10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K

[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2002.
	OR
[ ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from to

Commission file number 1-892

GOODRICH CORPORATION
(Exact name of registrant as specified in its charter)

New York (State of incorporation)	34-0252680 (I.R.S. Employer Identification No.)
Four Coliseum Centre 2730 West Tyvola Road Charlotte, North Carolina	28217 (Zip Code)

(Address of principal executive offices)

Registrant’s telephone number, including area code: (704) 423-7000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

	NAME AND EACH EXCHANGE
TITLE OF EACH CLASS	ON WHICH REGISTERED
Common Stock, $5 par value	New York Stock Exchange
8.30% Cumulative Quarterly Income Preferred Securities, Series A*	New York Stock Exchange

* Issued by BFGoodrich Capital and the payments of trust distributions and payments on liquidation or redemption are guaranteed under certain circumstances by Goodrich Corporation. Goodrich Corporation is the owner of 100% of the common equity issued by BFGoodrich Capital, a Delaware statutory business trust.

                SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [  ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [  ]

     The aggregate market value of the voting stock, consisting solely of common stock, held by nonaffiliates of the registrant as of June 28, 2002 was $2.8 billion. On such date, 102,100,408 shares of common stock were outstanding.

     The number of shares of common stock outstanding as of January 31, 2003 was 117,487,583.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the registrant’s 2002 Annual Report to Shareholders are incorporated by reference into Part I (Items 1 and 2), Part II (Items 6, 7, 7A and 8) and Part III (Item 15) hereof. Portions of the proxy statement dated March 2003 are incorporated by reference into Part III (Items 10, 11, 12 and 13).

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PART I

ITEM  1. BUSINESS

Overview

We are one of the largest worldwide suppliers of components, systems and services to the commercial, regional, business and general aviation markets. We are also a leading supplier of aircraft and satellite systems products to the global military and space markets. Our business is conducted on a global basis with manufacturing, service and sales undertaken in various locations throughout the world. Our products and services are principally sold to customers in North America and Europe.

We were incorporated under the laws of the State of New York on May 2, 1912 as the successor to a business founded in 1870.

Our principal executive offices are located at Four Coliseum Centre, 2730 West Tyvola Road, Charlotte, North Carolina 28217 (telephone 704-423-7000).

We maintain an Internet site at http://www.goodrich.com. The information contained at our Internet site is not incorporated by reference in this report, and you should not consider it a part of this report. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our website as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission.

Unless otherwise noted herein, disclosures in this Annual Report on Form 10-K relate only to our continuing operations. Our discontinued operations consist of the Performance Materials segment, which was divested in February 2001, and the Engineered Industrial Products segment, which was spun-off to shareholders in the second quarter of 2002.

Unless the context otherwise requires, the terms “we”, “our”, “us”, “Company” and “Goodrich” as used herein refer to Goodrich Corporation and its subsidiaries.

Acquisition of Aeronautical Systems

On October 1, 2002, we completed our acquisition of Aeronautical Systems from TRW Inc. for approximately $1.5 billion in cash. The acquired businesses design and manufacture commercial and military aerospace systems and equipment, including engine controls, flight controls, power systems, cargo systems, hoists and winches and actuation systems. At the time of acquisition, these businesses employed approximately 6,200 employees in 22 facilities in nine countries, including manufacturing and service operations in the United Kingdom, France, Germany, Canada, the United States and several Asia/Pacific countries.

The purchase price payable by the Company to TRW Inc. for the acquisition of the Aeronautical Systems businesses is subject to potential upward or downward adjustment based on the difference between the net assets of the businesses on October 1, 2002 and the net assets of the businesses on May 31, 2002, both calculated in the manner set forth in the Master Agreement of Purchase and Sale. The purchase price will also be adjusted based on the funding status of certain pension plans and other employee benefit arrangements. The above adjustments have not been finalized as of December 31, 2002.

We financed the acquisition through a $1.5 billion, 364-day credit facility provided by some of our existing lenders. This facility expires on July 29, 2003. In the fourth quarter of 2002, we repaid $1.3 billion of our borrowings under this facility primarily through the use of cash flow from prior asset monetization, cash flow from operations, the successful completion of an offering of common stock and the issuance of $800 million of 5 and 10-year notes. We expect to repay the balance of the facility through the use of cash flow from asset monetization (including the proceeds from the pending sale of our Avionics business) and cash flow from operations.

Pending Sale of the Avionics Business

On January 29, 2003, we announced that we had entered into a definitive agreement to sell our Avionics business to L-3 Communications Corporation (L-3) for $188 million. The transaction has been approved by the boards of directors of our company and L-3. Subject to customary regulatory approvals, the sale is expected to close late in the first quarter or early in the second quarter of 2003. After-tax proceeds are expected to be approximately $134 million. The Avionics business will be reported as a discontinued operation beginning with the first quarter 2003.

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Discontinued Operations

Spin-off of Engineered Industrial Products

On May 31, 2002, we completed the tax-free spin-off of our Engineered Industrial Products (EIP) segment. The spin-off was made through a tax-free distribution to our shareholders of all of the capital stock of EnPro Industries, Inc., a subsidiary that we formed in connection with the spin-off. In the spin-off, our shareholders received one share of EnPro common stock for every five shares of our common stock owned on May 28, 2002, the record date.

At the time of the spin-off, EnPro’s only material asset was all of the capital stock and certain indebtedness of Coltec Industries Inc (Coltec). Coltec and its subsidiaries owned substantially all of the assets and liabilities of the EIP segment, including the associated asbestos liabilities and related insurance.

Prior to the spin-off, Coltec also owned and operated an aerospace business. Before completing the spin-off, Coltec’s aerospace business assumed all intercompany balances outstanding between Coltec and us and Coltec then transferred to us as a dividend all the assets, liabilities and operations of its aerospace business, including these assumed balances. Following this transfer and prior to the spin-off, all of the capital stock of Coltec was contributed to EnPro, with the result that at the time of the spin-off Coltec was a wholly-owned subsidiary of EnPro.

In connection with the spin-off, we and EnPro entered into a distribution agreement, a tax matters agreement, a transition services agreement, an employee matters agreement and an indemnification agreement, which govern the relationship between us and EnPro after the spin-off and provide for the allocation of employee benefits, tax and other liabilities and obligations attributable to periods prior to the spin-off.

The spin-off was recorded as a dividend and resulted in a reduction of our shareholders’ equity of $409.1 million representing the recorded value of the net assets of the business distributed, including cash of $47.0 million. The distribution agreement provides for certain post-distribution adjustments relating to the amount of cash to be included in the net assets distributed. At December 31, 2002, the final adjustment had been calculated and is subject to a dispute resolution process. We expect that the effect of the final resolution of this process on our consolidated financial statements will be immaterial.

The $150 million of outstanding Coltec Capital Trust 5¼ percent convertible trust preferred securities (TIDES) that were reflected in liabilities of discontinued operations remained outstanding as part of the EnPro capital structure following the spin-off. The TIDES are convertible into shares of both Goodrich and EnPro common stock until April 15, 2028. We have guaranteed amounts owed by Coltec Capital Trust with respect to the TIDES and have guaranteed Coltec’s performance of its obligations with respect to the TIDES and the underlying Coltec convertible subordinated debentures. EnPro, Coltec and Coltec Capital Trust have agreed to indemnify us from any costs and liabilities arising under or related to the TIDES after the spin-off.

Prior to the spin-off, Coltec acquired certain call options on our common stock in order to partially hedge its exposure to fluctuations in the market price of our stock resulting from the TIDES. These call options remained an asset of Coltec following the spin-off.

Sale of Performance Materials Segment

On February 28, 2001, we completed the sale of our Performance Materials (PM) segment to an investor group led by AEA Investors, Inc. for approximately $1.4 billion. Total net proceeds, after anticipated tax payments and transaction costs, included approximately $1 billion in cash and $172 million in pay-in-kind (PIK) debt securities issued by the buyer, which is now known as Noveon International Inc. (Noveon). The transaction resulted in an after-tax gain of $93.5 million. During the second quarter 2002, a dispute over the computation of a post-closing working capital adjustment was resolved. The resolution of this matter did not have an effect on the previously reported gain.

In July 2002, we entered into an agreement with Noveon to amend certain provisions of the PIK notes held by us to give Noveon the option to prepay the securities at a discount greater than the original discount if they are prepaid on or before February 28, 2003. As a result of prepayments made in June and October 2002, Noveon prepaid a total of $62.5 million of the outstanding principal of the PIK notes for $49.8 million in cash. Because these prepayments did not exceed the original discount recorded at the inception of the notes, no gain or loss was required to be recognized.

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Pursuant to the terms of the transaction, we have retained certain assets and liabilities, primarily pension, postretirement and environmental liabilities, of Performance Materials. We have also agreed to indemnify Noveon for liabilities arising from certain events as defined in the agreement. Such indemnification is not expected to be material to our financial condition, but could be material to our results of operations in a given period.

Other Dispositions

During 2002, we sold a business and a minority interest in a business, resulting in a pre-tax gain of $2.5 million, which has been reported in other income (expense), net.

During 2001, we sold a minority interest in a business, resulting in a pre-tax gain of $7.2 million, which has been reported in other income (expense), net.

During 2000, we sold a product line of a business, resulting in a pre-tax gain of $2.0 million, which has been reported in other income (expense), net.

Other Acquisitions

The following acquisitions were recorded using the purchase method of accounting. Their results of operations have been included in our results since their respective dates of acquisition. Acquisitions made by businesses included within the Performance Materials and Engineered Industrial Products segments are not discussed below.

During 2001, we acquired a manufacturer of aerospace lighting systems and related electronics and the assets of a designer and manufacturer of inertial sensors used for guidance and control of unmanned vehicles and precision-guided systems. Total consideration paid by us for these acquisitions aggregated $113.8 million, of which $102.6 million represented goodwill and other intangible assets.

During 2000, we acquired a manufacturer of earth and sun sensors for satellite attitude determination and control; ejection seat technology; a manufacturer of fuel nozzles; a developer of avionics and displays; the assets of a developer of precision electro-optical instrumentation serving both the space and military markets; an equity interest in a joint venture focused on developing and operating a comprehensive open electronic marketplace for aerospace aftermarket products and services; a manufacturer of precision and large optical systems, laser warning systems and visual surveillance systems for day and night use; and a supplier of pyrotechnic devices for space, missile, and aircraft systems. Total consideration paid by us for these acquisitions aggregated $242.6 million, of which $105.4 million represented goodwill and intangible assets.

Business Segments

At December 31, 2002, we operated in five business segments: Aerostructures and Aviation Technical Services; Landing Systems; Engine and Safety Systems; Electronic Systems; and Aeronautical Systems. For information about the revenues, operating income and total assets of our business segments, see Note M to the Consolidated Financial Statements within the 2002 Annual Report to Shareholders, which is incorporated herein by reference.

A summary of the products and services provided by our business segments is presented below.

Aerostructures and Aviation Technical Services

The core products of our Aerostructures division are nacelles, pylons, thrust reversers and related aircraft engine housing components. We are a leading worldwide supplier of nacelles, which are the aerodynamic structures that surround engines, and pylons, which are the engine-to-wing structures that support engines and provide the critical connective conduit for fuel delivery and numerous engine-driven aircraft systems. In addition, we manufacture a range of specialized aerostructures, including lightweight, temperature-resistant auxiliary power unit tailcones for jetliners, corrosion-resistant structures for tactical military aircraft, and rigid cargo barriers for freighter aircraft. We also manufacture a variety of galley, wing, nacelle, thrust reverser, flight control surface and assembly components for out-of-production aircraft.

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Through our Aviation Technical Services division, we service approximately 550 aircraft each year and are among the largest independent providers of maintenance, repair, overhaul and modification services in the world. Services provided by our Aviation Technical Services division range from the repair of individual components and systems to heavy maintenance and modifications of large commercial aircraft and business jet aircraft. We perform comprehensive total aircraft maintenance, repair, overhaul and modification for many commercial airlines, independent operators, aircraft leasing companies and airfreight carriers.

Landing Systems

Our Landing Systems segment provides systems and components related to aircraft taxi, take-off, landing and stopping. Several divisions within this segment are linked by their ability to contribute to the integration, design, manufacture and service of entire aircraft undercarriage systems, including landing gear, wheels and brakes, and certain brake controls. We differentiate ourselves from component suppliers by providing integrated systems, delivered as completely pre-assembled units to airframe manufacturers. We also provide complete repair and overhaul services for landing gear, wheels and brakes. In addition, through our engineered polymer products division, we design and produce components made from proprietary, high-performance composite material systems used in naval ships and submarines to improve acoustic characteristics and reduce radar signature of exposed superstructures.

Engine and Safety Systems

Our Engine and Safety Systems segment produces a variety of products used in engine systems, including fuel delivery systems, electronic and mechanical controls, pumps, metering devices, manifolds and rotating components such as disks, blisks, shafts and airfoils for both aerospace and industrial gas turbine applications. The segment also produces evacuation systems such as slides and floats, as well as seats for pilots, observers and flight attendants. Our de-icing and specialty systems division produces ice protection systems for general aviation, heating and related systems for large commercial transport aircraft, and potable water systems for regional and business aircraft. We also supply electrothermal ice protection systems for airframe, propeller and helicopter rotor applications and specialty heating systems, water heaters and other internal and external heated components for large commercial transport aircraft. Through our propulsion systems division, we provide research, design, development, qualifications and manufacture of advanced aircrew escape systems. We also supply individual components such as rocket motors and catapults, pyrotechnic gas generators, ejection seats, precision electro-explosive devices, propellants, linear actuators, and safety and arming devices.

Electronic Systems

Our Electronic Systems segment produces a wide array of products that provide flight performance measurements, flight management, and control and safety data. We supply a variety of high-performance sensor systems, such as stall warning systems and systems that measure, manage and/or monitor aircraft fuel, oil debris, engine, transmission and structural health, and aircraft motion and control. We also supply a variety of avionics systems and other instruments, including warning and detection systems, ice detection systems, test equipment, aircraft lighting systems, landing gear cables and harnesses, satellite control, data management and payload systems, launch and missile telemetry systems, airborne reconnaissance systems and laser warning systems. In addition, our optical and space systems division designs and builds high-performance, custom-engineered electronics, optics and electro-optical products for defense, aerospace, scientific and commercial applications. We also produce directional surveying equipment for use by companies operating in petroleum, mining and utility industries.

Aeronautical Systems

Aeronautical Systems manufactures highly engineered systems and equipment in the following product groups:

• Engine controls. This product group consists of engine control systems and components for jet engines used on commercial and military aircraft, including fuel metering controls, fuel pumping systems, electronic control software and hardware, variable geometry actuation controls, afterburner fuel pump and metering unit nozzles, and engine health monitoring systems.

• Flight controls. This product group includes actuators for primary flight control systems that operate elevators, ailerons and rudders, as well as secondary flight controls systems such as flaps and slats.

• Power systems. This product group consists of systems that produce and control electrical power for commercial and military aircraft, including electric generators for both main and back-up electrical power, electric starters, and electric starter generating systems, as well as power management and distribution systems.

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• Cargo systems. This product group consists of fully-integrated main deck and lower lobe cargo systems for wide body aircraft.

• Hoists and winches. This product group consists of airborne hoists and winches used on both helicopters and fixed wing aircraft.

• Actuation systems. This product group consists of systems that control the movement of steering systems for missiles as well as electro-mechanical systems that are characterized by high power, low weight, low maintenance, resistance to extreme temperatures and vibrations, and high reliability.

Segment Reorganization

Effective January 1, 2003, we reorganized into three business segments: Airframe Systems, Engine Systems and Electronic Systems. The reorganization was designed to enhance communication and maximize synergies in a streamlined organization. Segment financial results will be restated effective January 1, 2003 beginning with the first quarter 2003.

Customers

We serve a diverse group of customers worldwide in the commercial, military, regional, business and general aviation markets and in the global military and space markets. We market our products, systems and services directly to our customers through an internal marketing and sales force.

In 2002, 2001 and 2000, direct and indirect sales to Boeing totaled 20 percent, 23 percent and 23 percent, respectively, of consolidated sales. In 2002, 2001 and 2000, direct and indirect sales to Airbus totaled 13 percent of consolidated sales.

In 2002, 2001 and 2000, direct and indirect sales to the United States government totaled 20 percent, 16 percent and 9 percent, respectively, of consolidated sales.

Competition

The aerospace industry in which we operate is highly competitive. Principal competitive factors include price, product and system performance, quality, service, design and engineering capabilities, new product innovation and timely delivery. We compete worldwide with a number of United States and international companies that are both larger and smaller than us in terms of resources and market share, and some of which are our customers.

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The following table lists the companies that we consider to be our major competitors for each major aerospace product or system platform for which we believe we are one of the leading suppliers.

		Major Non-Captive
System	Primary Market Segment	Competitors(1)
Aerospace Hoists/Winches	Military/Large Commercial	Breeze-Eastern (a division of TransTechnology Corporation); Telair International (a subsidiary of Teleflex Incorporated)
Aircraft Crew Seating	Business	Ipeco Holdings Ltd, Sicma Aero Seat (a subsidiary of Zodiac S.A.); EADS Sogerma Services (a subsidiary of EADS European Aeronautical Defense and Space Co.); B/E Aerospace, Inc.; C&D Aerospace Group
Cargo Systems	Large Commercial	Telair International (a subsidiary of Teleflex Incorporated); Ancra International LLC
De-Icing Systems	Regional/General Aviation	Aérazur S.A. (a subsidiary of Zodiac S.A.); B/E Aerospace, Inc.
Ejection Seats	Military	Martin-Baker Aircraft Co. Limited
Engine Controls	Large Commercial/Military	United Technologies Corporation; BAE Systems plc; Honeywell International Inc.
Evacuation Systems	Large Commercial	Zodiac S.A.
Flight Control Actuation	Large Commercial/Military	Parker Hannifin Corporation; United Technologies Corporation; Smiths Group plc; Liebherr-Holding GmbH; Moog Inc.
Fuel and Utility Systems	Large Commercial	Smiths Group plc; Parker Hannifin Corporation; Argo-Tech Corporation
Heavy Airframe Maintenance	Large Commercial	TIMCO Aviation Services, Inc.; SIA Engineering Company Limited; Singapore Technologies Engineering Ltd.; Lufthansa Technik AG; PEMCO Aviation Group, Inc.
Landing Gear	Large Commercial/Military	Messier-Dowty (a member company of Snecma(2))
Lighting	Large Commercial/Business	Honeywell International Inc.
Nacelles	Large Commercial	Aircelle (a subsidiary of Snecma(2))
Optical Systems	Military/Space	L-3 Communications Holdings, Inc.; Honeywell International Inc.; Eastman Kodak Company
Power Systems	Large Commercial	Honeywell International Inc.; Smiths Group plc; United Technologies Corporation
Sensors	Large Commercial/Military	BAE Systems plc; Honeywell International Inc.; Thales, S.A.
Wheels and Brakes	Large Commercial/Business	Honeywell International Inc.; Messier-Bugatti (a subsidiary of Snecma(2)); Aircraft Braking Systems Corporation (a subsidiary of K&F Industries, Inc.)

(1)	Excludes aircraft manufacturers, airlines, and prime military contractors who, in some cases, have the capability to produce these systems internally.
(2)	Snecma refers to Société Nationale d’Études et de Construction de Moteurs d’Aviation.

Backlog

At December 31, 2002, we had a backlog of approximately $3.8 billion, of which approximately 67 percent is expected to be filled during 2003. The amount of backlog at December 31, 2001 was approximately $3.4 billion. Backlog is subject to delivery delays or program cancellations, which are beyond our control.

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Raw Materials

Raw materials and components used in the manufacture of our products, including aluminum, steel and carbon fiber, are available from a number of manufacturers and are generally in adequate supply.

Environmental

We are subject to various domestic and international environmental laws and regulations, which may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. We are currently involved in the investigation and remediation of a number of sites under these laws. Based on currently available information, we do not believe that future environmental costs in excess of those accrued with respect to such sites will have a material adverse effect on our financial condition. There can be no assurance, however, that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on our results of operations or cash flows in a given period.

For additional information concerning environmental matters, see “Item 3. Legal Proceedings – Environmental”.

Research and Development

We perform research and development under company-funded programs for commercial products and under contracts with others. Research and development under contracts with others is performed on both military and commercial products. Total research and development expenditures from continuing operations in 2002, 2001 and 2000 were $236.0 million, $198.2 million and $186.0 million, respectively. Of these amounts, $49.0 million, $49.0 million and $50.6 million, respectively, were funded by customers. Research and development expense in 2002 includes the $12.5 million of in-process research and development expense written-off related to the Aeronautical Systems acquisition.

Intellectual Property

We have many patents of our own and have acquired licenses under patents of others. While such patents in the aggregate are important to us, neither our primary business nor any of our business segments is dependent on any single patent or group of related patents. We use a number of trademarks important either to our business as a whole or to our business segments considered separately. We believe that these trademarks are adequately protected.

Human Resources

As of December 31, 2002, we had approximately 15,800 employees in the United States. Additionally, approximately 7,100 people were employed by us in other countries. We believe that we have good relationships with our employees. The hourly employees who are unionized are covered by collective bargaining agreements with a number of labor unions and with varying contract termination dates through June 2006. There were no material work stoppages during 2002.

Foreign Operations

We are engaged in business in foreign markets. Our manufacturing and service facilities are located in Australia, Canada, China, England, France, Germany, Hong Kong, India, Indonesia, Mexico, Poland, Scotland and Singapore. We market our products and services through sales subsidiaries and distributors in a number of foreign countries. We also have technical fee agreements, patent royalty agreements and joint venture agreements with various foreign companies.

Currency fluctuations, tariffs and similar import limitations, price controls and labor regulations can affect our foreign operations, including foreign affiliates. Other potential limitations on our foreign operations include expropriation, nationalization, restrictions on foreign investments or their transfers, and additional political and economic risks. In addition, the transfer of funds from foreign operations could be impaired by the unavailability of dollar exchange or other restrictive regulations that foreign governments could enact. We do not believe that such restrictions or regulations would have a materially adverse effect on our business, in the aggregate.

For financial information about U.S. and foreign sales and assets, see Note M to the Consolidated Financial Statements within the 2002 Annual Report to Shareholders, which is incorporated herein by reference.

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Certain Business Risks

Our business, financial condition, results of operations and cash flows can be impacted by a number of factors, including but not limited to those set forth below and elsewhere in this Annual Report on Form 10-K, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.

The market segments we serve are cyclical and sensitive to domestic and foreign economic considerations that could adversely affect our business and financial results.

The market segments in which we sell our products are, to varying degrees, cyclical and have experienced periodic downturns. For example, markets for certain of our commercial aviation products sold to aircraft manufacturers have experienced downturns during periods of slowdowns in the commercial airline industry and during periods of weak general economic conditions, as demand for new aircraft typically declines during these periods. Although we believe that aftermarket demand for many of our products may reduce our exposure to these business downturns, we have experienced these conditions in our business in the past and may experience downturns in the future.

The U.S. and other world markets are currently experiencing an economic downturn, and many of the market segments that we serve have been affected by this downturn. As a result, our business and financial results have been adversely affected. If this economic downturn were to continue for an extended period or if conditions were to worsen, there would be a further negative impact on our business and financial results.

Further, the terrorist attacks of September 11, 2001 adversely impacted the U.S. and world economies and a wide range of industries. These terrorist attacks, the allied military response and subsequent developments may lead to future acts of terrorism and additional hostilities, including possible retaliatory attacks on sovereign nations, as well as financial, economic and political instability. While the precise effects of such instability on our industry and our business is difficult to determine, it may negatively impact our business, financial condition, results of operations and cash flows.

Current conditions in the airline industry could adversely affect our business and financial results.

The downturn in the commercial air transport market segment, together with the terrorist attacks of September 11, 2001, has adversely affected the financial condition of many commercial airlines. In response, some airlines have reduced their aircraft fleet sizes, resulting in decreased aftermarket demand for many of our products. In addition, Boeing and Airbus have both announced that new commercial aircraft deliveries for 2003 will be lower than 2002, as a result of reduced demand. We expect that this reduction in the active fleet, coupled with reduced commercial aircraft deliveries by Boeing and Airbus, could adversely affect our results of operations and cash flows.

Several airlines recently have declared bankruptcy or indicated that bankruptcy may be imminent. A portion of our sales are derived from the sale of products directly to airlines, and we sometimes provide sales incentives to airlines and record unamortized sales incentives as other assets. If an airline declares bankruptcy, we may be unable to collect our outstanding accounts receivable from the airline and we may be required to record a charge related to unamortized and unrecoverable sales incentives.

Our acquisition of Aeronautical Systems exposes us to risks, including the risk that we may not be able to successfully integrate these businesses or achieve expected operating synergies.

Our acquisition of Aeronautical Systems involves risks that could adversely affect our operating results, including difficulties in integrating the operations and personnel of these businesses and the potential loss of key employees of these businesses. We may not be able to satisfactorily integrate these acquired businesses in a manner and a timeframe that achieves the costs savings and operating synergies that we expect.

A significant decline in business with Boeing or Airbus could adversely affect our business and financial results.

For the year ended December 31, 2002, approximately 20% and 13% of our sales were made to Boeing and Airbus, respectively, for all categories of products, including original equipment and aftermarket products for commercial and military aircraft and space applications. Accordingly, a significant reduction in purchases by either of these customers could have a material adverse effect on our financial condition, results of operations and cash flows.

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Demand for our defense and space-related products is dependent upon government spending.

Approximately 26% of our net sales for the year ended December 31, 2002 was derived from the military and space market segments. The military and space market segments are largely dependent upon government budgets, particularly the U.S. defense budget. We cannot assure you that an increase in defense spending will be allocated to programs that would benefit our business. Moreover, we cannot assure you that new military aircraft programs in which we participate will enter full-scale production as expected. A change in levels of defense spending could curtail or enhance our prospects in these market segments, depending upon the programs affected. A change in the level of anticipated new product development costs for military aircraft could negatively impact our business.

Competitive pressures may adversely affect our business and financial results.

The aerospace industry in which we operate is highly competitive. We compete worldwide with a number of United States and international companies that are both larger and smaller than we are in terms of resources and market share, and some of which are our customers. While we are the market and technology leader in many of our products, in certain areas some of our competitors may have more extensive or more specialized engineering, manufacturing or marketing capabilities. As a result, these competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the development, promotion and sale of their products than we can.

The significant consolidation occurring in the aerospace industry could adversely affect our business and financial results.

The aerospace industry in which we operate has been experiencing significant consolidation among suppliers, including us and our competitors, and the customers we serve. Commercial airlines have increasingly been merging and creating global alliances to achieve greater economies of scale and enhance their geographic reach. Aircraft manufacturers have made acquisitions to expand their product portfolios to better compete in the global marketplace. In addition, aviation suppliers have been consolidating and forming alliances to broaden their product and integrated system offerings and achieve critical mass. This supplier consolidation is in part attributable to aircraft manufacturers and airlines more frequently awarding long-term sole source or preferred supplier contracts to the most capable suppliers, thus reducing the total number of suppliers from whom components and systems are purchased. We cannot assure you that our business and financial results will not be adversely impacted as a result of consolidation by our competitors or customers.

The aerospace industry is highly regulated.

The aerospace industry is highly regulated in the United States by the FAA and in other countries by similar regulatory agencies. We must be certified by these agencies and, in some cases, by individual original equipment manufacturers in order to engineer and service systems and components used in specific aircraft models. If material authorizations or approvals were revoked or suspended, our operations would be adversely affected. New or more stringent governmental regulations may be adopted, or industry oversight heightened, in the future, and we may incur significant expenses to comply with any new regulations or any heightened industry oversight.

We may have liabilities relating to environmental laws and regulations that could adversely affect our financial results.

We are subject to various domestic and international environmental laws and regulations which may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. We are currently involved in the investigation and remediation of a number of sites under these laws. Based on currently available information, we do not believe that future environmental costs in excess of those accrued with respect to such sites will have a material adverse effect on our financial condition. There can be no assurance, however, that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on our results of operations or cash flows in a given period.

Any product liability claims in excess of insurance may adversely affect our financial condition.

Our operations expose us to potential liability for personal injury or death as a result of the failure of an aircraft component that has been serviced by us, the failure of an aircraft component designed or manufactured by us, or the irregularity of metal products processed or distributed by us. While we believe that our liability insurance is adequate to protect us from these liabilities, our insurance may not cover all liabilities. Additionally, insurance coverage may not be available in the future at a cost acceptable to us. Any material liability not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our financial condition, results of operations and cash flows.

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Our operations depend on our production facilities throughout the world. These production facilities are subject to physical and other risks that could disrupt production.

Our production facilities could be damaged or disrupted by a natural disaster, labor strike, war, political unrest or terrorist activity. Although we have obtained property damage and business interruption insurance, a major catastrophe such as an earthquake or other natural disaster at any of our sites, or significant labor strikes, work stoppages, political unrest, war or terrorist activities in any of the areas where we conduct operations, could result in a prolonged interruption of our business. Any disruption resulting from these events could cause significant delays in shipments of products and the loss of sales and customers. We cannot assure you that we will have insurance to adequately compensate us for any of these events.

We have significant international operations and assets and are therefore subject to additional financial and regulatory risks.

We have operations and assets throughout the world. In addition, we sell our products and services in foreign countries and seek to increase our level of international business activity. Accordingly, we are subject to various risks, including: U.S.-imposed embargoes of sales to specific countries; foreign import controls (which may be arbitrarily imposed or enforced); price and currency controls; exchange rate fluctuations; dividend remittance restrictions; expropriation of assets; war, civil uprisings and riots; government instability; the necessity of obtaining governmental approval for new and continuing products and operations; legal systems of decrees, laws, taxes, regulations, interpretations and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied; and difficulties in managing a global enterprise. We may also be subject to unanticipated income taxes, excise duties, import taxes, export taxes or other governmental assessments. Any of these events could result in a loss of business or other unexpected costs that could reduce sales or profits and have a material adverse effect on our financial condition, results of operations and cash flows.

We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our international operations also expose us to translation risk when the local currency financial statements are translated to U.S. dollars, our functional currency. As currency exchange rates fluctuate, translation of the statements of income of international businesses into U.S. dollars will affect comparability of revenues and expenses between years.

Creditors may seek to recover from us if the businesses that we spun off are unable to meet their obligations in the future, including obligations to asbestos claimants.

On May 31, 2002, we completed the spin-off of our wholly owned subsidiary, EnPro Industries, Inc. Prior to the spin-off, we contributed the capital stock of Coltec Industries Inc to EnPro. It is possible that asbestos-related claims might be asserted against us on the theory that we have some responsibility for the asbestos-related liabilities of EnPro, Coltec or its subsidiaries, even though the activities that led to those claims occurred prior to our ownership of any of those subsidiaries. Also, it is possible that a claim might be asserted against us that Coltec’s dividend of its aerospace business to us prior to the spin-off was made at a time when Coltec was insolvent or caused Coltec to become insolvent. Such a claim could seek recovery from us on behalf of Coltec of the fair market value of the dividend.

No such claims have been asserted against us to date. We believe that we would have substantial legal defenses against any such claims. In addition, the agreement between EnPro and us that was used to effectuate the spin-off provides us with an indemnification from EnPro covering, among other things, these liabilities. Any such asbestos-related claims would likely require, as a practical matter, that Coltec’s subsidiaries were unable to satisfy their asbestos-related liabilities and that Coltec was found to be responsible for these liabilities and was unable to meet its financial obligations. We believe any such claims would be without merit and that Coltec was solvent both before and after the dividend. If we are ultimately found to be responsible for the asbestos-related liabilities of Coltec’s subsidiaries, we believe it would not have a material adverse effect on our financial condition, but could have a material adverse effect on our results of operations and cash flows in a particular period. However, because of the uncertainty as to the number, timing and payments related to future asbestos-related claims, there can be no assurance that any such claims will not have a material adverse effect on our financial condition, results of operations and cash flows. If a claim related to the dividend of Coltec’s aerospace business were successful, it could have a material adverse impact on our financial condition, results of operations and cash flows.

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ITEM  2. PROPERTIES

We operate manufacturing plants and service and other facilities throughout the world.

Certain information with respect to our significant facilities that are owned or leased is set forth below:

			Approximate
		Owned or	Number of
Segment	Location	Leased	Square Feet
Aerostructures and	Chula Vista, California	Owned		1,840,000
Aviation Technical	Riverside, California	Owned		1,160,000
Services	Everett, Washington (1)	Owned		1,030,000
	Chula Vista, California	Leased		890,000
Landing Systems	Cleveland, Ohio	Owned/Leased		450,000
	Troy, Ohio	Owned		410,000
	Oakville, Canada	Owned		360,000
	Pueblo, Colorado	Owned		300,000
	Tullahoma, Tennessee	Owned		200,000
Engine and Safety	West Hartford, Connecticut (2)	Owned		550,000
Systems
Electronic Systems	Danbury, Connecticut	Owned		520,000
	Burnsville, Minnesota	Owned		245,000
	Vergennes, Vermont	Owned		215,000
Aeronautical Systems	West Midlands, England	Owned		430,000
	Vernon, France	Owned		260,000
	Jamestown, North Dakota	Owned		230,000
	Aurora, Ohio	Leased		250,000

(1)	Although the building is owned, the land at this facility is leased.
(2)	We utilize approximately 300,000 square feet, and the rest of this facility is leased to third parties.

In the spring of 2000, we moved our headquarters operations to a new office building in Charlotte, North Carolina. We leased approximately 110,000 square feet for an initial term of ten years, with two five-year options to 2020. The new offices provide space for the corporate headquarters and also for the headquarters of each of our segments other than our Landing Systems and Aeronautical Systems segments.

In addition, we and our subsidiaries are lessees under a number of cancelable and non-cancelable leases for certain real properties, used primarily for administrative, retail, maintenance, repair and overhaul of aircraft, aircraft wheels and brakes and evacuation systems and warehouse operations, and for certain equipment (see Note J to the Consolidated Financial Statements within the 2002 Annual Report to Shareholders, which is incorporated herein by reference).

In the opinion of management, our principal properties, whether owned or leased, are suitable and adequate for the purposes for which they are used and are suitably maintained for such purposes. See Item 3, “Legal Proceedings-Environmental” for a description of proceedings under applicable environmental laws regarding some of our properties.

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ITEM  3. LEGAL PROCEEDINGS

General

There are pending or threatened against us or our 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. We believe that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on our consolidated financial position or results of operations. From time to time, we are 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

We are subject to various domestic and international environmental laws and regulations which may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which we have been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. We are currently involved in the investigation and remediation of a number of sites under these laws.

The measurement of environmental liabilities by us is based on currently available facts, present laws and regulations and current technology. Such estimates take into consideration our prior experience in site investigation and remediation, the data concerning cleanup costs available from other companies and regulatory authorities and the professional judgment of our environmental specialists in consultation with outside environmental specialists, when necessary. Estimates of our liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation.

Accordingly, as investigation and remediation of these sites proceed, it is likely that adjustments in our accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on our results of operations in a given period, but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on currently available information, however, we do not believe that future environmental costs in excess of those accrued with respect to sites with which we have been identified as a potentially responsible party are likely to have a material adverse effect on our financial condition. There can be no assurance, however, that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on our results of operations or cash flows in a given period.

Environmental liabilities are recorded when our liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when we have recommended a remedy or have committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigations and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. The liabilities are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites and an assessment of the likelihood that such parties will fulfill their obligations at such sites.

At December 31, 2002, our liabilities for environmental remediation obligations totaled $92.7 million, of which $19.0 million was included in current liabilities as Accrued Liabilities. Of the $92.7 million, $21.5 million was associated with ongoing operations and $71.2 million was associated with businesses previously disposed of or discontinued.

The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. We expect that we will expend present accruals over many years, and will complete remediation of all sites with which we have been identified in up to 30 years. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years.

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Tolo Litigation

In May 2000, we and our subsidiary Rohr, Inc. were served with a complaint in a lawsuit filed in the Superior Court of Orange County, California, by former shareholders and certain former employees of Tolo, Inc. Tolo is a subsidiary of Rohr that was acquired in 1997 pursuant to a stock purchase agreement. The former shareholders alleged that we and Rohr breached the stock purchase agreement and engaged in fraud by failing to pay $2.4 million under the terms of the agreement. In September 2001, a jury found that we were liable to the shareholders for the $2.4 million retained by Rohr under the stock purchase agreement and were also assessed punitive damages of $48 million. The court subsequently reduced the punitive damage award to $24 million. We and Rohr appealed the judgment.

In December 2002, the appellate court issued a ruling directing the trial court to enter judgment in favor of us and Rohr on both the fraud claim and the breach of contract claim. The plaintiffs’ motion for rehearing of that ruling was subsequently denied. On February 10, 2003, the plaintiffs filed a petition for review with the California Supreme Court. We have until March 2, 2003 to respond to the petition.

Asbestos

We and certain of our subsidiaries have been named as defendants in various actions by plaintiffs alleging injury or death as a result of exposure to asbestos fibers in products, or which may have been present in our facilities. A number of actions involve maritime claims, which have been and are expected to continue to be administratively dismissed by the court. These actions primarily relate to previously owned businesses. We believe that we have substantial insurance coverage available to us related to any remaining claims. As a result, we believe that these pending and reasonably anticipated future actions are not likely to have a material adverse effect on our financial condition or results of operations.

ITEM  4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

David L. Burner, age 63, Chairman and Chief Executive Officer

Mr. Burner joined the Company in 1983 as Financial Vice President of the Company’s Engineered Products Group. Later that year he became Vice President and General Manager of the Off-Highway Braking Systems Division and in 1985 became an Executive Vice President of the Aerospace and Defense Division. In 1987 Mr. Burner became President of that Division. He was elected a Senior Vice President of the Company in 1990 and Executive Vice President in 1993. He joined the Office of the Chairman in 1994, was elected President of the Company in 1995, Chief Executive Officer in 1996 and Chairman in 1997. Mr. Burner began his career with Arthur Andersen & Co. He received his B.S.C. degree from Ohio University. Mr. Burner is a director of the Company and a member of the boards of directors of Briggs & Stratton Corporation, Lance, Inc., Milacron Inc. and Progress Energy, Inc.

Marshall O. Larsen, age 54, President and Chief Operating Officer

Mr. Larsen joined the Company in 1977 as an Operations Analyst. In 1981, he became Director of Planning and Analysis and subsequently Director of Product Marketing. In 1986, he became Assistant to the President and later served as General Manager of several divisions of the Company’s aerospace business. He was elected a Vice President of the Company and named a Group Vice President of Goodrich Aerospace in 1994 and was elected an Executive Vice President of the Company and President and Chief Operating Officer of Goodrich Aerospace in 1995. He was elected President and Chief Operating Officer and a director of the Company in 2002. Mr. Larsen received a B.S. in engineering from the U.S. Military Academy and an M.S. in industrial management from the Krannert Graduate School of Management at Purdue University.

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Terrence G. Linnert, age 56, Executive Vice President, Human Resources and Administration, General Counsel

Mr. Linnert joined Goodrich in 1997 as Senior Vice President and General Counsel. In 1999, he was elected to the additional positions of Senior Vice President, Human Resources and Administration, and Secretary. He was elected Executive Vice President, Human Resources and Administration, General Counsel in 2002. Prior to joining Goodrich, Mr. Linnert was Senior Vice President of Corporate Administration, Chief Financial Officer and General Counsel of Centerior Energy Corporation. Mr. Linnert received a B.S. in electrical engineering from the University of Notre Dame and a J.D. from the Cleveland-Marshall School of Law at Cleveland State University.

Ulrich Schmidt, age 53, Executive Vice President and Chief Financial Officer

Mr. Schmidt joined the Company in 1994 as Vice President of Finance for Goodrich Aerospace and served in that capacity until 1999, when he was named Vice President of Finance and Business Development for Goodrich Aerospace. In 2000, Mr. Schmidt was elected Senior Vice President and Chief Financial Officer of the Company. He was elected Executive Vice President and Chief Financial Officer in 2002. Mr. Schmidt received a B.A. in business administration and an M.B.A. in finance from Michigan State University.

Stephen R. Huggins, age 59, Senior Vice President, Strategic Resources and Information Technology

Mr. Huggins joined the Company in 1988 as Group Vice President, Specialty Products. He later served as Group Vice President, Engine and Fuel Systems from 1991 to 1995 and as Vice President — Business Development, Aerospace from 1995 to 1999. In 1999, he was elected Vice President, Strategic Planning and Chief Knowledge Officer. In 2000, Mr. Huggins was elected Senior Vice President, Strategic Resources and Information Technology. Mr. Huggins received a B.S. in aerospace engineering from Virginia Polytechnic Institute.

Jerry S. Lee, Age 61, Senior Vice President, Technology and Innovation

Mr. Lee joined the Company in 1979 as Manager of Engineering Science, Engineered Products Group. He later served as Director of R&D, Goodrich Aerospace from 1983 to 1988, Vice President — Technology from 1989 — 1998 and Vice President — Technology and Innovation from 1998 to 2000. In 2000, Mr. Lee was elected Senior Vice President — Technology and Innovation. Mr. Lee received a B.S. in mechanical engineering and Ph.D. in mechanical engineering from North Carolina State University.

John J. Carmola, Age 47, Vice President and Segment President, Engine Systems

Mr. Carmola joined the Company in 1996 as President of the Landing Gear Division. He served in that position until 2000, when he was appointed President of the Engine Systems Division. Later in 2000, Mr. Carmola was elected a Vice President of the Company and Group President, Engine and Safety Systems. In 2002, he was elected Vice President and Group President, Electronic Systems. In 2003, he was elected Vice President and Segment President, Engine Systems. Prior to joining the Company, Mr. Carmola served in various management positions with General Electric Company. Mr. Carmola received a B.S. in mechanical and aerospace engineering from the University of Rochester and an M.B.A. in finance from Xavier University.

Cynthia M. Egnotovich, age 45, Vice President and Segment President, Electronic Systems

Ms. Egnotovich joined the Company in 1986 and served in various positions with the Ice Protection Systems Division, including Controller from 1993 to 1996, Director of Operations from 1996 to 1998 and Vice President and General Manager from 1998 to 2000. Ms. Egnotovich was appointed as Vice President and General Manager of Commercial Wheels and Brakes in 2000. She was elected a Vice President of the Company and Group President, Engine and Safety Systems in 2002. In 2003, she was elected Vice President and Segment President, Electronic Systems. Ms. Egnotovich received a B.B.A. in accounting from Kent State University and a B.S. in biology from Immaculata College.

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John J. Grisik, age 56, Vice President and Segment President, Airframe Systems

Mr. Grisik joined Goodrich in 1991 as General Manager of the De-Icing Systems Division. He served in that position until 1993, when he was appointed General Manager of the Landing Gear Division. In 1995, he was appointed Group Vice President of Safety Systems and served in that position until 1996 when he was appointed Group Vice President of Sensors and Integrated Systems. In 2000, Mr. Grisik was elected a Vice President of the Company and Group President, Landing Systems. He was elected Vice President and Segment President, Airframe Systems, in 2003. Prior to joining the Company, Mr. Grisik served in various management positions with General Electric Company and United States Steel Company. Mr. Grisik received a B.S., M.S. and D.S. in engineering from the University of Cincinnati and an M.S. in management from Stanford University.

Robert D. Koney, Jr., age 46, Vice President and Controller

Mr. Koney joined the Company in 1986 as a financial accounting manager. He became Assistant Controller for Goodrich Aerospace in 1992 before being appointed Vice President and Controller for the Commercial Wheels and Brakes business in 1994. He was elected Vice President and Controller in 1998. Prior to joining the Company, he held management positions with Picker International and Arthur Andersen & Co. Mr. Koney received a B.A. in accounting from the University of Notre Dame and an M.B.A. from Case Western Reserve University.

PART II

ITEM  5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock (symbol GR) is listed on the New York Stock Exchange. The following table sets forth on a per share basis the high and low sale prices for our common stock for the periods indicated as reported on the New York Stock Exchange composite transactions reporting system, as well as the dividends declared on our common stock for these periods.

	2002							2001
QUARTER	HIGH		LOW		DIVIDEND		QUARTER	HIGH		LOW		DIVIDEND
First	$	32.19	$	24.12	$	.275	First	$	42.65	$	33.06	$	.275
Second		34.42		26.17		.200	Second		44.50		36.01		.275
Third		27.49		18.31		.200	Third		38.80		15.91		.275
Fourth		20.38		14.17		.200	Fourth		26.89		18.65		.275

As of December 31, 2002, there were 11,073 holders of record of our common stock.

On May 17, 2002, our board of directors reduced our quarterly dividend rate from $0.275 per share to $0.20 per share to achieve a net income payout ratio that we believe is consistent with other leading aerospace companies. Our board of directors will continue to consider appropriate dividend policies and practices relating to future dividends on our common stock.

On May 31, 2002, we completed the tax-free spin-off of our Engineered Industrial Products segment. The spin-off was made through a tax-free distribution to our shareholders of all the capital stock of EnPro Industries, Inc., a subsidiary that we formed in connection with the spin-off. In the spin-off, our shareholders received one share of EnPro common stock for every five shares of our common stock owned on the record date, May 28, 2002.

Our debt agreements contain various restrictive covenants that, among other things, place limitations on the payment of cash dividends and our ability to repurchase our capital stock. Under the most restrictive of these agreements, $384.2 million of income retained in the business and additional capital was free from such limitations at December 31, 2002. In addition, under the agreement for our 8.3% Cumulative Quarterly Income Preferred Securities, Series A, if we defer any interest payments due to the holders of these securities, we may not, among other things, pay any dividends on our capital stock until all interest in arrears is paid in full.

ITEM  6. SELECTED FINANCIAL DATA

The tabular information appearing under “Selected Financial Data” on page 80 of the 2002 Annual Report to Shareholders is incorporated herein by reference.

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ITEM  7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The information appearing under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” on pages 25 through 45 of the 2002 Annual Report to Shareholders is incorporated herein by reference.

ITEM  7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information appearing under “Quantitative and Qualitative Disclosures About Market Risk” on page 45 of the 2002 Annual Report to Shareholders is incorporated herein by reference.

ITEM  8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The Consolidated Financial Statements and related notes thereto, together with the report thereon by Ernst & Young LLP dated February 4, 2003, as well as the Quarterly Financial Data, appearing on pages 46 through 80 of the 2002 Annual Report to Shareholders are incorporated herein by reference.

ITEM  9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     None.

