.7) ====== ====== OPERATING INCOME AS A PERCENT OF SALES Aerostructures and Aviation Services 13.7 14.6 Landing Systems 14.3 14.0 Engine and Safety Systems 18.5 17.2 Electronic Systems 19.8 18.5 Total Aerospace 15.5 15.4 Aerospace sales during the first quarter of 2000 decreased by $33.2 million, or 3.6 percent, from $926.2 million in 1999 to $893.0 million in 2000. The decrease was attributable to lower sales in the Landing Systems, Electronic Systems and Aerostructures and Aviation Services groups, partially offset by a slight increase in sales in the Engine and Safety Systems group. 16 17 Aerospace operating income of $138.7 million during the first quarter of 2000 was $3.8 million, or 2.7 percent, lower than the first quarter of 1999. The decrease in operating income was attributable to the Aerostructures and Aviation Services group, partially offset by a slight increase in operating income at the Landing Systems, Engine and Safety Systems, and Electronic Systems groups. AEROSTRUCTURES AND AVIATION SERVICES: Sales for the first quarter of 2000 decreased $29.9 million, or 7.7 percent, from $387.5 million in the first quarter of 1999 to $357.6 million in the first quarter of 2000. Most of the decrease resulted from the MD-90 program no longer being in production, as well as from lower aftermarket sales. This decrease was partially offset by a significant increase in sales within the aerostructures services business. Aviation Services sales during the quarter were flat as compared with the first quarter of 1999. Aerostructures and Aviation Services operating income for the first quarter of 2000 decreased $7.6 million, or 13.5 percent, from $56.5 million in the first quarter of 1999 to $48.9 million in the first quarter of 2000. The decrease is predominantly due to lower volume in the group's aerostructures market, partially mitigated by a settlement with a commercial customer for cancellation of an ongoing program, favorable mix, and improved operating performance on some long-term production contracts. Aviation Services recorded a slight loss during the period primarily due to the postponement of scheduled work by a major customer. LANDING SYSTEMS: Sales for the first quarter of 2000 decreased $2.4 million, or 0.9 percent, from $262.5 million in the first quarter of 1999 to $260.1 million in the first quarter of 2000. Landing Gear sales were lower than the same period a year ago as increases in commercial and military spares sales did not fully offset decreased commercial OEM production, particularly on the Boeing 747 and Boeing 777 programs. Aftermarket sales of wheels and brakes were higher than the same period a year ago as a result of increased sales on the Boeing 737, Boeing 747 and on the Airbus 330/340 and Airbus 319/320 programs, as well as increased sales in the regional, business and military market segment. The landing gear and wheel and brake service businesses both had stronger sales than the same period a year ago. Landing Systems operating income for the first quarter of 2000 increased $0.5 million, or 1.4 percent, from $36.8 million in the first quarter of 1999 to $37.3 million in the first quarter of 2000. The increase was attributable to a more favorable mix and increased military, regional and service volume of wheels and brakes, partially offset by lower operating income resulting from the reduced sale of landing gear as discussed above. ENGINE AND SAFETY SYSTEMS: Sales for the first quarter of 2000 increased $4.3 million, or 3.0 percent, from $143.5 million in the first quarter of 1999 to $147.8 million in the first quarter of 2000. Significantly stronger sales in engine products, especially power generation products, more than made up for the weakness in safety products. The weakness in safety product sales was due to lower commercial OEM shipments on the Boeing 747 program and on certain military programs. Engine and Safety Systems group operating income for the first quarter of 2000 increased $2.6 million, or 10.5 percent, from $24.7 million in the first quarter of 1999 to $27.3 million in the first quarter of 2000. Favorable manufacturing variances and reduced spending enhanced operating income in addition to the increased volume in engine products noted above. 17 18 ELECTRONIC SYSTEMS: Sales for the first quarter of 2000 decreased $5.2 million, or 3.9 percent, from $132.7 million in the first quarter of 1999 to $127.5 million in the first quarter of 2000. Sales of aircraft sensors and fuel and utility systems to the military were weaker, period over period. Sales of avionics and space flight systems increased from the same period a year ago, but were not enough to offset the decrease in sales of aircraft sensors and fuel and utility systems noted above. Electronic Systems group operating income for the first quarter of 2000 increased $0.7 million, or 2.9 percent, from $24.5 million in the first quarter of 1999 to $25.2 million in the first quarter of 2000. Increased volume in space flight systems, combined with a very favorable product mix in fuel and utility systems, accounted for the increased operating income. ENGINEERED INDUSTRIAL PRODUCTS: (IN MILLIONS) Three Months Ended March 31, ---------------------------- 2000 1999 ------- ------- Sales $ 177.6 $ 185.6 Operating Income $ 33.6 $ 34.2 Operating Income as a percent of Sales 18.9% 18.4% Sales were lower by $8.0 million, or 4.3 percent, from $185.6 million in the first quarter of 1999 to $177.6 million in the first quarter of 2000. The decrease in sales was attributable to the completion of a large engine project during 1999 and the initiation of sales on a similar but lower revenue producing project during 2000 and lower sales at the segment's foreign operations due in part to foreign currency changes. Operations serving the domestic automotive market also experienced lower sales compared to first quarter 1999. These declines were offset, in part, by operations serving the air products and the heavy-duty truck markets. The air compressors division sales during the quarter also exceeded sales during the first quarter of 1999. Operating income decreased $0.6 million, or 1.8 percent from $34.2 million in the first quarter of 1999 to $33.6 million in the first quarter of 2000. The decline in operating income was due primarily to volume declines. Operating income as a percentage of sales, however, increased during the period from 18.4 percent to 18.9 percent as a result of manufacturing efficiencies and other cost improvements. 18 19 PERFORMANCE MATERIALS (Dollars in millions) Three Months Ended March 31, ----------------------------------- 2000 1999 % Change ---- ---- -------- SALES Textile and Coatings Solutions $133.7 $131.5 1.7 Polymer Additives and Specialty Plastics 114.4 109.3 4.7 Consumer Specialties 59.5 59.2 0.5 ------ ------ Total $307.6 $300.0 2.5 ====== ====== OPERATING INCOME Textile and Coatings Solutions $ 8.0 $6.2 29.0 Polymer Additives and Specialty Plastics 19.3 18.3 5.5 Consumer Specialties 6.8 5.1 33.3 ------ ------ Total Operating Income $ 34.1 $ 29.6 15.2 ====== ====== OPERATING INCOME AS A PERCENT OF SALES Textile and Coating Solutions 6.0 4.7 Polymer Additives and Specialty Plastics 16.9 16.7 Consumer Specialties 11.4 8.6 Total Performance Materials 11.1 9.9 19 20 Sales increased $7.6 million, or 2.5 percent, from $300.0 million in 1999 to $307.6 million in 2000. The increase was due to a nearly 10 percent increase in volume, with each of the groups showing volume gains. Continued downward pricing pressure in most market segments offset a portion of the volume gains. Product mix was slightly unfavorable to last year as well, with unfavorable foreign currency exchange rates also negatively impacting sales for the quarter. Operating income increased by $4.5 million, or 15.2 percent, from $29.6 million in 1999 to $34.1 million in 2000. The increase in income can be attributed to the impact of higher sales, the lower costs achieved through the restructuring announced during the first quarter of 1999 and tight cost controls in place during the quarter. The increase was partially offset by higher raw material costs. TEXTILE AND COATINGS SOLUTIONS: Sales increased by $2.2 million, or 1.7 percent, from $131.5 million in 1999 to $133.7 million in 2000. The sales impact of higher volume and the Mydrin acquisition (March 1999) offset unfavorable pricing and continued softness in textile markets. The coatings business had a strong quarter due to new business with significant existing customers. Operating income increased by $1.8 million, or 29.0 percent, from $6.2 million in 1999 to $8.0 million in 2000. The increase was attributable to higher volumes ($3.1 million) and cost control efforts ($5.7 million). POLYMER ADDITIVES AND SPECIALTY PLASTICS: Sales increased by $5.1 million, or 4.7 percent, from $109.3 million in 1999 to $114.4 million in 2000. The increase in sales was caused primarily by favorable volume ($18.2 million), offset by unfavorable price and mix ($10.3 million). The higher volumes occurred at most of the Group's businesses, particularly in the plumbing, industrial, and rubber chemical markets. Operating income increased $1.0 million, or 5.5 percent, from $18.3 million in 1999 to $19.3 million in 2000. The improvement was due to higher volumes and cost reductions in SG&A, partially offset by unfavorable price, mix and manufacturing costs. CONSUMER SPECIALTIES: Sales increased $0.3 million, or 0.5 percent, from $59.2 million in 1999 to $59.5 million in 2000. The increase was due primarily to higher volume of Carbopol(R) sales, particularly in Asia and Latin America, partially offset by lower volume in colors, lower volume and pricing in phenol, unfavorable mix and foreign currency exchange rates. Operating income increased $1.7 million, or 33.3 percent, from $5.1 million in 1999 to $6.8 million in 2000. As noted above, sales were relatively flat between periods. Thus, the increase in operating income was mostly attributable to overall favorable volume, manufacturing efficiencies and continued productivity improvements. 