PART III

ITEM  10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Biographical information concerning our Directors appearing under the caption “Election of Directors – Nominees for Election” and information under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in our proxy statement dated March 2003 are incorporated herein by reference. Biographical information concerning our Executive Officers is contained in Part I of this Form 10-K under the caption “Executive Officers of the Registrant.”

ITEM  11. EXECUTIVE COMPENSATION

Information concerning executive compensation appearing under the captions “Executive Compensation”, “Governance of the Company – Compensation of Directors” and “Governance of the Company – Consulting Agreement with Mr. Holland” in our proxy statement dated March 2003 is incorporated herein by reference.

ITEM  12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Security Ownership of Certain Beneficial Owners and Management

Security ownership data appearing under the captions “Holdings of Company Equity Securities by Directors and Executive Officers” and “Beneficial Ownership of Securities” in our proxy statement dated March 2003 are incorporated herein by reference.

Securities Authorized for Issuance under Equity Compensation Plans

We have five compensation plans approved by shareholders (excluding plans we assumed in acquisitions) under which our equity securities are authorized for issuance to employees or directors in exchange for goods or services: The B.F.Goodrich Key Employees’ Stock Option Plan (effective April 15, 1991) (the “1991 Plan”); The B.F.Goodrich Company Stock Option Plan (effective April 15, 1996) (the “1996 Plan”); The B.F.Goodrich Company Stock Option Plan (effective April 15, 1999) (the “1999 Plan”); the Goodrich Corporation 2001 Stock Option Plan (the “2001 Plan”); and the Goodrich Corporation Employee Stock Purchase Plan (the “ESPP”).

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We have one compensation plan (the Goodrich Corporation Directors’ Deferred Compensation Plan) that was not approved by shareholders (excluding plans we assumed in acquisitions) under which our equity securities are authorized for issuance to employees or directors in exchange for goods or services.

The following table summarizes information about our equity compensation plans as of December 31, 2002. All outstanding awards relate to our common stock. The table does not include shares subject to outstanding options granted under equity compensation plans we assumed in acquisitions.

Equity Compensation Plan Information

					Number of securities
					remaining available for
	Number of securities to				future issuance under equity
	be issued upon exercise		Weighted-average exercise		compensation plans
	of outstanding options,		price of outstanding options,		(excluding securities
	warrants and rights		warrants and rights		reflected in column (a))
Plan category (1)	(a)		(b)		(c)
Equity compensation plans approved by security holders (2)		10,462,904	$	30.97		4,895,817
Equity compensation plans not approved by security holders		54,460		—		(3	)
Total		10,517,364		—		—

(1)	The table does not include information for the following equity compensation plans that we assumed in acquisitions: Rohr, Inc. 1989 Stock Option Plan; Rohr, Inc. 1995 Stock Incentive Plan; and Coltec Industries Inc 1992 Stock Option and Incentive Plan. A total of 1,239,778 shares of common stock were issuable upon exercise of options granted under these plans and outstanding at December 31, 2002. The weighted average exercise price of all options granted under these plans and outstanding at December 31, 2002, was $30.70. No further awards may be made under these assumed plans.
(2)	The number of securities to be issued upon exercise of outstanding options, warrants and rights includes (a) 8,220,682 shares of common stock issuable upon exercise of outstanding options issued pursuant to the 1991 Plan, the 1996 Plan, the 1999 Plan and the 2001 Plan, and (b) 2,242,222 shares of common stock, representing the maximum number of shares of common stock that may be issued pursuant to outstanding long-term incentive plan awards under the 2001 Plan. The number does not include 82,753 shares of outstanding restricted stock issued pursuant to the 1999 Plan and the 2001 Plan that are subject to vesting requirements.
	The weighted-average exercise price of outstanding options, warrants and rights reflects only the weighted average exercise price of outstanding stock options under the 1991 Plan, the 1996 Plan, the 1998 Plan and the 2001 Plan.
	The number of securities available for future issuance includes (a) 2,895,817 shares of common stock that may be issued pursuant to the 2001 Plan (which includes amounts carried over from the 1999 Plan) and (b) 2,000,000 shares of common stock that may be issued pursuant to the ESPP. No further awards may be made under the 1991 Plan, the 1996 Plan or the 1999 Plan.
(3)	There is no limit on the number of shares of common stock that may be issued under the Directors’ Deferred Compensation Plan.

Directors Deferred Compensation Plan. Our non-employee directors receive fixed compensation for serving as a director (currently, at the rate of $50,000 per year), plus fees for each Board and Board committee meeting attended (currently, $1,500 per meeting, except that the chairperson of a committee receives $2,500 for each meeting of that committee attended). Under the Directors’ Deferred Compensation Plan, one half of the fixed compensation is deferred into a phantom Goodrich share account and is paid out in shares of Goodrich common stock following termination of service as a Director. Dividends which would be earned on the phantom share account are credited to the account in additional phantom shares. Directors may elect to defer a portion or all of the remaining fixed compensation and meeting fees into the phantom share account.

ITEM  13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information appearing under the captions “Executive Compensation – Indebtedness”, “Executive Compensation – Executive Stock Purchase Program” and “Governance of the Company – Consulting Agreement with Mr. Holland” in our proxy statement dated March 2003 is incorporated herein by reference.

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ITEM  14. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management necessarily applied its judgment in assessing the costs and benefits of such controls and procedures, which, by their nature, can provide only reasonable assurance regarding management’s control objectives.

On October 1, 2002, we completed our acquisition of TRW Inc.’s Aeronautical Systems businesses for approximately $1.5 billion in cash. At the time of acquisition, these businesses employed approximately 6,200 employees in 22 facilities in nine countries, including manufacturing and service operations in the United Kingdom, France, Germany, Canada, the United States and several Asia/Pacific countries thus adding a significant level of complexity and diversity to our portfolio. We are in the process of integrating these businesses into Goodrich from both an operational as well as a financial reporting and control perspective. In order to ensure the effectiveness of our disclosure controls and procedures during this integration period, we have devoted substantial additional internal and external resources to verify the information being reported by these businesses. As a result of this process, we have concluded that while additional enhancements to certain reporting processes, procedures and systems are expected to be made in the future, the disclosure controls and procedures of Aeronautical Systems were effective as the Evaluation Date (as defined below).

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of a date within 90 days prior to the filing date of this Annual Report on Form 10-K (the “Evaluation Date”). Based upon that evaluation, the Chairman and Chief Executive Officer and Executive Vice President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the Evaluation Date.

Changes in Internal Controls.

There were no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the Evaluation Date.

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ITEM  15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

(1) The 2002 Annual Report to Shareholders. The following financial information is incorporated herein by reference:

(PAGE REFERENCES TO PRINTED VERSION OF 2002 ANNUAL REPORT TO SHAREHOLDERS)

	PAGE
Management’s Discussion and Analysis		25
Management’s Responsibility for Financial Statements	46
Report of Independent Auditors	47
Consolidated Statement of Income for the years ended December 31, 2002, 2001 and 2000	48
Consolidated Balance Sheet at December 31, 2002 and 2001	49
Consolidated Statement of Cash Flows for the years ended December 31, 2002, 2001 and 2000	50
Consolidated Statement of Shareholders’ Equity for the years ended December 31, 2002, 2001 and 2000	51
Notes to Consolidated Financial Statements	52
Quarterly Financial Data (Unaudited)	78
Selected Financial Data	80

(2)	Consolidated Financial Statement Schedules:
	Schedules have been omitted because they are not applicable or the required information is shown in the Consolidated Financial Statements or the Notes to the Consolidated Financial Statements.
(3)	Listing of Exhibits: A listing of exhibits is on pages 25 to 28 of this Form 10-K.

(b)	Reports on Form 8-K filed or furnished in the fourth quarter of 2002:
	Current Report on Form 8-K filed October 16, 2002 (Items 2, 5, 7) (relating to (a) the completion of the acquisition of TRW Inc.’s Aeronautical Systems business and (b) SFAS 142 goodwill impairment relating to the Aviation Technical Services reporting unit).
	Current Report on Form 8-K furnished October 30, 2002 (Item 9) (relating to the announcement of the company’s earnings for the three-month and nine-month periods ended September 30, 2002).
	Current Report on Form 8-K filed November 22, 2002 (Items 5, 7) (relating to a public offering of common stock by the Company)
	Current Report on Form 8-K filed December 9, 2002 (Items 5, 7) (relating to a public offering of debt securities by the Company).
(c)	Exhibits. See the Exhibit Index beginning at page 25 of this report. For a listing of all management contracts and compensatory plans or arrangements required to be filed as exhibits to this report, see the exhibits listed under Exhibit Nos. 10(K) through 10(LL).
(d)	Not applicable.

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SIGNATURES

     PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON FEBRUARY 21, 2003.

GOODRICH CORPORATION (Registrant)
By	/s/ DAVID L. BURNER David L. Burner, Chairman and Chief Executive Officer

     PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS REPORT HAS BEEN SIGNED BELOW ON FEBRUARY 21, 2003 BY THE FOLLOWING PERSONS (INCLUDING A MAJORITY OF THE BOARD OF DIRECTORS) ON BEHALF OF THE REGISTRANT AND IN THE CAPACITIES INDICATED.

/s/ DAVID L. BURNER David L. Burner Chairman and Chief Executive Officer and Director (Principal Executive Officer)	/s/ ROBERT D. KONEY, JR. Robert D. Koney, Jr. Vice President and Controller (Principal Accounting Officer)
/s/ ULRICH SCHMIDT Ulrich Schmidt Executive Vice President and Chief Financial Officer (Principal Financial Officer)	/s/ MARSHALL O. LARSEN Marshall O. Larsen President and Chief Operating Officer and Director
Diane C. Creel Director	/s/ DOUGLAS E. OLESEN Douglas E. Olesen Director
/s/ GEORGE A. DAVIDSON, JR. George A. Davidson, Jr. Director	Richard de J. Osborne Director
/s/ HARRIS E. DELOACH, JR. Harris E. DeLoach, Jr. Director	Alfred M. Rankin, Jr. Director
James J. Glasser Director	/s/ JAMES R. WILSON James R. Wilson Director
/s/ JAMES W. GRIFFITH James W. Griffith Director	/s/ A. THOMAS YOUNG A. Thomas Young Director
/s/ WILLIAM R. HOLLAND William R. Holland Director

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CERTIFICATIONS

I, David L. Burner, Chairman and Chief Executive Officer of Goodrich Corporation, certify that:

1.     I have reviewed this annual report on Form 10-K of Goodrich Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

     c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

     a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 21, 2003

/s/ DAVID L. BURNER
David L. Burner
Chairman and Chief Executive Officer

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I, Ulrich Schmidt, Executive Vice President and Chief Financial Officer of Goodrich Corporation, certify that:

1.     I have reviewed this annual report on Form 10-K of Goodrich Corporation;

2.     Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.     Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.     The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

     a) designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

     b) evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

     c) presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.     The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent function):

     a) all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.     The registrant’s other certifying officers and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: February 21, 2003

/s/ ULRICH SCHMIDT
Ulrich Schmidt
Executive Vice President and
Chief Financial Officer

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EXHIBIT INDEX

The Company will supply copies of the following exhibits to any shareholder upon receipt of a written request addressed to the Secretary, Goodrich Corporation, 2730 West Tyvola Road, Charlotte, NC 28217 and the payment of $.50 per page to help defray the costs of handling, copying and postage. The exhibits marked with an asterisk (*) indicate exhibits physically filed with this Report on Form 10-K. All other exhibits are filed by incorporation by reference.

Exhibit
Number	Description
2(A)	Agreement for Sale and Purchase of Assets Between The B.F.Goodrich Company and PMD Group Inc., dated as of November 28, 2000, filed as Exhibit 2(A) to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, is incorporated herein by reference.
2(B)	Distribution Agreement dated as of May 31, 2002 by and among Goodrich Corporation, EnPro Industries, Inc. and Coltec Industries Inc., filed as Exhibit 2(A) to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
2(C)	Master Agreement of Purchase and Sale dated as of June 18, 2002 between Goodrich Corporation and TRW Inc., filed as Exhibit 2(B) to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
2(D)	Amendment No. 1 dated as of October 1, 2002 to Master Agreement of Purchase and Sale dated as of June 18, 2002 between Goodrich Corporation and TRW Inc., filed as Exhibit 2.2 to Goodrich Corporation’s Current Report on Form 8-K filed October 16, 2002, is incorporated herein by reference.
3(A)	Restated Certificate of Incorporation of Goodrich Corporation, as amended, filed as Exhibit 4(A) to Goodrich Corporation’s Registration Statement on Form S-3 (File No. 333-98165), is incorporated herein by reference.
3(B)	By-Laws of Goodrich Corporation, as amended, filed as Exhibit 4(B) to Goodrich Corporation’s Registration Statement on Form S-3 (File No. 333-98165), is incorporated herein by reference.
4(A)	Rights Agreement, dated as of June 2, 1997, between The B.F.Goodrich Company and The Bank of New York which includes the form of Certificate of Amendment setting forth the terms of the Junior Participating Preferred Stock, Series F, par value $1 per share, as Exhibit A, the form of Right Certificate as Exhibit B and the Summary of Rights to Purchase Preferred Shares as Exhibit C, filed as Exhibit 1 to the Company’s Registration Statement on Form 8-A filed June 19, 1997, is incorporated herein by reference.
4(B)	Indenture dated as of May 1, 1991 between Goodrich Corporation and The Bank of New York, as successor to Harris Trust and Savings Bank, as Trustee, filed as Exhibit 4 to Goodrich Corporation’s Registration Statement on Form S-3 (File No. 33-40127), is incorporated herein by reference.
	Information relating to the Company’s long-term debt and trust preferred securities is set forth in Note I — “Financing Arrangements” to the Company’s financial statements, which are filed as Exhibit 13 to this Annual Report on Form 10-K. Except for Exhibit 4(B), instruments defining the rights of holders of such long-term debt and trust preferred securities are not filed herewith since no single item exceeds 10% of consolidated assets. Copies of such instruments will be furnished to the Commission upon request.

-25-

Exhibit
Number	Description
10(A)	Amended and Restated Assumption of Liabilities and Indemnification Agreement between the Company and The Geon Company, filed as Exhibit 10.3 to the Registration Statement on Form S-1 (No. 33-70998) of The Geon Company, is incorporated herein by reference.
10(B)	Tax Matters Arrangements dated as of May 31, 2002 between Goodrich Corporation and EnPro Industries, Inc., filed as Exhibit 10(LL) to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
10(C)	Transition Services Agreement dated as of May 31, 2002 between Goodrich Corporation and EnPro Industries, Inc., filed as Exhibit 10(MM) to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
10(D)	Employee Matters Agreement dated as of May 31, 2002 between Goodrich Corporation and EnPro Industries, Inc., filed as Exhibit 10(NN) to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
10(E)	Indemnification Agreement dated as of May 31, 2002 among Goodrich Corporation, EnPro Industries, Inc., Coltec Industries Inc and Coltec Capital Trust, filed as Exhibit 10(OO) to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
10(F)	Consulting Agreement dated as of March 1, 2002 among Goodrich Corporation, EnPro Industries, Inc. and William R. Holland, filed as Exhibit 10.8 to EnPro Industries, Inc.’s Registration Statement on Form 10 (File No. 001-31225), is incorporated herein by reference.
10(G)	364-Day Credit Agreement dated as of September 16, 2002 among Goodrich Corporation, the lenders parties thereto and Citibank, N.A., as paying agent for such lenders, filed as Exhibit 10.1 to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, is incorporated herein by reference.
10(H)	Amended and Restated Three Year Credit Agreement dated as of September 23, 2002 among Goodrich Corporation, the lenders parties thereto and Citibank, N.A., as paying agent for such lenders, filed as Exhibit 10.2 to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2002, is incorporated herein by reference.
10(I)	364-Day Credit Agreement dated as of July 30, 2002 among Goodrich Corporation, the lenders parties thereto and Citibank, N.A., as paying agent for such lenders, filed as Exhibit 10(TT) to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
10(J)	Amendment No. 1 dated as of September 13, 2002 to the 364-Day Credit Agreement dated as of July 30, 2002 among Goodrich Corporation, the lenders parties thereto and Citibank, N.A., as paying agent for such lenders, filed as Exhibit 10.2 to Goodrich Corporation’s Current Report on Form 8-K filed October 16, 2002, is incorporated herein by reference.
10(K)	Key Employees’ Stock Option Plan (effective April 15, 1991). *
10(L)	Stock Option Plan (effective April 15, 1996), filed as Exhibit 10(A) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
10(M)	Stock Option Plan (effective April 19, 1999), filed as Appendix B to the Company’s definitive proxy statement filed March 4, 1999, is incorporated herein by reference.
10(N)	2001 Stock Option Plan, filed as Exhibit D to the Company’s 2001 Proxy Statement dated March 5, 2001, is incorporated herein by reference.
10(O)	Amendment Number One to the 2001 Stock Option Plan, filed as Exhibit 10(JJ) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, is incorporated herein by reference.

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Exhibit
Number	Description
10(P)	2000 — 2001 and 2000 — 2002 Long-Term Incentive Plan Summary Plan Description, filed as Exhibit 10(MM) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, is incorporated herein by reference.
10(Q)	Form of Award Agreement for 2000 — 2002 Long-Term Incentive Plan, filed as Exhibit 10(OO) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2000, is incorporated herein by reference.
10(R)	2001 — 2003 Long-Term Incentive Plan Summary Plan Description and form of award agreement, filed as Exhibit 10(HH) to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2001, is incorporated herein by reference.
10(S)	2002 — 2004 Long-Term Incentive Plan Summary Plan Description and form of award, filed as Exhibit 10(JJ) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2002, is incorporated herein by reference.
10(T)	Performance Share Deferred Compensation Plan Summary Plan Description, filed as Exhibit 10(LL) to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2000, is incorporated herein by reference.
10(U)	Management Incentive Program, filed as Exhibit 10(D) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
10(V)	Senior Executive Management Incentive Plan, filed as Appendix B to the Company’s 2000 Proxy Statement dated March 3, 2000, is incorporated herein by reference.
10(W)	Form of Disability Income Agreement, filed as Exhibit 10(B)(4) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
10(X)	Form of Supplemental Executive Retirement Plan Agreement, filed as Exhibit 10(C) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1998, is incorporated herein by reference.
10(Y)	The B.F. Goodrich Company Benefit Restoration Plan, filed as Exhibit 10(J) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1992, is incorporated herein by reference.
10(Z)	The B.F.Goodrich Company Savings Benefit Restoration Plan, filed as Exhibit 4(b) to the Company’s Registration Statement on Form S-8 (No. 333-19697), is incorporated herein by reference.
10(AA)	Goodrich Corporation Severance Plan, filed as Exhibit 10(II) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, is incorporated herein by reference.
10(BB)	Form of Management Continuity Agreement entered into by The B.F.Goodrich Company and certain of its employees, filed as Exhibit 10(E) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, is incorporated herein by reference.
10(CC)	Form of Indemnification Agreement between Goodrich Corporation and certain of its directors, officers and employees, filed as Exhibit 10(QQ) to Goodrich Corporation’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, is incorporated herein by reference.
10(DD)	Letter dated January 7, 2003 relating to compensation and benefits for David L. Burner.*
10(EE)	Coltec Industries Inc 1992 Stock Option and Incentive Plan (as amended through May 7, 1998).*
10(FF)	Rohr, Inc. 1995 Stock Incentive Plan. *
10(GG)	First Amendment to the Rohr, Inc. 1995 Stock Incentive Plan.*
10(HH)	Second Amendment to the Rohr, Inc. 1995 Stock Incentive Plan.*

-27-

Exhibit
Number	Description
10(II)	Employee Stock Purchase Plan, filed as Exhibit E to the Company’s 2001 Proxy Statement dated March 5, 2001, is incorporated herein by reference.
10(JJ)	Amendment Number One to the Employee Stock Purchase Plan, filed as Exhibit 10(KK) to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2001, is incorporated herein by reference.
10(KK)	Outside Directors’ Phantom Share Plan, filed as Exhibit 10(R); to the Company’s Annual Report on Form 10-K for the year ended December 31, 2000, is incorporated herein by reference.
10(LL)	Directors’ Deferred Compensation Plan.*
13	The Company’s 2002 Annual Report to Shareholders (only those portions incorporated by reference in the Form 10-K).*
21	Subsidiaries. *
23(A)	Consent of Independent Auditors — Ernst & Young LLP.*
99(A)	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.*

-28- EX-10.K 3 g80791kexv10wk.txt KEY EMPLOYEES' STOCK OPTION PLAN EFFECTIVE 4/15/91 EXHIBIT 10(K) THE B.F.GOODRICH COMPANY KEY EMPLOYEES' STOCK OPTION PLAN The purpose of the Plan is to enable the Company to be competitive in encouraging key employees, who in the opinion of the Board of Directors perform services of special importance to the management, operation and the development of the business of the Company or its subsidiaries, to remain in its service, to attract others to it, and to provide such employees with an additional incentive to contribute to the prosperity of the Company. The Board may in its discretion from time to time, grant to key employees of the Company and its subsidiaries (including officers whether or not Directors) options to purchase, at a cash price not less than 100% of the fair market value on the date of grant (the "option price"), treasury shares or authorized but unissued shares of common stock of the Company, subject to the conditions set forth in this Plan. The aggregate number of shares which may be issued pursuant to options granted under this Plan shall not exceed 1,000,000 shares plus such number of additional shares available for allotment under this Plan on April 15, 1991 and from any options granted under this Plan prior to April 15, 1991 which shall thereafter expire, terminate, or be cancelled for any reason without being exercised and from Stock Awards which are forfeited. To the extent permitted by law the Board may delegate any or all of its powers under this Plan to a Committee of not less than three Directors, who are not Officers or employees of the Company, and who are not eligible to participate in the Plan. The Board or the Committee may delegate to the chief executive officer and to other senior officers of the Company its duties under the Plan, with respect to not more than 10% of the shares authorized under this Plan, pursuant to such conditions or limitations as the Committee may establish, except that only the Committee may select Participants and grant options, appreciation rights and Stock Awards to Participants who are subject to Section 16 of the Securities Exchange Act of 1934. The Board, at the time of granting to any employees an option to purchase shares or any related stock appreciation right or limited stock appreciation right under the Plan, shall fix the terms and conditions upon which such option or appreciation right may be exercised, and may designate options incentive stock options pursuant to Section 422 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code") or any other statutory stock option that may be permitted under the Internal Revenue Code from time to time, provided, however that (i) the date on which such options and related appreciation rights shall expire, if not exercised, may not be later than ten years after the date of grant of the option, (ii) in the case of options designated as incentive stock options (as defined in Section 422 of the Internal Revenue Code), the aggregate fair market value of stock optioned to an employee (determined at time of grant) under this plan or any other plan of this Company and its subsidiaries with respect to which incentive stock options are exercisable for the first time by such employee during any calendar year shall be limited to $100,000 (unless such Section 422 limit is revised, then in conformance with such revision) and (iii) in case of any other statutory stock option permitted under the Internal Revenue Code, then in accordance with such provisions as in effect from time to time. Within the foregoing limitations, the Board shall have the authority in its discretion to specify all other terms and conditions, including but not limited to provisions for the exercise of options in installments, the time limits during which options may be exercised, and in lieu of payment in cash, the exercise in whole or in part of options by tendering common stock of the Company 1 owned by the employee, valued at the fair market value on the date of exercise or other acceptable forms of consideration equal in value to the option price. The Board may, in its discretion, issue rules or conditions with respect to utilization of common stock for all or part of the option price. The Board may, in its discretion, grant stock appreciation rights and limited stock appreciation rights (as hereinafter described) in connection with any stock option, either at the time of grant of such stock option or any time thereafter during the term of such stock option, except that limited stock appreciation rights may be granted in connection with stock options granted prior to June 7, 1988, only if stock appreciation rights were granted in connection with such stock options prior to June 7, 1988. Except for the terms of this Plan with respect to limited stock appreciation rights, each such appreciation right shall be subject to the same terms and conditions as the related stock option and shall be exercisable at such times and to such extent as the Board shall determine, but only so long as the related option is exercisable. The number of stock appreciation rights or limited stock appreciation rights granted shall not exceed the number of shares which may be purchased upon exercise of a related option. The number of both stock appreciation rights and limited stock appreciation rights shall be reduced not only by the number of appreciation rights exercised but also by the number of shares purchased upon the exercise of a related option. A related stock option shall cease to be exercisable to the extent surrendered for the exercise of an appreciation right. Upon surrender to the Company of the unexercised related stock option, or any portion thereof, a stock appreciation right shall entitle the optionee to receive from the Company in exchange therefor (a) a payment in stock as determined below, or (b) to the extent determined by the Board, the cash equivalent of the fair market value of such payment in stock on the exercise date had the employee been awarded a payment in stock instead of cash, or any combination of stock and cash. The number of shares which shall be issued pursuant to the exercise of stock appreciation rights shall be determined by dividing (1) the total number of stock appreciation rights being exercised multiplied by the amount by which the fair market value of a share of common stock of the Company on the exercise date exceeds the option price of the related option, by (2) the fair market value of a share of common stock of the Company on the exercise date. No fractional shares shall be issued. For all purposes of this Plan the fair market value of a share of stock shall be the mean of the high and low prices of the Company's common stock on the relevant date as reported on the New York Stock Exchange -- Composite Transactions listing (or similar report), or, if no sale was made on such date, then on the next preceding day on which such a sale was made. Upon the termination of employment of any employee for any reason, his or her options and any related appreciation rights shall terminate at that time with respect to all shares which were not then purchasable by him or her, provided, however, that if the termination of employment is by reason of death, disability or retirement the Board may in its sole discretion provide that such options and related appreciation rights shall not terminate upon death, disability or retirement and may become immediately exercisable or continue to become exercisable in accordance with the terms of the original grant. Any shares in respect of which options and any related appreciation rights shall be terminated by reason of death, termination of employment, passage of time or for any other reason, may again 2 be the subject of options granted to employees in accordance with the provisions of the Plan. However, upon surrender of a stock option on exercise of the related appreciation right, the number of shares subject to the surrendered option shall be charged against the maximum number of shares issuable under the Plan and shall not be available for future options. Options and any related appreciation rights and other awards granted under this Plan shall not be transferable other than by will or the laws of descent and distribution and such options and any related appreciation rights shall be exercisable during the employee's lifetime only by the employee or by the employee's guardian or legal representative. The number and kind of shares authorized for delivery under this Plan and, if appropriate, the purchase price per share, may be adjusted appropriately in the event of any stock split, stock dividend, combination of shares, merger, consolidation, reorganization, or other change in the nature of the shares of the Company (any one or more of the foregoing hereinafter a "corporate reorganization"). The determination of what adjustments, if any, are appropriate shall be made by the Board. In the event of a dissolution or liquidation of the Company or a merger, consolidation, sale of all or substantially all of its assets, or other corporate reorganization in which the Company is not the surviving corporation or any merger in which the Company is the surviving corporation but the holders of its common stock receive securities of another corporation, any outstanding options hereunder shall terminate, provided that each optionee shall, in such event, have the right immediately prior to such dissolution, liquidation, merger, consolidation, sale of assets or reorganization in which the Company is not the surviving corporation or any merger in which the Company is the surviving corporation but the holders of its common stock receive securities of another corporation, to exercise any unexpired option and/or stock appreciation right in whole or in part without regard to the exercise date contained in such option. Nothing herein contained shall prevent the assumption and continuation of any outstanding option or the substitution of a new option by the surviving corporation. Options and any related appreciation rights that are not exercisable shall become immediately exercisable in the event of a Change in Control. For purposes of the Plan, a Change in Control shall mean (i) The acquisition by any individual, entity or group (within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (A) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (B) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that the following acquisitions shall not constitute a Change of Control: (A) any acquisition directly from the Company (other than by exercise of a conversion privilege), (B) any acquisition by the Company or any of its subsidiaries, (C) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or any of its subsidiaries or (D) any acquisition by any corporation with respect to which, following such acquisition, more than 70% of, respectively, the then outstanding shares of common stock of such corporation and the 3 combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Company Voting Securities immediately prior to such acquisition in substantially the same proportions as their ownership, immediately prior to such acquisition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or (ii) During any period of two consecutive years, individuals who, as of the beginning of such period, constitute the Board (the "Incumbent Board"), cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the beginning of such period whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-1 1 of Regulation 14A promulgated under the Exchange Act); or (iii) approval by the shareholders of the Company of a reorganization, merger or consolidation, in each case, with respect to which all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation, do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 70% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their ownership, immediately prior to such reorganization, merger or consolidation of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be; or (iv) approval by the shareholders of the Company of (A) a complete liquidation or dissolution of the Company or (B) a sale or other disposition of all or substantially all of the assets of the Company, other than to a corporation, with respect to which following such sale or other disposition, more than 70% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, 4 of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be. The grant of a limited stock appreciation right will permit a grantee to exercise such limited stock appreciation right for cash during a sixty-day period commencing on the date on which any of the events described in the definition of Change of Control occurs, each of which events shall hereinafter be known as a "Change in Control Event." Notwithstanding the foregoing, however, if the Change in Control Event occurs within six months after the date on which a limited stock appreciation right was granted, then the sixty-day period during which such limited stock appreciation right may be exercised for cash shall commence six months after the date on which the limited stock appreciation right was granted. The amount of cash received upon the exercise of any limited stock appreciation right under either of the preceding two sentences shall equal the excess, if any, of the fair market value of a share of the Company's common stock on the date of exercise of the limited stock appreciation right, over the option price of the stock option to which the limited stock appreciation right relates. The Board in lieu of or in addition to granting options under this Plan, may make awards ("Stock Awards") in Common Stock or denominated in units of Common Stock. All or part of any stock award may be subject to conditions established by the Board, which may include, but are not limited to, continuous service with the Company and attainment of specific performance objectives. Stock Awards may include the awarding of additional shares upon attainment of performance objectives. If shares of Common Stock are awarded subject to attainment of performance objectives or continued service with the Company, the shares may be registered in the Participant's names when initially awarded, but possession of the certificates for the shares shall be retained by the Secretary of the Company for the benefit of Participants, subject to the conditions of the Stock Awards. In such event, each Participant shall have the right to receive all dividends and other distributions made with respect to Stock Awards registered in his or her name and shall have the right to vote or execute proxies with respect to such registered shares. Stock Awards with respect to which the restrictions are not removed in accordance with the provision of the Stock Awards shall be forfeited and shall revert to the treasury of the Company. Notwithstanding any other provisions of the Plan, the issuance or delivery of any shares may be postponed for such period as may be required to comply with any applicable requirements of any national securities exchange or any requirements under any other law or regulation applicable to the issuance or delivery of such shares, and the Company shall not be obligated to issue or deliver any such shares if the issuance or delivery thereof shall constitute a violation of any provision of any law or any regulation of any governmental authority or any national securities exchange. The Board shall have the power to interpret the provisions of this Plan and of all options granted hereunder and to amend this Plan from time to time, provided, however, that no amendment shall be made without the approval of shareholders which has the effect of increasing the number of shares of stock subject to this Plan (other than in connection with a corporate reorganization), changing the class of employees eligible to participate, reducing the purchase price of shares to an amount less than 100% of the fair market value on the date of grant or extending the time during which options may be granted hereunder, or otherwise materially increasing the benefits 5 accruing to participants under this Plan. The Board shall have the authority to amend the terms of any option or stock appreciation right subject to the foregoing limitations and provided that no such amendment shall deprive any optionee of any rights thereunder without his written consent unless such amendment or rescission is required by law. The Board of Directors may in its discretion elect not to proceed with this Plan after its approval by the shareholders or may subsequently terminate this Plan with respect to any shares for which options have not theretofore been granted. Unless the time for granting options shall be extended with the approval of shareholders, no options shall be granted under this Plan after April 15, 1997. 6 EX-10.DD 4 g80791kexv10wdd.txt LETTER DATED JANUARY 7, 2003 Exhibit 10(DD) January 7, 2003 Mr. David L. Burner Chairman and Chief Executive Officer Goodrich Corporation 2730 West Tyvola Road Charlotte, NC 28217 Dear Dave: This is to confirm your compensation and benefits arrangements and opportunities through your retirement on April 30, 2004 as approved by the Compensation Committee at its December 2, 2002 meeting, and confirmed by the Board of Directors on December 3rd. Through April 30, 2004, your base salary will remain $1,000,000 on an annual basis and your Management Incentive Plan ("MIP") opportunity will continue at a target level of 100%. You will have a full year MIP opportunity in 2003 and a pro-rata (4/12) opportunity in 2004 based on your April 30, 2004 retirement date. The Board awarded you a stock option grant for 2003 of 181,000 shares, exercisable on the same terms as other senior executive officers. The Board also granted you a Long-Term Incentive Plan ("LTIP") award of 53,000 performance shares as a target opportunity for the 2003-2005 period. Any actual pay-out of shares under the 2002 - 2004 and 2003 - 2005 LTIP awards will be calculated on a pro-rata basis using your April 30, 2004 retirement date in accordance with the Plan. Neither a stock-option award nor an LTIP award will be granted to you for calendar year 2004. You will continue to participate through April 30, 2004 in all Company pension, savings and health and welfare plans or arrangements for which you are currently eligible. Also, through April 30, 2004, you will continue to receive perquisites and other benefits of the type currently available to other senior executive officers. Mr. David L. Burner January 7, 2003 Page 2 Office space and administrative support outside the Company's headquarters will be provided beginning October, 2003 and extending through April 30, 2007. Sincerely, James R. Wilson Chairman - Compensation Committee Goodrich Corporation Board of Directors cc: James J. Glasser (Chairman -- Governance Committee) EX-10.EE 5 g80791kexv10wee.txt COLTEC INDUSTRIES, INC. 1992 STOCK OPTION EXHIBIT 10(EE) 1992 STOCK OPTION AND INCENTIVE PLAN COLTEC INDUSTRIES INC 1992 STOCK OPTION AND INCENTIVE PLAN 1. Purpose. The purpose of the Plan is to provide an additional incentive to officers and other eligible key employees, upon whom responsibilities for the successful operation, administration and management of Coltec Industries Inc (the "Corporation") rest and whose present or potential contributions are important to the continued success of the Corporation, and to enable the Corporation to attract and retain in its employ highly qualified persons for the successful conduct of its business. It is intended that this purpose will be effected through the granting of Incentive Stock Rights, Stock Options, Stock Appreciation Rights, Restricted Stock and Dividend Equivalents, as provided herein, and the making of loans to accomplish the purposes of the Plan. 2. Definitions. For purposes of this Plan: a) "Award" means an Incentive Stock Right, Stock Option, Stock Appreciation Right, Restricted Stock grant and/or Dividend Equivalent. b) "Award Agreement" means an agreement granting an Award. c) "Board of Directors" means the Board of the Directors of the Corporation. d) "Change in Control" means the occurrence of an event described in Section 13(a) hereof. e) "Code" means the Internal Revenue Code of 1986, as amended. f) "Committee" means the Stock Option and Compensation Committee appointed by the Board of Directors to administer the Plan. g) "Common Stock" means the Common Stock, par value $.01 per share, of the Corporation. h) "Corporation" means Coltec Industries Inc, a Pennsylvania corporation. i) "Dividend Equivalent" means the right to receive, on a current or deferred basis, and subject to such conditions as may be imposed by the Board of Directors, cash payments from the Corporation equal to the amount which would have been received had a person owned a specified number of shares of Common Stock. j) "Exercise Date" means the date upon which a Stock Option or Stock Appreciation Right is exercised. k) "Fair Market Value" means the fair market value of the Common Stock as determined by the Committee in its sole discretion; provided, however, that (A) if Restated as of May 7, 1998 1 the Common Stock is admitted to trading on a national securities exchange, Fair Market Value on any date shall be the last sale price reported for the Common Stock on such exchange on such date or on the last date preceding such date on which a sale was reported; (B) if the Common Stock is admitted to quotation on the National Association of Securities Dealers Automated Quotation System ("NASDAQ") or other comparable quotation system and has been designated as a National market System ("NMS") security, Fair Market Value on any date shall be the last sale price reported for the Common Stock on such system on such date or, if no sale occurred on such date, on the last day preceding such date on which a sale was reported, or (C) if the Common Stock is admitted to quotation on NASDAQ and has not been designated a NMS security, Fair Market Value on any date shall be the average of the highest bid and lowest asked prices of Common Stock on such system on such date. l) "Incentive Stock Option" means an option to acquire stock within the meaning of Section 422 of the Code. m) "Incentive Stock Right" means the right to receive, without payment to the Corporation, shares of Common Stock, subject to the terms, conditions and restrictions described in Section 8 hereof. n) "Nonqualified Stock Option" means a Stock Option, which is not an Incentive Stock Option. o) "Public Offering" means the initial underwritten public offering of Common Stock. p) "Restricted Stock" means shares of Common Stock issued to a participant, without payment to the Corporation, subject to the terms, conditions and restrictions described in Section 10 hereof. q) "Right" means a Stock Appreciation Right or an Incentive Stock Right. r) "Stock Appreciation Right" means a right to receive, without payment to the Corporation, a number of shares of Common Stock and/or cash, determined pursuant to a formula based upon the difference between a price determined in accordance with Section 9(b)(ii) and the Fair Market Value of a share of Common Stock on the date of exercise of such Stock Appreciation Right. s) "Stock Option" means an Incentive Stock Option or Nonqualified Stock Option providing the holder thereof with the right to purchase Common Stock at a price to be determined in accordance with Section 9(a)(i) of the Plan. t) "Subsidiary" means any future or present corporation which would be a "subsidiary corporation" of the Corporation as the term is defined in Section 424 of the Code. Restated as of May 7, 1998 2 3. Duration of Plan. The Plan shall remain in effect until terminated by the Board of Directors and thereafter until all Incentive Stock Rights, Stock Options, Stock Appreciation Rights, Restricted Stock and Dividend Equivalents granted under the Plan are satisfied by the issuance of shares of Common Stock or the payment of cash or are terminated under the terms of the Plan or under the Award Agreements entered into in connection with the grant thereof. 4. Shares of Stock Subject to the Plan. The number of shares of Common Stock under the Plan that may be issued pursuant to Incentive Stock Rights, Stock Options (including any Stock Options granted pursuant to Section 12(b) hereof), Stock Appreciation Rights and Restricted Stock grants shall not exceed, in the aggregate, 12,160,000 shares of the Common Stock. Such shares may be in whole or in part as the Board of Directors shall from time to time determine authorized and unissued shares or issued shares, which may have been reacquired by the Corporation. In no event shall the number of shares of Restricted Stock issued hereunder after May 6, 1998 be in excess of forty percent (40%) of any increase in the number of shares authorized to be issued under the plan above 7,360,000 shares. Any share subject to an Incentive Stock Right, Stock Option, Stock Appreciation Right or Restricted Stock grant which for any reason is forfeited due to expiration, cancellation or termination while unexercised may again be available for purposes of the Plan if the forfeiting participant received no benefit of ownership (not including voting rights) from such shares. The number of Dividend Equivalents which may be granted under the Plan will be as determined by the Committee in its discretion. 5. Awards Under the Plan. Awards under the Plan may be of five types, namely, "Incentive Stock Rights", "Stock Options", "Stock Appreciation Rights", "Restricted Stock" and "Dividend Equivalents". Awards may be granted in conjunction with each other, at the same time or at different times, and may provide for the exercise of one to reduce proportionately or cancel the other. 6. Eligible Employees. Awards may be granted only to salaried employees who are officers or who are employed in an executive, administrative, operational, sales or professional capacity by the Corporation or its Subsidiaries. Awards may be granted to a director of the Corporation provided that the director is also an officer or salaried employee of the Corporation or Subsidiary. In determining the employees to whom Awards shall be granted and the number of such Awards to be granted, the Committee shall take into account the duties of the employees, their present and potential contributions to the success of the Corporation, their other compensation provided pursuant to any plan or as salary or otherwise and such other factors as it shall deem relevant in connection with accomplishing the purposes of the Plan. Awards shall not be affected by any change of duties or positions so long as the holder continues to be an employee of the Corporation or of a Subsidiary. Nothing in the plan or in any Award or in any agreement with respect thereto entered into pursuant to the Plan shall confer upon any employee any right to continue in the Restated as of May 7, 1998 3 employ of the Corporation or of any of its Subsidiaries, or interfere in any way with the right of the Corporation or any such Subsidiary to terminate such employee's employment at any time. 7. Administration of the Plan. Within the limitations described herein, the Committee shall administer the Plan, select the employees to whom Awards will be granted, determine the number of Awards to be granted to each such employee and interpret, construe and implement the provisions of the Plan. The Committee shall consist of no fewer than two members of the Board of Directors who shall serve at the pleasure of the Board of Directors. The Committee shall have authority to adopt rules and regulations for administering the Plan. Decisions of the Committee shall be binding on the Corporation and on all employees eligible to participate in the Plan. The Board of Directors may from time to time appoint members of the Committee in substitution for or in addition to members previously appointed and may fill vacancies, however caused, in the Committee. All determinations of the Committee at a meeting shall be made by a majority of the members in attendance. Any decision or determination reduced to writing and signed by all the members shall be fully as effective as if it had been made by a majority vote at a meeting duly called and held. No member of the Committee shall be personally liable for any action, determination or interpretation made in good faith with respect to the Plan, and all members of the Committee shall be fully indemnified by the Corporation with respect to any such action, determination or interpretation. No employee may be granted Stock Options or Stock Appreciation Rights under the Plan in any thirty-six month period beginning on or after January 1, 1994 with respect to a number of shares of Common Stock which is in excess of twenty-five percent (25%) of the total number of shares of Common Stock authorized to be issued pursuant to the Plan immediately following the date of the annual meeting of shareholders in 1994. 8. Incentive Stock Rights. Incentive Stock Rights shall be evidenced by Incentive Stock Rights Agreements in such form and not inconsistent with the Plan as the Committee shall approve from time to time, which Award Agreements shall contain in substance the following terms and conditions: a) Number of Shares, Incentive Period. An Incentive Stock Rights Agreement shall specify the number of shares of Common Stock to which it pertains and shall specify that the holder is entitled to receive, without payment to the Corporation, such shares of Common Stock in consideration for services performed for the Corporation or for its benefit by the person receiving the Right upon the lapse of a specified period of time (the "Incentive Period") and upon compliance with any other terms contained in such Award Agreement. b) Termination of Employment, Leave of Absence. The Incentive Stock Rights Agreement shall contain such provisions concerning termination of employment (by reason of death, disability or otherwise) and leaves of absence as shall be Restated as of May 7, 1998 4 determined by the Committee. Such provisions may include, but are not limited to, granting the right to receive all or a portion of the shares of Common Stock covered by the Incentive Stock Rights, partial or complete acceleration of the time periods in relation to which the right to receive shares is granted, the waiver of forfeiture provisions for leaves of absence and other periods when not employed by the Corporation and the receipt of shares by personal representatives, heirs or legatees. c) Issuance of Shares. Upon the lapse of an Incentive Period, the Corporation shall, without transfer or issue tax to the person entitled to receive the shares of Common Stock, deliver to such person a certificate or certificates for the number of shares as to which such Incentive Period has lapsed. 9. Stock Options and Stock Appreciation Rights. a) Stock Options. Stock Options shall be evidenced by Stock Option Agreements in such form and not inconsistent with the Plan as the Committee shall approve from time to time, which Award Agreements shall contain in substance the following terms and conditions: i. Price. The purchase price per share of Common Stock deliverable upon the exercise of a Stock Option shall be the Fair Market Value of such Common Stock on the date the Stock Option is granted, but in no event less than the par value of such Common Stock (the "Exercise Price"). ii. Number of Shares, Exercise Period. The Stock Option Agreement shall specify the number of shares of Common Stock to which it pertains. The number of shares subject to a Stock Option shall be reduced on a share-for-share basis to the extent that shares under such Stock Option are used to calculate the shares of Common Stock or cash to be received by exercise of a related Stock Appreciation Right, if any. At the time a Stock Option is granted, the Committee shall fix the terms and conditions upon which Stock Options can be exercised, including fixing the periods during which such Stock Option or any portion thereof may be exercised, which period shall not be more than 10 years nor less than one year (such period referred to as the "Exercise Period"). The Committee, in the Stock Option Agreement or otherwise, may allow partial exercise from time to time during the Exercise Period. iii. Method of Exercise, Medium and Time of Payment. An Option shall be exercised by giving written notice of such exercise to the Corporation. The purchase price of shares of Common Stock purchased pursuant to a Stock Option Agreement shall be paid for at the time of purchase in full in cash or, in the discretion of the Committee, in whole shares of Common Stock with a Fair Market Value (as of the date immediately preceding the Exercise Date) at least equal to the purchase price (or in a combination of Restated as of May 7, 1998 5 cash and whole shares of Common Stock). Such whole shares of Common Stock may be previously owned shares or shares, which would otherwise have been received upon exercise of the Stock Option. In its discretion, the Committee may also provide for a cashless exercise procedure to exercise Stock Options (whereby cash would be transmitted to the Corporation by a broker or other entity). Upon receipt of payment, the Corporation shall, without transfer or issue tax to the optionee or other person entitled to exercise the Stock Option, deliver to such person a certificate or certificates for such shares. iv. Termination of Employment, Leave of Absence. Each Stock Option Agreement shall contain such provisions concerning termination of employment (by reason of death, disability or otherwise) and leaves of absence as shall be determined by the Committee. Such provisions may include, but are not limited to, granting the right to make a partial exercise of a Stock Option, partial or complete acceleration of any time periods in relation to which the exercisability of a Stock Option is calculated, waiver of forfeiture provisions for leaves of absence and other periods when not employed by the Corporation and the extension of any Exercise Periods to cover such leaves of absence or periods when not employed by the Corporation and exercise by personal representatives, heirs or legatees. v. Incentive Stock Options. No optionee shall be granted Incentive Stock Options hereunder that in the aggregate with all other Incentive Stock Options granted to such optionee (under all plans of the Corporation or any of its Subsidiaries) entitle the optionee to purchase in any year through the exercise of those such options which first became exercisable in such year (whether under their original terms or as a result of the occurrence of Change in Control), stock of the Corporation or any subsidiary of the Corporation having in the aggregate a Fair Market Value (determined in the case of each such option as of the time such option was granted) in excess of $100,000. The previous sentence shall not apply to the extent the United States Internal Revenue Service publicly issues a private ruling to the Corporation, any optionee of the Corporation, or any legatee, personal representative or distributee of an optionee or states in proposed, temporary or final regulations, provisions which allow that the exercise of an optionee's Incentive Stock Options upon the occurrence of a Change in Control do not violate Section 422(d)(1) of the Code. b) Stock Appreciation Rights. The Committee, in its discretion, may grant Stock Appreciation Rights to an eligible employee whether or not such employee is also granted Stock Options under the Plan. Such Stock Appreciation Rights shall be evidenced by stock Appreciation Right Agreements in such form and not inconsistent with this Plan as the Committee shall approve from time to time, which Award Agreements shall contain in substance the following terms and conditions: Restated as of May 7, 1998 6 i. Exercise. A Stock Appreciation Right shall entitle a holder thereof, to the extent he or she so designates from time to time, to receive without payment to the Corporation, a number of shares of Common Stock, cash, or a combination of cash and shares as elected by the Committee, as determined under subsection (ii). Such shares and/or cash shall be issued or paid in consideration of services performed for the Corporation or for its benefit by the holder of such Stock Appreciation Right. A holder wishing to exercise a Stock Appreciation Right shall give written notice of such exercise to the Corporation. Upon receipt of such notice, the Corporation shall: (a) without transfer or issue tax to such person, deliver to the person exercising the Stock Appreciation Right a certificate or certificates for shares of Common Stock and/or (b) pay cash. ii. Number of Shares or Amount of Cash. The number of shares of Common Stock which shall be issued pursuant to the exercise of a Stock Appreciation Right shall be determined by dividing, 1) that portion, as elected by the holder of the Stock Appreciation Right, of the total number of shares in relation to which such Stock Appreciation Right was granted, multiplied by the amount (if any) by which the Fair Market Value of a share of Common Stock on the Exercise Date exceeds an amount equal to the Fair Market Value of a share of Common Stock on the date that such Stock Appreciation Right is granted, which may not be less than the par value of such Common Stock, determined by the Committee in connection with such grant, by 2) the Fair Market Value of a share of Common Stock on the Exercise Date. In lieu of issuing shares of Common Stock on the exercise of a Stock Appreciation Right, the Committee may elect to pay the cash equivalent of the Fair Market Value on the Exercise Date of any or all the shares, which would otherwise be issuable. No fractional shares shall be issued under this subsection (ii); instead, a cash adjustment equal to the same fraction of the fair market value per share of Common Stock on the Exercise Date shall be made. iii. Additional Terms. At the time a Stock Appreciation Right is granted, the Committee shall set the terms and conditions upon which such Stock Appreciation Right may be exercised and the number of shares of Common Stock in relation to which such Stock Appreciation Right is granted and may provide that the Stock Appreciation Right is being granted in connection with a related Stock Option. Each Stock Appreciation Right Agreement shall contain such provisions concerning Restated as of May 7, 1998 7 termination of employment (by reason of death, disability or otherwise) and leaves of absence as shall be determined by the Committee. Such provisions may include, but are not limited to, granting the right to partially exercise a Stock Appreciation Right, partial or complete acceleration of any time periods in relation to which the exercisability of a Stock Appreciation Right is calculated, waiver of forfeiture provisions for leaves of absence and other periods when not employed by the Corporation and the extension of any period during which such Stock Appreciation Right or any portion thereof may be exercised to cover such leaves of absence or periods when not employed by the Corporation and exercise by personal representatives, heirs or legatees. iv. Stock Appreciation Rights Granted in Connection with Stock Options. If the Committee has provided that a Stock Appreciation Right has been granted in connection with a Stock Option, the amounts determined by the Committee as the purchase price per share of Common Stock upon the exercise of a Stock Option under Section 9(a)(i) and the amount determined by the Committee under Section 9(b)(ii)(1) shall be the same, the exercise of a Stock Appreciation Right shall cancel the related Stock Option to the extent of the number of shares as to which such Stock Appreciation was exercised and the exercise of a Stock Option shall cancel the related Stock Appreciation Right to the extent of the number of shares as to which such Stock Option was exercised. 10. Restricted Stock. Restricted Stock shall be evidenced by Restricted Stock Agreements in such form and not inconsistent with the Plan as the Committee shall approve from time to time, which Award Agreements shall contain in substance the following terms and conditions: i. Number of Shares, Restricted Period. A Restricted Stock Agreement shall specify the number of shares of Common Stock to which it pertains and shall specify that the holder is entitled to receive, without payment to the Corporation, such shares of Common Stock in consideration for services performed for the Corporation or for its benefit by the person receiving the right upon (x) the achievement of certain performance goals measuring performance over a period of time of at least one year subsequent to the date of such Restricted Stock Agreement, or (y) the lapse of a specified period of time, which period of time shall in no event be shorter than three years (the "Restricted Period") and upon compliance with any other terms contained in such Award Agreement. ii. Termination of Employment, Leave of Absence. The Restricted Stock Agreement shall contain such provisions concerning termination of employment (by reason of death, disability or otherwise) and leaves of absence as shall be determined by the Committee. Such provisions may include, but are not limited to, granting the right to receive all or a portion Restated as of May 7, 1998 8 of the shares of Common Stock covered by the Restricted Stock Agreement, partial or complete acceleration of the time periods in relation to which the right to receive shares is granted, the waiver of forfeiture provisions for leaves of absence and other periods when not employed by the Corporation and the receipt of shares by personal representatives, heirs or legatees. iii. Issuance of Shares. Upon the lapse of a Restricted Period, the Corporation shall, without transfer or issue tax to the person entitled to receive the shares of Common Stock, deliver to such person a certificate or certificates for the number of shares as to which such Restricted Period has lapsed. iv. Dividends, Voting. The Restricted Stock Agreement shall contain such provisions concerning dividends and voting with respect to Restricted Stock as determined by the Committee. 11. Dividend Equivalents. The Committee, in its discretion, may grant to eligible employees Dividend Equivalents. Dividend Equivalents shall be evidenced by Dividend Equivalent Agreements in such form and not inconsistent with the Plan as the Committee shall approve from time to time, which agreements shall contain in substance the following terms and conditions: i. Number of Shares, Duration. A Dividend Equivalent Agreement shall specify the number of shares of Common Stock to which it relates and provide that the holder of a Dividend Equivalent shall be entitled to receive from the Corporation cash payments, either current or deferred and subject to such conditions as may be imposed, in the same amounts (or such lesser fraction of such amounts as may be specifically set forth therein) that the holder of record of such number of shares of Common Stock would be entitled to receive as cash dividends on such Common Stock unless otherwise limited in the Dividend Equivalent Agreement. The Dividend Equivalent Agreement shall state the expiration date for such Dividend Equivalents. The right to cash payment in respect of a Dividend Equivalent shall apply to all dividends the record date for which occurs at any time during the period commencing on the date the Dividend Equivalent is granted and ending on the date such Dividend Equivalent expires or is terminated, whichever occurs first. ii. Dividend Equivalents Granted in Conjunction with Incentive Stock Rights, Stock Options or Stock Appreciation Rights. The Committee may, in its discretion, grant Dividend Equivalents in conjunction with the grant of Incentive Stock Rights, Stock Options or Stock Appreciation Rights. In such event, the Dividend Equivalent Agreements entered into shall provide that the holder thereof is entitled to receive from the Corporation cash payments either current or deferred in the same amounts (or such Restated as of May 7, 1998 9 lesser fraction of such amounts as may be specifically set forth in the Dividend Equivalent Agreement) that the holder of record of a number of shares of Common Stock equal to the number of shares covered by such Stock Option or Right would be entitled to receive as dividends on such Common Stock unless otherwise limited in the Dividend Equivalent Agreement. Such right to cash payment shall apply to, and such Dividend Equivalents shall remain outstanding in respect of all cash dividends, the record date for which occurs at any time during the period commencing on the date the related Stock Option or Right is granted and ending on the date that such Stock Option or Right is exercised, expires or terminates, whichever occurs first. iii. Termination of Employment, Leaves of Absence. The Dividend Equivalent Agreement shall contain such provisions, concerning termination of employment (by reason of death, disability or otherwise) and leaves of absence as shall be determined by the Committee. 12. Corporate Transactions. a) Change in Shares of Common Stock. If the outstanding shares of Common Stock of the Corporation are increased, decreased or exchanged for different securities through reorganization, merger, consolidation, recapitalization, reclassification, stock split, stock dividend or similar capital adjustment, the number of shares of Common Stock available under the Plan shall be increased or decreased proportionately, as the case may be, and the number of shares deliverable upon the exercise thereafter, or in relation to which benefits are calculated, of any Stock Option or Stock Appreciation Right or upon distribution pursuant to Incentive Stock Rights or Restricted Stock theretofore granted shall be increased or decreased proportionately, as the case may be, without change in the aggregate purchase price (where applicable) and the number of shares in relation to which the amount of cash distributable under Dividend Equivalents is calculated shall also be increased or decreased proportionately. b) Assumption of Stock Options. If the Corporation (or a direct or indirect Subsidiary) acquires another corporation or merges or engages in a similar transaction contemplated by Section 424 of the Code, the Corporation may assume stock options held by employees of the other corporation in accordance with such Section 424. Upon any such assumption, the Corporation may grant Stock Options in a manner not inconsistent with the Plan, provided that no Stock Option so granted shall be granted to any person who is then a director or officer of the Corporation. 13. Change in Control. a) Definition of Change in Control. For purposes of the Plan, a "Change in Control of the Corporation" shall be deemed to have occurred if: Restated as of May 7, 1998 10 i. any "person" (as defined in Sections 13(d) and 14(d) of the Exchange Act), other than the Corporation, any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, or any corporation owned, directly or indirectly, by the shareholders of the Corporation in substantially the same proportions as their ownership of stock of the Corporation, acquires "beneficial ownership" (as defined in Rule 13d-3 under the Exchange Act) of securities representing more than 35% of the combined voting power of the Company; or ii. during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors and any new director (other than a director designated by a person who has entered into an agreement with the Corporation to effect a transaction described in subsections 13(a)(i), 13(a)(iii) or 13(a)(iv)) whose election by the Board of Directors or nomination for election by the Corporation's shareholders was approved by a vote of at least two-thirds (2/3) of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof; or iii. the shareholders of the Corporation approve a merger other than (i) a merger which would result in the voting securities of the Corporation outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity), in combination with ownership of any trustee or other fiduciary holding securities under an employee benefit plan of the Corporation, at least 67% of the combined voting power of the voting securities of the Corporation or such surviving entity outstanding immediately after such merger or (ii) a merger effected to implement a recapitalization of the Corporation (or similar transaction) in which no person acquires more than 50% of the combined voting power of the Corporation's then outstanding securities; or iv. the shareholders of the Corporation approve a plan of complete liquidation of the Corporation or a sale of substantially all of the Corporation's assets. b) Effect of Change in Control Upon Awards. Upon a Change in Control of the Corporation, the Committee, in order to protect the holders of Awards granted under this Plan, in its sole discretion may (i) accelerate any time periods relating to the exercise or realization of such Awards so that such Awards may be exercised or realized in full on or before a date fixed by the Committee, (ii) provide for the purchase of such Awards for an amount of cash equal to the amount which could have been attained upon the exercise or realization of such Awards had such Awards been currently exercisable (which in the event of a Change in Control set forth in Section 13(a)(i) shall be based upon the Restated as of May 7, 1998 11 amount of cash and the Fair Market Value of other consideration tendered for such outstanding shares), (iii) make such adjustment to the rights then outstanding as the Committee deems appropriate to reflect such transaction or change or (iv) cause the Awards then outstanding to be assumed, or new Awards substituted therefor, by the surviving corporation in such change. The Committee may, in its discretion, include such further provisions and limitations in any Award Agreement as it may deem equitable and in the best interests of the Corporation. 14. Loans to Plan Participants. On such terms and conditions as shall be approved by the Committee, the Corporation or any Subsidiary may directly or indirectly lend money to any employee or other person to accomplish the purposes of this Plan, including to assist such person to acquire or carry shares of Common Stock acquired upon the exercise of Stock Options granted hereunder, and separately to lend money to any employee or other person to pay taxes with respect to any of the transactions contemplated by this Plan. 15. General Restriction. Each Award shall be subject to the requirement, that, if at any time the Committee shall determine, in its discretion, that the listing, registration or qualification of the shares or other securities subject to such Award upon any securities exchange or under any state or Federal law, or the consent or approval of any government regulatory body, is necessary or desirable as a condition of, or in connection with, the granting thereof or the issue or purchase of shares or payments of any amounts thereunder, such Award may not be exercised in whole or in part and no amounts may be received thereunder or under such Dividend Equivalents unless such listing, registration, qualification, consent or approval shall have been effected or obtained free of any conditions not acceptable to the Committee. 16. Rights as a Shareholder. The holder of an Award shall have no rights as a shareholder with respect to any shares covered thereof except as expressly contained or provided for in the Award Agreement or the Plan until the date of issuance of a stock certificate to him or her for any such shares issued pursuant to any Award. Except as otherwise expressly provided in the Plan or an Award Agreement, no adjustment shall be made for dividends or other rights for which the record date is prior to the date such stock certificate is issued. 17. Non-Assignability of Awards. No Award shall be assignable or transferable by the recipient except by will or by the laws of descent and distribution. An Award shall be exercisable only by the recipient or his or her personal representatives, heirs or legatees. Notwithstanding the foregoing, the Committee in its discretion, after making suitable provision with the employee to provide for the payment of any required withholding upon the option's exercise, may authorize a recipient who is an employee of the Corporation or one of its Subsidiaries to transfer a Nonqualified Stock Option to any member of the employee's immediate family, to a trust established solely for the benefit of one or more members of the employee's immediate family or to a partnership of which the only individuals or entities who are Restated as of May 7, 1998 12 or could be partners are members of the employee's immediate family and/or a trust established solely for the benefit of one or more members of the employee's immediate family (collectively, `Permitted Transferee'). For this purpose, `immediate family' shall mean the employee's spouse, children, present or former stepchildren, grandchildren, present or former stepgrandchildren, parents, present or former stepparents, grandparents, siblings (including half- brothers and sisters), in-laws and relationships arising due to legal adoption. The Committee's authorization to allow such a transfer must be evidenced by the written Stock Option Agreement pursuant to which the Nonqualified Stock Option is awarded, or by a written amendment thereto. In the event of a transfer, the Permitted Transferee may exercise the Nonqualified Stock Option generally in accordance with the terms of this Plan and the Stock Option Agreement, but may not subsequently assign or transfer the Nonqualified Stock Option except by will or by the laws of descent and distribution. The foregoing sentence shall not be interpreted to prohibit a Permitted Transferee that is either a trust or partnership from modifying or expanding its beneficiaries or partners, respectively, provided that such beneficiaries or partners also independently would be considered Permitted Transferees. No Option shall be exercisable and no transfer of the shares of Common Stock underlying such Option (the "Underlying Shares") may be made to any Permitted Transferee; and any attempt to exercise any Option or to transfer any Underlying Shares to any Permitted Transferee shall be void and of no effect, unless and until (i) a registration statement under the Securities Act of 1933, as amended (the "Securities Act"), has been duly filed and declared effective pertaining to the Underlying Shares and the Underlying Shares have been duly qualified under applicable state securities or blue sky laws or (ii) the Board, in its sole discretion after securing the advice of counsel, determines, or the Permitted Transferee provides an opinion of counsel satisfactory to the Board, that such registration or qualification is not required as a result of the availability of an exemption from registration or qualification under such laws. 18. Withholding Taxes. Whenever under the Plan shares are to be issued in satisfaction of Awards, the Corporation shall have the right to require the employee (or if the employee is not then living, the employee's estate) to remit to the Corporation an amount sufficient to satisfy Federal, state and local withholding tax requirements prior to the delivery of any certificate or certificates for such shares. Whenever under the Plan payments are to be made in cash, such payments shall include an amount sufficient to satisfy Federal, state and local withholding tax requirements. 19. Amendment of the Plan. The Board of Directors may at any time and from time to time terminate, modify, or amend the Plan in any respect, except that no termination, modification or amendment shall be effective without shareholder approval if such approval is required to comply with Rule 16b-3 under the Exchange Act or to comply with any other law, regulation or stock exchange rule. The termination or any modification or amendment of the Plan shall not, without the consent of an employee, affect his or her rights under an Award previously granted to him or her. With the Restated as of May 7, 1998 13 consent of the employee affected, the Committee may amend outstanding Award Agreements in a manner not inconsistent with the Plan. The Committee may not, however, amend any outstanding Award Agreements to decrease the Exercise Price set forth in such Award Agreements. 20. Effectiveness of the Plan. The Plan shall become effective immediately prior to the consummation of the Public Offering, subject to approval by the shareholders of the Corporation. 21. Nonexclusively of the Plan. Neither the adoption of the Plan by the Board of Directors and the shareholders of the Corporation nor any provision of the Plan shall be construed as creating any limitations on the power of the Board of Directors to adopt such additional compensation arrangements as it may deem desirable and such arrangements may be either generally applicable or applicable only in specific cases nor shall the Plan be construed as restricting the Committee's ability to grant any rights under the Plan to any person by reason of such person holding or being granted rights or options or participating in any other plans, arrangements or agreements. 22. Additional Incentive Benefits. In addition to the Awards described in the Plan which may be granted by the Committee, the Board of Directors may, at its discretion, create and permit the Committee to grant such other incentive benefits ("Incentive Benefits") under the Plan as it believes are desirable (including, without limitation, stock bonus awards), provided that: i. any such Incentive Benefits shall be governed by the terms of the Plan as in effect on the date of grant of such Incentive Benefits, and for such purposes, notwithstanding the provisions of Section 19, the Board of Directors may amend the Plan to create and describe such Incentive Benefits and the governing terms thereof; ii. the creation of such Incentive Benefits may not, without shareholder approval (1) increase the total number of shares of Common Stock issuable under the Plan, or (2) materially modify the requirements as to eligibility for participation in the Plan; and iii. the Board of Directors shall not have the power to create and grant Incentive Benefits which would result in the grant of a prohibited tandem stock option or other prohibited tandem arrangement, with respect to any Incentive Stock Options granted under the Plan, as described in applicable regulations under Section 422 of the Code. Restated as of May 7, 1998 14 EX-10.FF 6 g80791kexv10wff.txt ROHR, INC. 1995 STOCK INCENTIVE PLAN EXHIBIT 10(FF) 1995 ROHR, INC. STOCK INCENTIVE PLAN 1. PURPOSE OF THE PLAN The purpose of this 1995 Stock Incentive Plan ("Plan") of Rohr, Inc., a Delaware corporation (the "Company"), is to enable the Company and its Subsidiaries to attract, retain and motivate their employees by providing for or increasing the proprietary interests in the Company of such employees and further align their interests with those of the Company's stockholders. 2. PLAN AWARDS (a) To carry out the purposes of the Plan, the Company and its Subsidiaries will from time to time enter into various arrangements with persons eligible to participate therein and confer various benefits upon them. The following such arrangements or benefits are authorized under the Plan if their terms and conditions are not inconsistent with the provisions of the Plan: Stock Options, Forfeitable Stock, and Stock Bonuses. Such arrangements and benefits pursuant to the Plan are generically sometimes herein referred to as "Awards." The authorized categories of benefits for which Awards may be granted are defined as follows: Stock Options: A Stock Option is a right granted under the Plan to purchase a specified number of shares of Common Stock at such exercise price, at such times, and on such other terms and conditions as are specified in the Award. Forfeitable Stock: Forfeitable Stock is Common Stock sold under the Plan at a discount of at least 50 percent from its Fair Market Value or at its par value, but subject during specified periods of time to such restrictions on its transferability and repurchase rights as are expressed in the Award and as may constitute a substantial condition of forfeiture while in effect. Stock Bonuses: A Stock Bonus is the issuance or delivery of unrestricted or restricted shares of Common Stock under the Plan as a bonus for services rendered or to be rendered in the employ of the Company or Subsidiary. (b) An Award may consist of one such arrangement or benefit or two or more of them in tandem or in the alternative. Among other things, any such Award may but need not also provide for the satisfaction of any applicable tax withholding obligation by the retention of shares to which the grantee would otherwise be entitled or by the grantee's delivery of previously owned shares or other property. (c) Common Shares may be issued pursuant to an Award for any lawful consideration as determined by the Committee (as defined in Section 6 below), including, without limitation, services rendered by the recipient of such Award. (d) Subject to the provisions of this Plan, the Committee, in its sole and absolute discretion, shall determine all of the terms and conditions of each Award granted under this Plan, which terms and conditions may include, among other things: 1 (i) a provision permitting the recipient of such Award, including any recipient who is a director or officer of the Company, to pay the purchase price of the Common Shares or other property issuable pursuant to such Award, or such recipient's tax withholding obligation with respect to such issuance, in whole or in part, by any one or more of the following: (A) the delivery of previously owned shares of capital stock of the Company (including "pyramiding") or other property, provided that the Company is not then prohibited from purchasing or acquiring shares of its capital stock or such other property, or (B) a reduction in the amount of Common Shares or other property otherwise issuable pursuant to such Award; and (ii) any provision required in order for such Award to qualify as an Incentive Stock Option, provided that the recipient of such Award is eligible under the Internal Revenue Code (the "Code") to receive an Incentive Stock Option. (e) Notwithstanding any other provision of this Plan: (i) no Employee shall be granted Incentive Stock Options that are exercisable for the first time by any individual in any one calendar year (under all plans of the Company and any Subsidiary) with respect to Common Shares having a value at the time of grant in excess of $100,000; (ii) the Company may not change the exercise price of or replace any Stock Option granted hereunder (other than any adjustment provided in Section 3 below); and (iii) no Stock Option may be granted with an exercise price less than 100% of the Fair Market Value of the underlying Common Stock on the date the Committee approves such Stock Option. (f) Notwithstanding any other provision of this Plan, no Employee shall be granted Awards hereunder with respect to in excess of 400,000 shares of Common Stock during any calendar year. This limitation is intended to satisfy the requirements of Section 162(m) of the Code so that compensation attributable to Awards hereunder qualify as performance-based compensation under Section 162(m) of the Code. The limitation under this subsection (f) shall be subject to adjustment under Section 3 hereof, but only to the extent permitted under Section 162(m) of the Code. (g) No Employee shall be granted any Award hereunder to replace any Award granted under any other Company stock incentive plan where the purpose of such replacement is to reduce the per share exercise or purchase price of such award. 2 3. STOCK SUBJECT TO PLAN (a) The kind and maximum of shares of stock that may be sold or issued under the Plan, whether upon exercise of Stock Options or in settlement of other Awards, shall be 1,800,000 shares of Common Stock (subject to the adjustments set forth hereinbelow). If the outstanding shares of stock of the class then subject to the Plan are increased or decreased, or are changed into or are exchanged for a different number or kind of shares or securities or other forms of consideration, as a result of one or more reorganizations, recapitalizations, restructurings, reclassifications, stock splits, reverse stock splits, stock dividends or the like, appropriate adjustments shall be made in the number and/or kind of shares or securities or other forms of consideration which may thereafter be sold or issued under the Plan for which Awards (including Incentive Stock Options) may thereafter be granted and for which outstanding Awards previously granted under the Plan may thereafter be exercised or settled; provided, however, that adjustments pursuant to this Section 3 shall be limited to those that will not adversely affect the status of outstanding Stock Options as Incentive Stock Options. (b) The aggregate number of shares that may be issued and issuable as Forfeitable Stock (including Forfeitable Stock issued as Stock Bonuses) under this Plan shall not exceed 360,000 shares, subject to adjustments as provided hereinabove. (c) For purposes of this Section 3, the aggregate number of Common Shares issued and issuable pursuant to all Awards granted under this Plan shall at any time be deemed to be equal to the sum of the following: (i) the number of Common Shares that were issued prior to such time pursuant to Awards granted under this Plan, other than Common Shares that were subsequently reacquired by the Company for no more than the price at which they were sold (plus any interest thereon) pursuant to the terms and conditions of the Award, provided that Common Shares that were subject to a Stock Option, if that Stock Option has subsequently expired, terminated or been canceled without such shares having been sold or issued thereunder, shall not be deemed sold or issued and shall again be considered as shares for which Awards may be granted under the Plan; plus (ii) the number of Common Shares that were otherwise issuable prior to such time pursuant to Awards granted under this Plan, but that were withheld by the Company as payment of the purchase price of the Common Shares issued pursuant to such Awards or as payment of the recipient's tax withholding obligation with respect to such issuance; plus (iii) the maximum number of Common Shares issuable at or after such time pursuant to Awards granted under this Plan prior to such time. (d) The shares of the stock sold or issued under the Plan may be obtained from the Company's authorized but unissued shares, from reacquired or treasury shares, or from outstanding shares to be acquired in the market from private sources. 3 4. PERSONS ELIGIBLE TO PARTICIPATE Any person, including any director of the Company, who is a regular salaried employee of the Company or any of its Subsidiaries (a "Salaried Employee" or an "Employee") shall be eligible to be considered for the grant of Awards hereunder. 5. PLAN EFFECTIVENESS AND DURATION The Plan shall become effective upon its adoption by the Company's Board of Directors (the "Board"), and shall continue until terminated by the Board, but no shares may be sold or issued hereunder until the Plan has been approved by the holders of a majority of the outstanding shares of the Company's Common Stock present, or represented, and entitled to vote at a meeting of the Company's stockholders, other than shares awarded subject to the condition subsequent that such approval is obtained. Incentive Stock Options may not be granted under the Plan after July 25, 2005, although any such Incentive Stock Option that was duly granted on or before July 25, 2005, may thereafter be exercised in accordance with its terms. 6. ADMINISTRATION OF THE PLAN The Plan shall be administered by the Board or, in the discretion of the Board, a committee appointed thereby (the "Committee"). Subject to the provisions of the Plan, the Board, or the Committee, shall have full and final authority in its discretion to select the Employees to whom Awards shall be granted hereunder, to grant such Awards, to determine the terms and provisions of such Awards and the number of shares to be sold or issued pursuant thereto, and to adopt, amend, and rescind such rules and regulations as, in its opinion, may be advisable in the administration of the Plan. The Committee may delegate to Company officers or others its authority with respect to any Awards that may be granted to Employees who are not then officers of the Company or subject to Section 16 of the 1934 Act; provided, that the issuance of shares on exercise or settlement of any Awards must be or have been authorized by the Board or the Committee. The interpretation and construction by the Board or the Committee of any term or provision of the Plan or of any Award granted thereunder shall be final and binding upon all participants in the Plan. 7. SECTION 16 PERSONS Notwithstanding any other provision herein, any Award granted hereunder to an Employee who is then subject to Section 16 of the 1934 Act shall be subject to the following limitations: (a) The Committee exercising the authority described in Paragraph 6 with respect to that Award shall consist of two or more members of the Board who are not Salaried Employees. (b) The Award may provide for the issuance of shares of Common Stock as a Stock Bonus for no consideration other than services rendered or to be rendered. 4 (c) No Award may be sold or otherwise transferred for at least six months after it is acquired (except on death or disability or pursuant to a qualified domestic relations order as defined by the Internal Revenue Code or the Employee Retirement Income Security Act). (d) Any Stock Option granted to such Employee pursuant to the Plan shall not be transferable other than by will or the laws of descent and distribution or pursuant to a qualified domestic relations order as defined above, shall be exercisable during the Employee's lifetime only by the Employee or by his or her guardian or legal representative, and may not be exercisable for at least six months after it is granted (except on death or disability or pursuant to a qualified domestic relations order as defined above). 8. CHANGES IN CONTROL The Board, may, in its discretion, authorize any or all of the following actions as a result of or in anticipation of any Change in Control of the Company, and any Award may but need not expressly provide for such actions upon the occurrence of a Change in Control: (1) the acceleration of unmatured installments or vesting provisions under any outstanding Awards, (2) the lapsing or expiration of restrictions or limitations under any outstanding Awards, and (3) the settlement for cash of outstanding Awards or portions thereof. 9. AMENDMENT AND TERMINATION The Board may alter, amend, suspend or terminate the Plan at any time and in any manner subject to the following limitations: (a) no such action of the Board, unless taken with the approval of the shareholders of the Company, may (i) increase the maximum number of shares that may be made subject to sale or issuance or may be sold or issued under the Plan, (ii) alter the class of persons eligible to participate in the Plan, (iii) change the exercise price of or replace any Stock Option granted hereunder or under any other Company stock incentive plan where the purpose of such replacement is to reduce the per share exercise or purchase price of such award (other than any adjustment provided in Section 3), or (iv) grant a Stock Option with an exercise price less than 100 percent of the Fair Market Value of the underlying Common Stock on the date the Committee approves such option; and (b) no such amendment or termination shall deprive the recipient of any Award theretofore granted under this Plan, without the consent of such recipient, of any of his or her rights thereunder or with respect thereto. However, the Board may in its discretion determine, with respect to any other amendments of the Plan, that such amendments shall only become effective upon approval by the stockholders of the Company, if the Board determines that such stockholder approval may be advisable, such as for the purpose of obtaining or retaining any statutory or regulatory benefits under securities or tax or other laws, or of satisfying any applicable stock exchange listing requirements. 10. CERTAIN DEFINITIONS The authorized categories of benefits for which Awards may be granted under this Plan 5 are defined in Paragraph 2 above. In addition, the following terms used in this Plan shall have the following meanings, subject to any amendments in accordance with Paragraph 10 above: An "Acquiring Person" shall mean any Person who or which, together with all Affiliates and Associates (as such terms are defined in Rule 12b-2 of the General Rules and Regulations under the 1934 Act, as in effect on July 26, 1995) of such Person, shall be the Beneficial Owner (as defined in Rule 13d-3 of the General Rules and Regulations under the 1934 Act, as in effect on July 26, 1995) of 15% or more of the Voting Shares of the Company then outstanding; provided, however, that an Acquiring Person shall not include the Company, any wholly-owned subsidiary of the Company and any employee benefit plan of the Company or of a subsidiary of the Company or any Person holding Voting Shares of the Company for or pursuant to the terms of any such plan. For purposes of this paragraph, the percentage of the outstanding shares of Voting Shares of which a Person is a Beneficial Owner shall be calculated in accordance with said Rule 13d-3. "Change in Control" shall mean: (A) an agreement shall have been entered or a document signed providing for the merger, consolidation or liquidation of the Company; (B) the beneficial ownership (the direct or indirect beneficial ownership for purposes of Section 13(d) of the 1934 Act and Regulations 13D-G thereunder, or any comparable or successor law or regulation) of 40 percent or more of the Company's shares is acquired by any person or associated or affiliated group of persons (as defined by Rule 12b-2 of the General Rules and Regulations under the 1934 Act, as in effect on July 26, 1995); (C) an agreement shall have been entered into or a document signed providing for the sale, mortgage, lease or other transfer in one or more transactions (other than transactions in the ordinary course or business) of the assets or earning power aggregating more than 50 percent of the assets or earning power of the Company and its subsidiaries (taken as a whole) to any Person or associated or affiliated group of Persons; or (D) any Acquiring Person shall receive the benefit, directly or indirectly (except proportionately as a shareholder or upon terms and conditions not less favorable to the Company than the Company would be able to obtain in arm's length negotiations with an unaffiliated party) of any loans, advances, guarantees, pledges or other financial assistance, or any tax credits or other tax advantage provided by the Company or its subsidiaries; or (E) Change in Control shall also mean, and a Change of Control shall be deemed to have occurred, if at anytime, the Board of Directors of the Company shall be composed of a majority of Directors which are not Continuing Directors. "Common Stock" is the Company's common stock, $1 par value, as constituted on July 26, 1995, and as thereafter adjusted as a result of any one or more events requiring adjustment of outstanding Awards under Paragraph 3 above. "Continuing Director" shall mean a director if he or she was a member of the Board of Directors as of July 26, 1995 and any successor of a Continuing Director or director filling a newly created position on the Board of Directors who is elected or nominated to succeed a Continuing Director or to fill such newly created position by a majority of Continuing Directors then on the Board. 6 "Fair Market Value" of shares of stock shall be calculated on the basis of the closing price of stock of that class on the day in question (or, if such day is not a trading day in the U.S. securities markets, on the nearest preceding trading day), as reported with respect to the principal market (or the composite of the markets, if more than one) in which such shares are then traded, or, if no such closing prices are reported, on the basis of the mean between the high bid and low asked prices that day on the principal market or national quotation system on which such shares are then quoted or, if not so quoted, as furnished by a professional securities dealer making a market in such shares selected by the Board or the Committee. An "Incentive Stock Option" is a Stock Option that qualifies as an "incentive stock option" as defined under Section 422 (or any applicable successor provisions) of the Internal Revenue Code and that includes an express provision that it is intended to be an Incentive Stock Option. "Person" shall mean any individual, firm, partnership, corporation, trust, estate, association, group (as such term is used in Rule 13d-5 under the 1934 Act) or other entity, and any two or more of the foregoing acting in concert or pursuant to an agreement, arrangement, or understanding for the purpose of acquiring, holding, voting or disposing of capital stock of the Company, and shall include any successor (by merger or otherwise) of such entity. A "Subsidiary" of the Company is any corporation, partnership or other entity in which the Company directly or indirectly owns 50% or more of the total combined power to cast votes in the election of directors, trustees, managing partners or similar officials. The "1934 Act" means the Securities Exchange Act of 1934, as in effect from time to time. "Voting Shares" shall mean (i) shares of the Company's $1 par value common stock, and (ii) any other share of capital stock of the Company entitled to vote generally in the election of directors or entitled to vote in respect of any merger, consolidation, sale of all or substantially all of the Company's assets, liquidation, dissolution or winding up. References to a percentage or portion of the outstanding Voting Shares shall be deemed a reference to the percentage or portion of the total votes entitled to be cast by the holders of the outstanding Voting Shares. IN WITNESS WHEREOF, Rohr, Inc. has caused the Plan to be executed as of the 2nd day of December, 1995, to be effective as of the Effective Date. ROHR, INC. By: /s/ R. W. Madsen ----------------- R. W. Madsen Vice President, General Counsel and Secretary 7 EX-10.GG 7 g80791kexv10wgg.txt FIRST AMENDMENT TO THE ROHR, INC. 1995 STOCK EXHIBIT 10(GG) FIRST AMENDMENT TO THE ROHR, INC., 1995 STOCK INCENTIVE PLAN Pursuant to the provisions of Section 9, the 1995 Stock Incentive Plan is hereby amended as follows: 1. Paragraph 8 is hereby amended to read in full as follows: (a) A heading "(a)" is placed in front of the existing language of paragraph 8. (b) A new subparagraph is hereby added: "(b) If there is a Change in Control of the Company which occurs due to the provisions of subparagraph 10(B) below, then: (i) in the case of the beneficial ownership of 40 percent or more of the Company's shares (as ownership is defined and provided for in such subparagraph 10(B)), then (A) the restrictions on the restricted stock of all Plan participants (whether or not they are then active Employees) shall be lifted forthwith and (B) all shares granted pursuant to stock options which are not then exercisable under the terms of the applicable option agreements shall become immediately exercisable in full at any time for the remainder of their term; and (ii) in the case of the beneficial ownership of 20 percent or more of the Company's shares (as ownership is defined and provided for in such subparagraphs 10(B)), then (A) the restrictions on the restricted stock of any Participant whose employment is terminated within two years after the Change in Control (except for a Voluntary Termination or a Termination for Cause, as defined in any applicable stock option or restricted stock agreement entered pursuant to the Plan) shall be lifted forthwith and (B)~jL shares granted pursuant to stock options of such terminated Employee which are not then exercisable under the terms of the applicable option agreements shall become immediately exercisable in full at any time for the remainder of their term; provided, however, in connection with said Change in Control, said participant will not have obtained in the case of either (i) or (ii) above, except proportionately as a shareholder, a participatory interest in the ownership of the surviving corporation (in the case of a merger or consolidation), in the ownership of the entity beneficially owning the requisite percentage of company stock (in the case of an entity owning 20 percent of Rohr), in the receipt of assets of earning power (in the case of a transfer of 50 percent or more of the assets or earning power), or in the loans, advances, guarantees, pledges or other financial assistance or tax credits." (2) a reduction within twenty-four (24) months after the occurrence of a Change in Control in the Plan participant's base salary as in effect on the date of the Change in Control, or the Company's failure to increase the Plan Participant's base salary after a Change in Control at a rate which is substantially similar to the average increase in base salary effected during the preceding twelve (12) months for those executives of the Company who are in the same compensation category as the Plan participant, that is, on the officer payroll or the executive payroll, as the case may be; 1 (3) any failure by the Company to continue in effect any benefit plan or arrangement or any material fringe benefit in which the Plan participant was participating immediately prior to a Change in Control, or to substitute and continue other plans providing the Plan participant with substantially similar benefits, or any action by the Company that would adversely affect the Plan participant's participation in or materially reduce the Plan participant's benefits under any such benefit plan or arrangement or deprive the Plan participant of any material fringe benefit enjoyed by the Plan participant at the time of the Change in Control; (4) any failure by the Company to continue in effect any incentive plan or arrangement, such as but not limited to the Management Incentive Plan (Restated 1982), as amended, in which the Plan participant is participating at the time of a Change in Control, or to substitute and continue other plans or arrangements providing the Plan participant with substantially similar benefits, or the taking of any action by the Company that would adversely affect the Plan participant's participation in any such -incentive plan or reduce the Plan participant's benefits under any such incentive plan in an amount which is not substantially similar, on a percentage basis, to the average percentage reduction of benefits under any such incentive plan effected during the preceding twelve (12) months for all executives of the Company participating in any such incentive plan in the same compensation category as the Plan participant; (5) the Plan participant's relocation to any place other than the location at which the Plan participant performed the Plan participant's duties prior to a Change in Control; or (6) any material breach by the Company of any provision of this Agreement. 2 EX-10.HH 8 g80791kexv10whh.txt SECOND AMENDMENT TO THE ROHR, INC. 1995 STOCK EXHIBIT 10(HH) SECOND AMENDMENT TO THE ROHR, INC., 1995 STOCK INCENTIVE PLAN Pursuant to the provisions of Section 9, the 1995 Stock Incentive Plan is hereby amended as follows: 1. Paragraph 9 is hereby amended to read in full as follows: "The Board or the Executive Compensation and Development Committee (the "Committees) may alter, amend, suspend or terminate the Plan at any time and in any manner subject to the following limitations: (a) no such action of the Board or the Committee, unless taken with the approval of the shareholders of the Company, may (i) increase the maximum number of shares that may be made subject to sale or issuance or may be sold or issued under the Plan, (ii) alter the class of persons eligible to participate in the Plan, (iii) change the exercise price of or replace any Stock Option granted hereunder or under any other Company stock incentive plan where the purpose of such replacement is to reduce the per share exercise or purchase price of such award (other than any adjustment provided in Section 3), or (iv) grant a Stock Option with an exercise price less than 100 percent of the Fair Market Value of the underlying Common Stock on the date the Committee approves such option; and (b) no such amendment or termination shall deprive the recipient of any Award theretofore granted under this Plan, without the consent of such recipient, of any of his or her rights thereunder or with respect thereto. However, the Board or the Committee may in its discretion determine, with respect to any other amendments of the Plan, that such amendments shall only become effective upon approval by the stockholders of the Company, if the Board or the Committee determines that such stockholder approval may be advisable, such as for the purpose of obtaining or retaining any statutory or regulatory benefits under securities or tax or other laws, or of satisfying any applicable stock exchange listing requirements." 2. In all other respects, the Plan is hereby ratified and confirmed. IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officer to execute this Amendment on the 13th day of September 1996. ROHR, INC. By: /s/ R.W. Madsen ------------------ R.W. Madsen Vice President, General Counsel and Secretary EX-10.LL 9 g80791kexv10wll.txt DIRECTORS' DEFERRED COMPENSATION PLAN EXHIBIT 10(LL) DIRECTORS' DEFERRED COMPENSATION PLAN ------------------------------------ ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 3, 2002 RESOLVED, that effective January 1, 2003, a fixed retainer be paid to each Director, except employees or former employees of the Company or its subsidiaries within five years of their termination of employment who are Directors, for services as a member of the Board of Directors, at a rate of $50,000 per year. One-half of the fixed retainer shall be deferred under the Directors' Deferred Compensation Plan (the "Plan") into a bookkeeping account ("Deferred Compensation Account") denominated in phantom shares ("Phantom Shares") with each Phantom Share equal to the fair market value of one share of Company common stock. Directors may elect to defer (the "Deferral Election") all or a portion of the remaining fixed retainer and meeting fees described below into the Deferred Compensation Account in Phantom Shares. The Deferral Election shall remain in effect for the calendar year for which made and shall continue in effect for each succeeding calendar year unless revoked or modified prior to the commencement of such succeeding year. Dividend equivalents will be accrued on all Phantom Shares under this Plan. Upon the payment date of each dividend declared on the Company's common stock, that number of additional Phantom Shares will be credited to each Director's account which is equivalent in value to the aggregate amount of dividends which would be paid if the number of Phantom Shares credited to each Director's account were actual shares of the Company's common stock. Upon termination of service as a Director for any reason, accrual shares of the Company's common stock equal in number to the number of Phantom Shares credited to the Director's account, less any applicable withholding, shall be promptly paid to the Director or his or her designated beneficiary (or estate if no beneficiary designated). For all purposes of this Plan, the fair market value for the Company's common stock and Phantom Shares shall be the mean of the high and low prices of the Company's common stock on the relevant date as reported on the New York Stock Exchange - Composite Transactions Listing (or similar report) or if no sale was made on such date, then on the next preceding day on which such sale was made. No award of Phantom Shares shall be assignable or transferable by the Directors, except by will or by the laws of descent and distribution. 1 The number of Phantom Shares credited to a Director's account shall be adjusted to reflect any stock split, stock dividend, combination of shares, merger, consolidation, reorganization, or other change in the structure of the Company or the nature of the Company's common stock (the "event") in the same manner as the event affects the Company's common stock. The Board of Directors may alter or amend this Plan, in whole or in part, from time to time, or terminate the Plan at any time, provided, however, no such action shall adversely affect any rights or obligations with respect to awards of Phantom Shares previously made under the Plan, without consent of the individual Director. RESOLVED FURTHER, that a fee of $1,500 be paid to each Director, except employees or former employees of the Company or its subsidiaries within five years of their termination of employment who are Directors, for attendance at each duly called meeting of the Board and for attendance at each duly called meeting of any Committee of the Board of which he or she is a member (other than as Chairman), or which he or she is requested by the Chairman of such Committee to attend, together with an allowance for any proper expenses incurred in attending such meeting; and RESOLVED FURTHER, that a fee of $2,500 be paid to each Director, except employees or former employees of the Company or its subsidiaries within five years of their termination of employment who are Directors, for attendance at each duly called meeting of any Committee of the Board of which he or she is Chairman, together with an allowance for any proper expenses incurred in attending such meeting; and RESOLVED FURTHER, that the officers of the Company be and they severally are authorized to do and perform each and every act and thing and to execute and deliver any and all documents as, on the advice of legal counsel of the Company, such officers may deem necessary or advisable to implement the intent and purpose of the preceding resolutions, such officer's execution thereof to be conclusive evidence of the exercise of the discretionary authority herein conferred. 2 EX-13 10 g80791kexv13.txt THE COMPANY'S 2002 ANNUAL REPORT EXHIBIT 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE AUDITED CONSOLIDATED FINANCIAL STATEMENTS OF GOODRICH CORPORATION INCLUDED ELSEWHERE IN THIS DOCUMENT. THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS" BELOW AND "CERTAIN BUSINESS RISKS" IN ITEM 1 OF OUR ANNUAL REPORT ON FORM 10-K FOR A DISCUSSION OF THE UNCERTAINTIES, RISKS AND ASSUMPTIONS ASSOCIATED WITH THESE STATEMENTS. AS DISCUSSED BELOW, THE COMPANY'S ENGINEERED INDUSTRIAL PRODUCT (EIP) AND PERFORMANCE MATERIALS (PM) SEGMENTS HAVE BEEN ACCOUNTED FOR AS DISCONTINUED OPERATIONS. UNLESS OTHERWISE NOTED HEREIN, DISCLOSURES PERTAIN ONLY TO THE COMPANY'S CONTINUING OPERATIONS. SPECIAL ITEMS, AS USED THROUGHOUT "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" INCLUDE RESTRUCTURING AND CONSOLIDATION COSTS, CERTAIN GAINS OR LOSSES ON THE SALE OF BUSINESSES, RESULTS OF DISCONTINUED OPERATIONS, CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING, ASSET IMPAIRMENT CHARGES AND ACQUISITION-RELATED CHARGES INCLUDING THE STEP-UP OF INVENTORY AND IN-PROCESS RESEARCH AND DEVELOPMENT. OVERVIEW We are one of the largest worldwide suppliers of components, systems and services serving the commercial, regional, business and general aviation markets. We are also a leading supplier of aircraft and satellite systems products to the global military and space markets. Our business is conducted on a global basis with manufacturing, service and sales undertaken in various locations throughout the world. Our products and services are principally sold to customers in North America and Europe. ACQUISITION OF AERONAUTICAL SYSTEMS On October 1, 2002, we completed our acquisition of Aeronautical Systems from TRW Inc. for approximately $1.5 billion in cash. At the time of acquisition, the acquired businesses employed approximately 6,200 employees in 22 facilities in nine countries, including manufacturing and service operations in the United Kingdom, France, Germany, Canada, the United States and several Asia/Pacific countries. Refer to Note B to the accompanying Consolidated Financial Statements. We financed the acquisition through a $1.5 billion, 364-day credit facility provided by some of our existing lenders. This facility expires on July 29, 2003. In the fourth quarter of 2002, we repaid $1.3 billion of the credit facility primarily through the use of cash flow from asset monetizations, cash flow from operations, the successful completion of a secondary offering of common stock for net proceeds of $216.2 million and the issuance of $800 million of 5 and 10-year notes for net proceeds of $793.1 million. The proceeds from the pending sale of our Avionics business, which was announced in January 2003 will be used to reduce the balance of the credit facility. As a result of integration activities with respect to Aeronautical Systems, we expect to realize annual cost savings of approximately $30 million to $40 million, net of anticipated incremental costs, by the beginning of 2005. These cost savings are expected to result from consolidation of duplicate facilities, reduction of personnel, reduction of expenditures, expansion of procurement initiatives and the use of best practices across the combined businesses. 1 SPIN-OFF OF ENGINEERED INDUSTRIAL PRODUCTS On May 31, 2002, we completed the tax-free spin-off of our Engineered Industrial Products (EIP) segment. The spin-off was made through a tax-free distribution to our shareholders of all of the capital stock of EnPro Industries, Inc. (EnPro), a subsidiary that we formed in connection with the spin-off. In the spin-off, our shareholders received one share of EnPro common stock for every five shares of our common stock owned on May 28, 2002, the record date. At the time of the spin-off, EnPro's only material asset was all of the capital stock and certain indebtedness of Coltec Industries Inc (Coltec). Coltec and its subsidiaries owned substantially all of the assets and liabilities of the EIP segment, including the associated asbestos liabilities and related insurance. Prior to the spin-off, Coltec also owned and operated an aerospace business. Before completing the spin-off, Coltec's aerospace business assumed all intercompany balances outstanding between Coltec and us, and Coltec then transferred to us as a dividend all the assets, liabilities and operations of its aerospace business, including these assumed balances. Following this transfer and prior to the spin-off, all of the capital stock of Coltec was contributed to EnPro, with the result that at the time of the spin-off Coltec was a wholly-owned subsidiary of EnPro. In connection with the spin-off, we and EnPro entered into a distribution agreement, a tax matters agreement, a transition services agreement, an employee matters agreement and an indemnification agreement, which govern the relationship between us and EnPro after the spin-off and provide for the allocation of employee benefits, tax and other liabilities and obligations attributable to periods prior to the spin-off. The spin-off was recorded as a dividend and resulted in a reduction of our shareholders' equity of $409.1 million representing the recorded value of the net assets of the business distributed, including cash of $47.0 million. The distribution agreement provided for certain post-distribution adjustments relating to the amount of cash to be included in the net assets distributed. At December 31, 2002, the final adjustment had been calculated and is subject to a dispute resolution process. We expect that the effect of the final resolution of this process on our Consolidated Financial Statements will be immaterial. The $150 million of outstanding Coltec Capital Trust 5 1/4 percent convertible trust preferred securities (TIDES) that were reflected in liabilities of discontinued operations remained outstanding as part of the EnPro capital structure following the spin-off. The TIDES are convertible into shares of both Goodrich and EnPro common stock until April 15, 2028. We have guaranteed amounts owed by Coltec Capital Trust with respect to the TIDES and have guaranteed Coltec's performance of its obligations with respect to the TIDES and the underlying Coltec convertible subordinated debentures. EnPro, Coltec and Coltec Capital Trust have agreed to indemnify us from any costs and liabilities arising under or related to the TIDES after the spin-off. Prior to the spin-off, Coltec acquired certain call options on our common stock in order to partially hedge its exposure to fluctuations in the market price of our stock resulting from the TIDES. These call options remained an asset of Coltec following the spin-off. SALE OF PERFORMANCE MATERIALS On February 28, 2001, we completed the sale of our Performance Materials (PM) segment to an investor group led by AEA Investors, Inc. for approximately $1.4 billion. Total net proceeds, after anticipated tax payments and transaction costs, included approximately $1 billion in cash and $172 million in payment-in-kind (PIK) debt securities issued by the buyer, which is now known as Noveon International Inc. (Noveon). The transaction resulted in an after-tax gain of $93.5 million. During the second quarter 2002, a dispute over the computation of a post-closing working capital adjustment was resolved. The resolution of this matter did not have an effect on the previously reported gain. In July 2002, we entered into an agreement with Noveon to amend certain provisions of the PIK notes held by us to give Noveon the option to prepay the securities at a discount greater than the original discount if they prepaid on or before February 28, 2003. As a result of prepayments made in June and October 2002, Noveon prepaid a total of $62.5 million of the outstanding principal of the PIK notes for $49.8 million in cash. Because these prepayments did not exceed the original discount recorded at the inception of the notes, no gain or loss was recognized. 2 Pursuant to the terms of the transaction, we have retained certain assets and liabilities, primarily pension, postretirement and environmental liabilities, of Performance Materials. We have also agreed to indemnify Noveon for liabilities arising from certain events as defined in the agreement. Such indemnification is not expected to be material to our financial condition, but could be material to our results of operations in a given period. OTHER ACQUISITIONS AND DIVESTITURES ACQUISITIONS The following acquisitions were recorded using the purchase method of accounting. Their results of operations have been included in our results since their respective dates of acquisition. Acquisitions made by businesses included within the Performance Materials and Engineered Industrial Products are not discussed below. During 2001, we acquired a manufacturer of aerospace lighting systems and related electronics, as well as the assets of a designer and manufacturer of inertial sensors used for guidance and control of unmanned vehicles and precision-guided systems. Total consideration aggregated $113.8 million, of which $102.6 million represented goodwill and other intangible assets. During 2000, we acquired a manufacturer of earth and sun sensors for attitude determination and control ejection seat technology; a manufacturer of fuel nozzles; a developer of avionics and displays; the assets of a developer of precision electro-optical instrumentation serving the space and military markets; an equity interest in a joint venture focused on developing and operating a comprehensive open electronic marketplace for aerospace aftermarket products and services; a manufacturer of precision and large optical systems, laser encoding systems, and visual surveillance systems for day and night use; and a supplier of pyrotechnic devices for space, missile, and aircraft systems. Total consideration aggregated $242.6 million, of which $105.4 million represented goodwill and other intangible assets. The impact of these acquisitions was not material in relation to our results of operations. Consequently, pro forma information is not presented. See Note B to the accompanying Consolidated Financial Statements. DIVESTITURES During 2002, we sold a business and a minority interest in a business resulting in a pre-tax gain of $2.5 million. The gain has been reported in other income (expense)- net. During 2001, we sold a minority interest in a business, resulting in a pre-tax gain of $7.2 million. The gain has been reported in other income (expense)- net. During 2000, we sold a product line of a business, resulting in a pre-tax gain of $2.0 million. The gain has been reported in other income (expense)- net. For dispositions accounted for as discontinued operations, refer to Note U to the accompanying Consolidated Financial Statements. BUSINESS SEGMENTS At December 31, 2002, we operated in five business segments: Aerostructures and Aviation Technical Services; Landing Systems; Engine and Safety Systems; Electronic Systems; and Aeronautical Systems. A summary of the products and services provided by our business segments is presented below. 3 AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES The core products of our Aerostructures division are nacelles, pylons, thrust reversers and related aircraft engine housing components. We are a leading worldwide supplier of nacelles, which are the aerodynamic structures that surround engines, and pylons, which are the engine-to-wing structures that support engines and provide the critical connective conduit for fuel delivery and numerous engine-driven aircraft systems. In addition, we manufacture a range of specialized aerostructures, including lightweight, temperature-resistant auxiliary power unit tailcones for jetliners, corrosion-resistant structures for tactical military aircraft, and rigid cargo barriers for freighter aircraft. We also manufacture a variety of galley, wing, nacelle, thrust reverser, flight control surface and assembly components for out-of-production aircraft. Through our Aviation Technical Services division, we service approximately 550 aircraft each year and are among the largest independent providers of maintenance, repair, overhaul and modification services in the world. Services provided by our Aviation Technical Services division range from the repair of individual components and systems to heavy maintenance and modifications of large commercial aircraft and business jet aircraft. We perform comprehensive total aircraft maintenance, repair, overhaul and modification for many commercial airlines, independent operators, aircraft leasing companies and airfreight carriers. LANDING SYSTEMS Our Landing Systems segment provides systems and components related to aircraft taxi, take-off, landing and stopping. Several divisions within this segment are linked by their ability to contribute to the integration, design, manufacture and service of entire aircraft undercarriage systems, including landing gear, wheels and brakes, and certain brake controls. We differentiate ourselves from component suppliers by providing integrated systems, delivered as completely pre-assembled units to airframe manufacturers. We also provide complete repair and overhaul services for landing gear, wheels and brakes. In addition, through our engineered polymer products division, we design and produce components made from proprietary, high-performance composite material systems used in naval ships and submarines to improve acoustic characteristics and reduce radar signature of exposed superstructures. ENGINE AND SAFETY SYSTEMS Our Engine and Safety Systems segment produces a variety of products used in engine systems, including fuel delivery systems, electronic and mechanical controls, pumps, metering devices, manifolds and rotating components such as disks, blisks, shafts and airfoils for both aerospace and industrial gas turbine applications. The segment also produces evacuation systems such as slides and floats and seats for pilots, observers and flight attendants. Our de-icing and specialty systems division produces ice protection systems for general aviation, heating and related systems for large commercial transport aircraft, and potable water systems for regional and business aircraft. We also supply electrothermal ice protection systems for airframe, propeller and helicopter rotor applications and specialty heating systems, water heaters and other internal and external heated components for large commercial transport aircraft. Through our propulsion systems division, we provide research, design, development, qualifications and manufacture of advanced aircrew escape systems. We also supply individual components such as rocket motors and catapults, pyrotechnic gas generators, ejection seats, precision electro-explosive devices, propellants, linear actuators, and safety and arming devices. ELECTRONIC SYSTEMS Our Electronic Systems segment produces a wide array of products that provide flight performance measurements, flight management, and control and safety data. We supply a variety of high-performance sensor systems, such as stall warning systems and systems that measure, manage and/or monitor aircraft fuel; oil debris; engine, transmission and structural health; and aircraft motion and control. We also supply a variety of avionics systems and other instruments, including warning and detection systems, ice detection systems, test equipment, aircraft lighting systems, landing gear cables and harnesses, satellite control, data management and payload systems, launch and missile telemetry systems, airborne reconnaissance systems and laser warning systems. In addition, our optical and space systems division designs and builds high-performance, custom-engineered electronics, optics and electro-optical products for defense, aerospace, scientific and commercial applications. We also produce directional surveying equipment for use by companies operating in petroleum, mining and utility industries. 4 AERONAUTICAL SYSTEMS Aeronautical Systems manufactures highly engineered systems and equipment in the following product groups: - Engine controls. This product group consists of engine control systems and components for jet engines used on commercial and military aircraft, including fuel metering controls, fuel pumping systems, electronic control software and hardware, variable geometry actuation controls, afterburner fuel pump and metering unit nozzles, and engine health monitoring systems. - Flight controls. This product group includes actuators for primary flight control systems that operate elevators, ailerons and rudders, as well as secondary flight controls systems such as flaps and slats. - Power systems. This product group consists of systems that produce and control electrical power for commercial and military aircraft, including electric generators for both main and back-up electrical power, electric starters, and electric starter generating systems, as well as power management and distribution systems. - Cargo systems. This product group consists of fully-integrated main deck and lower lobe cargo systems for wide body aircraft. - Hoists and winches. This product group consists of airborne hoists and winches used on both helicopters and fixed wing aircraft. - Actuation systems. This product group consists of systems that control the movement of steering systems for missiles as well as electro-mechanical systems that are characterized by high power, low weight, low maintenance, resistance to extreme temperatures and vibrations, and high reliability. SEGMENT REORGANIZATION Effective January 1, 2003, we reorganized our organization into three business segments: Airframe Systems, Engine Systems and Electronic Systems. The reorganization was designed to enhance communication and maximize synergies in a streamlined organization. Segment financial results will be restated effective January 1, 2003 beginning with the first quarter 2003. 5 2002 RESULTS - ------------------------------------------------------------------------------- The following table summarizes our results of operations for 2002 and 2001.