20 21 CAPITAL RESOURCES AND LIQUIDITY Current assets less current liabilities decreased $68.7 million from December 31, 1999 to March 31, 2000. The decrease resulted primarily from an increase in short-term debt related to acquisitions and the Company's share repurchase program, partially offset by an increase in accounts receivable. The Company expects to have adequate cash flow from operations and has the credit facilities (described in the Company's Annual Report on Form 10-K for the year ended December 31, 1999) to satisfy its operating requirements and capital spending programs, repurchase shares of its common stock and to finance growth opportunities as they arise. The Company's debt-to-capitalization ratio was 55.5 percent at March 31, 2000, compared with 52.8 percent at December 31, 1999. For purposes of this ratio, the trust preferred securities are treated as capital. CASH FLOWS Cash flow from operating activities decreased $75.0 million from $84 million in the first three months of 1999 to $9 million in the first three months of 2000, primarily as a result of merger related and consolidation costs, a decrease in accounts payable and an increase in long-term assets (rotables and joint venture investments). EBITDA, excluding special items, increased $11.5 million from $242.6 million in the first three months of 1999 to $254.1 million in the first three months of 2000. TRANSITION TO THE EURO Although the Euro was successfully introduced on January 1, 1999, the legacy currencies of those countries participating will continue to be used as legal tender through January 1, 2002. Thereafter, the legacy currencies will be canceled and Euro bills and coins will be used in the eleven participating countries. Transition to the Euro creates a number of issues for the Company. Business issues that must be addressed include product pricing policies and ensuring the continuity of business and financial contracts. Finance and accounting issues include the conversion of bank accounts and other treasury and cash management activities. The Company continues to address these transition issues and does not expect the transition to the Euro to have a material effect on the results of operations or financial condition of the Company. Actions taken to date include the ability to quote its prices; invoice when requested by the customer; and issue pay checks to its employees on a dual currency basis. The Company has not yet set conversion dates for its accounting systems, statutory reporting and its tax books, but will do so later this year. The financial institutions in which the Company has relationships have transitioned to the Euro successfully and are issuing statements in dual currencies. NEW ACCOUNTING STANDARDS In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities", which, as amended by FASB 21 22 Statement No. 137, is required to be adopted in years beginning after June 15, 2000. The Statement permits early adoptions as of the beginning of any fiscal quarter after its issuance. The Statement will require the Company to recognize all derivatives on the balance sheet at fair value. Derivatives that are not hedges must be adjusted to fair value through income. If the derivative is a hedge, depending on the nature of the hedge, changes in the fair value of the derivative will either be offset against the change in fair value of the hedged assets, liabilities, or firm commitments through earnings or recognized in other comprehensive income until the hedged item is recognized in earnings. The ineffective portion of a derivative's change in fair value will be immediately recognized in earnings. The Company has not yet determined what the effect of Statement No. 133 will be on its earnings and financial position. However, the Statement could increase volatility in earnings and comprehensive income. In September 1999, the EITF reached a consensus on Issue 99-5, "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements." The consensus requires design and development costs for products to be sold under long-term supply arrangements incurred subsequent to December 31, 1999, to be expensed as incurred unless contractually recoverable. The consensus did not have an impact on the Company's results or financial position. In December 1999, the SEC staff issued Staff Accounting Bulletin (SAB) 101, "Revenue Recognition in Financial Statements". The SEC staff has delayed the effective date of SAB 101 until the second quarter of 2000. The Company does not believe the SAB will have a significant impact on the Company's results or financial position. FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY This document includes statements that reflect projections or expectations of our future financial condition, results of operations or business that are subject to risk and uncertainty. We believe such statements to be "forward looking" statements within the meaning of