YEAR-ENDED DECEMBER 31, (IN MILLIONS) 2002(1) 2001(2) 2002 ADJUSTED 2001 ADJUSTED --------- --------- --------- --------- Sales $ 3,910.2 $ 3,910.2 $ 4,184.5 $ 4,184.5 --------- --------- --------- --------- Segment Operating Income $ 420.6 $ 532.9 $ 444.8 $ 644.1 --------- --------- --------- --------- Income from Continuing Operations $ 165.9 $ 244.0 $ 176.9 $ 306.3 Income (loss) from Discontinued Operations (11.9) -- 112.3 -- Cumulative Effect of an Accounting Change (36.1) -- -- -- --------- --------- --------- --------- Net Income $ 117.9 $ 244.0 $ 289.2 $ 306.3 ========= ========= ========= ========= Diluted EPS $ 1.14 $ 2.31 $ 2.76 $ 2.87 ========= ========= ========= ========= Net Cash Provided by Operating Activities $ 539.2 $ 382.6 ========= ========= Free Cash Flow (3) $ 487.1 $ 222.5 ========= =========

(1) Results exclude the effect of special items consisting of a $41.3 million charge ($27.7 million after-tax), or $0.26 per diluted share, for restructuring and consolidation costs and a $2.4 million gain ($1.6 million after-tax), or $0.02 per diluted share, from the sale of a business. Results also exclude special items relating to the acquisition of Aeronautical Systems including in-process research and development expense of $12.5 million ($12.5 million after-tax), or $0.12 per diluted share, and the step-up of inventory to fair market value and subsequent sales of the inventory resulting in reduced profit margins of $58.8 million ($39.5 million after-tax), or $0.38 per diluted share. Results also exclude the after-tax effect of a loss from discontinued operations ($11.9 million, or $0.09 per diluted share) and a charge for the cumulative effect of a change in accounting for goodwill of $36.1 million after-tax, or $0.34 per diluted share. (2) Results exclude the effect of special items consisting of a $107.3 million charge ($71.3 million after-tax), or $0.67 per diluted share, for restructuring and consolidation costs, a $94.5 million charge ($62.8 million after-tax), or $0.59 per diluted share recorded in cost of sales for inventory adjustments and a $7.2 million gain ($4.7 million after-tax), or $0.04 per diluted share from the sale of a portion of our interest in a business. Results also exclude the after-tax effect of income from discontinued operations ($112.3 million, or $1.11 per diluted share). (3) Free cash flow is defined as operating cash flow adjusted for cash payments related to special items of $55.2 million in 2002 and $30.3 million in 2001 less capital expenditures of $107.3 million in 2002 and $190.5 million in 2001. We believe free cash flow provides meaningful additional information on our operating results and on our ability to service our long-term debt and other fixed obligations and to fund our continued growth. Free cash flow should not be construed as an alternative to operating income (loss) as determined in accordance with generally accepted accounting principles in the United States (GAAP), as an alternative to cash flow from operating activities as determined in accordance with GAAP, or as a measure of liquidity. Because free cash flow is not calculated in the same manner by all companies, our presentation may not be comparable to other similarly titled measures reported by other companies. Special items include restructuring and consolidation costs, gains or losses on the sale of businesses, results of discontinued operations, asset impairment charges and the cumulative effect of an accounting change. Special items also include acquisition-related charges including the step-up of inventory and in-process research and development. We believe that excluding special items provides meaningful information of our operating results. Amounts adjusted to exclude special items should not be construed as an alternative to amounts determined in accordance with GAAP. Because amounts adjusted to exclude special items are not calculated in the same manner by all companies, our presentation may not be comparable to other similarly titled amounts reported by other companies. 6 Sales Sales declined in 2002 by $274.3 million or 6.6 percent to $3,910.2 million from $4,184.5 million in 2001. Sales in 2002 include $264.4 million from the Aeronautical Systems businesses that were acquired on October 1, 2002. Sales also include our aerospace lighting systems business acquired in September 2001. Excluding sales of our lighting systems business for both years and sales of the Aeronautical Systems business in 2002, sales declined 13.6 percent from 2001. Substantially all of our businesses experienced sales declines except for our pump and engine control business which is included in the Engine and Safety Systems segment and the optical and space systems business included in our Electronic Systems segment. For further information regarding sales changes by business segment, refer to "Business Segment Performance" below. Segment Operating Income Segment operating income was $420.6 million for 2002 and $444.8 million for 2001. Segment operating income, excluding special items, declined $111.2 million, or 17.3 percent from $644.1 million in 2001 to $532.9 million in 2002. Adjusted for special items as discussed above and for the impact of the operating income related to the lighting systems business acquired in September 2001 and the Aeronautical Systems business acquired in October 2002, segment operating income declined approximately 18.6 percent. The segment operating income decline was consistent with the sales declines in all of our businesses. In addition, as discussed in "Business Segment Performance" below, contract loss provisions of $26.8 million and $5.4 million of pre-certification cost write-offs recorded by the Aerostructures business in the third and fourth quarters of 2002 added to the decline. Segment operating income improved in our pump and engine control and optical and space systems businesses consistent with the sales improvements in those businesses. For further information regarding operating income changes by business segment, refer to "Business Segment Performance" below. Income from Continuing Operations Income from continuing operations, as reported, was $165.9 million in 2002 and $176.9 million in 2001. Income from continuing operations, excluding special items, declined $62.3 million, or 20.3 percent to $244.0 million in 2002 compared to $306.3 million in 2001. The decline in sales discussed above was a significant contributor to the income decline. Partially offsetting these declines was an increase in interest income in 2002 compared with the prior year resulting, in part, from interest income on the F-14 aircraft program claim settlement in 2002. The 2002 special items include the effect of $41.3 million of restructuring and consolidation costs and a $2.4 million gain from the sale of a business and items relating to the acquisition of Aeronautical Systems including in-process research and development expense of $12.5 million and the effect of the step-up of inventory to fair market value which was sold amounting to $58.8 million. The 2001 special items include the effect of a $107.3 million charge for restructuring and consolidation costs, a $94.5 million charge related primarily to reducing our investment in the B717 program and in our Super 27 re-engining program, and a $7.2 million gain from the sale of a portion of our interest in a business. Income (Loss) from Discontinued Operations Income from discontinued operations decreased $124.2 million from income during 2001 of $112.3 million to a loss of $11.9 million during 2002. Sales from discontinued operations declined from $828.9 million during 2001 to $289.5 million in 2002. The 2001 sales included two months of Performance Material sales of $187.0 million, which did not recur in 2002. In addition, 2002 sales include only five months of EIP sales due to the EnPro spin-off, which occurred on May 31, 2002. Also, the decrease results from lower earnings from operations of the EIP segment, discontinued in 2001, compared to 2002 resulting, in part, from an $11.0 million pre-tax charge for a court ruling relating to an employee benefit matter of a previously discontinued business. Fees and expenses related to the spin-off recorded during 2002 also contributed to the loss. Also, discontinued operations during 2001 include the operations of the Performance Materials segment for two months and the gain on sale of that segment of $93.5 million. 7 Cumulative Effect of an Accounting Change During the second quarter of 2002, we performed the first of the required impairment tests of goodwill and indefinite lived intangible assets. Based on those results, we determined that it was likely that goodwill relating to the Aviation Technical Services "reporting unit" (ATS) had been impaired. ATS is included in the Aerostructures and Aviation Technical Services business segment. During the third quarter of 2002, we completed our measurement of the goodwill impairment and recognized an impairment charge of $36.1 million (representing total goodwill of this reporting unit), which was nondeductible for income tax purposes and was reported as a cumulative effect of an accounting change retroactively to January 1, 2002. Net Cash Provided by Operating Activities Cash flow provided by operating activities increased by $156.6 million to $539.2 million in 2002 from $382.6 million in 2001. The increase in cash flow from operations resulted from improved management of Accounts Receivable and Inventory, and lower estimated tax payments in 2002. Also included in 2002 cash flow provided by operating activities was approximately $29.4 million resulting from the sale of an interest rate swap agreement associated with $200 million of our long-term debt and $30.8 million of cash received from the sale of hedges acquired in the acquisition of Aeronautical Systems. Offsetting the favorable cash flow was a decrease in Accounts Payable. Free Cash Flow Free cash flow, defined as cash flow provided by operating activities adjusted for cash payments related to special items less cash used for capital expenditures, increased $264.6 million to $487.1 million in 2002 from $222.5 million in 2001. The increase was principally a result of the increase in cash flow provided by operations. Cash used to pay special items increased in 2002 by $24.9 million partially reducing the cash provided by operating activities. Improving free cash flow, however, was a reduction in the level of capital expenditures in 2002 by $83.2 million from the 2001 levels. Capital expenditures in 2001 included a large expenditure to implement an enterprise resource planning project in our Aerostructures business that was substantially complete by the end of 2001. OUTLOOK The current world economic and political environment is uncertain and subject to rapid and radical change. As a result, forecasting with any degree of accuracy in this environment is difficult. We have based our outlook for 2003 on various assumptions that may change over the course of the year. The outlook described below assumes that there is no significant adverse impact on us and on our customers from potential military conflicts or acts of terrorism. Additionally, it does not assume additional airline bankruptcy filings. Regarding the market segments in which we operate, the outlook also assumes that the demand for large commercial transport original equipment declines in line with manufacturers' forecasts for delivery, from 684 deliveries in 2002 to about 550 in 2003. Aftermarket sales are expected to be relatively flat, as the airlines continue a slow recovery from the events of September 11, 2001 and in view of the current economic conditions. Regional and business sales should show a slight increase in 2003 as deliveries of new regional jets continue to be relatively strong, and military sales should increase roughly in line with global military budgets. Overall sales are expected to increase to between $4.4 billion to $4.5 billion in 2003. These expectations include the full year contribution of Aeronautical System, and the loss of between $100 million to $200 million in sales associated with businesses such as Avionics, that are expected to be divested in 2003 and treated as discontinued operations. Segment operating income, as reported, is expected to improve in 2003 due to the successful implementation of our restructuring actions, the expected positive contribution from Aeronautical Systems and the absence of 2002 acquisition-related charges, including the step-up of inventory and in-process research and development, and higher restructuring costs in 2002 than expected in 2003. However, segment operating income, as reported, will be reduced by higher pension expense of $49 million in 2003. Overall margins on segment operating income, as reported, are expected to increase in 2003 for the same reasons as noted for segment operating income, as reported. 8 Based on the assumptions and expectations noted above, we expect 2003 earnings per diluted share, as reported, to be between $1.55 and $1.70. Included in our estimate is approximately $20 million to $25 million, pre-tax, or between $0.11 and $0.14 per diluted share, for restructuring activities identified to date. Further weakness in served markets may result in additional restructuring actions. Cash flow generation continues to be a key focus for us, and for 2003 we expect cash flow from operating activities to be approximately $350 million to $400 million. Cash payments in 2003 for restructurings that have already been announced, or are anticipated at this time, are expected to be between $35 million and $45 million. Capital expenditures are expected to be $150 million to $170 million. STATUS OF PENSION PLANS Due to significant declines in the financial markets during 2002, our pension plans were under-funded at December 31, 2002. During the fourth quarter, we recognized a non-cash charge to equity of $328 million after-tax. This charge did not impact reported net income, and will reverse in future periods if interest rate increases, improved investment results, or contributions cause the pension plans to return to a fully funded status. As a result of the under-funded status of the pension plans at year-end 2002 and a reduction in the expected return on plan assets, non-cash pension expense will be approximately $49 million pre-tax ($33 million after-tax, or $0.25 per diluted share) higher in 2003 than in 2002. For 2003, total non-cash pension expense is expected to be approximately $82 million ($55 million after-tax, or $0.47 per diluted share). RESTRUCTURING AND CONSOLIDATION ACTIVITIES During 2002, we initiated a number of restructuring activities in each of our business segments. The total segment restructuring and consolidation costs in 2002 were $41.0 million consisting principally of personnel-related costs at existing businesses and several plant closures in response to reduced business volumes. As a result of the current uncertainty in the airline industry and the potential for changes in the original aircraft manufacturing rates, we continue to assess the potential for additional restructuring charges to meet those changes. More detailed information on restructuring and consolidation costs is included in Note C to the accompanying Consolidated Financial Statements. During 2001, such charges and unusual inventory adjustments approximated $206.4 million, including $201.8 million from continuing operations and $4.6 million from discontinued operations. These charges were largely related to the anticipated decline in sales to the commercial air transport market resulting from the terrorist attacks of September 11th. As previously announced, these charges were primarily related to aerospace facility consolidations, a significant workforce reduction (approximately 3,200 positions), asset impairment charges and costs associated with our investment in the Boeing 717 program and in the Super 727 re-engining program. 9 RESULTS OF OPERATIONS TOTAL COMPANY (IN MILLIONS)

2002 2001 2000 ---------- ---------- ---------- SALES: Aerostructures and Aviation Technical Services $ 1,176.9 $ 1,493.6 $ 1,427.0 Landing Systems 1,038.2 1,149.1 1,057.7 Engine and Safety Systems 638.8 762.6 644.4 Electronic Systems 791.9 779.2 571.4 Aeronautical Systems 264.4 -- -- ---------- ---------- ---------- Total Sales $ 3,910.2 $ 4,184.5 $ 3,700.5 ========== ========== ========== OPERATING and NET INCOME: Aerostructures and Aviation Technical Services $ 169.9 $ 226.0 $ 209.6 Landing Systems 140.1 153.1 149.0 Engine and Safety Systems 79.2 131.9 117.5 Electronic Systems 135.3 133.1 117.5 Aeronautical Systems 8.4 -- -- ---------- ---------- ---------- Adjusted Segment Operating Income 532.9 644.1 593.6 Restructuring and consolidation costs (41.3) (107.3) (44.2) Aeronautical Systems inventory step-up (58.8) -- -- In-process research and development (12.5) -- -- Unusual inventory adjustments -- (94.5) -- Corporate general and administrative costs (59.0) (57.7) (59.7) ---------- ---------- ---------- Total Operating Income 361.3 384.6 489.7 Net interest expense (73.6) (83.7) (102.1) Other income (expense) - net (18.1) (19.2) (20.6) Income tax expense (93.2) (94.3) (121.3) Distribution on Trust preferred securities (10.5) (10.5) (10.5) ---------- ---------- ---------- Income from continuing operations 165.9 176.9 235.2 Income (loss) from discontinued operations - net of taxes (11.9) 112.3 90.7 Cumulative effect of an accounting change (36.1) -- -- ---------- ---------- ---------- Net income $ 117.9 $ 289.2 $ 325.9 ========== ========== ==========

Fluctuations in sales and segment operating income are discussed within the BUSINESS SEGMENT PERFORMANCE section below. Restructuring and consolidation costs: We have recorded restructuring and consolidation costs in each of the last three years. These costs are discussed in detail above and in Note C to the accompanying Notes to Consolidated Financial Statements. Inventory step-up: The inventory for Aeronautical Systems was increased to record it at its fair market value at the time of acquisition. Subsequent sales of the acquired inventory increased Cost of Sales and reduced our profit margins. In-process research and development: The charge reflects the valuation of Aeronautical Systems for in-process research and development projects that had not reached technical feasibility and had no alternative future use. The charge was reported in Selling and Administrative Costs. 10 Unusual inventory adjustments: These costs were classified within cost of sales and related primarily to inventory adjustments associated with our investment in the Boeing 717 program and in our Super 27 re-engining program due to reduced expectations for these programs. The reduced expectations for the Boeing 717 program related directly to Boeing's announced production schedule reductions for this program during the fourth quarter of 2001, while the Super 27 reduction in expectations was primarily due to deteriorating economic conditions and the September 11th terrorist attacks. Corporate general and administrative costs: Corporate general and administrative costs, as a percent of sales, slightly increased in 2002. Such costs, as a percent of sales, were 1.5 percent, 1.4 percent and 1.6 percent in 2002, 2001 and 2000, respectively. The reduction in costs in 2001 was primarily due to lower incentive compensation costs due to the Company's depressed stock price at the end of the year, partially offset by rebranding costs incurred during 2001 associated with the Goodrich name change. Net interest expense: Net interest expense decreased $10.1 million from $83.7 million in 2001 to $73.6 million in 2002. The decrease was due to an increase in interest income from the PIK notes resulting from 12 months of interest income in 2002 compared to 10 months of interest income in 2001. In addition, interest income includes $5.4 million in 2002 relating to the settlement of a contract dispute on the F-14 claim. The impact of increased borrowings to finance the acquisition of Aeronautical Systems businesses in October 2002 was offset by declines in the average interest rates on short-term financings. We also had higher short-term debt prior to the Performance Materials sale during the first quarter of 2001 when interest rates were at significantly higher levels than later in 2001 and 2002. The significant decrease between 2001 and 2000 was due to the sale of Performance Materials during the first quarter of 2001. We were able to reduce our short-term indebtedness with the proceeds from the sale and record interest income going forward on the PIK notes issued by the buyer. We recorded $23.3 million and $17.6 million of PIK interest income during 2002 and 2001, respectively. See additional discussion of the PIK notes in Note F to the accompanying Consolidated Financial Statements. Other income (expense) - net: The table below allows other income(expense) - net to be evaluated on a comparable basis. (IN MILLIONS)

2002 2001 2000 -------- -------- -------- As reported $ (18.1) $ (19.2) $ (20.6) Gains/(losses) on sale of businesses 2.5 7.2 2.0 -------- -------- -------- Adjusted Other income (expense) - net $ (20.6) $ (26.4) $ (22.6) ======== ======== ========

Included within other income (expense) - net are gains and losses from the sale of businesses. Excluding these items, other income(expense) - net was expense of $20.6 million, $26.4 million and $22.6 million in 2002, 2001 and 2000, respectively. The decrease in expenses in 2002 resulted from the sale of an intangible asset ($12.0 million) offset in part by settlement of litigation and legal fees ($3.5 million), increased minority interest expense ($1.4 million) and lower income from a captive insurance company ($1.4 million). The increase in costs in 2001 was primarily due to increased retiree healthcare benefit costs associated with previously disposed of businesses - mostly related to the Performance Materials disposition during the first quarter of 2001 (approximately $7 million), and increased earnings attributable to minority interests (approximately $5 million), partially offset by higher income from subsidiaries accounted for under the equity method (approximately $2 million) and lower costs associated with executive life insurance programs (approximately $3 million). Income tax expense: Our effective tax rate from continuing operations was 34.6 percent, 33.5 percent and 33.1 percent in 2002, 2001 and 2000, respectively. The increase in the effective tax rate from 2001 to 2002 was due to a lower tax benefits from export sales which was due to the lower sales volume in 2002, higher incremental U.S. tax on the deemed repatriation of foreign earnings and the write-off of in-process research and development with no tax benefit. The increase in the 2001 effective tax rate from 2000 was primarily attributable to earnings of foreign operations that were subject to taxation at higher rates than U.S. earnings. 11 Income from Continuing Operations: Income from continuing operations included various charges or gains, referred to as special items, which affected reported earnings. Excluding the effects of special items, income from continuing operations in 2002 was $244.0 million, or $2.31 per diluted share, compared with $306.3 million, or $2.87 per diluted share, in 2001 and $265.5 million, or $2.43 per diluted share, in 2000. The following table presents the impact of special items on earnings per diluted share. Additional information regarding restructuring and consolidation costs can be found above and in Note C of the accompanying Consolidated Financial Statements.

EARNINGS PER DILUTED SHARE 2002 2001 2000 - -------------------------- -------- -------- -------- Income from continuing operations $ 1.57 $ 1.65 $ 2.16 Restructuring and consolidation costs 0.26 0.67 0.26 Unusual inventory adjustments -- 0.59 -- Aeronautical Systems inventory step-up 0.38 -- -- In-process research and development 0.12 -- -- Net (gain) loss on divested businesses (0.02) (0.04) 0.01 -------- -------- -------- Income from continuing operations, excluding special items $ 2.31 $ 2.87 $ 2.43 ======== ======== ========

Income from continuing operations for the year ended December 31, 2002 included a $41.3 million charge ($27.7 million after-tax), or $0.26 per share, for restructuring and consolidation costs, a $58.8 million charge ($39.5 million after-tax), or $0.38 per share, for the step-up of the Aeronautical Systems inventories to fair value and the subsequent sale of the inventory, a charge of $12.5 million ($12.5 million after-tax), or $0.12 per share, for the valuation of in-process research and development of Aeronautical Systems and a gain on the sale of a business of $2.4 million ($1.6 million after-tax), or $0.02 per share. Income from continuing operations for the year ended December 31, 2001 included a $107.3 million charge ($71.3 million after-tax), or $0.67 per diluted share, for restructuring and consolidation costs, a $94.5 million charge ($62.8 million after-tax), or $0.59 per diluted share, related primarily to the reduction in our investment in the B717 program and in our Super 27 re-engining program and a $7.2 million gain ($4.7 million after-tax), or $0.04 a diluted share, from the sale of a portion of our interest in a business. Income from continuing operations for the year ended December 31, 2000 included a $44.2 million charge ($28.6 million after-tax), or $0.26 per diluted share, of restructuring and consolidation costs and a $2.5 million charge ($1.7 million after-tax), or $0.01 per diluted share, for the impairment loss on a business held for sale. (IN MILLIONS)

INCOME (LOSS) FROM DISCONTINUED OPERATIONS 2002 2001 2000 - ------------------------------------------ -------- -------- -------- Performance Materials $ -- $ 91.4 $ 39.6 Special Items - PM -- (93.5) (0.1) -------- -------- -------- $ -- $ (2.1) $ 39.5 -------- -------- -------- EIP $ (11.9) $ 20.9 $ 51.1 Special Items - EIP 0.9 2.9 0.9 -------- -------- -------- $ (11.0) $ 23.8 $ 52.0 -------- -------- -------- Total income (loss) from discontinued operations $ (11.9) $ 112.3 $ 90.7 ======== ======== ======== Total income (loss) from discontinued operations - excluding special items $ (11.0) $ 21.7 $ 91.5 ======== ======== ========

12 Income (Loss) from Discontinued Operations: Income (loss) from discontinued operations decreased from income of $112.3 million during 2001 to a loss of $11.9 million during 2002. Sales from discontinued operations declined from $828.9 million during 2001 to $289.5 million during 2002. The 2001 sales included two months of Performance Materials sales of $187.0 million. In addition, 2002 includes only five months of EIP sales due to the EnPro spin-off, which occurred on May 31, 2002. The decrease from lower earnings from operations of the EIP segment discontinued in 2001 compared to 2002 resulted, in part, from a $11.0 million pre-tax charge for a court ruling relating to an employee benefit matter of a previously discontinued business. Fees and expenses related to the spin-off during 2002 also contributed to the loss. Discontinued operations for 2001 included the operations of the Performance Materials segment for two months and the gain on the sale of the segment of $93.5 million. Income from discontinued operations increased $21.6 million from $90.7 million in 2000 to $112.3 million in 2001. Income from discontinued operations, excluding special items, decreased $69.8 million, from $91.5 million in 2000 to $21.7 million in 2001. The decrease attributable to Performance Materials was primarily due to the sale of the business in February 2001 (two months of earnings in 2001 versus 12 months in 2000). The decrease in earnings attributable to EIP was mostly due to the factors noted below. EIP sales decreased $21.4 million, or 3.2 percent, from $663.3 million in 2000 to $641.9 million in 2001. Excluding the September 2001 acquisition of Glacier Bearings, sales declined by approximately seven percent with only Fairbanks Morse Engine showing an increase in sales. The increase in sales at Fairbanks Morse related primarily to higher shipments to the commercial power generation market that generally carry lower margins than sales to its other markets. Weakness in the chemical, petroleum, pulp and paper, heavy-duty vehicle and general industrial markets was the primary factor behind the decrease in sales at the segment's other businesses. Average capacity utilization in U.S. factories fell to 20 year lows in 2001 while domestic industrial production has fallen each month since mid-2000. These factors have contributed to a cutback in capital spending and delays in scheduled maintenance programs throughout the process industries. In addition to the lower volumes noted above, profitability was also negatively impacted by the segment's inability to reduce fixed costs at the same rate as sales declined, increased foreign competition due to the strong U.S. dollar which drove average pricing levels down in certain product lines, and an unfavorable mix of products sold. Restructuring charges (before tax) amounted to $4.6 million and $1.4 million in 2001 and 2000, respectively. Special items related to discontinued operations of Performance Materials, net of tax, included $93.5 million related to the gain on sale of Performance Materials in 2001 and $0.1 million of income related to a net adjustment of amounts previously recorded for consolidation activities in 2000. Special items related to discontinued operations of EIP, net of tax, included $0.9 million, $2.9 million and $0.9 million of costs in 2002, 2001 and 2000, respectively, related to restructuring and consolidation activities. Cumulative Effect of an Accounting Change: During the second quarter of 2002, we performed the first of the required impairment tests of goodwill and indefinite lived intangible assets. Based on those results, we determined that is was likely that goodwill relating to the Aviation Technical Services (ATS) reporting unit had been impaired. ATS is included in the Aerostructures and Aviation Technical Services segment. During the third quarter of 2002, we completed our measurement of the goodwill impairment and recognized an impairment charge of $36.1 million, representing the total goodwill of this reporting unit, which was reported retroactively as a cumulative effect of an accounting change in the first quarter of 2002. 13 BUSINESS SEGMENT PERFORMANCE SEGMENT ANALYSIS Due to the acquisition of Aeronautical Systems, we increased the number of our business segments. Our operations are now classified into five business segments: Aerostructures and Aviation Technical Services, Landing Systems, Engine and Safety Systems, Electronic Systems and Aeronautical Systems. An expanded analysis of sales and operating income by business segment follows. Segment operating income, as recorded, is total segment revenue reduced by operating expenses directly identifiable with that business segment. Segment operating income, as adjusted, is total segment revenue reduced by operating expenses directly identifiable with that business segment, except for restructuring and consolidation costs, unusual inventory adjustments, step of inventory and in-process research and development, which are presented separately. See Note C to the accompanying Consolidated Financial Statements for further discussion of restructuring and consolidation costs. See Note B to the accompanying Consolidated Financial Statements for further discussion on the inventory step-up and in-process research and development related to the acquisition of Aeronautical Systems. 2002 COMPARED WITH 2001

% OF SALES ------------------- 2002 2001 % CHANGE 2002 2001 -------- -------- -------- ------ ------ (IN MILLION) SALES: Aerostructures and Aviation Technical Services $1,176.9 $1,493.6 (21.2) Landing Systems 1,038.2 1,149.1 (9.7) Engine and Safety Systems 638.8 762.6 (16.2) Electronic Systems 791.9 779.2 1.6 Aeronautical Systems 264.4 -- 100.0 -------- -------- Total Sales $3,910.2 $4,184.5 (6.6) ======== ======== SEGMENT OPERATING INCOME, as reported: Aerostructures and Aviation Technical Services $ 158.1 $ 95.7 65.2 13.4 6.4 Landing Systems 138.2 108.4 27.5 13.3 9.4 Engine and Safety Systems 58.9 114.2 (48.4) 9.2 15.0 Electronic Systems 128.3 126.5 1.4 16.2 16.2 Aeronautical Systems (62.9) -- -- (23.8) -- -------- -------- Segment Operating Income $ 420.6 $ 444.8 (5.4) 10.8 10.6 ======== ======== SEGMENT OPERATING INCOME, excluding special items: Aerostructures and Aviation Technical Services $ 169.9 $ 226.0 (24.8) 14.4 15.1 Landing Systems 140.1 153.1 (8.5) 13.5 13.3 Engine and Safety Systems 79.2 131.9 (40.0) 12.4 17.3 Electronic Systems 135.3 133.1 1.7 17.1 17.1 Aeronautical Systems 8.4 -- 100.0 3.2 -- -------- -------- Segment Operating Income $ 532.9 $ 644.1 (17.3) 13.6 15.4 ======== ========

14 AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES SEGMENT Sales decreased $316.7 million or 21.2 percent from $1,493.6 million in 2001 to $1,176.9 million in 2002. The decrease resulted from significant declines in sales in our Aerostructures business on most Boeing and Airbus programs and a substantial decline in sales of spare parts for out-of-production aircraft. These sales declines are largely due to the reduction of older aircraft by airlines subsequent to September 11, 2001. Sales of spare parts for in-production aircraft increased but were partially offset by a decline in sales on the Super 27 re-engining program. Sales at our Aerostructures maintenance, repair and overhaul facilities declined slightly from 2001. Sales also declined in our maintenance, repair, modification and overhaul business conducted by Aviation Technical Services. This decline was slightly less than four percent on lower volume. Operating income, as reported, increased from $95.7 million in 2001 to $158.1 million in 2002. Operating income, excluding special items, declined $56.1 million, or 24.8 percent from $226.0 million in 2001 to $169.9 million in 2002. The lower operating income resulted from the decline in volume. In addition, in the third quarter of 2002, Aerostructures recorded $26.8 million of contract loss provisions on five contracts. These loss provisions resulted from increased overhead rates due, in part, to a lower manufacturing base as volume declined consistent with the lower level of aircraft production rates. The increased overhead rates also resulted from projected cost increases in fringe benefit rates resulting from expected future increases in pension expense. Also, higher than anticipated spending on pre-certification costs on the Trent 900 contract contributed an additional $5.4 million of losses. Aerostructures also recorded approximately $8 million of favorable reserve adjustments in 2002. Our Aviation Technical Services business improved slightly. Special items included $11.8 million in restructuring and consolidation costs in 2002, consisting of $9.1 million in personnel-related costs and $2.7 million in consolidation costs. These costs were incurred as part of a program to restructure facilities and adjust personnel levels in response to the decline in manufacturing volume. In 2001, the segment reported as special items, an unusual inventory adjustment for $94.5 million for our investment in the Boeing 717 program and our Super 27 re-engining program due to reduced expectations for these programs. The reduced expectation for the Boeing 717 program relates to Boeing's announced production schedule reduction for this program during the fourth quarter of 2001 while the Super 27 reduction in expectations was primarily due to deteriorating economic conditions and the September 11th terrorist attacks. In addition, the segment recorded $35.8 million in restructuring and consolidation costs, consisting of $17.3 million in personnel-related costs, $18.1 million in asset impairments and $0.4 million in facility consolidation and closure costs. These costs were incurred in response to the decline in volume, particularly resulting from reduced original equipment build rate declines, and lower anticipated spare parts sales resulting from the general industry economic decline after September 11, 2001. LANDING SYSTEMS SEGMENT Landing Systems sales declined in 2002 by $110.9 million or 9.7 percent to $1,038.2 million from the 2001 sales level of $1,149.1 million. Volume declines were experienced across most original equipment landing gear and wheels and brakes platforms manufactured by Boeing and Airbus. Significant volume declines occurred on the Boeing 737 next generation aircraft, B777, B757 and B747 platforms for the landing gear business and on the Boeing 727, B737 and Airbus A330 and A340 platforms in our commercial wheels and brakes business. The reduced sales resulted from decreased demand for new aircraft original equipment and decreased airline utilization, lowering demand for landing gear original equipment and aftermarket wheel and brake replacements. These declines were partially offset by increases in sales to military programs such as the C-17, F-14 and F-16 programs. Volume slowdowns also occurred in our landing gear services business resulting from lower customer demand. Wheels and brakes service business showed a small increase in volume from 2001. Operating income, as reported, increased to $138.2 million in 2002 from $108.4 million in 2001. Operating income, excluding special items, declined in 2002 by $13.0 million or 8.5 percent to $140.1 million from the 2001 operating income level of $153.1 million. Volume declines in the landing gear and wheels and brakes original equipment businesses accounted for most of the decline. Operating income, excluding special items, in the landing gear services business improved significantly over 2001 as a result of actions taken in 2001 to rationalize personnel and rotable gear levels. Operating income, excluding special items, was further impacted by a write-off of inventory, capitalized sales incentives and supplier termination costs of $16.6 million in 2002, relating to the Fairchild Dornier 728 and 928 programs. Improving operating income in 2002 was a June settlement with an insurance company for prior claims of $8.9 million. 15 Special items included $1.9 million of restructuring and consolidation costs in 2002. These costs consisted of $1.6 million in personnel-related costs and $0.3 million in consolidation costs. These costs were incurred to further reduce work force and rationalize facilities to meet the volume declines discussed above. During 2001, the segment recorded $44.7 million of restructuring and consolidation costs, consisting of $4.0 million in personnel-related costs, $26.4 million in asset impairments and $14.3 million in facility consolidation and closure costs. These costs were incurred to close a landing gear services facility resulting from reduced customer demand and to recognize the impairment in certain landing gear services rotable assets resulting from significantly reduced demand for those assets. ENGINE AND SAFETY SYSTEMS SEGMENT Engine and Safety systems sales for 2002 decreased $123.8 million, or 16.2 percent to $638.8 million, from $762.6 million in 2001. Sales were significantly lower than in 2002 throughout the product lines in power generation as well as aerospace original equipment and aftermarket. Pump and engine controls, primarily supporting the military sector, showed stronger sales than in 2001. Sales declines were primarily related to volume declines resulting from weaker customer demand in the engine structural and rotating components, aircraft evacuation products and aircraft ice detection systems. Operating income, as reported, declined from $114.2 million in 2001 to $58.9 million in 2002. Operating income, excluding special items, declined $52.7 million, or 40.0 percent in 2002 to $79.2 million, from $131.9 million in 2001. Operating income, excluding special items, declined due to lower volume, investments in new program awards and weaker product mix with lower aftermarket sales. Research and development spending for 2002 was also higher than in 2001. Operating efficiencies as a result of cost reduction initiatives associated with the restructuring programs partially improved 2002 results. Further improvements are expected upon realizing full year benefits. Special items in 2002 included $20.3 million in restructuring and consolidation costs, consisting of $15.7 million in personnel-related costs and $4.6 million in consolidation costs. These costs were incurred to reduce personnel and close a facility in response to the decline in manufacturing volume. Special items in 2001 included $17.7 million in restructuring and consolidation costs, consisting of $6.8 million in personnel-related costs, $7.7 million in asset impairments and $3.2 million in facility consolidation and closure costs. ELECTRONIC SYSTEMS SEGMENT Sales increased $12.7 million, or 1.6 percent, from $779.2 million during 2001 to $791.9 million during 2002. Sales during 2002 include $30.1 million in incremental sales related to the acquisition of our lighting systems business completed in September 2001. Excluding the effect of this acquisition, sales decreased by $17.3 million or 2.2 percent. The decrease in sales occurred in most of the businesses and most commercial and regional OE markets. The decreases were a result of lower aircraft manufacturing rates and a general slowdown of aftermarket demand. These decreases were somewhat offset by increased deliveries of military sensor products. Sales increases also occurred in the optical systems business as a result of new contract awards. Operating income, as reported, was $128.3 million in 2002 and $126.5 million in 2001. Operating income, excluding special items, increased $2.2 million, or 1.7 percent, from $133.1 million during 2001 to $135.3 million during 2002. Excluding the effect of the acquisition referred to above, operating income increased $2.7 million due to margin improvement at the optical systems business and the reduction of goodwill amortization offset by decreased volume at most of the segment's business. Improvements at the optical systems business had the effect of slightly increasing margins. Special items in 2002 included $7.0 million in restructuring and consolidated costs, consisting of $4.2 million of personnel-related costs and $2.8 million in consolidation costs. These costs were incurred to respond to the reduced manufacturing volume experienced in most businesses. Special items in 2001 included $6.6 million in restructuring and consolidation costs, consisting of $4.1 million in personnel-related costs and $2.5 million in facility closure and consolidation costs. 16 AERONAUTICAL SYSTEMS SEGMENT The Aeronautical Systems business was acquired on October 1, 2002 and has been accounted for as a purchase under SFAS No. 141. As a result, sales and operating income are included in our results from the date of acquisition. Sales subsequent to the acquisition were $264.4 million. Of the total segment sales, 46 percent were for sales of flight controls, engine controls, power systems and cargo systems original equipment. Sales of aftermarket products were 54 percent of the total segment sales. Operating income, as reported, subsequent to the date of acquisition, was a loss of $62.9 million in 2002. Operating income, excluding special items, in 2002 was $8.4 million. Operating income, excluding special items, was significantly affected by the low original equipment manufacturing volumes and by the start-up of new production platforms for which costs are higher than in a mature production phase. Sales of aftermarket products and services remain strong despite generally depressed market conditions. Operating income, excluding special items, was also negatively impacted by development costs on a number of new products including the Airbus 380 flight control and power generation systems. These development costs are expected to continue through mid-2005. Special items included the effect of the write-up of inventory that was sold subsequent to the acquisition of $58.8 million and in-process research and development of $12.5 million charged to operations as a result of the purchase price allocation. Restructuring and consolidation costs, qualifying under Emerging Issues Task Force Issue No. 95-3, identified with programs during the first nine months of 2003, will be allocated to the opening balance and will not reduce operating income. 17 2001 COMPARED WITH 2000