the Private Securities Litigation Reform Act of 1995. BFGoodrich's actual results may differ materially from those included in the forward-looking statements. Forward-looking statements are typically identified by words or phrases such as "believe", "expect", "anticipate", "intend", "estimate", "are likely to be" and similar expressions. Our Annual Report on Form 10-K for the year ended December 31, 1999 lists various risks and uncertainties that could cause actual results to differ materially from those discussed in the forward-looking statements. These risks and uncertainties are detailed in the Management's Discussion and Analysis section of that Form 10-K under the heading "Forward-Looking Information is Subject to Risk and Uncertainty", which is incorporated by reference herein. You should understand that it is not possible to predict or identify all such risks and uncertainties. Consequently, you should not consider any such list to be a complete set of all potential risks or uncertainties. We caution you not to place undue reliance on the forward-looking statements contained in this document, which speak only as of the date on which such statements were made. We undertake no obligation to release publicly any revisions to these forward-looking statements to reflect events or circumstances after the date on which such statements were made or to reflect the occurrence of unanticipated events. 22 23 PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company and certain of its subsidiaries are defendants in various lawsuits involving asbestos-containing products. In addition, the Company has been notified that it is among potentially responsible parties under federal environmental laws, or similar state laws, relative to the cost of investigating and in some cases remediating contamination by hazardous materials at several sits. See Note H to the accompanying unaudited condensed consolidated financial statements, which is incorporated herein by reference. 23 24 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits. Exhibit 10(LL) Performance Share Deferred Compensation Plan Summary Plan Description. Exhibit 27. Financial Data Schedules. (b) Reports on Form 8-K. The following Current Reports on Form 8-K were filed by the Company during the quarter ended March 31, 2000: Current Report on Form 8-K filed February 3, 2000 (relating to the announcement of the Company's earnings for the fiscal year ended December 31, 1999). Current Report on Form 8-K filed February 22, 2000 (relating to the announcement of the Company's share repurchase program). 24 25 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. May 11, 2000 The B.F.Goodrich Company /S/LAURENCE A. CHAPMAN ----------------------------------- Laurence A. Chapman Senior Vice President and Chief Financial Officer /S/ROBERT D. KONEY, JR. ----------------------------------- Robert D. Koney, Jr. Vice President & Controller (Chief Accounting Officer) 25 EX-10.LL 2 PERFORMANCE SHARE DEFERRED COMPENSATION PLAN 1 EXHIBIT 10(LL) SUMMARY PLAN DESCRIPTION PERFORMANCE SHARE DEFERRED COMPENSATION PLAN THE BFGOODRICH COMPANY 1999-2001 LTIP MARCH, 1999 2 SUMMARY PLAN DESCRIPTION PERFORMANCE SHARE DEFERRED COMPENSATION PLAN ________________________________________________________________________________ THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. The BFGoodrich Performance Share Deferred Compensation Plan provides certain employees, as designated by the Compensation Committee of the Board of Directors, with the opportunity to defer receipt of certain Performance Share awards under the Long-Term Incentive Plan. The following is a summary of the main provisions of the Performance Share Deferred Compensation Plan as established, effective June 2, 1997. As with any plan summary, the official and controlling provisions of the Plan are contained in the Plan Document. In case of any discrepancies, the Plan Document will govern. In this summary, BFGoodrich is referred to as the "Company", the Performance Share Deferred Compensation Plan is referred to as the "Plan", and the Long-Term Incentive Plan is referred to as the "LTIP". The benefits described in this summary have been structured to be in compliance with current tax law. Any change in legislation or the interpretation of tax laws which affect the tax nature of the benefits provided may necessitate revisions in the Plan. The Company reserves the right to amend, modify, suspend or terminate the Plan at any time, provided that such action does not result in any reduction of your vested account balance (except for future investment losses). OVERVIEW o The Plan allows you to defer receipt of certain Performance Shares which may be earned and payable to you pursuant to the terms of the LTIP. o Your deferrals of Performance Shares will be credited as phantom shares to a bookkeeping account in your name and will accumulate on a tax-deferred basis. Each phantom share will be equal at all times to one share of BFGoodrich common stock. 