% OF SALES ------------------ 2001 2000 % CHANGE 2001 2000 --------- --------- -------- ----- ------ (IN MILLION) SALES: Aerostructures and Aviation Technical Services $ 1,493.6 $ 1,427.0 4.7 Landing Systems 1,149.1 1,057.7 8.6 Engine and Safety Systems 762.6 644.4 18.3 Electronic Systems 779.2 571.4 36.4 --------- --------- Total Sales $ 4,184.5 $ 3,700.5 13.1 ========= ========= SEGMENT OPERATING INCOME, as reported: Aerostructures and Aviation Technical Services $ 95.7 $ 206.0 (53.5) 6.4 14.4 Landing Systems 108.4 123.7 (12.4) 9.4 11.7 Engine and Safety Systems 114.2 115.8 (1.4) 15.0 18.0 Electronic Systems 126.5 117.0 8.1 16.2 20.5 --------- --------- Segment Operating Income $ 444.8 $ 562.5 (20.9) 10.6 15.2 ========= ========= SEGMENT OPERATING INCOME, excluding special items: Aerostructures and Aviation Technical Services $ 226.0 $ 209.6 7.8 15.1 14.7 Landing Systems 153.1 149.0 2.8 13.3 14.1 Engine and Safety Systems 131.9 117.5 12.3 17.3 18.2 Electronic Systems 133.1 117.5 13.3 17.1 20.6 --------- --------- Segment Operating Income $ 644.1 $ 593.6 8.5 15.4 16.0 ========= =========

AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES SEGMENT Sales increased $66.6 million, or 4.7 percent, from $1,427.0 million during 2000 to $1,493.6 million in 2001. The increase was due to a significant increase in Aerostructures related sales (approximately $92 million), offset by lower sales at the segment's aviation technical services businesses (approximately $41 million). The segment's aviation technical services business performs comprehensive total aircraft maintenance, repair, modification and overhaul work. Most of the decrease in sales in this business unit was attributable to lower aircraft maintenance work. The increase in Aerostructures related sales (nacelles, pylons, thrust reversers and related engine housing components and services) was primarily due to rate increases on the CFM 56 (A319, A320 and A321 programs), PW4000, B717-200 and V2500 programs, higher aftermarket spares sales, increased aftermarket services and spares sales and several new programs (C-5 Pylon, F-15). Partially offsetting these increases was a decrease in aftermarket sales on the Super 27 program as well as rate decreases on the CFM56-5 (A340) and RR535-E4 programs. Operating income, as reported, decreased to $95.7 million in 2001 from $206.0 million in 2000. Operating income, excluding special items, increased $16.4 million, or 7.8 percent, from $209.6 million in 2000 to $226.0 million in 2001. The increase was driven by the increase in sales noted above, productivity improvements on several Aerostructures programs and reduced non-recurring engineering costs associated with the terminated X-33 program. Partially offsetting these increases were additional costs associated with the implementation of an enterprise resource planning system at the segment's Aerostructures businesses, increased losses of approximately $1 million associated with the segment's aviation technical services business and the closeout of the MD-11 and MD-90 contracts in 2000. 18 LANDING SYSTEMS SEGMENT Sales increased $91.4 million, or 8.6 percent, from $1,057.7 million during 2000 to $1,149.1 million during 2001. The increase in sales was primarily attributable to higher sales of landing gear and wheels and brakes. Landing gear sales increased across all major markets primarily due to increased sales of original equipment to Boeing, Bombardier and the U.S. government, partially offset by reduced pricing on several Boeing programs as a result of contract extensions (through 2006) approved during mid-2001. Major programs contributing to the increased sales of landing gear included the B757, B777, C-17, F18 and RJ601 programs. The increased sales of wheels and brakes related primarily to increased aftermarket sales in the commercial, regional, business and military markets primarily on the A319/320, B747-400, B777, Embraer 145, DeHavilland Dash 8, F16 and Cessna programs, partially offset by decreased sales on the B727 out-of-production program. This increase in sales was partially offset by a significant decrease in sales of landing gear overhaul services ($20.5 million), primarily due to fewer customer removals as a result of airlines deferring or reducing discretionary expenditures. Operating income, as reported, decreased from $123.7 million in 2000 to $108.4 million in 2001. Operating income, excluding special items, increased $4.1 million, or 2.8 percent, from $149.0 million during 2000 to $153.1 million during 2001. The increase was primarily due to the increase in volume noted above as well as a favorable sales mix, partially offset by increased sales incentives, reduced pricing as noted above, additional costs related to expedited shipments of certain landing gear to Boeing and an increased loss associated with providing landing gear overhaul services primarily due to the decrease in volume noted above (this business recorded a slight loss in 2000). ENGINE AND SAFETY SYSTEMS SEGMENT Sales increased $118.2 million, or 18.3 percent, from $644.4 million during 2000 to $762.6 million during 2001. While all of the segment's product lines experienced an increase in sales over the prior year, the increase was primarily attributable to a significant increase in aftermarket sales of evacuation products, particularly on the B747 program, increased sales of ejection seats, increased demand for the segment's gas turbine products that serve both the aerospace and industrial engine markets and acquisitions (approximately $30 million). Operating income, as reported, was $114.2 million in 2001 and $115.8 million in 2000. Operating income, excluding special items, increased $14.4 million, or 12.3 percent, from $117.5 million during 2000 to $131.9 million during 2001. The increase was primarily attributable to the increase in sales noted above, partially offset by increased research and development expenses and inefficiencies at one of the segment's location that produces gas turbine products. ELECTRONIC SYSTEMS SEGMENT Sales increased $207.8 million, or 36.4 percent, from $571.4 million during 2000 to $779.2 million during 2001. The increase was driven primarily by space-based acquisitions (approximately $160 million) and increased sales by the segment's core businesses (approximately $55 million). The increase in sales at the segment's core businesses was primarily attributable to increased sales of sensors, fuel and utility systems as well as lightning detection and collision avoidance units, partially offset by lower sales in the segment's legacy space-based businesses. The increase in sensor sales was driven by increased regional and business OE demand, airline retrofits and the resumption of thermocouple shipments to the USAF. The fuel and utility sales increases were due mostly to aftermarket sales of spares and retrofit products, particularly on the B747 and B737 programs. The decrease in sales in the segment's legacy space-based businesses was due primarily to program delays and cancellations. Operating income, as reported, increased to $126.5 million in 2001 from $117.0 million in 2000. Operating income, excluding special items, increased $15.6 million, or 13.3 percent, from $117.5 million during 2000 to $133.1 million during 2001. The increase was primarily due to the factors noted above, partially offset by increased investments in technologies and products, increased research and development expenses and higher costs related to the consolidation and integration of acquisitions. The significant reduction in operating margins of 20.6 percent in 2000 to 17.1 percent in 2001 was primarily attributable to program delays and cancellations impacting the segment's space-based businesses and lower margins on sales from acquired companies. 19 LIQUIDITY AND CAPITAL RESOURCES We currently expect to fund expenditures for capital requirements as well as liquidity needs from a combination of internally generated funds and financing arrangements. We believe that our internally generated liquidity, together with access to external capital resources, will be sufficient to satisfy existing commitments and plans, and also to provide adequate financial flexibility. CREDIT FACILITIES In July 2002, we entered into a $1.5 billion committed syndicated 364-day revolving credit agreement that expires in July 2003. This credit facility was used to finance the acquisition of Aeronautical Systems from TRW Inc. The agreement was provided by a bank group that also participates in our global syndicated revolvers. At December 31, 2002, this credit facility commitment had been reduced to $200 million. This commitment reduction was primarily due to the issuance of equity and long-term debt, cash from asset monetizations and operating cash flow during the fourth quarter of 2002. See Notes I and R of the accompanying Consolidated Financial Statements. We intend to repay and terminate this agreement prior to its expiration date. The repayment is expected to be funded from the proceeds from asset monetizations and cash flow from operations. In December 2001, we entered into $750 million in committed global syndicated revolving credit agreements. These credit agreements replaced the $600 million of committed domestic revolving credit agreements and the $80 million committed multi-currency revolving credit facility. The international bank group providing credit under the agreements is substantially the same group that provided credit under the previous agreements. The syndicated credit facilities consist of a $425 million three-year agreement expiring in December 2004 and a $325 million 364-day agreement expiring in September 2003. We intend to renew the $325 million credit facility at its annual renewal date. At December 31, 2002, $155 million was borrowed under these committed revolving credit facilities. We also maintain $100 million of uncommitted domestic money market facilities and $6.8 million of uncommitted foreign working capital facilities with various banks to meet short-term borrowing requirements. As of December 31, 2002, $23.5 million was borrowed under these facilities. These uncommitted credit facilities are provided by a small number of commercial banks that also provide us with committed credit through the syndicated revolving credit facilities and with various cash management, trust and other services. As a result of these established relationships, we believe that our uncommitted facilities are a highly reliable and cost-effective source of liquidity. Continued borrowing under our credit facilities is conditioned upon compliance with financial and other covenants set forth in the related agreements. We are currently in compliance with all such covenants. Our credit facilities do not contain any rating downgrade triggers that would accelerate the maturity of our indebtedness thereunder. However, a ratings downgrade would result in an increase in the interest rate and fees payable under our syndicated revolving credit facilities. Such a downgrade also could adversely affect our ability to renew existing, or obtain access to new, credit facilities in the future and could increase the cost of such new facilities. LONG-TERM FINANCING At December 31, 2002, we had long-term debt of $2,127.3 million, with maturities ranging from 2004 to 2046. See Note I of the accompanying Financial Statements for further information on the borrowings. Current maturities of long-term debt at December 31, 2002 were $2.1 million. In December 2002, we issued $300.0 million of 6.45 percent senior notes due in 2007 and $500.0 million of 7.625 percent senior notes due in 2012. The net proceeds from the issuance of the senior notes were used to repay a portion of the amounts outstanding under the $1.5 billion, 364-day credit facility. In May 2002, we issued $296.9 million aggregate principal amount of 7.5 percent senior notes due in 2008 in exchange for a like principal amount of Coltec's 7.5 percent senior notes due 2008. All of the $296.9 million of the Coltec senior notes acquired by us in the exchange offer were sold to Coltec and thereafter cancelled. The remaining $3.1 million of outstanding Coltec senior notes remain outstanding as the obligation of Coltec, which is now a wholly owned subsidiary of EnPro. 20 In November 2002, we completed an offering of 14,950,000 shares of our common stock. The net proceeds from the offering of approximately $216.2 million were used to repay a portion of the amounts outstanding under the $1.5 billion, 364-day credit facility. At December 31, 2002, we had the authority to issue up to $1.4 billion of debt securities, series preferred stock, common stock, stock purchase contracts and stock purchase units under our existing shelf registration. The net proceeds from any securities issued pursuant to the shelf registration statement would be used for general corporate purposes unless such proceeds are required to repay borrowings under the $1.5 billion, 364-day credit facility. QUIPS At December 31, 2002 and 2001, $126.5 million was outstanding of 8.30% Cumulative Quarterly Income Preferred Securities, Series A (QUIPS) issued by BFGoodrich Capital, a Delaware business trust (Trust), all of the common equity of which is owned by us. The QUIPS are supported by 8.30% Junior Subordinated Debentures, Series A, due 2025 (QUIPS Debentures) issued by us. We have unconditionally guaranteed all distributions required to be made by the Trust, but only to the extent the Trust has funds legally available for such distributions. OFF-BALANCE SHEET ARRANGEMENTS We utilize several forms of off-balance sheet financing arrangements. At December 31, 2002, these arrangements included:

UNDISCOUNTED MINIMUM FUTURE LEASE RECEIVABLES (IN MILLIONS) PAYMENTS SOLD ------------ ----------- Tax Advantaged Operating Leases $ 59 Standard Operating Leases 166 ------ $ 225 ====== Short-term Receivables $ 97

Lease Agreements We finance our use of certain equipment, including corporate aircraft, under committed lease arrangements provided by financial institutions. These arrangements allow us to claim a deduction for the tax depreciation on the assets, rather than the lessor, and allow us to lease up to a maximum of $95 million at December 31, 2002. Since the terms of these arrangements meet the accounting definition of operating lease arrangements, the aggregate sum of future minimum lease payments is not reflected on our consolidated balance sheet. At December 31, 2002, approximately $59 million of future minimum lease payments were outstanding under these arrangements. We also have various other operating lease agreements whose future minimum lease payments approximated $166 million at December 31, 2002. The increase from $81 million at December 31, 2001 resulted from leases that we assumed in the acquisition of Aeronautical Systems. See Note J to the accompanying Consolidated Financial Statements for additional disclosure. 21 Sale of Receivables At December 31, 2002 and 2001, we had in place a trade receivables securitization program pursuant to which we could sell receivables up to a maximum of $140 million and $110 million, respectively. Accounts receivable sold under this program were $97.3 million at December 31, 2002 and 2001. Continued availability of the securitization program is conditioned upon compliance with financial and other covenants set forth in the related agreements. We are currently in compliance with all such covenants. The securitization agreement also includes a rating downgrade trigger pursuant to which the agreement may be terminated upon a rating downgrade. If such an event were to occur, we expect that we would have sufficient capital resources through our existing revolving credit facilities to satisfy any termination requirements. During 2000, we entered into an agreement to sell certain long-term receivables to a financial institution. The agreement contained recourse provisions under which we were required to repurchase the receivables in certain events. In the fourth quarter 2001, we repurchased approximately $20 million of these long-term receivables at the request of the financial institution. In August 2002, we repurchased $20.3 million of receivables as a result of a payment default by the primary obligor and terminated the agreement. SHARE REPURCHASE PROGRAM On September 17, 2001, we announced a program to repurchase up to $300 million of our common stock. We have repurchased 2.5 million shares through December 31, 2001. The total cost of these shares was approximately $50 million with an average price of $20.29 per share. No shares were repurchased under this program during 2002 and none are expected to be repurchased in 2003. CHANGE IN DIVIDEND POLICY On May 17, 2002, we announced that our Board of Directors approved a change in our dividend policy to achieve a net income payout ratio that we believe is consistent with other leading aerospace companies. Our quarterly dividend on our common stock was reduced to $0.20 per share from the previous level of $0.275 per share. The change was effective with the regular quarterly dividend payable on July 1, 2002 to the shareholders of record as of June 10, 2002. CASH FLOW The following table summarizes our cash flow activity for 2002, 2001 and 2000:

Cash Flows Provided by (Used by): 2002 2001 2000 ---- ---- ---- Operating activities $ 539.2 $ 382.6 $ 168.2 Investing activities $ (1,509.0) $ (288.8) $ (349.4) Financing activities $ 1,163.6 $ (936.3) $ 80.6 Discontinued operations $ (132.6) $ 850.7 $ 114.6

22 OPERATING CASH FLOWS Cash flow provided by operating activities increased by $156.6 million to $539.2 million in 2002 from $382.6 million in 2001. The increase in cash flow from operations resulted from improved management of Accounts Receivable and Inventory, and lower estimated tax payments in 2002. Also included in 2002 cash flow provided by operating activities was approximately $29.4 million resulting from the sale of an interest rate swap agreement associated with $200 million of our long-term debt and $30.8 million of cash received from the sale of hedges acquired in the acquisition of Aeronautical Systems. Offsetting the favorable cash flow was a decrease in Accounts Payable. Operating cash flow increased by $214.4 million, from $168.2 million in 2000 to $382.6 million in 2001. The increase was primarily due to a $113.7 million payment to the Internal Revenue Service (IRS) in 2000, increased cash earnings from continuing operations, lower restructuring and consolidation cost payments and lower tax payments, partially offset by working capital requirements during 2001. INVESTING CASH FLOWS We used $1,509.0 million of cash primarily for the acquisition of Aeronautical Systems for $1,472.2 million and capital expenditures of $107.3 million offset in part by a payment of $49.8 million of the PIK notes. Capital expenditures were lower than in 2001 due to the expansion of our carbon producing capabilities in 2001 and a large enterprise resource planning project at our Aerostructures business that was substantially complete in 2001. We used $288.8 million in investing activities in 2001 versus $349.4 million in 2000. The decrease was due primarily to lower spending on acquisitions (approximately $128 million), partially offset by increased spending on capital expenditures (approximately $57 million). FINANCING CASH FLOWS Financing activities provided $1,163.6 million of cash in 2002, consumed $936.3 million of cash in 2001 and provided $80.6 million in cash in 2000. The increase in long-term and short-term debt and capital stock was to finance the acquisition of Aeronautical Systems in 2002. The primary reason for the increased use of cash in 2001 was the repayment of short-term indebtedness with the proceeds from the Performance Materials sale. See Discontinued Operations Cash Flow discussion below. We increased our borrowings in 2000 to finance acquisitions as well as our share repurchase program. DISCONTINUED OPERATIONS CASH FLOW Cash requirements for discontinued operations of $132.6 million during 2002 includes $63.6 million of cash included in the net assets of the EIP business distributed to shareholders, $47.0 million paid, net of insurance receipts, for asbestos-related matters and $15.6 million relating to capital expenditures and debt repayments. Cash provided by discontinued operations during 2001 of $850.7 million includes $960.0 million attributable to the sale of the Performance Materials business in February 2001. Cash flow from discontinued operations increased $736.1 million, from $114.6 million in 2000 to $850.7 million in 2001. Performance Materials accounted for $960 million of this increase, partially offset by a decrease of $224 million in cash flow attributable to the EIP segment. The Performance Materials increase was primarily attributable to the sale of the business during the first quarter of 2001, while the decrease in cash flow attributable to the EIP segment was primarily attributable to the Glacier Bearings acquisition during 2001 (approximately $150 million) and increased payments related to the defense and disposition of asbestos-related claims. 23 NET DEBT-TO-CAPITALIZATION RATIO Our net debt-to-capitalization ratio (net of cash and cash equivalents) was 68.7 percent at December 31, 2002 as compared to 47.2 percent at December 31, 2001. For purposes of this ratio, the trust preferred securities are treated as capital. The ratio increased due to debt financing of approximately $1.3 billion relating to the acquisition of Aeronautical Systems. The additional $200 million of purchase price of Aeronautical Systems was financed through the issuance of $216.2 million of common stock in the fourth quarter of 2002. COMMERCIAL AIRLINE CUSTOMERS The downturn in the commercial air transport market, exacerbated by the terrorist attacks on September 11, 2001, has adversely affected the financial condition of many of our commercial airline customers. Many of these customers have requested extended payment terms for future shipments and/or reduced pricing. We review and evaluate these requests on a case-by-case basis. We perform ongoing credit evaluations on the financial condition of all of our customers and maintain reserves for uncollectible accounts receivable based upon expected collectibility. Although we believe our reserves are adequate, we are not able to predict the future financial stability of these customers. Any material change in the financial status of any one or group of customers could have a material adverse effect on our financial condition, results of operations or cash flows. The extent to which extended payment terms are granted to customers may negatively affect future cash flow. One of our customers, Fairchild Dornier, commenced insolvency proceedings in Germany in 2002. As a result, we recorded a $1.0 million charge during the first quarter of 2002 related to accounts receivable from Fairchild Dornier and recorded a $16.6 million charge during the second quarter of 2002 for capitalized pre-production and inventory costs and supplier termination charges relating to the Fairchild Dornier 728 and 928 integrated landing system program. On August 11, 2002, US Airways announced that it had filed for protection under Chapter 11 of the United States Bankruptcy Code. As of December 31, 2002, we had accounts receivable for US Airways of approximately $2.6 million against which a valuation reserve of $1.9 million was recorded. In addition, as of December 31, 2002, we had approximately $3.4 million of unamortized sales incentives recorded as other assets and a 50 percent-owned investee had unamortized sales incentives recorded of approximately $1.6 million. We continue to provide US Airways with components under post-bankruptcy protection and to assess the realization of the above pre-bankruptcy assets as information becomes available. On December 9, 2002, the parent company of United Airlines announced that it and certain of its U.S. subsidiaries had filed for protection under Chapter 11 of the U.S. Bankruptcy Code. As of December 31, 2002, we had accounts receivable from United Airlines of approximately $2.7 million against which a valuation reserve of $1.2 million was recorded. In addition, as of December 31, 2002, we had unamortized sales incentives recorded as other assets of approximately $4.5 million. We continue to provide United Airlines with components under post-bankruptcy protection and to assess the realization of the pre-bankruptcy assets as information becomes available. INSURANCE COSTS AND AVAILABILITY As a result of the terrorist attacks on September 11, 2001 and general market conditions, our insurance costs have increased and certain types of coverage have been eliminated or made available to us with less favorable terms and conditions. We renewed our property and casualty programs in 2002 at a higher cost, but with generally similar deductibles, terms and conditions as the expiring policies, with the exception that our property insurance program was renewed without coverage for terrorist acts, including associated business interruption. Our property and general liability programs were renewed with reduced limits of liability reflecting the spin-off of our industrial products business, but in each case, limits were maintained at levels consistent with our industry peers. Our property insurance, general liability and aircraft products liability programs expire in mid-2003 and our executive risk program expires in 2004. We expect to renew our policies when these policies expire in 2003. 24 CONTINGENCIES GENERAL There are pending or threatened against us or our 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. We believe that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on our consolidated financial position or results of operations. From time to time, we are 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 We are subject to various domestic and international environmental laws and regulations which may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which we have been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. We are currently involved in the investigation and remediation of a number of sites under these laws. The measurement of environmental liabilities by us is based on currently available facts, present laws and regulations and current technology. Such estimates take into consideration our prior experience in site investigation and remediation, the data concerning cleanup costs available from other companies and regulatory authorities and the professional judgment of our environmental specialists in consultation with outside environmental specialists, when necessary. Estimates of our liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. Accordingly, as investigation and remediation of these sites proceed, it is likely that adjustments in our accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on our results of operations in a given period, but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on currently available information, however, we do not believe that future environmental costs in excess of those accrued with respect to sites with which we have been identified as a potentially responsible party are likely to have a material adverse effect on our financial condition. There can be no assurance, however, that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on our results of operations or cash flows in a given period. Environmental liabilities are recorded when our liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when we have recommended a remedy or have committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigations and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. The liabilities are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites and an assessment of the likelihood that such parties will fulfill their obligations at such sites. At December 31, 2002, our liabilities for environmental remediation obligations totaled $92.7 million, of which $19.0 million was included in current liabilities as Accrued Liabilities. Of the $92.7 million, $21.5 million was associated with ongoing operations and $71.2 million was associated with businesses previously disposed of or discontinued. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. We expect that we will expend present accruals over many years, and will complete remediation of all sites with which we have been identified in up to 30 years. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years. 25 TOLO LITIGATION In May 2000, we and our subsidiary Rohr, Inc. were served with a complaint in a lawsuit filed in the Superior Court of Orange County, California, by former shareholders and certain former employees of Tolo, Inc. Tolo is a subsidiary of Rohr that was acquired in 1997 pursuant to a stock purchase agreement. The former shareholders alleged that we and Rohr breached the stock purchase agreement by failing to pay $2.4 million under the terms of the agreement. In September 2001, a jury found that we were liable to the shareholders for the $2.4 million retained by Rohr under the stock purchase agreement and were also assessed punitive damages of $48 million. The court subsequently reduced the punitive damage award to $24 million. We and Rohr appealed the judgment. In December 2002, the appellate court issued a ruling directing the trial court to enter judgment in favor of us and Rohr on both the fraud claim and the breach of contract claim. The plaintiffs' motion for rehearing of that ruling was subsequently denied. On February 10, 2003, the plaintiffs filed a petition for review with the California Supreme Court. We have until March 2, 2003 to respond to the petition. ASBESTOS We and certain of our subsidiaries have been named as defendants in various actions by plaintiffs alleging injury or death as a result of exposure to asbestos fibers in products, or which may have been present in our facilities. A number of these cases involve maritime claims, which have been and are expected to continue to be administratively dismissed by the court. These actions primarily relate to previously owned businesses. We believe that we have substantial insurance coverage available to us related to any remaining claims. As a result, we believe that these pending and reasonably anticipated future actions are not likely to have a material adverse effect on our financial condition or results of operations. DISCONTINUED OPERATIONS At the time of the EIP spin-off, two subsidiaries of Coltec were defendants in a significant number of personal injury claims relating to alleged asbestos-containing products sold by those subsidiaries. It is possible that asbestos-related claims might be asserted against us on the theory that we have some responsibility for the asbestos-related liabilities of EnPro, Coltec or its subsidiaries, even though the activities that led to those claims occurred prior to our ownership of any of those subsidiaries. Also, it is possible that a claim might be asserted against us that Coltec's dividend of its aerospace business to us prior to the spin-off was made at a time when Coltec was insolvent or caused Coltec to become insolvent. Such a claim could seek recovery from us on behalf of Coltec of the fair market value of the dividend. No such claims have been asserted against us to date. We believe that we would have substantial legal defenses against any such claims. In addition, the agreement between EnPro and us that was used to effectuate the spin-off provides us with an indemnification from EnPro covering, among other things, these liabilities. Any such asbestos-related claims would likely require, as a practical matter, that Coltec's subsidiaries were unable to satisfy their asbestos-related liabilities and that Coltec was found to be responsible for these liabilities and was unable to meet its financial obligations. We believe any such claims would be without merit and that Coltec was solvent both before and after the dividend. If we are ultimately found to be responsible for the asbestos-related liabilities of Coltec's subsidiaries, we believe it would not have a material adverse effect on our financial condition, but could have a material adverse effect on our results of operations and cash flows in a particular period. However, because of the uncertainty as to the number, timing and payments related to future asbestos-related claims, there can be no assurance that any such claims will not have a material adverse effect on our financial condition, results of operations and cash flows. If a claim related to the dividend of Coltec's aerospace business were successful, it could have a material adverse impact on our financial condition, results of operations and cash flows. 26 GUARANTEES We have guaranteed amounts owed by Coltec Capital Trust with respect to the $150 million of outstanding 5 1/4 percent convertible trust preferred securities (TIDES), and have guaranteed Coltec's performance of its obligations with respect to the TIDES and the underlying Coltec convertible subordinated debentures. Following the spin-off of the EIP segment, the TIDES remained outstanding as an obligation of Coltec Capital Trust and our guarantee with respect to the TIDES remains an obligation of ours. EnPro, Coltec and Coltec Capital Trust have agreed to indemnify us from any costs and liabilities arising under or related to the TIDES after the spin-off. In addition to our guarantee of the TIDES, we have an outstanding contingent liability for guaranteed debt and lease payments of $4.5 million and for letters of credit and bank guarantees of $43.1 million at December 31, 2002. CERTAIN CONTRACTS AND INVESTMENT Our Aerostructures business re-engines 727 aircraft (the "Super 27 program"). The re-engining enables these aircraft to meet sound attenuation requirements and improve their fuel efficiency. At December 31, 2002, we had $44.7 million of inventory and $61.2 million of long-term notes receivable with respect to the Super 27 program. At December 31, 2001, $20.3 million of these notes receivable had been sold to a financial institution. The agreement relating to the sale contained recourse provisions. Due to a default by the primary obligor, we repurchased the notes receivable in August 2002 and the agreement was terminated. We believe that the recorded value of the notes receivable of $61.2 million is less than or equal to the fair value of the underlying collateral. Collection of these receivables, as well as the recovery of some portion of our investment in existing inventory balances, may be negatively affected should the overall deterioration in the commercial airline market continue or if the market for re-engined Super 27 program aircraft deteriorates further. Because of these conditions, we will continue to assess the value of these assets and their ultimate recovery. Our Aerostructures business has a contract with Boeing on the B717-200 program that is subject to certain risks and uncertainties. Recovery of pre-production inventory balances of $31.2 million as of December 31, 2002 is subject to Boeing's future production rate and delivery schedule as well as our future cost structure and learning curve assumptions. During 2000, we invested as a minority shareholder in Cordiem LLC (Cordiem). Cordiem is an aerospace business venture between suppliers and airlines whose purpose is to utilize Internet-based solutions to lower costs of business transactions and inventory, to expand product awareness and availability to more customers and to improve information flow between participants. As of December 31, 2002, our investment in Cordiem, including internal-use software, was $12.9 million. As of December 31, 2002, all equity partners had signed up for services for 2003. There is, however, concern about the ability of certain airlines to fulfill their pledges. We continue to monitor the recoverability of our investment in Cordiem. 27 NEW ACCOUNTING STANDARDS In June 2001, the Financial Accounting Standards Board (FASB) issued Statement No. 143 "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. We will adopt SFAS 143 on January 1, 2003. We do not expect that SFAS 143 will have a material effect on our consolidated financial condition or results of operations. In October 2001, the FASB issued Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121); however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." In addition, SFAS 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset (group) to be disposed of other than by sale (e.g. abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset (group) as "held for sale." SFAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS 144 did not have a material impact on our consolidated financial condition or results of operations. In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements No. 4, 44 and 62, amendment of FASB Statement No. 13 and Technical Corrections" (SFAS 145). SFAS 145 will require gains and losses on the extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement of Financial Standards No. 4. Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30. SFAS 145 also amends Statement of Financial Accounting Standards No. 13 to require certain modifications to capital leases to be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). SFAS 145 is effective for financial statements issued after May 15, 2002,and with respect to the impact of the reporting requirements of changes made to SFAS 4 for fiscal years beginning after May 15, 2002. The adoption of the applicable provisions of SFAS 145 did not have an effect on our financial statements. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS 144. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application encouraged. We do not expect that SFAS 146 will have a material effect on our consolidated financial condition or results of operations but it will impact the timing of charges, which could impact comparability of results among reporting periods. During November 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value. The initial recognition and measurement provisions of FIN 45 are applicable, on a prospective basis, to guarantees issued or modified after December 31, 2002. FIN 45 also requires a guarantor to make new disclosures regarding guarantees. The disclosure requirements are effective for financial statements ending after December 15, 2002. In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosures" (SFAS 148) which amends FASB Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. 28 CRITICAL ACCOUNTING POLICIES Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on going basis, we evaluate our estimates, including those related to customer programs and incentives, product returns, bad debts, inventories, investments, intangible assets, income taxes, financing operations, warranty obligations, excess component order cancellation costs, restructuring, long-term service contracts, pensions and other post-retirement benefits, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. Revenue Recognition For revenues not recognized under the contract method of accounting, we recognize revenues from the sale of products at the point of passage of title, which is at the time of shipment. Revenues earned from providing maintenance service are recognized when the service is complete. CONTRACT ACCOUNTING - PERCENTAGE OF COMPLETION Revenue Recognition We also have sales under long-term, fixed-priced contracts, many of which contain escalation clauses, requiring delivery of products over several years and frequently providing the buyer with option pricing on follow-on orders. Sales and profits on each contract are recognized in accordance with the percentage-of-completion method of accounting, using the units-of-delivery method. We follow the guidelines of Statement of Position 81-1 (SOP 81-1), "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" (the contract method of accounting) except that our contract accounting policies differ from the recommendations of SOP 81-1 in that revisions of estimated profits on contracts are included in earnings under the reallocation method rather than the cumulative catch-up method. Under the reallocation method, the impact of revisions in estimates related to units shipped to date is recognized ratably over the remaining life of the contract while under the cumulative catch-up method such impact would be recognized immediately. Profit is estimated based on the difference between total estimated revenue and total estimated cost of a contract, excluding that reported in prior periods, and is recognized evenly in the current and future periods as a uniform percentage of sales value on all remaining units to be delivered. Current revenue does not anticipate higher or lower future prices but includes units delivered at actual sales prices. Cost includes the estimated cost of the preproduction effort, primarily tooling and design, plus the estimated cost of manufacturing a specified number of production units. The specified number of production units used to establish the profit margin is predicated upon contractual terms adjusted for market forecasts and does not exceed the lesser of those quantities assumed in original contract pricing or those quantities which we now expect to deliver in the timeframe/periods assumed in the original contract pricing. Our policies only allow the estimated number of production units to be delivered to exceed the quantity assumed within the original contract pricing when we receive firm orders for additional units. The timeframe/period assumed in the original contract pricing is generally equal to the period specified in the contract. If the contract is a "life of program" contract, then such period is equal to the time period used in the original pricing model which generally equals the time period required to recover our pre-production costs. Option quantities are combined with prior orders when follow-on orders are released. 29 The contract method of accounting involves the use of various estimating techniques to project costs at completion and includes estimates of recoveries asserted against the customer for changes in specifications. These estimates involve various assumptions and projections relative to the outcome of future events, including the quantity and timing of product deliveries. Also included are assumptions relative to future labor performance and rates, and projections relative to material and overhead costs. These assumptions involve various levels of expected performance improvements. We reevaluate our contract estimates periodically and reflect changes in estimates in the current and future periods under the reallocation method. Included in sales are amounts arising from contract terms that provide for invoicing a portion of the contract price at a date after delivery. Also included are negotiated values for units delivered and anticipated price adjustments for contract changes, claims, escalation and estimated earnings in excess of billing provisions, resulting from the percentage-of-completion method of accounting. Certain contract costs are estimated based on the learning curve concept discussed below. Inventory Inventoried costs on long-term contracts include certain preproduction costs, consisting primarily of tooling and design costs and production costs, including applicable overhead. The costs attributed to units delivered under long-term commercial contracts are based on the estimated average cost of all units expected to be produced and are determined under the learning curve concept, which anticipates a predictable decrease in unit costs as tasks and production techniques become more efficient through repetition. This usually results in an increase in inventory (referred to as "excess-over average") during the early years of a contract. If in-process inventory plus estimated costs to complete a specific contract exceeds the anticipated remaining sales value of such contract, such excess is charged to current earnings, thus reducing inventory to estimated realizable value. IDENTIFIABLE INTANGIBLE ASSETS Identifiable intangible assets are recorded at cost, or when acquired as part of a business combination, at estimated fair value. These assets include patents and other technology agreements, sourcing contracts, trademarks, licenses, customer relationships and non-compete agreements. Intangible assets are generally amortized using the straight-line method over estimated useful lives of 5 to 25 years for all acquisitions completed prior to June 30, 2001. For acquisitions completed subsequent to June 30, 2001, identifiable intangible assets are amortized over their useful life using undiscounted cash flows, a method that reflects the pattern in which the economic benefits of the intangible assets are consumed. Impairments of identifiable intangible assets are recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable and our estimate of undiscounted cash flows over the assets remaining useful life are less than the carrying value of the assets. The determination of undiscounted cash flow is based on the segments' plans. The revenue growth is based upon aircraft build projections from aircraft manufacturers and widely available external publications. The profit margin assumption is based upon the current cost structure and anticipated cost reductions. Measurement of the amount of impairment may be based upon an appraisal, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset. SALES INCENTIVES We offer sales incentives to certain commercial customers in connection with sales contracts. These incentives may consist of up-front cash payments, merchandise credits and/or free products. The cost of these incentives is recognized in the period incurred unless it is specifically guaranteed of recovery within the contract by the customer. If the contract contains such a guarantee, then the cost of the sales incentive is capitalized and amortized over the contract period. 30 ENTRY FEES - INVESTMENT IN RISK AND REVENUE SHARING PROGRAMS Major aerospace customers negotiate an entry fee, representing an up-front cash investment in a new program. The payment effectively demonstrates our commitment to participate in new product programs and is part of the exclusive supply agreement. In return, we receive a percentage of the product sales in the supply periods after flight certification. Entry fees differ from sales incentives as entry fees are an investment in a program which will generate a benefit from the total sales of the program, not just sales from our products while sales incentives are recovered during the contract period of our products by a specific guarantee of recovery by the customer. The entry fees are recognized as Other Assets and amortized on a straight-line basis over the programs' useful life following certification, which approximates 10 to 20 years. The value of the investment is evaluated for impairment based on the criteria in Identifiable Intangible Assets above. The estimated lives are reviewed periodically based upon the expected program lives as communicated by the customer. EMPLOYEE BENEFITS Assumptions used in determining the projected benefit obligations and the fair value of plan assets for our pension and postretirement benefits other than pensions plans are evaluated by us with consultation with an outside actuary. Changes in assumptions are based upon our historical data, such as the rate of compensation increase and the long-term rate of return on plan assets. Assumptions, including the discount rate, the long-term rate of return on plan assets and the health care cost projections are evaluated and updated annually. Based upon our evaluation of the U.S. plans, we have changed the expected long-term rate of return on plan assets from 9.25 percent for 2002 to 9.00 percent for 2003. We have also changed the discount rate from 7.50 percent at December 31, 2001 to 6.875 percent at December 31, 2002. The rate of compensation decreased from 4.0 percent in 2001 to 3.86 percent in 2002. For measurement at December 31, 2001, an 8.5 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed with the rate assumed to decrease gradually to 5.0 percent for 2006 and remain at that level, thereafter. For measurement at December 31, 2002, a 10 percent annual rate of increase in the per capita cost of covered healthcare was assumed with a gradual decline to 5.0 percent for 2007 remaining at that level, thereafter. PENDING SALE OF THE AVIONICS BUSINESS On January 29, 2003, we announced that we had entered into a definitive agreement to sell our Avionics business to L-3 Communications Corporation (L-3) for $188 million. The transaction was approved by the boards of directors of our company and L-3. Subject to customary regulatory approvals, the sale is expected to close late in the first quarter or early in the second quarter of 2003. After-tax proceeds are expected to be approximately $134 million and are intended to be used to further reduce the borrowings under our $1.5 billion, 364-day credit agreement. The Avionics business will be reported as a discontinued operation beginning with the first quarter 2003. 31 FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY Certain statements made in this document are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 regarding our future plans, objectives and expected performance. Specifically, statements that are not historical facts, including statements accompanied by words such as "believe," "expect," "anticipate," intend," "estimate," or "plan," are intended to identify forward-looking statements and convey the uncertainty of future events or outcomes. We caution readers that any such forward-looking statements are based on assumptions that we believe are reasonable, but are subject to a wide range of risks, and actual results may differ materially. Important factors that could cause actual results to differ include, but are not limited to: - the extent to which we are successful in integrating Aeronautical Systems and achieving expected operating synergies; - the extent to which we are successful in completing the sale of our Avionics business; - global demand for aircraft spare parts and aftermarket services; - the impact of the terrorist attacks on September 11, 2001 and their aftermath; - the timing related to restoring consumer confidence in air travel; - the health of the commercial aerospace industry, including the impact of bankruptcies in the airline industry; - the effect of current financial market conditions on pension plan assets including plan asset valuations, future expense and plan contributions; - demand for and market acceptance of new and existing products, such as the Airbus A380 and the Joint Strike Fighter; - potential cancellation of orders by customers; - successful development of products and advanced technologies; - competitive product and pricing pressures; - the solvency of Coltec Industries Inc at the time of and subsequent to the spin-off of EnPro Industries, Inc. and the ability of Coltec's subsidiaries to satisfy their asbestos-related liabilities following the spin-off; - domestic and foreign government spending, budgetary and trade policies; - economic and political changes in international markets where we compete, such as changes in currency exchange rates, inflation rates, recession and other external factors over which we have no control; and - the outcome of contingencies (including completion of acquisitions, divestitures, litigation and environmental remediation efforts). 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 these 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 these statements were made or to reflect the occurrence of unanticipated events. 32 QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to certain market risks as part of our ongoing business operations, including risks from changes in interest rates and foreign currency exchange rates that could impact our financial condition, results of operations and cash flows. We manage our exposure to these and other market risks through regular operating and financing activities, and on a limited basis, through the use of derivative financial instruments. We intend to use such derivative financial instruments as risk management tools and not for speculative investment purposes. INTEREST RATE EXPOSURE We are exposed to interest rate risk as a result of our outstanding debt obligations. The table below provides information about our financial instruments that are sensitive to changes in interest rates. The table represents principal cash flows and related weighted average interest rates by expected (contractual) maturity dates. EXPECTED MATURITY DATES (DOLLARS IN MILLIONS)

FAIR 2003 2004 2005 2006 2007 THEREAFTER TOTAL VALUE ---- ---- ---- ---- ---- ---------- ----- ----- Debt Fixed Rate.................... $ 2.0 $1.3 $1.1 $1.1 $301.3 $1,800.5 $2,107.3 $2,202.4 Average Interest Rate....... 3.7% 2.5% 3.0% 2.8% 6.4% 7.2% 7.0% Variable Rate................. $379.4 $1.2 $1.2 $2.1 $ 0.2 $ 17.2 $ 401.3 $ 401.3 Average Interest Rate....... 2.3% 3.4% 3.4% 4.6% 3.1% 2.0% 2.3% Capital Lease Obligations....... $ 2.0 $1.5 $0.4 $ -- $ -- $ -- $ 3.9 $ 3.5

FOREIGN CURRENCY EXPOSURE We are exposed to foreign currency risks that arise from normal business operations. These risks include transactions denominated in foreign currencies, the translation of monetary assets and liabilities denominated in currencies other than the functional currency of the subsidiary and translation of income and expense and balance sheet amounts of our foreign subsidiaries to the U.S. dollar. Our objective is to minimize our exposure to transaction and income risks through our normal operating activities and, where appropriate, through foreign currency forward exchange contracts. As currency exchange rates fluctuate, translation of the statements of income of international businesses into U.S. dollars will affect comparability of revenues and expenses between years. Upon the acquisition of Aeronautical Systems, we entered into additional foreign exchange forward contracts to sell U.S. dollars for Great Britain Pounds and for Euros in addition to our existing Euro contracts. These businesses have a substantial portion of their costs in Great Britain Pounds and Euros but have significant sales contracts that are denominated in U.S. dollars. These forward contracts are used to mitigate potential volatility to cash flows arising from changes in currency exchange rates. As of December 31, 2002 we had forward contracts with an aggregate notional amount of $656.0 million to buy Great Britain Pounds and contracts with an aggregate notional amount of $95.2 million to buy Euros. These forward contracts mature on a monthly basis with maturity dates that range from January 2003 to April 2007. At December 31, 2002, a hypothetical 10 percent unfavorable change in exchange rates would decrease the value of the forward contracts described above by $88.0 million. 33 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The Consolidated Financial Statements and Notes to Consolidated Financial Statements of Goodrich Corporation and subsidiaries have been prepared by management. These statements have been prepared in accordance with generally accepted accounting principles and, accordingly, include amounts based upon informed judgments and estimates. Management is responsible for the selection of appropriate accounting principles and the fairness and integrity of such statements. The Company maintains a system of internal controls designed to provide reasonable assurance that accounting records are reliable for the preparation of financial statements and for safeguarding assets. The Company's system of internal controls includes: written policies, guidelines and procedures; organizational structures, staffed through the careful selection of people that provide an appropriate division of responsibility and accountability; and an internal audit program. Ernst & Young LLP, independent auditors, were engaged to audit and to render an opinion on the Consolidated Financial Statements of Goodrich Corporation and subsidiaries. Their opinion is based on procedures believed by them to be sufficient to provide reasonable assurance that the Consolidated Financial Statements are not materially misstated. The report of Ernst & Young LLP follows. The Board of Directors pursues its oversight responsibility for the financial statements through its Audit Review Committee, composed of Directors who are not employees of the Company. The Audit Review Committee meets regularly to review with management and Ernst & Young LLP the Company's accounting policies, internal and external audit plans and results of audits. To ensure complete independence, Ernst & Young LLP and the internal auditors have full access to the Audit Review Committee and meet with the Committee without the presence of management. /s/ D. L. BURNER - ------------------------------------ D. L. Burner Chairman and Chief Executive Officer /s/ ULRICH SCHMIDT - ------------------------------------ Ulrich Schmidt Executive Vice President and Chief Financial Officer /s/ R. D. KONEY, JR. - ------------------------------------ R. D. Koney, Jr. Vice President and Controller 34 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Goodrich Corporation We have audited the accompanying consolidated balance sheet of Goodrich Corporation and subsidiaries as of December 31, 2002 and 2001, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Goodrich Corporation and subsidiaries at December 31, 2002 and 2001, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States. As described in Note H to the consolidated financial statements, the Company adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, effective January 1, 2002. /s/ Ernst & Young LLP Charlotte, North Carolina February 4, 2003 35 CONSOLIDATED STATEMENT OF INCOME (DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

YEAR ENDED DECEMBER 31 2002 2001 2000 - ---------------------- ---------- ---------- ---------- SALES $ 3,910.2 $ 4,184.5 $ 3,700.5 Operating costs and expenses: Cost of sales 2,945.6 3,203.1 2,735.8 Selling and administrative costs 562.0 489.5 430.8 Restructuring and consolidation costs 41.3 107.3 44.2 ---------- ---------- ---------- 3,548.9 3,799.9 3,210.8 ---------- ---------- ---------- OPERATING INCOME 361.3 384.6 489.7 Interest expense (106.2) (107.8) (107.3) Interest income 32.6 24.1 5.2 Other income (expense)--net (18.1) (19.2) (20.6) ---------- ---------- ---------- Income from continuing operations before income taxes and Trust distributions 269.6 281.7 367.0 Income tax expense (93.2) (94.3) (121.3) Distributions on Trust preferred securities (10.5) (10.5) (10.5) ---------- ---------- ---------- INCOME FROM CONTINUING OPERATIONS 165.9 176.9 235.2 Income (loss) from discontinued operations - net of taxes (11.9) 112.3 90.7 Cumulative effect of change in accounting (36.1) -- -- ---------- ---------- ---------- NET INCOME $ 117.9 $ 289.2 $ 325.9 ========== ========== ========== BASIC EARNINGS (LOSS) PER SHARE: Continuing operations $ 1.60 $ 1.72 $ 2.24 Discontinued operations (0.11) 1.08 0.87 Cumulative effect of change in accounting (0.35) -- -- ---------- ---------- ---------- NET INCOME $ 1.14 $ 2.80 $ 3.11 ========== ========== ========== DILUTED EARNINGS (LOSS) PER SHARE: Continuing operations $ 1.57 $ 1.65 $ 2.16 Discontinued operations (0.09) 1.11 0.88 Cumulative effect of change in accounting (0.34) -- -- ---------- ---------- ---------- NET INCOME $ 1.14 $ 2.76 $ 3.04 ========== ========== ==========

See Notes to Consolidated Financial Statements. 36 CONSOLIDATED BALANCE SHEET

(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS) DECEMBER 31 2002 2001 - ----------- ---------- ---------- CURRENT ASSETS Cash and cash equivalents.................................................... $ 149.9 $ 85.8 Accounts and notes receivable................................................ 727.2 570.4 Inventories.................................................................. 971.7 807.5 Deferred income taxes........................................................ 121.3 112.9 Prepaid expenses and other assets............................................ 38.0 26.2 Assets of discontinued operations............................................ -- 873.9 ---------- ---------- TOTAL CURRENT ASSETS...................................................... 2,008.1 2,476.7 Property .................................................................... 1,240.3 955.5 Prepaid pension.............................................................. 250.5 238.7 Goodwill .................................................................... 1,194.2 747.3 Identifiable intangible assets............................................... 464.9 138.8 Payment-in-kind notes receivable, less discount ($11.0 and $22.2 at December 31, 2002 and 2001, respectively) .......... 141.7 168.4 Deferred income taxes........................................................ 45.5 -- Other assets ................................................................ 644.4 475.0 ---------- ---------- TOTAL ASSETS.............................................................. $ 5,989.6 $ 5,200.4 ========== ========== CURRENT LIABILITIES Short-term bank debt......................................................... $ 379.2 $ 113.3 Accounts payable............................................................. 443.0 386.6 Accrued expenses............................................................. 577.3 506.4 Income taxes payable......................................................... 150.8 119.2 Liabilities of discontinued operations....................................... -- 589.4 Current maturities of long-term debt and capital lease obligation............ 3.9 5.9 ---------- ---------- TOTAL CURRENT LIABILITIES ................................................ 1,554.2 1,720.8 Long-term debt and capital lease obligations ................................ 2,129.0 1,307.2 Pension obligations ......................................................... 722.1 155.5 Postretirement benefits other than pensions.................................. 323.2 320.1 Deferred income taxes........................................................ -- 13.9 Other non-current liabilities ............................................... 202.8 196.5 Commitments and contingent liabilities....................................... -- -- Mandatorily redeemable preferred securities of trust......................... 125.4 125.0 SHAREHOLDERS' EQUITY Common stock-- $5 par value Authorized, 200,000,000 shares; issued, 130,568,582 shares in 2002 and 115,144,771 shares in 2001 (excluding 14,000,000 shares held by a wholly owned subsidiary)........................................ 652.9 575.7 Additional paid-in capital................................................... 1,027.4 973.5 Income retained in the business.............................................. 36.1 333.7 Accumulated other comprehensive income (loss)................................ (369.1) (110.1) Unearned compensation........................................................ (1.6) (0.6) Common stock held in treasury, at cost (13,506,977 shares in 2002 and 13,446,808 shares in 2001)............................................ (412.8) (410.8) ---------- ---------- TOTAL SHAREHOLDERS' EQUITY................................................ 932.9 1,361.4 ---------- ---------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................ $ 5,989.6 $ 5,200.4 ========== ==========

See Notes to Consolidated Financial Statements. 37 CONSOLIDATED STATEMENT OF CASH FLOWS

(DOLLARS IN MILLIONS) YEAR ENDED DECEMBER 31 2002 2001 2000 - ---------------------- ---------- -------- -------- OPERATING ACTIVITIES Income from continuing operations ................................. $ 165.9 $ 176.9 $ 235.2 Adjustments to reconcile income from continuing operations to net cash provided by operating activities: Restructuring and consolidation: Expenses ...................................................... 41.3 107.3 44.2 Payments ...................................................... (55.2) (30.3) (57.5) In-process research and development ............................. 12.5 -- -- Aeronautical Systems inventory step-up .......................... 58.8 -- -- Unusual inventory adjustments ................................... -- 94.5 -- Depreciation and amortization ................................... 183.5 173.8 165.4 Deferred income taxes ........................................... (2.2) 25.3 (33.2) Net gains on sale of businesses ................................. (2.5) (7.8) (2.0) Payment-in-kind interest income ................................. (23.3) (17.6) -- Change in assets and liabilities, net of effects of acquisitions and dispositions of businesses: Receivables ................................................... 112.8 21.6 (72.7) Change in receivables sold, net ............................... -- 46.3 39.2 Inventories ................................................... 57.5 (91.0) (38.7) Other current assets .......................................... (16.2) (9.6) (31.2) Accounts payable .............................................. (96.3) 3.1 81.6 Accrued expenses .............................................. (27.7) 24.7 5.1 Income taxes payable .......................................... 129.8 (60.0) 3.9 Tax benefit on non-qualified options .......................... 0.5 7.7 8.3 Other non-current assets and liabilities ...................... -- (82.3) (179.4) ---------- -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES ....................... 539.2 382.6 168.2 ---------- -------- -------- INVESTING ACTIVITIES Purchases of property ............................................. (107.3) (190.5) (133.8) Proceeds from sale of property .................................... 15.1 2.0 26.4 Proceeds from sale of businesses .................................. 6.0 18.9 4.8 Proceeds from payment-in-kind note ................................ 49.8 Payments made in connection with acquisitions, net of cash acquired .......................................... (1,472.6) (119.2) (246.8) ---------- -------- -------- NET CASH USED BY INVESTING ACTIVITIES ......................... (1,509.0) (288.8) (349.4) ---------- -------- -------- FINANCING ACTIVITIES Increase (decrease) in short-term debt, net ....................... 264.0 (626.4) 501.3 Proceeds from issuance of long-term debt .......................... 793.1 4.9 5.0 Repayment of long-term debt and capital lease obligations ......... (1.4) (187.0) (14.7) Proceeds from issuance of common stock ............................ 220.2 51.4 25.4 Purchases of treasury stock ....................................... (4.9) (47.1) (300.4) Dividends ......................................................... (96.9) (113.7) (117.6) Distributions on Trust preferred securities ....................... (10.5) (18.4) (18.4) ---------- -------- -------- NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES .............. 1,163.6 (936.3) 80.6 ---------- -------- -------- DISCONTINUED OPERATIONS Net cash (used) provided by discontinued operations ............... (132.6) 850.7 114.6 ---------- -------- -------- Effect of Exchange Rate Changes on Cash and Cash Equivalents ...... 2.9 0.1 (2.9) ---------- -------- -------- Net Increase in Cash and Cash Equivalents ......................... 64.1 8.3 11.1 Cash and Cash Equivalents at Beginning of Year .................... 85.8 77.5 66.4 ---------- -------- -------- Cash and Cash Equivalents at End of Year .......................... $ 149.9 $ 85.8 $ 77.5 ========== ======== ========

See Notes to Consolidated Financial Statements. 38 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

UNEARNED INCOME ACCUMULATED PORTION OF COMMON STOCK ADDITIONAL RETAINED OTHER RESTRICTED TREA- ---------------- PAID-IN IN THE COMPREHENSIVE STOCK SURY (IN MILLIONS) SHARES AMOUNT CAPITAL BUSINESS INCOME (LOSS) AWARDS STOCK TOTAL - ------------- ------ ------ ---------- -------- ------------- ---------- ----- ----- BALANCE DECEMBER 31, 1999 ............ 112,065 $560.3 $895.8 $(52.3) $ (41.8) $(1.2) $(65.2) $1,295.6 Net income............................. 325.9 325.9 Other comprehensive income (loss): Unrealized translation adjustments......................... (16.4) (16.4) Minimum pension liability adjustment.......................... 0.5 0.5 -------- Total comprehensive income............. 310.0 Employee award programs................ 1,230 6.2 27.0 5.6 38.8 Purchases of stock for treasury........ (300.4) (300.4) Dividends (per share-- $1.10).......... (115.5) (115.5) ------------------------------------------------------------------------------------------ BALANCE DECEMBER 31, 2000 ............ 113,295 566.5 922.8 158.1 (57.7) (1.2) (360.0) 1,228.5 Net income............................. 289.2 289.2 Other comprehensive income (loss): Unrealized translation adjustments net of reclassification adjustments for loss included in net income of $1.0...................... (3.5) (3.5) Minimum pension liability adjustment.......................... (48.9) (48.9) -------- Total comprehensive income............. 236.8 Employee award programs................ 1,850 9.2 50.7 0.6 (0.7) 59.8 Purchases of stock for treasury........ (50.1) (50.1) Dividends (per share-- $1.10).......... (113.6) (113.6) ------------------------------------------------------------------------------------------ BALANCE DECEMBER 31, 2001 ............ 115,145 575.7 973.5 333.7 (110.1) (0.6) (410.8) 1,361.4 Net income............................. 117.9 117.9 Other comprehensive income (loss): Unrealized translation adjustments......................... 37.4 37.4 Minimum pension liability adjustment.......................... (327.8) (327.8) Unrealized gain on cash flow hedges............................. 19.4 19.4 -------- Total comprehensive income (loss)...... (153.1) Sale of common stock under public offering, net of expenses....... 14,950 74.8 141.4 216.2 Employee award programs................ 474 2.4 10.4 (1.0) (2.0) 9.8 EnPro spin-off......................... (97.9) (323.2) 12.0 (409.1) Dividends (per share-- $0.875)......... (92.3) (92.3) ------------------------------------------------------------------------------------------ BALANCE DECEMBER 31, 2002 ............ 130,569 $ 652.9 $1,027.4 $ 36.1 $(369.1) $(1.6) $(412.8) $ 932.9 ==========================================================================================

See Notes to Consolidated Financial Statements. 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A. SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The Consolidated Financial Statements reflect the accounts of Goodrich Corporation and its majority-owned subsidiaries ("the Company" or "Goodrich"). Investments in 20 to 50 percent-owned affiliates are accounted for using the equity method. Equity in earnings (losses) from these businesses is included in Other income (expense) -- net. Intercompany accounts and transactions are eliminated. As discussed in Note U, the Company's Performance Materials and Engineered Industrial Products businesses have been accounted for as discontinued operations. Unless otherwise noted, disclosures herein pertain to the Company's continuing operations. CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company evaluates the collectibility of trade receivables based on a combination of factors. The Company regularly analyzes significant customer accounts, and, when the Company becomes aware of a specific customer's inability to meet its financial obligations to the Company, such as in the case of bankruptcy filings or deterioration in the customer's operating results or financial position, the Company records a specific reserve for bad debt to reduce the related receivable to the amount the Company reasonably believes is collectible. The Company also records reserves for bad debt for all other customers based on a variety of factors including the length of time the receivables are past due, the financial health of the customer, macroeconomic considerations and historical experience. If circumstances related to specific customers change, the Company's estimates of the recoverability of receivables could be further adjusted. SALE OF ACCOUNTS RECEIVABLE The Company adopted the provisions of Statement of Financial Accounting Standards No. 140 (SFAS 140), "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities" on April 1, 2001. Prior to that, the Company accounted for the sale of receivables in accordance with SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." Trade accounts receivable sold are removed from the balance sheet at the time of sale. INVENTORIES Inventories, other than inventoried costs relating to long-term contracts, are stated at the lower of cost or market. Certain domestic inventories are valued by the last-in, first-out (LIFO) cost method. Inventories not valued by the LIFO method are valued principally by the average cost method. Inventoried costs on long-term contracts include certain preproduction costs, consisting primarily of tooling and design costs and production costs, including applicable overhead. The costs attributed to units delivered under long-term commercial contracts are based on the estimated average cost of all units expected to be produced and are determined under the learning curve concept, which anticipates a predictable decrease in unit costs as tasks and production techniques become more efficient through repetition. This usually results in an increase in inventory (referred to as "excess-over average") during the early years of a contract. If in-process inventory plus estimated costs to complete a specific contract exceeds the anticipated remaining sales value of such contract, such excess is charged to current earnings, thus reducing inventory to estimated realizable value. In accordance with industry practice, costs in inventory include amounts relating to contracts with long production cycles, some of which are not expected to be realized within one year. 40 LONG-LIVED ASSETS Property, plant and equipment, including amounts recorded under capital leases, are recorded at cost. Depreciation and amortization is computed principally using the straight-line method over the following estimated useful lives: buildings and improvements, 15 to 40 years; machinery and equipment, 5 to 15 years. In the case of capitalized lease assets, amortization is computed over the lease term if shorter. Repairs and maintenance costs are expensed as incurred. Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses and was amortized by the straight-line method, in most cases over 20 to 40 years for all acquisitions completed prior to June 30, 2001. Goodwill amortization is recorded in cost of sales. Effective July 1, 2001, the Company adopted the provisions of Statement of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS 142) applicable to business combinations completed after June 30, 2001. Effective January 1, 2002, additional provisions of SFAS 142, relating to business combinations completed prior to June 30, 2001 became effective and were adopted. Under the provisions of SFAS 142, intangible assets deemed to have indefinite lives and goodwill are not subject to amortization beginning January 1, 2002. Identifiable intangible assets are recorded at cost, or when acquired as a part of a business combination, at estimated fair value. These assets include patents and other technology agreements, trademarks, licenses, customer relationships and non-compete agreements. They are generally amortized using the straight-line method over estimated useful lives of 5 to 25 years for all acquisitions completed prior to June 30, 2001. For acquisitions completed subsequent to June 30, 2001, identifiable intangible assets are amortized over their useful life using undiscounted cash flows, a method that reflects the pattern in which the economic benefits of the intangible assets are consumed. Impairments of long-lived assets are recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable and the Company's estimate of undiscounted cash flows over the assets remaining estimated useful life are less than the assets carrying value. Measurement of the amount of impairment may be based on an appraisal, market values of similar assets or estimated discounted future cash flows resulting from the use and ultimate disposition of the asset. REVENUE AND INCOME RECOGNITION For revenues not recognized under the contract method of accounting, the Company recognizes revenues from the sale of products at the point of passage of title, which is at the time of shipment. Revenues earned from providing maintenance service are recognized when the service is complete. A significant portion of the Company's sales in the Aerostructures and Aviation Technical Services Segment are under long-term, fixed-priced contracts, many of which contain escalation clauses, requiring delivery of products over several years and frequently providing the buyer with option pricing on follow-on orders. Sales and profits on each contract are recognized in accordance with the percentage-of-completion method of accounting, using the units-of-delivery method. The Company follows the guidelines of Statement of Position 81-1 (SOP 81-1), "Accounting for Performance of Construction-Type and Certain Production-Type Contracts" (the contract method of accounting) except that the Company's contract accounting policies differ from the recommendations of SOP 81-1 in that revisions of estimated profits on contracts are included in earnings under the reallocation method rather than the cumulative catch-up method. Profit is estimated based on the difference between total estimated revenue and total estimated cost of a contract, excluding that reported in prior periods, and is recognized evenly in the current and future periods as a uniform percentage of sales value on all remaining units to be delivered. Current revenue does not anticipate higher or lower future prices but includes units delivered at actual sales prices. Cost includes the estimated cost of the preproduction effort (primarily tooling and design), plus the estimated cost of manufacturing a specified number of production units. The specified number of production units used to establish the profit margin is predicated upon contractual terms adjusted for market forecasts and does not exceed the lesser of those quantities assumed in original contract pricing or those quantities which the Company now expects to deliver in the periods assumed in the original contract pricing. Option quantities are combined with prior orders when follow-on orders are released. The contract method of accounting involves the use of various estimating techniques to project costs at completion and includes estimates of recoveries asserted against the customer for changes in specifications. These estimates involve various assumptions and projections relative to the outcome of future events, including the quantity and timing of product deliveries. Also included are assumptions relative to future labor performance and rates, and projections relative to material and overhead costs. These assumptions involve various levels of expected performance improvements. The Company reevaluates its contract estimates periodically and reflects changes in estimates in the current and future periods under the reallocation method. 41 Included in sales are amounts arising from contract terms that provide for invoicing a portion of the contract price at a date after delivery. Also included are negotiated values for units delivered and anticipated price adjustments for contract changes, claims, escalation and estimated earnings in excess of billing provisions, resulting from the percentage-of-completion method of accounting. Certain contract costs are estimated based on the learning curve concept discussed under Inventories above. Included in Accounts Receivables at December 31, 2002 and 2001, were receivable amounts under contracts in progress of $110.1 million and $107.2 million, respectively, that represent amounts earned but not billable at the respective Balance Sheet dates. These amounts become billable according to their contract terms, which usually consider the passage of time, achievement of milestones or completion of the project. SHIPPING AND HANDLING Shipping and handling costs are recorded in cost of sales. FINANCIAL INSTRUMENTS The Company's financial instruments include cash and cash equivalents, accounts and notes receivable, foreign currency forward contracts, accounts payable and debt. Because of their short maturity, the carrying amount of cash and cash equivalents, accounts and notes receivable, accounts payable and short-term bank debt approximates fair value. Fair value of long-term debt is based on quoted market prices or on rates available to the Company for debt with similar terms and maturities. The Company accounts for derivative financial instruments in accordance with Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" (SFAS 133). Under SFAS 133, derivatives are carried on the Balance Sheet at fair value. The fair value of foreign currency forward contracts is based on quoted market prices. STOCK-BASED COMPENSATION The Company accounts for stock-based employee compensation in accordance with the provisions of APB Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations. EARNINGS PER SHARE Earnings per share is computed in accordance with SFAS No. 128, "Earnings per Share." RESEARCH AND DEVELOPMENT EXPENSE The Company performs research and development under Company-funded programs for commercial products, and under contracts with others. Research and development under contracts with others is performed on both military and commercial products. Total research and development expenditures from continuing operations in 2002, 2001 and 2000 were $236.0 million, $198.2 million and $186.0 million, respectively. Of these amounts, $49.0 million, $49.0 million and $50.6 million, respectively, were funded by customers. Research and development expense in 2002 includes the $12.5 million of in-process research and development expense written-off related to the Aeronautical Systems acquisition. RECLASSIFICATIONS Certain amounts in prior year financial statements have been reclassified to conform to the current year presentation. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. NEW ACCOUNTING STANDARDS In June 2001, the FASB issued Statement No. 143 "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. It applies to legal obligations associated with the retirement of long-lived assets that result from the acquisition, construction, development and/or the normal operation of a long-lived asset, except for certain obligations of lessees. SFAS 143 is effective for financial statements issued for fiscal years beginning after June 15, 2002. The Company will adopt SFAS 143 on January 1, 2003. The Company does not expect that SFAS 143 will have a material effect on its consolidated financial condition or results of operations. 42 In October 2001, the FASB issued Statement No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121); however it retains the fundamental provisions of that statement related to the recognition and measurement of the impairment of long-lived assets to be "held and used." In addition, SFAS 144 provides more guidance on estimating cash flows when performing a recoverability test, requires that a long-lived asset (group) to be disposed of other than by sale (e.g. abandoned) be classified as "held and used" until it is disposed of, and establishes more restrictive criteria to classify an asset (group) as "held for sale." SFAS 144 is effective for fiscal years beginning after December 15, 2001. The adoption of SFAS did not have a material impact on the Company's consolidated financial condition or results of operations. In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements No. 4, 44 and 62, amendment of FASB Statement No. 13 and Technical Corrections" (SFAS 145). SFAS 145 will require gains and losses on the extinguishments of debt to be classified as income or loss from continuing operations rather than as extraordinary items as previously required under Statement of Financial Standards No. 4. Extraordinary treatment will be required for certain extinguishments as provided in APB Opinion No. 30. SFAS 145 also amends Statement of Financial Accounting Standards No. 13 to require certain modifications to capital leases to be treated as a sale-leaseback and modifies the accounting for sub-leases when the original lessee remains a secondary obligor (or guarantor). SFAS 145 is effective for financial statements issued after May 15, 2002, and with respect to the impact of the reporting requirements of changes made to SFAS 4 for fiscal years beginning after May 15, 2002. The adoption of the applicable provisions of SFAS 145 did not have an effect on the Company's financial statements. In June 2002, the FASB issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 nullifies Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS 146 applies to costs associated with an exit activity that does not involve an entity newly acquired in a business combination or with a disposal activity covered by SFAS 144. SFAS 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with earlier application encouraged. The Company does not expect that SFAS 146 will have a material effect on its consolidated financial condition or results of operations but it will impact the timing of charges which could impact comparability of results among reporting periods. During November 2002, the FASB issued Interpretation No. 45 "Guarantor's Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires certain guarantees to be recorded at fair value. The initial recognition and measurement provisions of FIN 45 are applicable, on a prospective basis, to guarantees issued or modified after December 31, 2002. FIN 45 also requires a guarantor to make significant new disclosures. The disclosure requirements are effective for financial statements ending after December 15, 2002. In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based Compensation-Transition and Disclosures" (SFAS 148) which amends FASB Statement No. 123 "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. In addition, SFAS 148 amends the disclosure requirements of SFAS 123 to require more prominent and more frequent disclosures in financial statements about the effects of stock-based compensation. The transition guidance and annual disclosure provisions of SFAS 148 are effective for fiscal years ending after December 15, 2002. The interim disclosure provisions are effective for financial reports containing financial statements for interim periods beginning after December 15, 2002. 43 NOTE B. ACQUISITIONS AND DISPOSITIONS ACQUISITIONS Aeronautical Systems On October 1, 2002, the Company completed its acquisition of TRW Inc.'s Aeronautical Systems businesses (Aeronautical Systems) for approximately $1.5 billion in cash. The acquisition included the purchase of substantially all of the Aeronautical Systems businesses assets and the assumption of certain liabilities as defined in the Master Agreement of Purchase and Sale. The acquisition has been accounted for using the purchase method in accordance with Financial Accounting Standard No. 141 "Business Combinations." The acquired businesses design and manufacture commercial and military aerospace systems and equipment, including engine controls, flight controls, power systems, cargo systems, hoists and winches and actuation systems. The businesses enhanced our global operations with approximately 6,200 employees in 22 facilities in nine countries, including manufacturing and service operations in the United Kingdom, France, Germany, Canada, the United States and several Asia/Pacific countries. The acquired businesses expanded the number of products, systems and services that the Company delivers to aircraft manufacturers and operators. Because the businesses had previously been operated as one business segment, the Company will continue to report the results of operations as a separate business segment until the Company's integration plan is completed in 2003. The results of operations of Aeronautical Systems have been included in the Company's results for the fourth quarter of 2002. The purchase price payable by the Company to TRW Inc. for the acquisition of the Aeronautical Systems businesses is subject to potential upward or downward adjustment based on the difference between the net assets of the businesses on October 1, 2002 and the net assets of the businesses on May 31, 2002, both calculated in the manner set forth in the Master Agreement of Purchase and Sale. The purchase price will also be adjusted based on the funding status of certain pension plans and other employee benefit arrangements. The above adjustments have not been finalized as of December 31, 2002. The allocation of the purchase price has been performed based on the assignment of fair values to assets acquired and liabilities assumed. Fair values are based, in part, on appraisals, performed by an independent appraisal firm, of certain fixed assets and intangible assets. The purchase price allocation has been based on preliminary estimates and is subject to change. Items that may affect the ultimate purchase price allocation include revisions to intangible asset appraisals, finalization of restructuring plans that qualify for accrual in the opening balance sheet and other information that provides a better estimate of the fair value of assets acquired and liabilities assumed. 44 The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition. AT OCTOBER 1, 2002 (IN MILLIONS) Current assets.................................................. $ 544.3 Property, plant and equipment................................... 312.6 In-process research and development............................. 12.5 Intangible assets subject to amortization (17-year weighted-average useful life): .............................. Customer relationships (17-year weighted- average useful life)......................................... 230.0 Technology (17-year weighted- average useful life)......................................... 81.2 Favorable sourcing contracts (3-year weighted- average useful life)......................................... 4.8 ----- 316.0 Goodwill........................................................ 500.6 Other non-current assets........................................ 146.5 --------- Total assets acquired........................................ 1,832.5 --------- Current liabilities............................................. 292.4 Non-current liabilities......................................... 67.9 --------- Total liabilities assumed................................... 360.3 --------- Net assets acquired......................................... $ 1,472.2 ========= The goodwill associated with the Aeronautical Systems acquisition is expected to be fully deductible for tax purposes. The fair value of in-process research and development (IPR&D) was determined by an independent valuation using the discounted cash flow method, a variation of the income approach. The IPR&D technologies included in the valuation were variable frequency and electrohydrostatic actuation. The $12.5 million assigned to research and development assets were written off at the date of acquisition in accordance with FASB Interpretation No. 4, "Applicability of FASB Statement No. 2 to Business Combinations Accounted for by the Purchase Method". Those write-offs are included in selling and administrative expenses. The following unaudited pro forma financial information presents the combined results of operations of Goodrich and Aeronautical Systems as if the acquisition had occurred at the beginning of the periods presented. The unaudited pro forma financial information is not intended to represent or be indicative of the consolidated results of operations or financial condition that would have been reported had the acquisition been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial condition.

UNAUDITED -------------------------- (IN MILLIONS, EXCEPT PER SHARE AMOUNTS) YEAR ENDED DECEMBER 31, - --------------------------------------- -------------------------- 2002 2001 ---- ---- Sales.................................................. $ 4,665.7 $ 5,286.3 Income from continuing operations...................... $ 179.0 $ 205.3 Net income............................................. $ 131.0 $ 317.6 Diluted earnings per share: Income from continuing operations...................... $ 1.70 $ 1.92 Net income............................................. $ 1.26 $ 3.02

45 Other Acquisitions The following acquisitions were recorded using the purchase method of accounting. Their results of operations have been included in the Company's results since their respective dates of acquisition. Acquisitions made by businesses included within the Performance Materials and Engineered Industrial Products Segments are not discussed below. During 2001, the Company acquired a manufacturer of aerospace lighting systems and related electronics, and the assets of a designer and manufacturer of inertial sensors used for guidance and control of unmanned vehicles and precision-guided systems. Total consideration aggregated $113.8 million, of which $102.6 million represented goodwill and other intangible assets. During 2000, the Company acquired a manufacturer of earth and sun sensors for attitude determination and control ejection seat technology; a manufacturer of fuel nozzles; a developer of avionics and displays; the assets of a developer of precision electro-optical instrumentation serving the space and military markets; an equity interest in a joint venture focused on developing and operating a comprehensive open electronic marketplace for aerospace aftermarket products and services; a manufacturer of precision and large optical systems, laser encoding systems, and visual surveillance systems for day and night use and a supplier of pyrotechnic devices for space, missile, and aircraft systems. Total consideration aggregated $242.6 million, of which $105.4 million represented goodwill and other intangible assets. The impact of these acquisitions was not material in relation to the Company's results of operations. Consequently, pro forma information is not presented. DISPOSITIONS During 2002, the Company sold a business and a minority interest in a business, resulting in a pre-tax gain of $2.5 million, which has been reported in other income (expense)-net. During 2001, the Company sold a minority interest in a business, resulting in a pre-tax gain of $7.2 million, which has been reported in other income (expense)-net. During 2000, the Company sold a product line of one of its businesses, resulting in a pre-tax gain of $2.0 million, which has been reported in other income (expense)-net. For dispositions accounted for as discontinued operations refer to Note U to the Consolidated Financial Statements. NOTE C. RESTRUCTURING AND CONSOLIDATION COSTS The Company incurred $41.3 million ($27.7 million after-tax), $107.3 million ($71.3 million after-tax) and $44.2 million ($28.6 million after-tax) of restructuring and consolidation costs in 2002, 2001 and 2000, respectively. These charges related to the following segments:

2002 2001 2000 ---- ---- ---- (IN MILLIONS) - ------------- Aerostructures and Aviation Technical Services.......... $ 11.8 $ 35.8 $ 3.6 Landing Systems......................................... 1.9 44.7 25.3 Engine and Safety Systems............................... 20.3 17.7 1.7 Electronic Systems...................................... 7.0 6.6 0.5 -------- -------- ------- Total Segment Charges............................... 41.0 104.8 31.1 Corporate............................................... 0.3 2.5 13.1 -------- -------- ------- $ 41.3 $ 107.3 $ 44.2 ======== ======== =======

46 Restructuring and consolidation reserves at December 31, 2002, as well as activity during the year, consisted of:

(IN MILLIONS) -------------------------------------------------------------------------- BALANCE BALANCE DECEMBER 31, DECEMBER 31, 2001 PROVISION ACTIVITY 2002 ------------ --------- -------- ------------ Personnel-related costs........... $ 26.6 $ 31.0 $ (39.9) $ 17.7 Consolidation..................... 18.6 10.3 (23.2) 5.7 ------- ------- --------- ------- $ 45.2 $ 41.3 $ (63.1) $ 23.4 ======= ======= ========= =======

PROVISION The following is a description of key components of the $41.3 million provision for restructuring and consolidation costs in 2002: Aerostructures and Aviation Technical Services: The segment recorded $11.8 million in restructuring and consolidation costs, consisting of $9.1 million in personnel-related costs and $2.7 million in consolidation costs. Of the charge, $0.4 million represents non-cash asset impairment charges. The personnel-related charges were for employee severance and for voluntary termination benefits. During the year, a total of 1,325 employees were terminated. The consolidation costs related to machinery and equipment relocation costs incurred in connection with a facility consolidation or closure, which were expensed as incurred, and asset impairment charges of $0.4 million. Landing Systems: The segment recorded $1.9 million in restructuring and consolidation costs, consisting of $1.6 million in personnel-related costs and $0.3 million in consolidation costs. Of the charge, $0.2 million represents non-cash items, including $0.8 million in asset impairments and a reserve reversal of $0.6 million related to a revision of estimated facility closure and consolidation costs. The personnel-related charges are for employee severance and benefits. During the year, a total of 263 employees were terminated. Consolidation costs include asset impairment charges of $0.8 million to write down assets held for sale or disposal based on their estimated fair value and facility closure costs of $0.1 million for equipment relocation costs, which were expensed as incurred, offset by the $0.6 million reserve reversal noted above. Engine and Safety Systems: The segment recorded $20.3 million in restructuring and consolidation costs, consisting of $15.7 million in personnel-related costs and $4.6 million in consolidation costs. Of the charge, $2.0 million represents non-cash asset impairment charges. The personnel-related charges are for employee severance and benefits. During the year, a total of 707 employees were terminated. Consolidation costs include $2.0 million in accelerated depreciation and facility closure costs of $2.6 million for machinery and equipment relocation, which were expensed as incurred, and other facility closure costs. Electronic Systems: The segment recorded $7.0 million in restructuring and consolidation costs, consisting of $4.2 million in personnel-related costs and $2.8 million in consolidation costs. Of the charge, $0.2 million represents a non-cash asset impairment charge. The personnel-related charges are for employee severance and benefits. During the year, a total of 339 employees were terminated. Consolidation costs included $0.2 million in accelerated depreciation and $2.2 million in equipment relocation costs, which were expensed as incurred, in connection with facility closure or consolidation. Aeronautical Systems: The segment established $6.7 million in restructuring reserves in the opening balance sheet for employee severance in the fourth quarter of 2002. During the quarter, a total of 149 employees were terminated. Corporate: Restructuring and consolidation costs of $0.3 million represented employee outplacement services and relocation costs. 47 At December 31, 2002, approximately 650 employees remain to be terminated as a result of the restructuring actions described above. ACTIVITY Of the $63.1 million in activity, $55.2 million represented cash payments. The remaining $7.9 million represented asset write-offs, the reversal of an acquisition-related reserve against goodwill and reclassifications of reserves to other non-current liabilities, offset by acquisition-related reserves that were established through the opening balance sheet. Restructuring and consolidation reserves at December 31, 2001, as well as activity during the year, consisted of:

PERFORMANCE BALANCE MATERIALS BALANCE DECEMBER 31, RESTRUCTURING DECEMBER 31, (IN MILLIONS) 2000 PROVISION ACTIVITY RESERVE 2001 ------------ --------- -------- ------------- ------------ Personnel-related costs $ 12.9 $ 35.0 $ (17.6) $ (3.7) $ 26.6 Transaction costs 1.9 -- (1.9) -- -- Consolidation costs 43.4 72.3 (59.4) (37.7) 18.6 ------- ------- -------- -------- ------- $ 58.2 $ 107.3 $ (78.9) $ (41.4) $ 45.2 ======= ======= ======== ======== =======

PROVISION The following is a description of key components of the $107.3 million provision for restructuring and consolidation costs in 2001: Aerostructures and Aviation Technical Services The segment recorded $35.8 million in restructuring and consolidation costs, consisting of $17.3 million in personnel-related costs, $18.1 million in asset impairments and $0.4 million in facility consolidation and closure costs. $20.7 million of the charge represents non-cash items, including $2.6 million of pension curtailment charges and $18.1 in asset impairments. The personnel-related charges are for employee severance and benefits for 1,686 employees, 515 of which were terminated in 2001, leaving 1,171 employees to be terminated as of December 31, 2001. Asset impairment charges included $7.8 million to write down assets held for sale or disposal based on their estimated fair value and $10.3 million to write-off of long-term collateralized receivables as a result of a deterioration in the value of the collateral. Facility closure costs related to equipment relocation and a lease termination fee. Landing Systems The segment recorded $44.7 million in restructuring and consolidation costs, consisting of $4.0 million in personnel-related costs (net of $0.3 million revision of prior estimate), $26.4 million in asset impairments (net of $1.3 million revision of prior estimate) and $14.3 million in facility consolidation and closure costs. $26.7 million of the charge represents non-cash items, including $0.6 million of pension curtailment charges and $27.7 million in asset impairments, offset by a $1.6 million revision of prior estimates. The personnel-related charges were for employee severance and benefits for 145 employees, 49 of which were terminated in 2001, leaving 96 employees to be terminated as of December 31, 2001. Asset impairment charges related to the write down of assets held for sale or disposal based on their estimated fair value, comprised primarily of $25 million, representing the difference between the carrying value and fair value for rotable assets identified for sale. Facility closure costs related to lease termination costs ($2.1 million), equipment relocation ($6.3 million), environmental clean-up ($1.5 million) and facility clean-up and preparation for sale ($4.4 million). 48 Engine and Safety Systems The segment recorded $17.7 million in restructuring and consolidation costs, consisting of $6.8 million in personnel-related costs, $7.7 million in asset impairments and $3.2 million in facility consolidation and closure costs. $8.6 million of the charge represents non-cash items, including $0.9 million of pension curtailment charges and $7.7 million in asset impairments. The personnel-related charges were for employee severance and benefits for 801 employees, 235 of which were terminated in 2001, leaving 566 employees to be terminated as of December 31, 2001. Asset impairment charges relate to the write down of assets held for sale or disposal based on their estimated fair value. Facility closure costs related to lease and contract termination costs and facility clean-up costs to prepare the facility for sale. Electronic Systems The segment recorded $6.6 million in restructuring and consolidation costs, consisting of $4.1 million in personnel-related costs and $2.5 million in facility closure and consolidation costs. $0.3 million of the charge represents a non-cash pension curtailment charge. The personnel-related charges were for employee severance and benefits for 155 employees, 24 of which were terminated in 2001, leaving 131 employees to be terminated as of December 31, 2001. Facility closure and consolidation costs related to lease termination costs and equipment relocation. Corporate Restructuring and consolidation costs were $2.5 million, consisting of employee severance and benefits for 15 employees terminated during the period and employee relocation costs and change-in-control benefits associated with the Coltec merger. There were no employees remaining to be terminated as of December 31, 2001. ACTIVITY Of the $78.9 million in activity, $30.3 million represented cash payments and $56.8 million represented asset write-offs. These amounts were offset by a net increase to the reserve of $8.2 million, principally acquisition-related reserves that were established through the opening balance sheet. Approximately $35 million of the $41.4 million of reserves recorded in 2000 for restructuring costs associated with the sale of Performance Materials ($35.6 million in asset impairment costs; $2.1 million in consolidation costs; and $3.7 million in severance costs) were written-off in 2001. The remaining portion of the reserve (approximately $6 million) was assumed by the buyer and accordingly written-off against the gain on sale during 2001. 49 Restructuring and consolidation reserves at December 31, 2000, as well as activity during the year, consisted of: PERFORMANCE BALANCE MATERIALS BALANCE DECEMBER 31, RESTRUCTURING DECEMBER 31, (IN MILLIONS) 1999 PROVISION ACTIVITY RESERVE 2000 ------------ --------- -------- ------------- ------------ Personnel-related costs $ 35.4 $ 16.7 $ (42.9) $ 3.7 $ 12.9 Transaction costs 2.0 -- (0.1) -- 1.9 Consolidation costs 6.5 27.5 (28.3) 37.7 43.4 ------- ------- -------- ------- ------- $ 43.9 $ 44.2 $ (71.3) $ 41.4 $ 58.2 ======= ======= ======== ======= ======= PROVISION During 2000, the Company recorded net restructuring and consolidation costs of $44.2 million consisting of: - $18.8 million in personnel-related costs (offset by a credit of $2.1 million representing a revision of prior estimates) consisting of: - $9.5 million in settlement charges related to lump sum payments made under a nonqualified pension plan that were triggered by the Coltec merger. - $3.3 million in employee relocation costs associated with the Coltec merger. - $6.0 million for work force reductions. - $27.5 million in consolidation costs consisting of: - $11.7 million of accelerated depreciation related to assets at the Company's Euless, Texas facility whose useful lives had been reduced as a result of the decision to consolidate the facility with the Company's other landing gear facilities. - $2.5 million of asset impairment charges representing the excess of the assets' carrying value over the fair value less costs to sell. - $13.3 million for realignment activities, of which $6.5 million represented equipment relocation costs and $3.8 million represented facility closure costs associated with the consolidation of the Company's landing gear businesses. The remaining $3 million related to similar costs at various other facilities. ACTIVITY The $71.3 million in activity during the year included $57.5 million related to cash payments and $13.8 million related to the write-off of assets and accelerated depreciation. During negotiations with the buyer of Performance Materials, the buyer requested that the Company absorb the cost of closing and/or selling certain of the segment's textile businesses as a condition of the sale (the "Textile Consolidation"). These actions included the closure and/or sale of certain facilities, the sale of certain assets and the consolidation of certain management functions. The estimated costs of these restructuring activities included $35.6 million for asset impairments, $2.1 million for consolidation costs and $3.7 million for severance costs. Since the decision to perform the actions contemplated by the Textile Consolidation was a direct result of the decision to dispose of the Performance Materials segment, the costs associated with the Textile Consolidation were reflected as an obligation/reserve in the consolidated Balance Sheet at December 31, 2000. The Income Statement effect was deferred and recognized as part of the gain on sale in February 2001. 50 NOTE D. EARNINGS PER SHARE The computation of basic and diluted earnings per share for income from continuing operations is as follows:

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2002 2001 2000 - --------------------------------------- -------- -------- -------- Numerator: Numerator for basic and diluted earnings per share -- income from continuing operations.............................. $ 165.9 $ 176.9 $ 235.2 ======== ======== ======== Denominator: Denominator for basic earnings per share -- weighted-average share......................................... 103.7 103.1 104.8 Effect of dilutive securities: Stock options, employee stock purchase plan and restricted stock.......... 0.4 0.6 1.0 Performance share plans................................................... 0.2 0.3 0.4 Convertible preferred securities.......................................... 1.2 2.9 2.9 -------- -------- -------- Dilutive potential common shares.......................................... 1.8 3.8 4.3 -------- -------- -------- Denominator for diluted earnings per share -- adjusted weighted-average shares and assumed conversion...................................................... 105.5 106.9 109.1 ======== ======== ======== Per share income from continuing operations: Basic................................................................... $ 1.60 $ 1.72 $ 2.24 ======== ========= ======== Diluted ................................................................ $ 1.57 $ 1.65 $ 2.16 ======== ========= ========

At December 31, 2002, the Company had approximately 9.5 million stock options outstanding (see Note T). Stock options are included in the diluted earnings per share calculation using the treasury stock method, unless the effect of including the stock options would be anti-dilutive. During 2002, 2001 and 2000, there were anti-dilutive options excluded from the diluted earnings per share calculation. NOTE E. SALE OF RECEIVABLES The Company has an agreement to sell certain trade accounts receivable, up to a maximum of $140.0 million and $110.0 million at December 31, 2002 and 2001, respectively. Receivables of $97.3 million were sold under this agreement and reflected as a reduction of Accounts Receivable at December 31, 2002 and 2001. The receivables were sold without recourse and at a discount, which is included in interest expense. Continued availability of the securitization is conditioned upon compliance with covenants, related primarily to operation of the securitization, set forth in the related agreements. The Company is in compliance with all such covenants at December 31, 2002. The securitization agreement includes a rating downgrade trigger pursuant to which the agreement may be terminated upon a downgrade of our credit ratings below BB- by Standard & Poor's or Ba3 by Moody's Investor Services. If such an event were to occur, the Company expects that it would have sufficient capital resources through existing revolving credit facilities to meet its needs. During 2000, the Company entered into an agreement to sell certain long-term receivables. This agreement contained recourse provisions under which the Company was required to repurchase receivables in certain events. In the fourth quarter 2001, the Company repurchased approximately $20 million of these long-term receivables at the request of the financial institution. In August 2002, the Company repurchased $20.3 million of receivables as a result of a payment default by the primary obligor and terminated this agreement. 51 NOTE F. PAYMENT-IN-KIND NOTES RECEIVABLE The proceeds from the sale of the Company's Performance Materials segment included $172 million in debt securities issued by the buyer in the form of unsecured notes with interest payable in cash or payment-in-kind, at the option of the issuer. Payment-in-kind refers to the issuer's ability to issue additional debt securities with identical terms and maturities as the original debt securities as opposed to making interest payments in cash. The notes have a term of 10.5 years, and bear interest at a rate of 13 percent, which increases to 15 percent if cash interest payments do not commence after the fifth year. The Company initially recorded a discount of $21.2 million based on a 14 percent discount rate. In July 2002, the Company entered into an agreement with Noveon to amend certain provisions of the PIK notes held by the Company to give Noveon the option to prepay the securities at a discount greater than the original discount if they are prepaid on or before February 28, 2003. As a result of prepayments made in June and October 2002, Noveon has prepaid a total of $62.5 million of the outstanding principal of the PIK notes for $49.8 million in cash. Because the prepayments did not exceed the original discount recorded at the inception of the note, no gain or loss was recognized. Interest income on the notes is recognized using the effective interest method and is recorded in Interest Income in the Consolidated Statement of Income. The notes are classified as held-to-maturity in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". The Company does not currently believe a valuation allowance is necessary. The Company will record a valuation allowance if events or changes in circumstances indicate that the carrying amount of the notes may not be recoverable. The fair market value of the notes at December 31, 2002 is approximately $140 million. 52 NOTE G. INVENTORIES Inventories consist of the following:

(IN MILLIONS) 2002 2001 - ------------- ---------- -------- FIFO or average cost (which approximates current costs): Finished products...................................... $ 246.2 $ 172.0 In process............................................. 559.6 504.9 Raw materials and supplies............................. 259.0 217.1 ---------- -------- 1,064.8 894.0 Reserve to reduce certain inventories to LIFO basis.... (40.3) (42.2) Progress payments and advances......................... (52.8) (44.3) =========== ======== TOTAL.............................................. $ 971.7 $ 807.5 ========== ========

Approximately 13 and 15 percent of inventory was valued by the LIFO method in 2002 and 2001, respectively. In-process inventories as of December 31, 2002, which include significant deferred costs for long-term contracts accounted for under contract accounting, are summarized by contract as follows (in millions, except quantities which are number of aircraft):

(1)AIRCRAFT ORDER STATUS COMPANY ORDER STATUS IN-PROCESS INVENTORY -------------------------- ---------------------------- ------------------------------ PRE- PRODUCTION DELIVERED UN- UN- (3)FIRM AND EXCESS- TO FILLED FILLED (2)CONTRACT UNFILLED (4)YEAR PRO- OVER- AIRLINES ORDERS OPTIONS QUANTITY DELIVERED ORDERS COMPLETE DUCTION AVERAGE TOTAL --------- ------ ------- ----------- --------- -------- -------- ------- ----------- ----- 717-200.................... 114 40 88 200 117 57 2007 $ 9.1 $ 31.2 $ 40.3 Embraer Tailcone........... 6 112 202 600 13 -- 2011 -- 18.9 18.9 CF34-10.................... -- 30 72 750 -- -- 2020 -- 25.0 25.0 Trent 900.................. -- 43 33 267 -- -- 2019 -- 3.4 3.4 7Q7........................ -- -- -- 18 -- -- 2006 -- 21.3 21.3 Others..................... 120.2 4.2 124.4 ------- ------- ------- In-process inventory related to long-term contracts................ $ 129.3 $ 104.0 233.3 ======= ======= In-process inventory not related to long-term contracts................ 326.3 ------- Balance at December 31, 2002..................... $ 559.6 =======

(1) Represents the aircraft order status as reported by independent sources for the related aircraft and engine option. (2) Represents the number of aircraft used to obtain average unit cost. (3) Represents the number of aircraft for which the Company has firm unfilled orders. (4) The year presented represents the year in which the final production units included in the contract quantity are expected to be delivered. The contract may continue in effect beyond this date. Based on revisions to the production schedule announced by Boeing at the end of 2001, the Company reevaluated its estimated costs to complete Boeing 717-200 contract, its learning curve assumptions as well as the number of aircraft expected to be delivered. As a result of this analysis, the Company recorded a charge of $76.5 million during the fourth quarter of 2001. The Company will continue to record no margin on this contract based on its revised assumptions. Recovery of the pre-production balance of $31.2 million at December 31, 2002 is subject to Boeing's future production rate and delivery schedule as well as our future cost structure and learning curve assumptions. 53 NOTE H: GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS Under SFAS 142, intangible assets deemed to have indefinite lives and goodwill are subject to annual impairment testing using the guidance and criteria described in the standard. This testing requires comparison of carrying values to fair values, and when appropriate, the carrying value of impaired assets is reduced to fair value. During the second quarter of 2002, the Company performed the first of the required impairment tests of goodwill and indefinite lived intangible assets. Based on those results, the Company determined that it was likely that goodwill relating to the Aviation Technical Services "reporting unit" (ATS) had been impaired. ATS is included in the Aerostructures and Aviation Technical Services business segment. During the third quarter of 2002, the Company completed its measurement of the goodwill impairment and recognized an impairment of $36.1 million (representing total goodwill of this reporting unit) which was non-deductible for income tax purposes and was reported as a cumulative effect of an accounting change retroactively to January 1, 2002. Income from continuing operations, basic and diluted earnings per share for the years ended December 31, 2002, 2001 and 2000, adjusted to exclude amounts no longer being amortized, are as follows:

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2002 2001 2000 -------- --------- -------- Reported Income from Continuing Operations $ 165.9 $ 176.9 $ 235.2 Adjustments: Goodwill amortization -- 30.4 22.2 Income taxes -- (7.5) (5.6) -------- --------- -------- Adjusted Income from Continuing Operations $ 165.9 $ 199.8 $ 251.8 ======== ========= ======== Basic earnings per share: Reported $ 1.60 $ 1.72 $ 2.24 Adjusted $ 1.60 $ 1.94 $ 2.40 Diluted earnings per share: Reported $ 1.57 $ 1.65 $ 2.16 Adjusted $ 1.57 $ 1.87 $ 2.31

The changes in the carrying amount of goodwill for the year ended December 31, 2002, by segment are as follows:

BUSINESS BALANCE COMBINATIONS BALANCE DECEMBER 31, COMPLETED DECEMBER 31, 2001 OR FINALIZED OTHER 2002 ------------- ------------ --------- ------------ (IN MILLIONS) Aerostructures and Aviation Technical Services................................. $ 56.7 $ -- $ (36.1) $ 20.6 Landing Systems............................ 67.9 -- (9.1) 58.8 Engine and Safety Systems.................. 185.2 (2.8) -- 182.4 Electronic Systems......................... 437.5 (5.7) -- 431.8 Aeronautical Systems....................... -- 500.6 -- 500.6 -------- -------- --------- ---------- $ 747.3 $ 492.1 $ (45.2) $ 1,194.2 ======== ======== ========= ==========

The $36.1 million reduction in goodwill in Aerostructures and Aviation Technical Services represents the cumulative effect of adoption of SFAS 142, which resulted in goodwill impairment in the ATS reporting unit. The $9.1 million reduction in goodwill in Landing Systems represented a reclassification of intellectual property rights to patents, trademarks and licenses upon the adoption of SFAS 142. 54 The $2.8 million reduction in goodwill in Engine and Safety Systems represents the elimination of an allowance that was established in the opening balance sheet against a receivable that was subsequently collected ($0.4 million) and the adjustment of a restructuring reserve that was established in the opening balance sheet due to a change in estimated severance costs ($2.4 million). The $5.7 million reduction in goodwill in Electronic Systems primarily represents the finalization of the purchase price allocation relating to the acquisition of the lighting systems business acquired in September 2001. The adjustment consists of additional value of $6.1 million assigned to customer relationships and reclassified to identifiable intangible assets offset by an adjustment to the minority interest of that business which slightly increased goodwill. This decrease was offset by a $0.4 million increase associated with an adjustment to the purchase price of an acquisition due to an earn-out agreement. The $500.6 million increase in Aeronautical Systems represents the goodwill recorded in the opening balance sheet (see Note B). Identifiable intangible assets as of December 31, 2002 are comprised of:

GROSS ACCUMULATED AMOUNT AMORTIZATION NET -------- ------------ -------- (IN MILLIONS) Amortizable intangible assets: Patents, trademarks and licenses $ 155.3 $ 41.5 $ 113.8 Customer relationships 267.8 5.0 262.8 Technology 82.2 0.5 81.7 Non-compete agreements 7.8 5.6 2.2 Sourcing contracts 4.8 0.4 4.4 -------- ------- -------- $ 517.9 $ 53.0 $ 464.9 ======== ======= ========

Amortization of these intangible assets for the year ended December 31, 2002 was $17.0 million. Amortization expense for these intangible assets is estimated to be approximately $21 million in 2003 and $22 million per year from 2004 to 2007. There were no indefinite lived identifiable intangible assets as of December 31, 2002. NOTE I. FINANCING ARRANGEMENTS SHORT-TERM BANK DEBT At December 31, 2002 the Company had $750.0 million in committed global syndicated revolving credit agreements. These credit facilities consist of a $425.0 million three-year agreement expiring in December 2004 and a $325 million 364-day agreement expiring in September 2003. Borrowings under these agreements bear interest, at the Company's option, at rates tied to the agent bank's prime rate or for U.S. Dollar or Great Britain Pound borrowings, the London interbank offered rate, and for Eurodollar borrowings, the EURIBO rate. Under the agreement expiring in 2004, the Company is required to pay a facility fee of 17.5 basis points per annum on the total $425 million committed line. Under the 364-day agreement, the Company is required to pay a facility fee of 15 basis points per annum on the total $325 million committed line. On these two agreements, if the amount outstanding on the line of credit exceeds 33 percent of the total commitment, a usage fee of 12.5 basis points per annum on the loan outstanding is payable by the Company. These fees and the interest rate margin on outstanding revolver borrowings are subject to change as the Company's credit ratings change. At December 31, 2002, $155.0 million was outstanding pursuant to the three-year agreement. There were no borrowings under the 364-day agreement at year end. In addition, the Company had a $200.0 million committed syndicated 364-day revolving credit agreement at December 31, 2002, all of which was outstanding as of that date. This credit facility is the remaining commitment and borrowing from the $1.5 billion credit facility established in July 2002 for the Aeronautical Systems acquisition from TRW Inc.. Borrowings under this credit agreement bear interest, at the Company's option, at rates tied to the agent bank's prime rate or the London interbank offered rate. Under the agreement, the Company is required to pay a facility fee of 15 basis points per annum on the amount of the commitment available at any time. 55 The Company also maintains $100.0 million of uncommitted domestic money market facilities and $6.8 million of uncommitted foreign working capital facilities with various banks, of which $83.3 million were unused and available at December 31, 2002. Weighted-average interest rates on short-term borrowings were 2.8 percent, 5.8 percent and 6.6 percent during 2002, 2001 and 2000, respectively. LONG-TERM DEBT At December 31, 2002 and 2001, long-term debt and capital lease obligations consisted of:

(IN MILLIONS) 2002 2001 - ------------- ---------- ---------- MTN notes payable.................................................... $ 699.0 $ 699.0 6.45% senior notes, maturing in 2007................................. 300.0 -- 7.5% senior notes, maturing in 2008.................................. 296.9 300.0 6.6% senior notes, maturing in 2009.................................. 225.6 207.3 7.625% senior notes, maturing in 2012................................ 500.0 -- IDRBs, maturing in 2023, 6.0%........................................ 60.0 60.0 Other debt, maturing to 2020 (interest rates from 0.8% to 6.5%)...... 45.8 37.7 ---------- ---------- 2,127.3 1,304.0 Capital lease obligation (Note I).................................... 1.7 3.2 ---------- ---------- Total................................................................ $ 2,129.0 $ 1,307.2 ========== ==========

SENIOR NOTES In December 2002, the Company issued $300.0 million of 6.45 percent senior notes due in 2007 and $500.0 million of 7.625 percent senior notes due in 2012. The net proceeds from the issuance of the notes were used to repay a portion of the amounts outstanding under the $1.5 billion, 364-day credit facility. At December 31, 2001, the $300.0 million of 7.5 percent senior notes due in 2008 were obligations of Coltec. In May 2002, the Company issued $296.9 million aggregate principal amount of 7.5 percent senior notes due in 2008 in exchange for a like principal amount of Coltec's 7.5 percent senior notes due in 2008. All $296.9 million of Coltec senior notes acquired by the Company in the exchange offer were sold to Coltec and thereafter cancelled. The remaining $3.1 million of outstanding Coltec senior notes remain outstanding as the obligation of Coltec, which is now a wholly-owned subsidiary of EnPro. In 1999, the Company issued $200.0 million of 6.6 percent senior notes due in 2009. The Company entered into a fixed-to-floating interest rate swap to manage the interest rate exposure associated with these notes. In September 2002, the interest rate swap, which was accounted for as a fair value hedge, was terminated. At termination, the Company received $29.4 million, comprised of a $2.6 million receivable representing the amount owed on the interest rate swap from the previous settlement date and $26.8 million representing the fair value of the interest rate swap at the time of termination. The carrying amount of the notes was increased by $26.8 million representing the change in fair value of the debt due to changes in interest rates for the period hedged. This amount will be amortized as a reduction to interest expense over the remaining term of the debt. MTN NOTES PAYABLE The Company has periodically issued long-term debt securities in the public markets through a medium-term note program (referred to as the MTN program), which commenced in 1995. MTN notes outstanding at December 31, 2002, consisted entirely of fixed-rate non-callable debt securities. All MTN notes outstanding were issued between 1995 and 1998, with interest rates ranging from 6.5 percent to 8.7 percent and maturity dates ranging from 2008 to 2046. IDRBS The industrial development revenue bonds maturing in 2023 were issued to finance the construction of a hangar facility in 1993. Property acquired through the issuance of these bonds secures the repayment of the bonds. Aggregate maturities of long-term debt, exclusive of capital lease obligations, during the five years subsequent to December 31, 2002, are as follows (in millions): 2003 -- $2.1; 2004 -- $2.5; 2005 -- $2.3; 2006 -- $3.3 and 2007 -- $301.5. The Company's debt agreements contain various restrictive covenants that, among other things, place limitations on the payment of cash dividends and the repurchase of the Company's capital stock. Under the most restrictive of these agreements, $384.2 million of income retained in the business and additional capital was free from such limitations at December 31, 2002. 56 NOTE J. LEASE COMMITMENTS The Company leases certain of its office and manufacturing facilities as well as machinery and equipment under various leasing arrangements. The future minimum lease payments from continuing operations, by year and in the aggregate, under capital leases and under noncancelable operating leases with initial or remaining noncancelable lease terms in excess of one year, consisted of the following at December 31, 2002:

NONCANCELABLE CAPITAL OPERATING (IN MILLIONS) LEASES LEASES ------- ------------- 2003.................................................... $ 2.0 $ 40.4 2004.................................................... 1.5 33.5 2005.................................................... 0.4 26.6 2006.................................................... -- 19.6 2007.................................................... -- 16.1 Thereafter.............................................. -- 88.5 ------- -------- Total minimum payments.................................. 3.9 $ 224.7 ======== Amounts representing interest........................... (0.4) ------- Present value of net minimum lease payments............. 3.5 Current portion of capital lease obligations............ (1.8) ------- TOTAL................................................... $ 1.7 =======

Net rent expense from continuing operations consisted of the following:

(IN MILLIONS) 2002 2001 2000 - ------------- -------- ------- ------- Minimum rentals...................................................... $ 42.1 $ 31.3 $ 28.5 Contingent rentals................................................... 0.2 1.6 1.7 Sublease rentals..................................................... (0.2) (0.1) (0.1) -------- ------- ------- TOTAL................................................................ $ 42.1 $ 32.8 $ 30.1 ======== ======= =======

NOTE K. PENSIONS AND POSTRETIREMENT BENEFITS The Company has several defined benefit pension plans covering eligible employees. Plans covering salaried employees generally provide benefit payments using a formula that is based on an employee's compensation and length of service. Plans covering hourly employees generally provide benefit payments of stated amounts for each year of service. The Company also sponsors several unfunded defined benefit postretirement plans that provide certain health-care and life insurance benefits to eligible employees. The health-care plans are contributory, with retiree contributions adjusted periodically, and contain other cost-sharing features, such as deductibles and coinsurance. The life insurance plans are generally noncontributory. The Company's general funding policy for qualified pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. Assets for these plans consist principally investments in U.S. and international equities, government and corporate bonds, and real estate. At December 31, 2002, the pension plans held 2.0 million shares of the Company's common stock with a fair value of $36.8 million. Amortization of unrecognized transition assets and liabilities, prior service cost and gains and losses (if applicable) are recorded using the straight-line method over the average remaining service period of active employees, or approximately 12 years. 57 PENSIONS The following table sets forth the status of the Company's defined benefit pension plans as of December 31, 2002 and 2001, and the amounts recorded in the Consolidated Balance Sheet at these dates. The pension benefits related to discontinued operations retained by the Company are included in the amounts below.

U.S. PLANS NON-U.S. PLANS ------------------------- --------------------- (IN MILLIONS) 2002 2001 2002 2001 - ------------- ---------- ---------- -------- -------- CHANGE IN PROJECTED BENEFIT OBLIGATIONS Projected benefit obligation at beginning of year............. $ 1,930.2 $ 1,962.9 $ 30.3 $ 24.6 Service cost.................................................. 30.9 27.1 6.1 1.4 Interest cost................................................. 147.7 142.6 6.8 1.8 Amendments.................................................... 14.5 4.2 -- -- Actuarial (gains) losses...................................... 170.0 (34.9) (29.9) 1.8 Participant contributions..................................... -- -- 2.0 0.8 Acquisitions (divestitures)/other............................. 71.8 0.4 332.3 1.9 Curtailment/settlement........................................ -- -- (0.4) -- Foreign currency translation.................................. -- -- 10.2 (1.1) Benefits paid................................................. (184.3) (172.1) (1.8) (0.9) ---------- ---------- -------- -------- Projected benefit obligation at end of year................... $ 2,180.8 $ 1,930.2 $ 355.6 $ 30.3 ---------- ---------- -------- ------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year................ $ 1,815.0 $ 2,083.2 $ 27.6 $ 27.7 Actual return on plan assets.................................. (86.1) (104.7) 6.4 (0.7) Acquisitions (divestitures)/other............................. 38.8 -- 314.8 -- Participant contributions..................................... -- -- 2.0 0.8 Company contributions......................................... 43.3 8.6 4.1 1.9 Foreign currency translation................................... -- -- 10.2 (1.2) Benefits paid................................................. (184.3) (172.1) (1.8) (0.9) ---------- ---------- -------- -------- Fair value of plan assets at end of year...................... $ 1,626.7 $ 1,815.0 $ 363.3 $ 27.6 ---------- ---------- -------- ------- FUNDED STATUS (UNDERFUNDED) Funded status................................................. $ (554.1) $ (115.2) $ 7.7 $ (2.7) Unrecognized net actuarial (gain) loss........................ 660.2 250.7 (24.8) 4.4 Unrecognized prior service cost............................... 49.0 41.9 0.4 0.5 Unrecognized net transition obligation........................ -- 1.5 (0.1) (0.1) ---------- ---------- -------- --------- Prepaid (accrued) benefit cost................................ $ 155.1 $ 178.9 $ (16.8) $ 2.1 ========== ========== ======== ======== AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL POSITION CONSIST OF: Prepaid benefit cost.......................................... $ 249.4 $ 238.7 $ 2.7 $ 3.5 Intangible asset.............................................. 48.1 22.8 0.3 -- Accumulated other comprehensive (income) loss................. 584.4 79.5 1.0 -- Additional minimum liability.................................. (632.5) (102.3) (1.3) -- Accrued benefit liability..................................... (94.3) (59.8) (19.5) (1.4) ---------- ---------- -------- -------- NET AMOUNT RECOGNIZED......................................... $ 155.1 $ 178.9 $ (16.8) $ 2.1 ========== ========== ======== ======== WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate................................................. 6.875% 7.50% 6.04% 6.73% Expected return on plan assets(1)............................. 9.25% 9.25% 8.46% 7.79% Rate of compensation increase................................. 3.86% 4.06% 3.27% 3.69%

(1) - Effective January 1, 2003, the expected return on plan assets was changed to 9.0% for U.S. plans. 58 Defined benefit plans with projected benefit obligations exceeding the fair value of plan assets were as follows at December 31, 2002 and 2001:

U.S. PLANS NON-U.S. PLANS ------------------------- -------------------- (IN MILLIONS) 2002 2001 2002 2001 - ------------- ---------- -------- ------- ------- Aggregate fair value of plan assets................................... $ 1,626.7 $ 404.4 $ 24.7 $ 14.2 Aggregate projected benefit obligation................................ $ 2,180.8 $ 533.0 $ 39.2 $ 17.1

Defined benefit plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows at December 31, 2002 and 2001:

U.S. PLANS NON-U.S. PLANS ------------------------- -------------------- (IN MILLIONS) 2002 2001 2002 2001 - ------------- ---------- -------- ------- ------- Aggregate fair value of plan assets................................... $ 1,626.7 $ 404.4 $ 24.7 $ 8.4 Aggregate accumulated benefit obligation.............................. $ 2,104.1 $ 516.4 $ 33.8 $ 10.7

In 2002, global capital market developments resulted in negative returns on the Company's pension plan assets and a decline in the discount rate used to estimate the pension liability. As a result, the Company adjusted the minimum pension liability recorded in its consolidated Balance Sheet. The effect of this adjustment was to increase the additional minimum pension liability by $531.5 million, increase intangible assets by $25.6 million, increase deferred income tax assets by $178.1 million, and increase accumulated other comprehensive loss by $327.8 million ($505.9 million on a pre-tax basis).

U.S. PLANS NON-U.S. PLANS --------------------------------- -------------------------- (IN MILLIONS) 2002 2001 2000 2002 2001 2000 - ------------- ------- ------- ------- ----- ----- ----- COMPONENTS OF NET PERIODIC BENEFIT COST (INCOME): Service cost ......................................... $ 30.9 $ 27.1 $ 27.4 $ 6.1 $ 1.4 $ 1.4 Interest cost ........................................ 147.7 142.6 145.5 6.8 1.8 1.6 Expected return on plan assets ....................... (166.9) (186.5) (188.2) (8.8) (2.2) (2.1) Amortization of prior service cost ................... 9.2 8.1 12.0 -- -- -- Amortization of transition obligation ................ 1.5 3.1 1.1 -- -- -- Recognized net actuarial (gain) loss ................. 8.3 (3.5) (8.6) 0.1 -- -- ------- ------- ------- ----- ----- ----- Benefit cost (income) ................................ 30.7 (9.1) (10.8) 4.2 1.0 0.9 Settlements and curtailments (gain)/loss ............. 0.5 15.6 9.5 -- -- -- Special termination benefit charge (credit) .......... 1.9 1.3 -- -- -- -- ------- ------- ------- ----- ----- ----- $ 33.1 $ 7.8 $ (1.3) $ 4.2 $ 1.0 $ 0.9 ======= ======= ======= ===== ===== =====

59 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The following table sets forth the status of the Company's defined benefit postretirement plans as of December 31, 2002 and 2001, and the amounts recorded in the Consolidated Balance Sheet at these dates. The postretirement benefits related to discontinued operations retained by the Company are included in the amounts below.

(IN MILLIONS) 2002 2001 - -------------- --------- --------- CHANGE IN PROJECTED BENEFIT OBLIGATIONS Projected benefit obligation at beginning of year..................... $ 349.5 $ 350.3 Service cost.......................................................... 1.6 2.2 Interest cost......................................................... 25.5 27.2 Amendments............................................................ (0.2) -- Actuarial (gains) losses.............................................. 59.2 14.4 Acquisitions (divestitures)/other..................................... 8.8 2.3 Curtailment/settlement................................................ -- (8.4) Benefits paid......................................................... (35.9) (38.5) --------- --------- Projected benefit obligation at end of year........................... $ 408.5 $ 349.5 --------- --------- CHANGE IN PLAN ASSETS Fair value of plan assets at beginning of year........................ $ -- $ -- Company contributions................................................. 35.9 38.5 Benefits paid......................................................... (35.9) (38.5) --------- --------- Fair value of plan assets at end of year.............................. $ -- $ -- --------- --------- FUNDED STATUS (UNDERFUNDED) Funded status......................................................... $ (408.5) $ (349.5) Unrecognized net actuarial (gain) loss................................ 50.2 (5.1) Unrecognized prior service cost....................................... (0.9) (0.8) --------- --------- Accrued benefit cost.................................................. $ (359.2) $ (355.4) ========= ========= WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31 Discount rate......................................................... 6.875% 7.50%

For measurement purposes, a 10.0 percent annual rate of increase in the per capita cost of covered health care benefits was assumed for 2003. The rate was assumed to decrease gradually to 5.0 percent for 2007 and remain at that level thereafter.

(IN MILLIONS) 2002 2001 2000 - -------------- ------- ------- ------- COMPONENTS OF NET PERIODIC BENEFIT COST (INCOME): Service cost.................................................................. $ 1.6 $ 2.2 $ 2.3 Interest cost................................................................. 25.5 27.2 26.4 Amortization of prior service cost............................................ (0.1) (0.1) (1.9) Recognized net actuarial (gain) loss.......................................... -- 0.3 0.3 ------- ------- ------- Benefit cost (income)......................................................... 27.0 29.6 27.1 Settlements and curtailments (gain)/loss...................................... -- (8.5) -- Special termination benefit charge (credit)................................... -- 1.0 -- ------- ------- ------- $ 27.0 $ 22.1 $ 27.1 ======= ======= =======

60 The table below quantifies the impact of a one percentage point change in the assumed health care cost trend rate.

1 PERCENTAGE 1 PERCENTAGE (IN MILLIONS) POINT POINT INCREASE DECREASE ------------ ------------ Effect on total of service and interest cost components in 2002................... $ 1.6 $ 1.4 Effect on postretirement benefit obligation as of December 31, 2002............... $ 25.4 $ 22.2

The Company also maintains voluntary retirement savings plans for salaried and wage employees. Under provisions of these plans, eligible employees can receive Company matching contributions on up to the first 6 percent of their eligible earnings. For 2002, 2001 and 2000, Company contributions amounted to $47.0 million, $36.9 million, and $37.5 million, respectively. Company contributions include amounts related to employees of discontinued operations. NOTE L. INCOME TAXES Income from continuing operations before income taxes and Trust distributions as shown in the Consolidated Statement of Income consists of the following:

(IN MILLIONS) 2002 2001 2000 - ------------- -------- -------- -------- Domestic...................................................... $ 269.0 $ 225.7 $ 314.6 Foreign....................................................... 0.6 56.0 52.4 -------- -------- -------- TOTAL......................................................... $ 269.6 $ 281.7 $ 367.0 ======== ======== ========

A summary of income tax (expense) benefit from continuing operations in the Consolidated Statement of Income is as follows:

(IN MILLIONS) 2002 2001 2000 - ------------- -------- -------- --------- Current: Federal..................................................... $ (6.5) $ (43.3) $ (128.7) Foreign..................................................... 0.8 (29.3) (19.6) State....................................................... (3.9) (3.2) (6.2) -------- -------- --------- (9.6) (75.8) (154.5) -------- -------- --------- Deferred: Federal..................................................... (82.2) (24.8) 46.1 Foreign..................................................... (1.4) 6.3 (12.9) -------- -------- --------- (83.6) (18.5) 33.2 -------- -------- --------- TOTAL................................................... $ (93.2) $ (94.3) $ (121.3) ======== ======== =========

61 Significant components of deferred income tax assets and liabilities at December 31, 2002 and 2001, are as follows:

(IN MILLIONS) 2002 2001 - ------------- --------- --------- Deferred income tax assets: Accrual for postretirement benefits other than pensions..................... $ 159.2 $ 144.1 Inventories................................................................. 69.2 57.0 Other nondeductible accruals................................................ 37.5 41.4 Tax credit and net operating loss carryovers................................ 37.1 37.1 Employee benefits plans..................................................... 11.6 4.6 Pensions.................................................................... 170.7 1.8 Other....................................................................... 62.1 92.0 --------- --------- Total deferred income tax assets.......................................... 547.4 378.0 --------- --------- Deferred income tax liabilities: Tax over book depreciation.................................................. (91.4) (73.5) Tax over book intangible amortization....................................... (75.7) (65.6) Tax over book interest expense.............................................. (84.9) (82.2) Other....................................................................... (128.6) (57.7) --------- --------- Total deferred income tax liabilities..................................... (380.6) (279.0) --------- --------- NET DEFERRED INCOME TAX ASSET................................................. $ 166.8 $ 99.0 ========= =========

Management has determined, based on the Company's history of prior earnings and its expectations for the future, that taxable income of the Company will more likely than not be sufficient to recognize fully these net deferred tax assets. In addition, management's analysis indicates that the turnaround periods for certain of these assets are for long periods of time or are indefinite. In particular, the turnaround of the largest deferred tax asset related to the accrual for postretirement benefits other than pensions will occur over an extended period of time and, as a result, will be realized for tax purposes over those future periods. The tax credit and net operating loss carryovers, principally relating to Rohr, are primarily comprised of federal net operating loss carryovers of $62.8 million, which expire in the years 2005 through 2013, and investment tax credit and other credits of $15.1 million, which expire in the years 2003 through 2014. The remaining deferred tax assets and liabilities approximately match each other in terms of timing and amounts and should be realizable in the future, given the Company's operating history. The effective income tax rate from continuing operations varied from the statutory federal income tax rate as follows:

PERCENT OF INCOME PRETAX -------------------------------------------- 2002 2001 2000 ------ ------ ------ Statutory federal income tax rate.................................. 35.0% 35.0% 35.0% Amortization of nondeductible goodwill............................. -- 1.4 0.7 Credits............................................................ -- (0.5) (0.4) State and local taxes.............................................. 0.9 0.7 1.1 Tax exempt income from foreign sales corporation................... (5.7) (6.7) (3.8) Trust distributions................................................ (1.4) (1.3) (1.0) Repatriation of non-U.S. earnings.................................. 3.1 0.9 (0.4) In-process research and development................................ 1.6 -- -- Other items........................................................ 1.1 4.0 1.9 ------ ------ ------ Effective income tax rate.......................................... 34.6% 33.5% 33.1% ====== ====== ======

The Company has not provided for U.S. federal and foreign withholding taxes on $244.3 million of foreign subsidiaries' undistributed earnings as of December 31, 2002, because such earnings are intended to be reinvested indefinitely. It is not practical to determine the amount of income tax liability that would result had such earnings actually been repatriated. On repatriation, certain foreign countries impose withholding taxes. The amount of withholding tax that would be payable on remittance of the entire amount of undistributed earnings would approximate $19.8 million. 62 NOTE M. BUSINESS SEGMENT INFORMATION Due to the acquisition of Aeronautical Systems from TRW in 2002, the spin-off of the Engineered Industrial Products segment in 2002, and the sale of the Performance Materials segment in 2001, the Company redefined its segments. The Company's operations are now classified into five business segments: Aerostructures and Aviation Technical Services, Landing Systems, Engine and Safety Systems, Electronic Systems and Aeronautical Systems. Accordingly, the Company has reclassified all periods based on its revised segment reporting. AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES The core products of the Company's Aerostructures division are nacelles, pylons, thrust reversers and related aircraft engine housing components. The Company is a leading worldwide supplier of nacelles, which are the aerodynamic structures that surround engines, and pylons, which are the engine-to-wing structures that support engines and provide the critical connective conduit for fuel delivery and numerous engine-driven aircraft systems. In addition, the Company manufactures a range of specialized aerostructures, including lightweight, temperature-resistant auxiliary power unit tailcones for jetliners, corrosion-resistant structures for tactical military aircraft, and rigid cargo barriers for freighter aircraft. The Company also manufactures a variety of galley, wing, nacelle, thrust reverser, flight control surface and assembly components for out-of-production aircraft. Through the Aviation Technical Services division, the Company services approximately 550 aircraft each year and is among the largest independent providers of maintenance, repair, overhaul and modification services in the world. Services provided by the Company's Aviation Technical Services division range from the repair of individual components and systems to heavy maintenance and modifications of large commercial aircraft and business jet aircraft. The Company performs comprehensive total aircraft maintenance, repair, overhaul and modification for many commercial airlines, independent operators, aircraft leasing companies and airfreight carriers. LANDING SYSTEMS The Company's Landing Systems segment provides systems and components related to aircraft taxi, take-off, landing and stopping. Several divisions within this segment are linked by their ability to contribute to the integration, design, manufacture and service of entire aircraft undercarriage systems, including landing gear, wheels and brakes, and certain brake controls. The Company differentiates itself from component suppliers by providing integrated systems, delivered as completely pre-assembled units to airframe manufacturers. The Company also provides complete repair and overhaul services for landing gear, wheels and brakes. In addition, through the Company's engineered polymer products division, the Company designs and produces components made from proprietary, high-performance composite material systems used in naval ships and submarines to improve acoustic characteristics and reduce radar signature of exposed superstructures. ENGINE AND SAFETY SYSTEMS The Company's Engine and Safety Systems segment produces a variety of products used in engine systems, including fuel delivery systems, electronic and mechanical controls, pumps, metering devices, manifolds and rotating components such as disks, blisks, shafts and airfoils for both aerospace and industrial gas turbine applications. The segment also provides evacuation systems such as slides and floats and seats for pilots, observers and flight attendants. The Company's de-icing and specialty systems division produces ice protection systems for general aviation, heating and related systems for large commercial transport aircraft, and potable water systems for regional and business aircraft. The Company also supplies electrothermal ice protection systems for airframe, propeller and helicopter rotor applications and specialty heating systems, water heaters and other internal and external heated components for large commercial transport aircraft. Through the Company's propulsion systems division, the Company provides research, design, development, qualifications and manufacture of advanced aircrew escape systems. The Company also supplies individual components such as rocket motors and catapults, pyrotechnic gas generators, ejection seats, precision electro-explosive devices, propellants, linear actuators, and safety and arming devices. 63 ELECTRONIC SYSTEMS The Company's Electronic Systems segment produces a wide array of products that provide flight performance measurements, flight management, and control and safety data. The Company supplies a variety of high-performance sensor systems, such as stall warning systems and systems that measure, manage and/or monitor aircraft fuel; oil debris; engine, transmission and structural health; and aircraft motion and control. The Company also supplies a variety of avionics systems and other instruments, including warning and detection systems, ice detection systems, test equipment, aircraft lighting systems, landing gear cables and harnesses, satellite control, data management and payload systems, launch and missile telemetry systems, airborne reconnaissance systems and laser warning systems. In addition, the Company's optical and space systems division designs and builds high-performance, custom-engineered electronics, optics and electro-optical products for defense, aerospace, scientific and commercial applications. The Company also produces directional surveying equipment for use by companies operating in petroleum, mining and utility industries. AERONAUTICAL SYSTEMS Aeronautical Systems manufactures highly engineered systems and equipment in the following product groups: - Engine controls. This product group consists of engine control systems and components for jet engines used on commercial and military aircraft, including fuel metering controls, fuel pumping systems, electronic control software and hardware, variable geometry actuation controls, afterburner fuel pump and metering unit nozzles, and engine health monitoring systems. - Flight controls. This product group includes actuators for primary flight control systems that operate elevators, ailerons and rudders, as well as secondary flight controls systems such as flaps and slats. - Power systems. This product group consists of systems that produce and control electrical power for commercial and military aircraft, including electric generators for both main and back-up electrical power, electric starters, and electric starter generating systems, as well as power management and distribution systems. - Cargo systems. This product group consists of fully-integrated main deck and lower lobe cargo systems for wide body aircraft. - Hoists and winches. This product group consists of airborne hoists and winches used on both helicopters and fixed wing aircraft. - Actuation systems. This product group consists of systems that control the movement of steering systems for missiles as well as electro-mechanical systems that are characterized by high power, low weight, low maintenance, resistance to extreme temperatures and vibrations, and high reliability. Segment operating income is total segment revenue reduced by operating expenses identifiable with that business segment, except that in-process research and development, the Aeronautical Systems inventory step-up, restructuring and consolidation costs, and unusual inventory adjustments are presented separately. Unusual inventory adjustments are classified within cost of sales and relate primarily to inventory adjustments associated with reducing the Company's investment in the Boeing 717 program and in its Super 27 re-engining program due to reduced expectations for these programs. The reduced expectations for the Boeing 717 program relate directly to Boeing's announced production schedule reductions for this program during the fourth quarter of 2001, while the Super 27 reduction in expectations was primarily due to deteriorating economic conditions and the September 11th terrorist attacks. The accounting policies of the reportable segments are the same as those for the consolidated Company. There are no significant intersegment sales. 64

(in millions) 2002 2001 2000 - ------------- ---------- ---------- ---------- SALES Aerostructures and Aviation Technical Services.................. $ 1,176.9 $ 1,493.6 $ 1,427.0 Landing Systems................................................. 1,038.2 1,149.1 1,057.7 Engine and Safety Systems....................................... 638.8 762.6 644.4 Electronic Systems.............................................. 791.9 779.2 571.4 Aeronautical Systems............................................ 264.4 -- -- ---------- ---------- ---------- TOTAL SALES............................................ $ 3,910.2 $ 4,184.5 $ 3,700.5 ========== ========== ========== OPERATING INCOME Aerostructures and Aviation Technical Services................... $ 169.9 $ 226.0 $ 209.6 Landing Systems.................................................. 140.1 153.1 149.0 Engine and Safety Systems........................................ 79.2 131.9 117.5 Electronic Systems............................................... 135.3 133.1 117.5 Aeronautical Systems............................................. 8.4 -- -- ---------- ---------- ---------- 532.9 644.1 593.6 Corporate General and Administrative Expenses.................... (59.0) (57.7) (59.7) Restructuring and Consolidation Costs............................ (41.3) (107.3) (44.2) In-process research and development written off.................. (12.5) -- -- Aeronautical System inventory step-up............................ (58.8) -- -- Unusual Inventory Adjustments.................................... -- (94.5) -- ---------- ---------- ---------- TOTAL OPERATING INCOME.................................. $ 361.3 $ 384.6 $ 489.7 ========== ========== ========== SPECIAL ITEMS Aerostructures and Aviation Technical Services................... $ 11.8 $ 130.3 $ 3.6 Landing Systems.................................................. 1.9 44.7 25.3 Engine and Safety Systems........................................ 20.3 17.7 1.7 Electronic Systems............................................... 7.0 6.6 0.5 Aeronautical Systems............................................. 71.3 -- -- ---------- ---------- ---------- TOTAL SEGMENT SPECIAL ITEMS............................. $ 112.3 $ 199.3 $ 31.1 ========== ========== ========== ASSETS Aerostructures and Aviation Technical Services................... $ 1,135.7 $ 1,176.6 $ 1,216.6 Landing Systems.................................................. 891.8 949.0 935.8 Engine and Safety Systems........................................ 486.2 529.7 516.6 Electronic Systems............................................... 927.5 1,013.9 843.4 Aeronautical Systems............................................. 1,785.1 -- -- Assets of Discontinued Operations................................ -- 873.9 2,044.0 Corporate........................................................ 763.3 657.3 495.9 ---------- ---------- ---------- TOTAL ASSETS............................................ $ 5,989.6 $ 5,200.4 $ 6,052.3 ========== ========== ==========

65

(in millions) 2002 2001 2000 - ------------- --------- --------- --------- CAPITAL EXPENDITURES Aerostructures and Aviation Technical Services .................... $ 28.8 $ 64.9 $ 38.8 Landing Systems ................................................... 34.0 62.3 42.5 Engine and Safety Systems ......................................... 13.0 30.4 26.9 Electronic Systems ................................................ 10.5 23.4 11.7 Aeronautical Systems .............................................. 14.2 -- -- Corporate ......................................................... 6.8 9.5 13.9 --------- --------- --------- TOTAL CAPITAL EXPENDITURES ..................................... $ 107.3 $ 190.5 $ 133.8 ========= ========= ========= DEPRECIATION AND AMORTIZATION EXPENSE Aerostructures and Aviation Technical Services .................... $ 51.4 $ 46.8 $ 43.9 Landing Systems ................................................... 55.9 53.9 64.8 Engine and Safety Systems ......................................... 26.8 29.2 24.5 Electronic Systems ................................................ 30.3 41.7 31.5 Aeronautical Systems .............................................. 16.2 -- -- Corporate ......................................................... 2.9 2.2 0.7 --------- --------- --------- TOTAL DEPRECIATION AND AMORTIZATION ............................... $ 183.5 $ 173.8 $ 165.4 ========= ========= ========= GEOGRAPHIC AREAS NET SALES United States ..................................................... $ 2,473.2 $ 2,693.5 $ 1,872.7 Canada ............................................................ 157.3 177.4 166.5 Europe(1) ......................................................... 914.4 938.5 1,043.9 Other Foreign ..................................................... 365.3 375.1 617.4 --------- --------- --------- TOTAL .......................................................... $ 3,910.2 $ 4,184.5 $ 3,700.5 ========= ========= ========= PROPERTY United States ..................................................... $ 839.3 $ 839.5 $ 818.4 Canada ............................................................ 63.0 65.9 53.0 Europe ............................................................ 317.1 42.6 20.3 Other Foreign ..................................................... 20.9 7.5 5.3 --------- --------- --------- TOTAL .......................................................... $ 1,240.3 $ 955.5 $ 897.0 ========= ========= =========

(1) In 2002, sales to customers in Great Britain and France represented 38 percent and 33 percent, respectively, of sales to customers in Europe. Sales were allocated to geographic areas based on the country to which the product was shipped. In 2002, 2001 and 2000, direct and indirect sales to Boeing totaled 20 percent, 23 percent and 23 percent, respectively, of consolidated sales. In 2002, 2001 and 2000, direct and indirect sales to Airbus totaled 13 percent of consolidated sales. In 2002, 2001 and 2000, direct and indirect sales to the U.S. government totaled 20 percent, 16 percent and 9 percent, respectively, of consolidated sales. Effective January 1, 2003, the Company reorganized into three business segments: Airframe Systems, Engine Systems and Electronic Systems. The Company will begin reporting financial results under the new segment structure beginning with the first quarter of 2003, and will reclassify all periods based on its revised segment reporting. 66 NOTE N. SUPPLEMENTAL BALANCE SHEET INFORMATION

CHARGED BALANCE TO COSTS WRITE-OFF BALANCE BEGINNING AND OF DOUBTFUL AT END (IN MILLIONS) OF YEAR EXPENSE OTHER ACCOUNTS OF YEAR - ------------- --------- -------- ------- ------------ ------- RECEIVABLE ALLOWANCE Year ended December 31, 2002......................... $ 56.6 $ 15.0 $ (5.4)(1) $ (14.5) $ 51.7 Year ended December 31, 2001......................... 28.6 23.6 8.4 (2) (4.0) 56.6 Year ended December 31, 2000......................... 20.1 15.6 -- (7.1) 28.6

(1) Allowance related to Aeronautical Systems acquisition and reversal of allowance related to Performance Materials working capital dispute. (2) Allowance related to acquisitions and Performance Materials working capital adjustment dispute (see Note U).

(IN MILLIONS) 2002 2001 - ------------- ----------- ---------- PROPERTY Land...................................................... $ 89.4 $ 44.1 Buildings and improvements................................ 664.9 585.0 Machinery and equipment................................... 1,412.5 1,142.5 Construction in progress.................................. 81.1 151.6 ----------- ---------- 2,247.9 1,923.2 Less allowances for depreciation.......................... (1,007.6) (967.7) ----------- ---------- TOTAL .................................................... $ 1,240.3 $ 955.5 =========== ==========

Property includes assets acquired under capital leases, principally buildings and machinery and equipment, of $22.2 million and $17.4 million at December 31, 2002 and 2001, respectively. Related allowances for depreciation are $7.1 million and $6.5 million, respectively. Interest costs capitalized from continuing operations were $0.4 million in 2002, $1.4 million in 2001 and $1.0 million in 2000.

(IN MILLIONS) 2002 2001 - ------------- -------- -------- ACCRUED EXPENSES Wages, vacations, pensions and other employment costs......................... $ 171.9 $ 188.6 Postretirement benefits other than pensions................................... 36.0 35.0 Taxes other than federal and foreign income taxes............................. 21.6 23.3 Accrued environmental liabilities............................................. 16.8 9.5 Accrued interest.............................................................. 37.0 31.8 Restructuring and consolidation............................................... 23.4 45.2 Other......................................................................... 270.6 173.0 -------- -------- TOTAL......................................................................... $ 577.3 $ 506.4 ======== ========

(IN MILLIONS) 2002 2001 - ------------- --------- --------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Unrealized foreign currency translation...................................... $ (8.0) $ (57.4) Minimum pension liability.................................................... (380.5) (52.7) Accumulated gain on cash flow hedges......................................... 19.4 -- --------- --------- TOTAL........................................................................ $ (369.1) $ (110.1) ========= =========

The minimum pension liability amounts above are net of deferred taxes of $204.9 million and $26.8 million in 2002 and 2001, respectively. The accumulated gain on cash flow hedges above is net of deferred taxes of $9.6 million in 2002. 67 FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's accounting policies with respect to financial instruments are described in Note A. The carrying amounts of the Company's significant balance sheet financial instruments approximate their respective fair values at December 31, 2002 and 2001, and are presented below.