1 3 o The bookkeeping account will be used solely for record keeping purposes. This will be an unfunded account and no assets will be placed into an account in your name. You will be an unsecured general creditor of BFGoodrich with respect to your Plan benefits. o Dividend equivalents will be accrued on all phantom shares under this Plan. Such dividend equivalents will be credited to your account under the Plan in the form of additional phantom shares at the same time and in the same amount as actual dividend payments on BFGoodrich common stock. o At distribution, your Plan benefits will be paid in actual BFGoodrich common shares, less applicable withholding taxes. o On termination of employment on or after age 55, you may choose to receive your benefits in a lump sum, or in quarterly installments paid over 5, 10 or 15 years. o Upon your death, your beneficiary will receive any benefits not yet paid to you in a single lump sum payment in BFGoodrich common shares. o Upon a Change in Control or termination of employment prior to age 55, your Plan benefits will be paid to you in BFGoodrich common shares in a lump sum promptly following your termination. o Federal and state income taxes will not be payable until you, or your beneficiary, receives benefits in the future. o Performance Share deferrals are subject to FICA taxes in the year when payouts from the LTIP otherwise would have occurred, had you not elected the deferral. PLAN PROVISIONS ELIGIBILITY You are eligible to participate in the Plan if you are a participant in the LTIP and: o You are designated by the Compensation Committee of the Board of Directors as eligible to participate. PARTICIPATION In order to participate in this Plan, you must: 1. Complete enrollment forms. 2. Submit all forms in a timely fashion to Gary Habegger, BFGoodrich Human Resources. 2 4 DEFERRALS You may choose to defer 0%, 25%, 50%, 75% or 100% of all Performance Shares that may be earned and payable to you pursuant to the terms of the 1999-2001 LTIP. You will have an opportunity prior to the earning of future Performance Shares to elect to defer 25%, 50%, 75% or 100% of the final payout at completion of the future performance period. DEFERRAL ELECTION Participation in the Plan is voluntary. You may elect to participate by completing a Participation and Distribution Election Form. On the Participation and Distribution Election Form, you will indicate whether you wish to defer 0%, 25%, 50%, 75% or 100% of all Performance Shares that may be earned and payable to you pursuant to theo terms of the 1999-2001 LTIP. PAYOUT ELECTION If you are a new Plan participant, you will also be asked on the Participation and Distribution Election Form to elect how you want your benefit to be paid to you when your employment terminates. This election will apply to Deferral of Performance Shares under the 1999-2001 LTIP, as well as to any future deferral election. If you are a current Plan participant and have previously selected a benefit payout option, your previous election will apply to your entire account balance, including the 1999-2001 LTIP, as well as all future deferrals to your account. You may not change your payout election. MINIMUM DEFERRAL AMOUNT If you elect to defer Performance Shares under the 1999-2001 LTIP, you must elect to defer at least 25% of the final payout at completion of the performance period. TIMING OF DEFERRALS Your deferrals will be credited to your Plan account as of the same date the Compensation Committee of the Board of Directors approves your payout under the LTIP. ELECTIONS IRREVOCABLE You may not change or revoke your deferral election once it is made. FICA WITHHOLDING Performance Share deferrals are subject to withholding for FICA taxes in the year when payouts from the LTIP otherwise would have occurred had you not elected deferral. 3 5 BOOKKEEPING ACCOUNT The Company will maintain an account of your benefits. The account is used solely for record keeping purposes. To comply with tax rules, no assets will be placed into an account in your name. Your account or other interest under the Plan may not be alienated, assigned, transferred, pledged or hypothecated in any manner. ACCOUNT VESTING You are fully vested at all times in your deferrals and dividends on your deferrals as represented by the number of phantom shares in your account. INVESTMENT OF YOUR ACCOUNT Your deferral of each Performance Share will be credited as one phantom share in an account for you under the Plan. Each phantom share will be equal at all times to one share of BFGoodrich common stock. Dividend equivalents will be accrued on all phantom shares in your account. Such dividend equivalents will be credited to your account under the Plan in the form of additional phantom shares at the same time and in the same amount as actual dividend payments on BFGoodrich common stock. It is important to note that your deferrals may not actually be invested in BFGoodrich common stock. The Company will, however, establish a Rabbi Trust which is described in further detail later in this document. Each phantom share in your account will be equal at all times to the one share of BFGoodrich common stock, but no actual shares will be placed into an account in your name. This is necessary to preserve the tax-deferred status of your account. Your account is subject to investment risk. If the rate of return in BFGoodrich common stock is positive, you will experience growth in the market value of your account balance. If the rate of return is negative, you will experience a loss. BENEFIT DISTRIBUTIONS TERMINATION ON OR AFTER AGE 55 You are eligible for extended payment benefits under this Plan when you terminate employment on or after age 55. Your account balance at termination of employment on or after age 55 will be paid in BFGoodrich common stock and may be receivedo in quarterly installments or a lump sum. As long as you have an account balance, dividends will continue to be credited until the distribution valuation date. 4 6 Benefit Payout Options The first time you enroll in this Plan, you will indicate how you want your vested account balance paid out when you terminate employment on or after age 55. You may choose: o A lump sum payment in BFGoodrich common shares, or o Quarterly installments in BFGoodrich common shares over 5, 10 or 15 years. Your election as to the form of payout will apply to your entire account balance, including all future deferrals to your account. If you do not make an election, your account balance will be paid in quarterly installments over 15 years. Changing Your Election You may not change your payout election. Benefit Commencement Benefit payments will begin in the January following your termination of employment on or after age 55. At the time of your initial deferral election, you may choose a commencement year for Plan benefits that would be later than the year following your date of termination of employment on or after age 55. Your benefits must commence no later than January of the year in which you attain age 70. Once made, this election is irrevocable. FOR EXAMPLE: YOU MAY ELECT TO HAVE PLAN BENEFITS COMMENCE IN JANUARY, 2010, EVEN THOUGH YOU TERMINATE EMPLOYMENT IN 2005 AT AGE 65. Small Account Rules If the market value of your account at termination of employment on or after age 55 is less than $10,000, your benefits will be paid in a lump sum in BFGoodrich common shares. If, at the time benefits are to commence, your quarterly installment payment is less than 100 shares per quarter, the Company may shorten the payout period until the payments equal or exceed 100 shares per quarter. Account Valuation The value of your account balance for tax purposes will be calculated using the fair market value of BFGoodrich common stock as reported on the New York Stock Exchange (NYSE) Composite Transactions (or similar) listing as follows: 1. For lump sum payments at termination of employment 5 7 on or after age 55, the value of your account will be calculated as of the January 2 in the year immediately following your year of termination (or, if the NYSE is closed on January 2, the first business day following January 2 on which the NYSE is open). 2. For quarterly installment payments, the value of each installment payment will be calculated as of the first business day of each calendar year quarter on which the NYSE is open. 3. For lump sum payments in the event you die, in the event of a Change in Control of the Company, or in the event you terminate your BFGoodrich employment prior to your age 55, the value of your account will be calculated as of the first business day of the month immediately following the date of the event requiring the calculation. Adjustment of Installment Payments Your account will continue to be credited with dividends as described earlier (see "Investment of Your Account") during the payment period you elect. Installment payments will be made as of the first business day of each calendar year quarter. The number of BFGoodrich common shares in your account balance as of the first day of each calendar year quarter will be divided by the number of remaining installment payments to determine the number of BFGoodrich common shares that will be distributed for such calendar year quarter. For this purpose, other than with respect to the last installment, the number of shares actually distributed will be rounded up to the next whole share. For the last installment payment, your entire remaining account balance will be distributed, with any fractional shares paid in cash. TERMINATION BEFORE AGE 55 If your employment terminates before your age 55, your account balance will be distributed to you in a lump sum payment in BFGoodrich common shares. Your benefit will be paid to you as soon as practical after termination, and dividends will be credited to your account up to the date on which your termination occurs. DISABILITY If you are totally disabled under the Company's Long-Term Disability Plan, you will be entitled to receive payment of your account when your Long-Term Disability benefits begin. Your 6 8 benefit payments will be calculated and paid in the same manner as if you had terminated employment on or after age 55. SURVIVOR BENEFITS Before Commencement of Plan Benefit Payments In the event of your death before Plan benefits commence, your account balance will be paid to your designated beneficiary in a single lump sum payment in BFGoodrich common shares. After Commencement of Installment Payments If your quarterly installment payments have commenced at the time of your death, your beneficiary will receive your remaining account balance in a single lump sum payment in BFGoodrich common shares as soon as practical after your death. CHANGE IN CONTROL Upon a Change in Control of BFGoodrich, your account balance will be paid out in a lump sum payment (less any applicable withholding taxes) in BFGoodrich common shares. This will apply even though you may be receiving quarterly installments as your payout election. OTHER PROVISIONS ABOUT YOUR BENEFICIARY At the time you first elect to participate in the Plan, you should designate any person(s), trust or organization as beneficiaries to receive any Plan benefits remaining unpaid upon your death. You may change your designation at any time by completing a Designation of Beneficiary Form. To request a form, you may contact the Corporate Benefits Department (330-659-7848; facsimile 330-659-7850). In the event there is no beneficiary designation on file with the Company or all designated beneficiaries have predeceased you, the Company will pay any remaining value in your account to your estate. BENEFIT STATEMENTS You will receive a benefit statement after the end of each calendar year quarter summarizing the activity and value of your account. 7 9 IMPORTANT INFORMATION UNSECURED GENERAL CREDITOR You are an unsecured general creditor of BFGoodrich with respect to your Plan benefits. Benefits are payable solely from the Company's general assets. Your benefits are subject to the risk of corporate insolvency, in which case they may be subject to a lien or security interest of other creditors. BENEFIT SECURITY BFGoodrich will adopt an Irrevocable Grantor ("Rabbi") Trust to provide protection against the risk of the Company refusing to pay benefits such as in the event of a Change in Control. The Trust does not protect against the risk of corporate insolvency. The Company intends that deferred Performance Share awards will be held in the form of BFGoodrich common stock within the Rabbi Trust. Dividends paid on the stock held by the Rabbi Trust will be reinvested into BFGoodrich common stock. The shares will be in the name of the Trust and not in the names of individual participants. Distribution of shares will be made from the Rabbi Trust. To the extent you do not receive shares from the Rabbi Trust, you shall be entitled to receive shares from BFGoodrich. Voting rights with respect to shares in the Rabbi Trust will be exercised by the Company. PLAN ADMINISTRATION This Plan is administered by the Company. The Company will appoint a Performance Share Deferred Compensation Plan Committee, with authority delegated by the Compensation Committee of the Board of Directors, to interpret the Plan and determine all other matters that might arise under the terms of the Plan. The Company's decisions are final and binding on all participants. The Company reserves the right to amend, modify, suspend, or partially or completely terminate the Plan on a prospective basis only, provided that the amendment or termination does not result in any reduction of your vested account balance (except for future investment losses). If the Plan is completely terminated prior to a Change in Control, all future deferrals will stop. Your account balances, including investment gains and losses and dividend accruals, will be paid to you in a lump sum payment in BFGoodrich common shares. For more information about the Plan or its administrators, or to receive a copy of the Plan, contact the Corporate Benefits Department at BFGoodrich, 4020 Kinross Lakes Parkway, Richfield, Ohio 44286 (330-659-7848; facsimile 330-659-7850). 8 10 ERISA The Plan is intended to be an unfunded plan maintained primarily to provide deferred compensation benefits for "a select group of management or highly compensated employees" within the meaning of Section 201, 301 and 401 of ERISA and, therefore, is exempt from parts 2, 3 and 4 of Title I of ERISA. CLAIMS REVIEW AND PROCEDURES You should submit a written application to the Company if you believe you are eligible to receive payments under the Plan. The Company will notify you whether you are so eligible. If the Company determines that you are not eligible, or you believe that you are entitled to receive greater or different payments, you may ask the Company to review your claim. CONSTRUCTIVE RECEIPT In the event one or more individuals is proven to be in constructive receipt for income tax purposes, the Company will distribute that individual's (or all participants') account in a lump sum payment (less any applicable taxes) in BFGoodrich common shares. IRC 162(m) PAYMENT The Company may postpone any individual's payout until the next fiscal year to avoid loss of a tax deduction pursuant to Section 162(m) of the Internal Revenue Code as amended or any similar provision. FEDERAL SECURITIES LAWS The Company's obligations under the Plan have been registered under the Securities Act of 1933 pursuant to a registration statement filed by the Company. This summary constitutes part of a prospectus covering those securities. Certain documents filed by the Company pursuant to Section 13(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934 are incorporated by reference in the prospectus. You may obtain copies of these documents, and all documents which constitute part of the prospectus, without charge, upon written or oral request to BFGoodrich Corporate Benefits Department, 4020 Kinross Lakes Parkway, Richfield, Ohio 44286 (330-659-7848; facsimile 330-659-7850). TAXATION QUESTIONS AND ANSWERS The following is intended as general information which is based on current law and is subject to change. It is not to be considered as tax advice. Participants are advised to consult their tax advisor regarding consequences of participating in the Plan. The Plan does not qualify under Section 401(a) of the Internal Revenue Code. 9 11 DO I PAY FEDERAL INCOME TAXES ON DEFERRALS TO THE PLAN OR DIVIDENDS WHEN CREDITED TO MY ACCOUNT? No. For federal income tax purposes, subject to certain rules, you will not be deemed to be in receipt of the amount deferred or the earnings thereon. You will not pay federal income taxes until you actually receive payouts from the Plan. HOW DOES THIS AFFECT THE WITHHOLDING ON MY PAYCHECK? Your federal and state W-2 earnings exclude Plan deferrals. Deferrals are subject to FICA taxes in the year of deferral until the annual taxable wage base for OASDI under Social Security law is reached. Medicare earnings include your deferrals, so there will be Medicare taxes (currently 1.45%) on all these amounts. Check with your tax advisor regarding the impact of tax laws on your personal financial circumstances. WHEN PAID OUT AFTER TERMINATION OF EMPLOYMENT, HOW ARE PLAN BENEFITS TAXED TO ME? Plan benefits paid to you are taxed as ordinary income when received but, under current law are not subject to income tax withholding since you will not be employed by BFGoodrich at the time of receipt of the payments. You may be required to make estimated tax payments with regard to these benefits. You should check with your tax advisor in this regard. WILL I PAY SOCIAL SECURITY FICA TAXES WHEN I TAKE MY DISTRIBUTION? No, because the deferrals were included in your wage base at the time they were credited to your account. IS MY DISTRIBUTION ELIGIBLE TO BE ROLLED OVER TO AN IRA? No, because this is not an IRS tax-qualified plan. When electing a Plan distribution, we encourage you to seek professional advice to determine the best course of action for your financial circumstances. WILL THE PLAN BENEFITS PAID TO MY BENEFICIARIES BE INCLUDED IN MY GROSS ESTATE FOR FEDERAL ESTATE FAX PURPOSES? 10 12 Yes. The present value of the benefit at the time of your death is included. If, however, your beneficiary is your spouse and the benefit qualifies for the estate tax marital deduction, there will be no federal estate tax. Check with your tax advisor regarding the impact of estate tax laws on your personal financial circumstances. WHEN PAID OUT, HOW ARE PLAN BENEFITS TAXED TO MY BENEFICIARIES? Plan benefits paid to your beneficiaries are taxed as ordinary income to them in the year received. WHEN PAID OUT, CAN PLAN BENEFITS AFFECT THE TAXATION OF MY SOCIAL SECURITY BENEFITS? Yes. Plan benefit payments will be included as income when calculating income tax on Social Security benefits. WHEN PAID OUT, CAN PLAN BENEFITS REDUCE THE AMOUNT OF MY SOCIAL SECURITY INCOME? No. Plan benefit payments will not reduce Social Security benefit payments (although your income tax may be affected, as described above). IF I DEFER WHILE LIVING IN ONE STATE, THEN RETIRE IN A DIFFERENT STATE, TO WHICH STATE WILL I PAY TAXES? Benefits as provided under this Plan are subject to income taxes only in your state of residence at the time payments are received, only if you elect quarterly installments to be paid over 10 or more years. If you have additional questions, please contact the: BFGoodrich Corporate Benefits or Corporate Legal Departments 11 EX-27 3 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED CONSOLIDATED BALANCE SHEET AND THE CONDENSED CONSOLIDATED STATEMENT OF INCOME OF THIS FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000,000 3-MOS DEC-31-2000 MAR-31-2000 77 0 946 29 1,004 2,188 3,147 1,595 5,575 1,678 1,517 272 0 561 717 5,575 1,378 1,378 987 987 5 1 37 143 52 86 0 0 0 86 0.79 0.78
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