2002 2001 ----------------------------- ---------------------------- CARRYING FAIR CARRYING FAIR (IN MILLIONS) VALUE VALUE VALUE VALUE - ------------- ---------- ---------- ---------- ---------- Long-term debt........................................... $ 2,132.8 $ 2,228.0 $ 1,313.1 $ 1,211.7 QUIPS (see Note S)....................................... $ 125.4 $ 125.7 $ 125.0 $ 128.3 PIK Notes................................................ $ 141.7 $ 140.2 $ 168.4 $ 167.0

Derivative financial instruments at December 31, 2002 and 2001 were as follows:

2002 2001 ----------------------- ----------------------- CONTRACT/ CONTRACT/ NOTIONAL FAIR NOTIONAL FAIR (IN MILLIONS) AMOUNT VALUE AMOUNT VALUE - ------------- -------- ------- --------- ------- Interest rate swaps.............................................. $ -- $ -- $ 200.0 $ 7.3 Foreign currency forward contracts............................... 751.2 29.0 $ -- --

The Company has an outstanding contingent liability for guaranteed debt and lease payments of $4.5 million, and for letters of credit and bank guarantees of $43.1 million. It was not practical to obtain independent estimates of the fair values for the contingent liability for guaranteed debt and lease payments and for letters of credit. In the opinion of management, non-performance by the other parties to the contingent liabilities will not have a material effect on the Company's results of operations or financial condition. GUARANTEES The Company extends financial and product performance guarantees to third parties. As of December 31, 2002 the following were outstanding:

MAXIMUM CARRYING POTENTIAL AMOUNT OF (IN MILLIONS) PAYMENT LIABILITY --------- --------- Environmental remediation indemnification (Note V) No limit $ 20.8 Financial Guarantees: TIDES $ 150.0 $ -- Debt and lease payments $ 4.5 $ -- Executive loans to purchase Company stock $ 9.3 $ --

The Company accrues for costs associated with guarantees when it is probable that a liability has been incurred and the amount can be reasonably estimated. The most likely cost to be incurred is accrued based on an evaluation of currently available facts, and where no amount within a range of estimates is more likely, the minimum is accrued. The Company provides service and warranty policies on its products. Liability under service and warranty policies is based upon a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience warrant. In addition, the Company incurs discretionary costs to service its products in connection with product performance issues. 68 The changes in the carrying amount of service and product warranties for the year ended December 31, 2002, are as follows:

(IN MILLIONS) Balance at December 31, 2001 $ 57.6 Service and product warranty provision 23.0 Aeronautical Systems opening balance sheet provision 8.1 Payments (19.3) -------- Balance at December 31, 2002 $ 69.4 ========

NOTE O. DERIVATIVES AND HEDGING ACTIVITIES CASH FLOW HEDGES One of the Company's subsidiaries conducts a substantial portion of its business in Euros but has significant sales contracts that are denominated in U.S. dollars. In March 2002, we entered into 21 individual forward contracts that mature on a monthly basis from April 2002 to December 2003 to exchange U.S. dollars for Euros. The Aeronautical Systems businesses conduct a substantial portion of their business in Great Britain Pounds and Euros but have significant sales contracts that are denominated in U.S. dollars. In October 2002, the Company entered into forward contracts that mature on a monthly basis from October 2002 to April 2007, with an aggregate notional amount of $706.8 million to buy Great Britain Pounds and an aggregate notional amount of $89.4 million to buy Euros. The forward contracts described above are used to mitigate the potential volatility to cash flow arising from changes in currency exchange rates. The hedges are being accounted for as cash flow hedges. As of December 31, 2002, forward contracts with an aggregate notional amount of $656.0 million to buy Great Britain Pounds and an aggregate notional amount of $95.2 million to buy Euros were still outstanding. The derivatives are recorded at fair value with the offset reflected in accumulated other comprehensive income, net of deferred taxes. The fair value of the hedges at December 31, 2002 was an asset of $29.0 million, of which $10.0 million is recorded in Prepaid Expenses and Other Assets and $19.0 million is recorded in Other Assets. The $29.0 million gross gain (before deferred taxes of $9.6 million) recorded in accumulated other comprehensive income will be reflected in income as the individual contracts mature, and the hedged item impacts earnings. As of December 31, 2002, the portion of the $29.0 million gain that would be reclassified into earnings as an increase in sales in the next 12 months is a gain of $10.0 million. FAIR VALUE HEDGE In September 2002, the Company terminated its interest rate swap agreement, prior to its maturity in 2009, on its $200.0 million, 6.6 percent senior notes due in 2009. At termination, the Company received $29.4 million in cash, comprised of a $2.6 million receivable representing the amount owed on the interest rate swap from the previous settlement date and $26.8 million representing the fair value of the interest rate swap at the time of termination. The carrying amount of the notes was increased by $26.8 million representing the fair value of the debt due to changes in interest rates for the period hedged. This amount is being amortized as a reduction to interest expense over the remaining term of the debt. 69 NOTE P. SUPPLEMENTAL CASH FLOW INFORMATION The following table sets forth non-cash financing and investing activities and other cash flow information. Acquisitions accounted for under the purchase method are summarized as follows:

(IN MILLIONS) 2002 2001 2000 - ------------- ----------- ---------- ----------- Estimated fair value of tangible assets acquired.................. $ 1,002.7 $ 5.5 $ 200.1 Goodwill and identifiable intangible assets acquired ............. 830.1 142.1 109.0 Cash paid......................................................... (1,472.6) (119.2) (246.8) ----------- ---------- ----------- Liabilities assumed or created.................................... $ 360.2 $ 28.4 $ 62.3 =========== ========= =========== Interest paid (net of amount capitalized)......................... $ 87.2 $ 138.9 $ 165.1 Income taxes paid (refunds received), net......................... $ (46.7) $ 122.4 $ 204.8

Interest and income taxes paid include amounts related to discontinued operations. NOTE Q. PREFERRED STOCK There are 10,000,000 authorized shares of Series Preferred Stock -- $1 par value. Shares of Series Preferred Stock that have been redeemed are deemed retired and extinguished and may not be reissued. As of December 31, 2002, 2,401,673 shares of Series Preferred Stock have been redeemed, and no shares of Series Preferred Stock were outstanding. The Board of Directors establishes and designates the series and fixes the number of shares and the relative rights, preferences and limitations of the respective series of the Series Preferred Stock. CUMULATIVE PARTICIPATING PREFERRED STOCK -- SERIES F The Company has 200,000 shares of Junior Participating Preferred Stock -- Series F -- $1 par value authorized at December 31, 2002. Series F shares have preferential voting, dividend and liquidation rights over the Company's common stock. At December 31, 2002, no Series F shares were issued or outstanding and 134,028 shares were reserved for issuance. On August 2, 1997, the Company made a dividend distribution of one Preferred Share Purchase Right (Right) on each share of the Company's common stock. These Rights replace previous shareholder rights which expired on August 2, 1997. Each Right, when exercisable, entitles the registered holder thereof to purchase from the Company one one-thousandth of a share of Series F Stock at a price of $200 per one one-thousandth of a share (subject to adjustment). The one one-thousandth of a share is intended to be the functional equivalent of one share of the Company's common stock. The Rights are not exercisable or transferable apart from the common stock until an Acquiring Person, as defined in the Rights Agreement, without the prior consent of the Company's Board of Directors, acquires 20 percent or more of the voting power of the Company's common stock or announces a tender offer that would result in 20 percent ownership. The Company is entitled to redeem the Rights at 1 cent per Right any time before a 20 percent position has been acquired or in connection with certain transactions thereafter announced. Under certain circumstances, including the acquisition of 20 percent of the Company's common stock, each Right not owned by a potential Acquiring Person will entitle its holder to purchase, at the Right's then-current exercise price, shares of Series F Stock having a market value of twice the Right's exercise price. Holders of the Right are entitled to buy stock of an Acquiring Person at a similar discount if, after the acquisition of 20 percent or more of the Company's voting power, the Company is involved in a merger or other business combination transaction with another person in which its common shares are changed or converted, or the Company sells 50 percent or more of its assets or earnings power to another person. The Rights expire on August 2, 2007. 70 NOTE R. COMMON STOCK During 2002, the Company sold 14.950 million shares of common stock in a public offering for net proceeds of $216.2 million. During 2002, 2001 and 2000, 0.474 million; 1.850 million and 1.230 million shares, respectively, of authorized but unissued shares of common stock were issued under the Stock Option Plan and other employee stock-based compensation plans. The Company acquired 0.060 million, 2.482 million and 9.330 million shares of treasury stock in 2002, 2001 and 2000, respectively, and reissued 0.198 million in 2000, in connection with the Stock Option Plan and other employee stock-based compensation plans. As of December 31, 2002, there were 16.967 million shares of common stock reserved for future issuance under the Stock Option Plan and other employee stock-based compensation plans. NOTE S. PREFERRED SECURITIES OF TRUST On July 6, 1995, BFGoodrich Capital, a wholly owned Delaware statutory business trust (Trust), which is consolidated by the Company, received $122.5 million, net of the underwriting commission, from the issuance of 8.3 percent Cumulative Quarterly Income Preferred Securities, Series A (QUIPS). The Trust invested the proceeds in 8.3 percent Junior Subordinated Debentures, Series A, due 2025 (Junior Subordinated Debentures) issued by the Company, which represent approximately 97 percent of the total assets of the Trust. The Company used the proceeds from the Junior Subordinated Debentures primarily to redeem all of the outstanding shares of the $3.50 Cumulative Convertible Preferred Stock, Series D. The QUIPS have a liquidation value of $25 per Preferred Security, mature in 2025 and are subject to mandatory redemption upon repayment of the Junior Subordinated Debentures. The Company has the option at any time on or after July 6, 2000, to redeem, in whole or in part, the Junior Subordinated Debentures with the proceeds from the issuance and sale of the Company's common stock within two years preceding the date fixed for redemption. The Company has unconditionally guaranteed all distributions required to be made by the Trust, but only to the extent the Trust has funds legally available for such distributions. The only source of funds for the Trust to make distributions to preferred security holders is the payment by the Company of interest on the Junior Subordinated Debentures. The Company has the right to defer such interest payments for up to five years. If the Company defers any interest payments, the Company may not, among other things, pay any dividends on its capital stock until all interest in arrears is paid to the Trust. 71 NOTE T. STOCK OPTION PLAN The 2001 Stock Option Plan, which will expire on April 17, 2011, unless renewed, provides for the awarding of or the granting of options to purchase 6,500,000 shares of common stock of the Company. Generally, options granted are exercisable at the rate of 35 percent after one year, 70 percent after two years and 100 percent after three years. Certain options are fully exercisable immediately after grant. The term of each option cannot exceed 10 years from the date of grant. All options granted under the Plan have been granted at not less than 100 percent of fair market value on the date of grant. The Company also has outstanding stock options under other employee stock-based compensation plans, including the pre-merger plans of Coltec and Rohr. These stock options are included in the disclosures below. Pro forma information regarding net income and earnings per share is required by FASB Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123), and has been determined as if the Company had accounted for its employee stock options under the fair value method of that statement. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions:

2002 2001 2000 ---- ---- ---- Risk-Free Interest Rate(%)............................................. 3.7 5.0 5.0 Dividend Yield(%)...................................................... 3.6 3.5 3.4 Volatility Factor(%)................................................... 47.4 44.2 37.5 Weighted-Average Expected Life of the Options (years).................. 7.0 7.0 7.0

The option valuation model requires the input of highly subjective assumptions, primarily stock price volatility, changes in which can materially affect the fair value estimate. The weighted-average fair values of stock options granted during 2002, 2001 and 2000 were $9.50, $13.78 and $8.65, respectively. 72 For purposes of the pro forma disclosures required by SFAS 123, the estimated fair value of the options is amortized to expense over the options vesting period. In addition, the grant-date fair value of performance shares is amortized to expense over the three-year plan cycle without adjustments for subsequent changes in the market price of the Company's common stock. The Company's pro forma information is as follows:

(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2002 2001 2000 - --------------------------------------- ---- ---- ---- Net income: As reported............................................................ $ 117.9 $ 289.2 $ 325.9 Pro forma.............................................................. 106.6 274.6 320.6 Earnings per share: Basic: As reported............................................................ $ 1.14 $ 2.80 $ 3.11 Pro forma.............................................................. 1.03 2.66 3.06 Diluted: As reported............................................................ $ 1.14 $ 2.76 $ 3.04 Pro forma.............................................................. 1.03 2.62 3.00

The effects of applying SFAS 123 in this pro forma disclosure are not likely to be representative of effects on reported net income for future years. Additional awards in future years are anticipated. A summary of the Company's stock option activity and related information follows:

(Options in Thousands) WEIGHTED-AVERAGE OPTIONS EXERCISE PRICE -------- ---------------- Year Ended December 31, 2002 Outstanding at beginning of year ........................................ 8,145.9 $ 33.60 Granted - before EnPro spin-off ....................................... 1,916.7 26.19 Exercised - before EnPro spin-off ..................................... (157.7) 24.05 Forfeited - before EnPro spin-off ..................................... (408.8) 31.44 Adjustment to outstanding options due to EnPro spin-off(1) ............ 420.5 Exercised - after EnPro spin-off ...................................... (19.1) 26.09 Forfeited - after EnPro spin-off ...................................... (437.0) 36.24 -------- Outstanding at end of year .............................................. 9,460.5 30.93 ======== Year Ended December 31, 2001 Outstanding at beginning of year ........................................ 8,519.6 $ 31.41 Granted ............................................................... 2,045.6 37.87 Exercised ............................................................. (1,834.9) 28.25 Forfeited ............................................................. (584.4) 32.55 -------- Outstanding at end of year .............................................. 8,145.9 33.60 ======== Year Ended December 31, 2000 Outstanding at beginning of year Granted ............................................................... 7,811.1 $ 30.10 Exercised ............................................................. 2,483.7 26.66 Forfeited ............................................................. (1,401.6) 22.10 Expired ............................................................... (373.6) 32.62 -------- Outstanding at end of year .............................................. 8,519.6 31.41 ========

(1) - At the time of the EnPro spin-off, the number of options and the exercise price per option were adjusted based on the ratio of the Company's stock price before and after the spin-off. 73 The following table summarizes information about the Company's stock options outstanding at December 31, 2002:

OPTIONS OUTSTANDING OPTIONS EXERCISABLE ------------------------------------------------ ---------------------------------- NUMBER WEIGHTED OUTSTANDING WEIGHTED AVERAGE AVERAGE NUMBER WEIGHTED RANGE OF (IN REMAINING EXERCISE EXERCISABLE AVERAGE EXERCISE PRICES THOUSANDS) CONTRACTUAL LIFE PRICE (IN THOUSANDS) EXERCISE PRICE - --------------- ---------- ---------------- -------- -------------- -------------- $18.40 -- $24.99...................... 893.8 2.0 years $ 20.70 888.5 $ 20.69 $25.10 -- $28.99...................... 3,438.1 7.9 years 25.36 1,680.7 25.52 $30.12 -- $36.44...................... 2,020.0 5.6 years 33.88 1,760.8 33.83 $37.01 -- $47.02...................... 3,108.6 6.3 years 38.13 2,373.6 38.48 ------- ------- Total................................. 9,460.5 6,703.6 ======= =======

During 2002, 2001 and 2000, restricted stock awards for 74,340, 8,150 and 12,300 shares, respectively, were made, including those made to employees of discontinued operations. Restricted stock awards may be subject to conditions established by the Board of Directors. Under the terms of the restricted stock awards, the granted stock vests two years and ten months after the award date. The cost of these awards, determined as the market value of the shares at the date of grant, is being amortized over the vesting period. In 2002, 2001 and 2000, $0.8 million, $0.3 million and $0.3 million, respectively, was charged to expense of continuing operations for restricted stock awards. The 2001 Stock Option Plan also provides that shares of common stock may be awarded as performance shares to certain key executives having a critical impact on the long-term performance of the Company. The plan is a phantom performance share plan. Dividends accrue on phantom shares and are reinvested in additional phantom shares. Under this plan, compensation expense is recorded based on the extent performance objectives are expected to be met. During 2002, 2001 and 2000, the Company issued 283,000, 318,800 and 856,800 phantom performance shares including those made to employees of discontinued operations, respectively. During 2002, 2001 and 2000, 10,100, 221,200 and 50,500 performance shares, respectively, were forfeited. In 2002, 2001 and 2000, $1.9 million, $5.1 million and $8.9 million, respectively, was charged to expense of continuing operations for performance shares. If the provisions of SFAS 123 had been used to account for awards of performance shares, the weighted-average grant-date fair value of performance shares granted in 2002, 2001 and 2000 would have been $33.98, $38.62 and $23.12 per share, respectively. In 2000, a final pro rata payout (approximately 127,000 shares) of the 1998 and 1999 awards was made in connection with the Company's adoption of new performance measures (approximately 10,000 of these shares were not issued as they were deferred by recipients). 74 NOTE U. DISCONTINUED OPERATIONS - The disposition of the Performance Materials and Engineered Industrial Products segments represent the disposal of segments under APB Opinion No. 30 (APB 30). Accordingly, the revenues, costs and expenses, assets and liabilities, and cash flows of Performance Materials and Engineered Industrial Products have been segregated in the Consolidated Statement of Income, Consolidated Balance Sheet and Consolidated Statement of Cash Flows. The following summarizes the results of discontinued operations:

(IN MILLIONS) 2002 2001 2000 -------- -------- ---------- Sales: Performance Materials $ -- $ 187.0 $ 1,167.7 Engineered Industrial Products 289.5 641.9 663.3 -------- -------- ---------- $ 289.5 $ 828.9 $ 1,831.0 ======== ======== ========== Pretax income (loss) from operations: Performance Materials $ -- $ (3.6) $ 69.0 Engineered Industrial Products (13.5) 46.1 94.4 -------- -------- ---------- (13.5) 42.5 163.4 Income tax expense 4.9 (15.8) (64.8) Distributions on trust preferred securities (3.3) (7.9) (7.9) Gain on sale of Performance Materials (net of income tax expense of $54.9 million) -- 93.5 -- -------- -------- ---------- Income from discontinued operations $ (11.9) $ 112.3 $ 90.7 ======== ======== ==========

PERFORMANCE MATERIALS On February 28, 2001, the Company completed the sale of its Performance Materials (PM) segment to an investor group led by AEA Investors, Inc. for approximately $1.4 billion. Total net proceeds, after anticipated tax payments and transaction costs, included approximately $1 billion in cash and $172 million in pay-in-kind (PIK) debt securities issued by the buyer, which is now known as Noveon International Inc. (Noveon). The transaction resulted in an after-tax gain of $93.5 million. During the second quarter 2002, a dispute over the computation of a post-closing working capital adjustment was resolved. The resolution of this matter did not have an effect on the previously reported gain. Pursuant to the terms of the transaction, the Company has retained certain assets and liabilities, primarily pension, postretirement and environmental liabilities, of Performance Materials. The Company has also agreed to indemnify Noveon for liabilities arising from certain events as defined in the agreement. Such indemnification is not expected to be material to the Company's financial condition, but could be material to the Company's results of operations in a given period. SPIN-OFF OF ENGINEERED INDUSTRIAL PRODUCTS On May 31, 2002, the Company completed the tax-free spin-off of its Engineered Industrial Products (EIP) segment. The spin-off was made through a tax-free distribution to the Company's shareholders of all of the capital stock of EnPro Industries, Inc., a subsidiary that we formed in connection with the spin-off. In the spin-off, the Company's shareholders received one share of EnPro common stock for every five shares of the Company's common stock owned on May 28, 2002, the record date. At the time of the spin-off, EnPro's only material asset was all of the capital stock and certain indebtedness of Coltec Industries Inc (Coltec). Coltec and its subsidiaries owned substantially all of the assets and liabilities of the EIP segment, including the associated asbestos liabilities and related insurance. Prior to the spin-off, Coltec also owned and operated an aerospace business. Before completing the spin-off, Coltec's aerospace business assumed all intercompany balances outstanding between Coltec and the Company and Coltec then transferred to the Company as a dividend all the assets, liabilities and operations of its aerospace business, including these assumed balances. Following this transfer and prior to the spin-off, all of the capital stock of Coltec was contributed to EnPro, with the result that at the time of the spin-off Coltec was a wholly-owned subsidiary of EnPro. 75 In connection with the spin-off, the Company and EnPro entered into a distribution agreement, a tax matters agreement, a transition services agreement, an employee matters agreement and an indemnification agreement, which govern the relationship between the Company and EnPro after the spin-off and provide for the allocation of employee benefits, tax and other liabilities and obligations attributable to periods prior to the spin-off. The spin-off was recorded as a dividend and resulted in a reduction of the Company's shareholders' equity of $409.1 million representing the recorded value of the net assets of the business distributed, including cash of $47.0 million. The distribution agreement provided for certain post-distribution adjustments relating to the amount of cash to be included in the net assets distributed. At December 31, 2002, the final adjustment had been calculated and is subject to a dispute resolution process. The Company expects that the effect of the final resolution of this process on the Consolidated Financial Statements will be immaterial. The $150 million of outstanding Coltec Capital Trust 5 1/4% convertible trust preferred securities (TIDES) that were reflected in liabilities of discontinued operations remained outstanding as part of the EnPro capital structure following the spin-off. The TIDES are convertible into shares of both Goodrich and EnPro common stock until April 15, 2028. The Company has guaranteed amounts owed by Coltec Capital Trust with respect to the TIDES and have guaranteed Coltec's performance of its obligations with respect to the TIDES and the underlying Coltec convertible subordinated debentures. EnPro, Coltec and Coltec Capital Trust have agreed to indemnify the Company from any costs and liabilities arising under or related to the TIDES after the spin-off. Prior to the spin-off, Coltec acquired certain call options on the Company's common stock in order to partially hedge its exposure to fluctuations in the market price of the Company's stock resulting from the TIDES. These call options remained an asset of Coltec following the spin-off. NOTE V: CONTINGENCIES GENERAL There are pending or threatened against the Company 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. The Company believes that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on its 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 is subject to various domestic and international environmental laws and regulations which may require that it investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under these laws. The measurement of environmental liabilities by the Company is based on currently available facts, present laws and regulations and current technology. Such estimates take into consideration the Company's prior experience in site investigation and remediation, the data concerning cleanup costs available from other companies and regulatory authorities and the professional judgment of the Company's environmental specialists in consultation with outside environmental specialists, when necessary. Estimates of the Company's liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation. 76 Accordingly, as investigation and remediation of these sites proceed, it is likely that adjustments in the Company's accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company's results of operations in a given period, but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on currently available information, however, the Company does not believe that future environmental costs in excess of those accrued with respect to sites with which the Company has been identified as a potentially responsible party are likely to have a material adverse effect on the Company's financial condition. There can be no assurance, however, that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on the Company's results of operations or cash flows in a given period. Environmental liabilities are recorded when the Company's liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when the Company has recommended a remedy or have committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigations and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. The liabilities are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites and an assessment of the likelihood that such parties will fulfill their obligations at such sites. At December 31, 2002, the Company's liabilities for environmental remediation obligations totaled $92.7 million, of which $19.0 million was included in current liabilities as Accrued Liabilities. Of the $92.7 million, $21.5 million was associated with ongoing operations and $71.2 million was associated with businesses previously disposed of or discontinued. The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. The Company expects that it will expend present accruals over many years, and will complete remediation of all sites with which it has been identified in up to 30 years. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years. TOLO LITIGATION In May 2000, the Company and its subsidiary Rohr, Inc. were served with a complaint in a lawsuit filed in the Superior Court of Orange County, California, by former shareholders and certain former employees of Tolo, Inc. Tolo is a subsidiary of Rohr that was acquired in 1997 pursuant to a stock purchase agreement. The former shareholders alleged that the Company and Rohr breached the stock purchase agreement by failing to pay $2.4 million under the terms of the agreement. In September 2001, a jury found that the Company was liable to the shareholders for the $2.4 million retained by Rohr under the stock purchase agreement and the Company was also assessed punitive damages of $48 million. The court subsequently reduced the punitive damage award to $24 million. The Company and Rohr appealed the judgment. In December 2002, the appellate court issued a ruling directing the trial court to enter judgment in favor of the Company and Rohr on both the fraud claim and the breach of contract claim. The plaintiffs' motion for rehearing of that ruling was subsequently denied. On February 10, 2003, the plaintiffs filed a petition for review with the California Supreme Court. The Company has until March 2, 2003 to respond to the petition. 77 ASBESTOS The Company and certain of its subsidiaries have been named as defendants in various actions by plaintiffs alleging injury or death as a result of exposure to asbestos fibers in products, or which may have been present in the Company's facilities. A number of these cases involve maritime claims, which have been and are expected to continue to be administratively dismissed by the court. These actions primarily relate to previously owned businesses. The Company believes that it has substantial insurance coverage available to it related to any remaining claims. As a result, the Company believes that these pending and reasonably anticipated future actions are not likely to have a material adverse effect on the Company's financial condition or results of operations. DISCONTINUED OPERATIONS At the time of the EIP spin-off, two subsidiaries of Coltec were defendants in a significant number of personal injury claims relating to alleged asbestos-containing products sold by those subsidiaries. It is possible that asbestos-related claims might be asserted against the Company on the theory that the Company has some responsibility for the asbestos-related liabilities of EnPro, Coltec or its subsidiaries, even though the activities that led to those claims occurred prior to the Company's ownership of any of those subsidiaries. Also, it is possible that a claim might be asserted against the Company that Coltec's dividend of its aerospace business to the Company prior to the spin-off was made at a time when Coltec was insolvent or caused Coltec to become insolvent. Such a claim could seek recovery from the Company on behalf of Coltec of the fair market value of the dividend. No such claims have been asserted against the Company to date. The Company believes that it would have substantial legal defenses against any such claims. In addition, the agreement between EnPro and the Company that was used to effectuate the spin-off provides the Company with an indemnification from EnPro covering, among other things, these liabilities. Any such asbestos-related claims would likely require, as a practical matter, that Coltec's subsidiaries were unable to satisfy their asbestos-related liabilities and that Coltec was found to be responsible for these liabilities and was unable to meet its financial obligations. The Company believes any such claims would be without merit and that Coltec was solvent both before and after the dividend. If the Company is ultimately found to be responsible for the asbestos-related liabilities of Coltec's subsidiaries, the Company believes it would not have a material adverse effect on its financial condition, but could have a material adverse effect on its results of operations and cash flows in a particular period. However, because of the uncertainty as to the number, timing and payments related to future asbestos-related claims, there can be no assurance that any such claims will not have a material adverse effect on the Company's financial condition, results of operations and cash flows. If a claim related to the dividend of Coltec's aerospace business were successful, it could have a material adverse impact on the Company's financial condition, results of operations and cash flows. GUARANTEES The Company has guaranteed amounts owed by Coltec Capital Trust with respect to the $150 million of outstanding 5 1/4 percent convertible trust preferred securities (TIDES) and has guaranteed Coltec's performance of its obligations with respect to the TIDES and the underlying Coltec convertible subordinated debentures. Following the spin-off of the EIP segment, the TIDES remained outstanding as an obligation of Coltec Capital Trust and the Company's guarantee with respect to the TIDES remains an obligation of the Company. EnPro, Coltec and Coltec Capital Trust have agreed to indemnify the Company from any costs and liabilities arising under or related to the TIDES after the spin-off. In addition to the Company's guarantee of the TIDES, the Company has an outstanding contingent liability for guaranteed debt and lease payments of $4.5 million and for letters of credit and bank guarantees of $43.1 million at December 31, 2002. 78 NOTE W: SUBSEQUENT EVENT On January 29, 2003, the Company announced that it had entered into a definitive agreement to sell its Avionics business to L-3 Communications Corporation (L-3) for $188 million. The transaction was approved by the boards of directors of the Company and L-3. Subject to customary regulatory approvals, the sale is expected to close late in the first quarter or early in the second quarter of 2003. After-tax proceeds are expected to be approximately $134 million. Avionics Systems will be reported as a discontinued operation beginning with the first quarter 2003. QUARTERLY FINANCIAL DATA (UNAUDITED)(1)

(DOLLARS IN MILLIONS, 2002 QUARTERS 2001 QUARTERS -------------------------------------- ------------------------------------------- (EXCEPT PER SHARE AMOUNTS) FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH - ------------------------- ------- ------- ------- --------- --------- -------- -------- --------- BUSINESS SEGMENT SALES: Aerostructures and Aviation Technical Services.................. $ 307.2 $ 313.1 $ 269.4 $ 287.2 $ 353.8 $ 400.2 $ 369.0 $ 370.6 Landing Systems.......................... 262.8 253.9 255.7 265.8 289.6 280.1 293.1 286.3 Engine and Safety Systems................ 162.0 165.3 158.8 152.7 183.9 202.3 190.0 186.4 Electronic Systems....................... 189.2 193.2 198.2 211.3 180.4 189.5 199.8 209.5 Aeronautical Systems..................... -- -- -- 264.4 -- -- -- -- ------- ------- ------- --------- -------- -------- -------- -------- TOTAL SALES......................... $ 921.2 $ 925.5 $ 882.1 $ 1,181.4 $1,007.7 $1,072.1 $1,051.9 $1,052.8 ======= ======= ======= ========= ======== ======== ======== ======== GROSS PROFIT(2)............................. $ 234.0 $ 237.1 $ 222.9 $ 270.6 $ 273.4 $ 283.8 $ 278.4 $ 145.8 ======= ======= ======= ========= ======== ======== ======== ======== OPERATING INCOME (LOSS): Aerostructures and Aviation Technical Services.................. $ 49.3 $ 48.4 $ 22.4 $ 49.8 $ 52.5 $ 63.9 $ 61.5 $ 48.1 Landing Systems.......................... 32.4 19.9 38.9 48.9 40.8 33.5 40.9 37.9 Engine and Safety Systems................ 16.7 24.0 20.8 17.7 29.9 39.1 35.3 27.6 Electronic Systems....................... 28.1 32.2 35.9 39.1 31.5 32.4 29.2 40.0 Aeronautical Systems..................... -- -- -- 8.4 -- -- -- -- Corporate................................ (14.7) (15.3) (10.1) (18.9) (13.6) (15.3) (12.3) (16.5) Restructuring and consolidation costs.... (7.5) (14.6) (7.2) (12.0) (5.8) (7.6) (1.5) (92.4) In-process research and development...... -- -- -- (12.5) -- -- -- -- Aeronautical Systems inventory step-up... -- -- -- (58.8) -- -- -- -- Unusual inventory adjustments............ -- -- -- -- -- -- -- (94.5) ------- ------- ------- --------- -------- -------- -------- -------- TOTAL OPERATING INCOME (LOSS)............... $ 104.3 $ 94.6 $ 100.7 $ 61.7 $ 135.3 $ 146.0 $ 153.1 $ (49.8) ======= ======= ======= ========= ======== ======== ======== ======== INCOME (LOSS) FROM: Continuing Operations.................... $ 49.6 $ 58.6 $ 46.0 $ 11.7 $ 70.2 $ 75.9 $ 81.9 $ (51.1) Discontinued Operations.................. 0.8 (12.7) -- -- 102.1 7.4 6.1 (3.3) Cumulative Effect of Change in Accounting...................... (36.1) -- -- -- -- -- -- -- ------- ------- ------- --------- -------- -------- -------- -------- NET INCOME (LOSS)........................... $ 14.3 $ 45.9 $ 46.0 $ 11.7 $ 172.3 $ 83.3 $ 88.0 $ (54.4) ======= ======= ======= ========= ======== ======== ======== ======== Basic Earnings (Loss) Per Share: Continuing Operations.................... $ 0.48 $ 0.57 $ 0.45 $ 0.11 $ 0.68 0.73 $ 0.79 $ (0.50) Discontinued Operations.................. 0.01 (0.12) -- -- 1.00 0.07 0.06 (0.03) Cumulative Effect of Change in Accounting..................... (0.35) -- -- -- -- -- -- -- ------- ------- ------- --------- -------- -------- -------- -------- Net income............................... $ 0.14 $ 0.45 $ 0.45 $ 0.11 $ 1.68 $ 0.80 $ 0.85 $ (0.53) ======= ======= ======= ========= ======== ======== ======== ======== Diluted Earnings (Loss) Per Share: Continuing Operations................... $ 0.47 $ 0.56 $ 0.45 $ 0.11 $ 0.66 $ 0.70 $ 0.76 $ (0.50) Discontinued Operations.................. 0.02 (0.11) -- -- 0.96 0.08 0.07 (0.03) Cumulative Effect of Change in Accounting..................... (0.34) -- -- -- -- -- -- -- ------- ------- ------- --------- -------- -------- -------- -------- Net income............................... $ 0.15 $ 0.45 $ 0.45 $ 0.11 $ 1.62 $ 0.78 $ 0.83 $ (0.53) ======= ======= ======= ========= ======== ======== ======== ========

(1) The historical amounts presented above have been restated to present the Company's Performance Materials and Engineered Industrial Products businesses as discontinued operations. (2) Gross profit represents sales less cost of sales. 79 The first quarter of 2002 includes a $7.5 million pre-tax charge for restructuring and consolidation costs. The second quarter of 2002 includes a $14.6 million pre-tax charge for restructuring and consolidation costs. The second quarter also includes a $2.4 million pre-tax gain in other income (expense) from the sale of a portion of the Company's interest in a business. The third quarter of 2002 includes a $7.2 million pre-tax charge for restructuring and consolidation costs. The fourth quarter of 2002 includes a $12.0 million pre-tax charge for restructuring and consolidation costs. The fourth quarter of 2002 also includes a $12.5 million pre-tax charge for the write-off of in-process research and development acquired in the acquisition of Aeronautical Systems and a $58.8 million pre-tax charge related to the Aeronautical Systems inventory step-up adjustment. The first quarter of 2001 includes a $5.8 million pre-tax charge for restructuring and consolidation costs. The first quarter also includes a $7.2 million pre-tax gain in other income (expense) from the sale of a portion of the Company's interest in a business. The second quarter of 2001 includes a $7.6 million pre-tax charge for restructuring and consolidation costs. The third quarter of 2001 includes a $1.5 million pre-tax charge for restructuring and consolidation costs. The fourth quarter of 2001 includes a $92.4 million pre-tax charge for restructuring and consolidation costs and a $94.5 million pre-tax charge recorded in cost of sales for unusual inventory adjustments. 80 SELECTED FINANCIAL DATA(1)

(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS) 2002 2001 2000 1999 1998 - ----------------------------------------------- ---- ---- ---- ---- ---- STATEMENT OF INCOME DATA: Sales .................................................. $ 3,910.2 $4,184.5 $3,700.5 $3,646.2 $3,510.3 Operating income......................................... 361.3 384.6 489.7 274.1 440.6 Income from continuing operations........................ 165.9 176.9 235.2 85.9 213.3 Net Income............................................... 117.9 289.2 325.9 169.6 353.7 BALANCE SHEET DATA: Total assets............................................. $ 5,989.6 $5,200.4 $6,052.3 $5,468.4 $5,223.5 Total debt............................................... 2,512.1 1,426.4 2,236.2 1,741.9 1,704.2 Mandatorily redeemable preferred securities of trust..... 125.4 125.0 124.5 124.0 123.6 Total shareholders' equity............................... 932.9 1,361.4 1,228.5 1,295.6 1,238.9 OTHER FINANCIAL DATA: Segment operating income................................. $ 420.6 $ 444.8 $ 562.5 $ 529.5 $ 495.0 Segment operating income(3).............................. 532.9 644.1 593.6 561.7 505.5 EBITDA(2),(3)............................................ 632.3 734.7 668.7 631.6 557.7 Operating cash flow...................................... 539.2 382.6 168.2 210.5 341.7 Investing cash flow...................................... (1,509.0) (288.8) (349.4) (166.5) (208.8) Financing cash flow...................................... 1,163.6 (936.3) 80.6 (72.2) 199.1 Capital expenditures..................................... 107.3 190.5 133.8 144.7 163.0 Depreciation............................................. 135.6 108.5 111.9 96.3 90.2 Dividends................................................ 96.9 113.7 117.6 91.6 75.7 Distributions on trust preferred securities.............. 10.5 10.5 10.5 10.5 10.5 PER SHARE OF COMMON STOCK: Income from continuing operations, diluted............... $ 1.57 $ 1.65 $ 2.16 $ 0.76 $ 1.87 Diluted EPS, excluding special items(3).................. 2.31 2.87 2.43 2.23 1.93 Dividends declared....................................... 0.88 1.10 1.10 1.10 1.10 Book value............................................... 7.97 13.39 12.00 11.74 11.28 RATIOS: Segment operating income as a percent of sales(%)(3)..... 13.6 15.4 16.0 15.4 14.4 Debt-to-capitalization ratio(4)(%)....................... 68.7 47.2 61.4 54.0 54.7 Effective income tax rate(%)............................. 34.6 33.5 33.1 47.9 35.1 OTHER DATA: Common shares outstanding at end of year (millions)...... 117.1 101.7 102.3 110.2 109.7 Number of employees at end of year(5).................... 22,900 24,000 26,300 27,000 27,200

(1) Except as otherwise indicated, the historical amounts presented above have been restated to present the Company's Performance Materials and Engineered Industrial Products businesses as discontinued operations. (2) "EBITDA" as used herein means income from continuing operations before distributions on trust preferred securities, income tax expense, net interest expense, depreciation and amortization and special items. The Company believes EBITDA provides meaningful additional information on the Company's operating results and on the Company's ability to service its long-term debt and other fixed obligations and to fund its continued growth. EBITDA should not be construed as an alternative to operating income (loss) as determined in accordance with generally accepted accounting principles in the United States ("GAAP"), as an alternative to cash flow from operating activities (as determined in accordance with GAAP), or as a measure of liquidity. Because EBITDA is not calculated in the same manner by all companies, the Company's presentation may not be comparable to other similarly titled measures reported by other companies. 81 (3) Excludes special items, as follows (in millions, except per share amounts):

2002 2001 2000 1999 1998 ----------------- ----------------- ---------------- ----------------- --------------- PER PER PER PER PER AFTER DILUTED AFTER DILUTED AFTER DILUTED AFTER DILUTED AFTER DILUTED TAX SHARE TAX SHARE TAX SHARE TAX SHARE TAX SHARE ------- ------- ------- ------- ------ ------- ------- ------- ----- ------- Restructuring and consolidation costs $(27.7) $(0.26) $(71.3) $(0.67) $(28.6) $(0.26) $(170.4) $(1.49) $(6.5) $(0.06) Gain from sale of interest in a business 1.6 0.02 4.7 0.04 -- -- 2.4 0.02 -- -- In-process research and development (12.5) (0.12) -- -- -- -- -- -- -- -- Aeronautical Systems inventory step-up (39.5) (0.38) -- -- -- -- -- -- -- -- Unusual inventory adjustments -- -- (62.8) (0.59) -- -- -- -- -- -- Impairment charge on business held for sale -- -- -- -- (1.7) (0.01) -- -- -- -- ------- ------ ------- ------ ------ ------ ------- ------ ----- ------ $(78.1) $(0.74) $(129.4) $(1.22) $(30.3) $(0.27) $(168.0) $(1.47) $(6.5) $(0.06) ======= ====== ======= ====== ====== ====== ======= ====== ===== ======

The Company believes excluding special items provides meaningful additional information on the Company's operating results. Amounts adjusted to exclude special items should not be construed as an alternative to amounts determined in accordance with GAAP. Because amounts adjusted to exclude special items are not calculated in the same manner by all companies, the Company's presentation may not be comparable to other similarly titled amounts reported by other companies. (4) Trust preferred securities are treated as capital in calculating the debt-to-capitalization ratio. (5) Includes employees of the Company's Performance Materials and Engineered Industrial Products segments, rounded to the nearest hundred. 82 EX-21 11 g80791kexv21.txt SUBSIDIARIES EXHIBIT 21

Jurisdiction of Percent owned Organization by Goodrich --------------- ------------- Goodrich Corporation (Registrant; there are no parents of the registrant) New York Air-Science Engineering, Inc. Arizona 100.00 Delfzijl Resin C.V. The Netherlands 99.00 First Charter Insurance Company Vermont 100.00 FMQ Sales and Services Inc. Delaware 100.00 Freedom Textile Chemical Company (South Carolina), Inc. Delaware 100.00 GKS, Inc. Delaware 100.00 HEJ Holding, Inc. Delaware 39.70 Goodrich Aerospace Services Private Limited India 100.00 Goodrich Asia-Pacific, Limited Hong Kong 51.00 Goodrich Aerospace Component Overhaul & Repair, Inc. Delaware 100.00 Goodrich Aviation Technical Services, Inc. Washington 100.00 Goodrich Aerospace Pte. Ltd. Singapore 100.00 Goodrich Aerospace Pty. Limited Australia 100.00 Goodrich Avionics Systems, Inc. Delaware 100.00 Goodrich Control Systems, Inc. Delaware 100.00 Goodrich Controls Holding Limited United Kingdom 100.00 Goodrich Actuation Systems Limited United Kingdom 100.00 Goodrich Control Systems Limited United Kingdom 100.00 Goodrich Pension Trustees Limited United Kingdom 100.00 Goodrich Finance LLC Delaware 100.00 Goodrich FlightSystems, Inc. Ohio 100.00 Goodrich Holding Corporation Delaware 100.00 Goodrich Japan, Ltd. Japan 100.00 Goodrich Lighting Systems, Inc. Florida 100.00 Goodrich Lighting Systems Europe, Inc. Delaware 100.00 Goodrich Lighting GmbH & Co. KG Germany 100.00 Goodrich Hella Aero Lighting Systems Holding GmbH Germany 95.00 Goodrich Hella Aero Lighting Systems GmbH Germany 100.00 Hella Aerospace Holding, Inc. (LLC) Delaware 100.00 Hella Aerospace, LLC Delaware 60.00 Goodrich Liegenschaften GmbH Germany 100.00 Goodrich Verwaltungs GmbH Germany 100.00 Goodrich Performance Materials (Singapore) Pte Ltd Singapore 100.00 Goodrich Pump & Engine Control Systems, Inc. Delaware 100.00 AMI Industries, Inc. Colorado 100.00 AMI Industries FSC, Inc. Virgin Islands 100.00 Walbar Inc. Delaware 100.00 CII Holdings Inc Delaware 100.00 Goodrich Canada Inc Delaware 100.00 Goodrich Aerospace Canada Ltd Canada 100.00 Goodrich Krosno Ltd Poland 100.00 Delavan Inc Delaware 100.00 Delavan Spray, LLC Delaware 100.00

-29-

Percent owned State of Incorporation by Goodrich ---------------------- ------------- Goodrich (Great Britain) Limited United Kingdom 100.00 Delavan Limited United Kingdom 100.00 Delavan European Marketing Company Limited United Kingdom 100.00 Goodrich Holdings Inc Delaware 100.00 Goodrich Landing Gear, LLC Delaware 100.00 GPEC International Corporation Barbados 100.00 Menasco Aerosystems, Inc. Delaware 100.00 HEJ Holding, Inc. Delaware 42.40 Goodrich TMM Luxembourg B.V. The Netherlands 100.00 Goodrich XCH Luxembourg B.V. The Netherlands 100.00 Goodrich Luxembourg SARL Luxembourg 100.00 Global Goodrich Control Systems Holding Limited Mauritius 100.00 Goodrich Control Systems Pte. Ltd. Singapore 100.00 PT TRW Aeronautical Systems Indonesia 51.00 TRW TAECO Aeronautical Systems (Xiamen) China 65.00 Goodrich Control Systems Ltd. Canada 100.00 Goodrich Holding S.A.S. France 100.00 Goodrich Actuation Systems S.A.S. France 100.00 Goodrich Aerospace Europe S.A.S. France 100.00 Goodrich Aerospace Services S.A.S. France 100.00 Rosemount Aerospace S.A.R.L. France 100.00 Goodrich Capital Gibraltar 100.00 Goodrich Control Systems Pty. Ltd. Australia 100.00 Goodrich Ltd. United Kingdom 100.00 Goodrich Holding UK Limited United Kingdom 100.00 A-Chem (U.K.) Limited United Kingdom 100.00 Goodrich Aerospace UK Limited United Kingdom 100.00 Goodrich Landing Systems Services Limited United Kingdom 100.00 Rohr Aero Services Limited United Kingdom 100.00 Rosemount Aerospace Limited United Kingdom 100.00 Rosemount Aerospace Properties Limited United Kingdom 100.00 Simmonds Precision Limited United Kingdom 100.00 Goodrich Holding GmbH Germany 100.00 Goodrich Control Systems GmbH Germany 100.00 Rosemount Aerospace GmbH Germany 100.00 Inrich Corporation New York 100.00 International Goodrich Technology Corporation Delaware 100.00 Goodrich FSC, Inc. Barbados 100.00 Ithaco Space Systems Inc. Delaware 100.00 JcAir, Inc. Kansas 100.00 JMSI Corporation Delaware 100.00 Delfzijl Resin C.V. The Netherlands 1.00 ALA Corporation Delaware 100.00 CMK Corporation Delaware 100.00 Kalama Specialty Chemicals, Inc. Washington 100.00 Kinsman Road Realty Corporation Ohio 100.00

-30-

Percent owned State of Incorporation by Goodrich ---------------------- ------------- Rohr, Inc. Delaware 100.00 Goodrich Aerospace Europe, Inc. Delaware 100.00 Goodrich Aerospace Europe GmbH Germany 100.00 HEJ Holding, Inc. Delaware 17.90 RE Components Inc. Delaware 100.00 Rohr Aero Services-Asia Pte. Ltd. Singapore 60.00 Rohr Finance Corporation Delaware 100.00 Rohr Foreign Sales Corporation Guam 100.00 Rohr, Inc. Maine 100.00 Rohr International Sales Corporation Delaware 100.00 Rohr International Service Corporation Delaware 100.00 Rohr Industries, Inc. Kentucky 100.00 Rohr Southern Industries, Inc. Delaware 100.00 Tolo Incorporated California 100.00 Rohr Aero Services, Inc. Delaware 100.00 Rohr Aero Services Europe France 99.998 Rosemount Aerospace Inc. Delaware 100.00 Safeway Products Inc. Connecticut 100.00 Siltown Realty, Inc. Alabama 100.00 Simmonds Precision Products, Inc. New York 100.00 Simmonds Precision Engine Systems, Inc. New York 100.00 Simmonds Precision Motion Controls, Inc. New Jersey 100.00 TSA Holdings Inc. Delaware 100.00 TSA-rina Holding B.V. The Netherlands 100.00 Prosytec S.A. France 100.00 Prosytec Italia S.R.L. Italy 100.00 Universal Propulsion Company, Inc. Delaware 100.00 Advanced Egress Systems, Inc. Delaware 100.00 AESI/ZVEZDA Delaware 100.00 BFGoodrich Capital Statutory trust in Delaware 100.00

The Registrant also owns 50% of Goodrich - Messier, Inc., incorporated in Delaware; 50% of Messier - Goodrich S.A., organized under the laws of France; 50% of Telenor S.A., organized under the laws of France; 3.8% of Cordiem, Inc., incorporated in Delaware; and a 3.8% ownership interest in Cordiem, LLC, organized under the laws of Delaware. First Charter Insurance Company owns 4.35% of Tortuga Casualty Co., organized under the laws of the Cayman Islands, and 5.56% of United Insurance Company, organized under the laws of the Cayman Islands. -31- EX-23.A 12 g80791kexv23wa.txt CONSENT OF INDEPENDENT AUDITORS-ERNST & YOUNG LLP Exhibit 23(A) CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Goodrich Corporation of our report dated February 4, 2003, included in the 2002 Annual Report to Shareholders of Goodrich Corporation. We also consent to the incorporation by reference of our report dated February 4, 2003, with respect to the consolidated financial statements incorporated herein by reference, in the following Registration Statements and in the related Prospectuses: Registration Number Description of Registration Statement Filing Date - ------------ ------------------------------------- ----------- 33-20421 The B.F.Goodrich Company Key Employees' March 1, 1988 Stock Option Plan - Form S-8 2-88940 The B.F.Goodrich Company Retirement Plus April 28, 1989 Savings Plan - Post-Effective Amendment No. 2 to Form S-8 33-49052 The B.F.Goodrich Company Key Employees' June 26, 1992 Stock Option Plan - Form S-8 33-59580 The B.F.Goodrich Company Retirement March 15, 1993 Plus Savings Plan for Wage Employees - Form S-8 333-03293 The B.F.Goodrich Company Stock Option May 8, 1996 Plan - Form S-8 333-19697 The B.F.Goodrich Company Savings Benefit January 13, 1997 Restoration Plan - Form S-8 333-53877 Pretax Savings Plan for the Salaried May 29, 1998 Employees of Rohr, Inc. (Restated 1994) and Rohr, Inc. Savings Plan for Employees Covered by Collective Bargaining Agreements (Restated 1994) - Form S-8 333-53879 Directors' Deferred Compensation Plan - May 29, 1998 Form S-8 333-53881 Rohr, Inc. 1982 Stock Option Plan, May 29, 1998 Rohr, Inc. 1989 Stock Incentive Plan and Rohr, Inc. 1995 Stock Incentive Plan - Form S-8 333-76297 Coltec Industries Inc. 1992 Stock Option April 14, 1999 Plan Coltec Industries Inc. 1994 Stock Option Plan for Outside Directors - Form S-8 333-77023 The B.F.Goodrich Company Stock Option April 26, 1999 Plan - Form S-8 333-60210 The B.F. Goodrich Company Stock Option May 4, 2001 Plan - Form S-8 333-60208 The B.F. Goodrich Company Employee Stock May 4, 2001 Purchase Plan - Form S-8 333-98165 Shelf Registration for Debt Securities, August 15, 2002 Series Preferred Stock, Common Stock, Stock Purchase Contracts and Stock Purchase Units - Form S-3 /s/ Ernst & Young LLP Charlotte, North Carolina February 19, 2003 EX-99.A 13 g80791kexv99wa.txt SECTION 906 CERTIFICATION FOR CEO & CFO EXHIBIT 99(A) GOODRICH CORPORATION Four Coliseum Centre 2730 West Tyvola Road Charlotte, North Carolina 28217 February 21, 2003 Securities and Exchange Commission Judiciary Plaza 450 Fifth Street, N.W. Washington, D.C. 20549 Re: Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Ladies and Gentlemen: Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of the Annual Report on Form 10-K of Goodrich Corporation (the "Company") for the year ended December 31, 2002, as filed with the Securities and Exchange Commission on the date hereof (the "Report"), each of the undersigned officers of the Company certifies, that, to such officer's knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company as of the dates and for the periods expressed in the Report. /s/ DAVID L. BURNER -------------------------------------------- Name: David L. Burner Title: Chairman and Chief Executive Officer /s/ ULRICH SCMIDT -------------------------------------------- Name: Ulrich Schmidt Title: Executive Vice President and Chief Financial Officer - -32- -----END PRIVACY-ENHANCED MESSAGE-----

EX-10.K

                                                                   EXHIBIT 10(K)


                            THE B.F.GOODRICH COMPANY
                        KEY EMPLOYEES' STOCK OPTION PLAN

The purpose of the Plan is to enable the Company to be competitive in
encouraging key employees, who in the opinion of the Board of Directors perform
services of special importance to the management, operation and the development
of the business of the Company or its subsidiaries, to remain in its service, to
attract others to it, and to provide such employees with an additional incentive
to contribute to the prosperity of the Company.

The Board may in its discretion from time to time, grant to key employees of the
Company and its subsidiaries (including officers whether or not Directors)
options to purchase, at a cash price not less than 100% of the fair market value
on the date of grant (the "option price"), treasury shares or authorized but
unissued shares of common stock of the Company, subject to the conditions set
forth in this Plan. The aggregate number of shares which may be issued pursuant
to options granted under this Plan shall not exceed 1,000,000 shares plus such
number of additional shares available for allotment under this Plan on April 15,
1991 and from any options granted under this Plan prior to April 15, 1991 which
shall thereafter expire, terminate, or be cancelled for any reason without being
exercised and from Stock Awards which are forfeited. To the extent permitted by
law the Board may delegate any or all of its powers under this Plan to a
Committee of not less than three Directors, who are not Officers or employees of
the Company, and who are not eligible to participate in the Plan. The Board or
the Committee may delegate to the chief executive officer and to other senior
officers of the Company its duties under the Plan, with respect to not more than
10% of the shares authorized under this Plan, pursuant to such conditions or
limitations as the Committee may establish, except that only the Committee may
select Participants and grant options, appreciation rights and Stock Awards to
Participants who are subject to Section 16 of the Securities Exchange Act of
1934.

The Board, at the time of granting to any employees an option to purchase shares
or any related stock appreciation right or limited stock appreciation right
under the Plan, shall fix the terms and conditions upon which such option or
appreciation right may be exercised, and may designate options incentive stock
options pursuant to Section 422 of the Internal Revenue Code of 1986, as amended
(the "Internal Revenue Code") or any other statutory stock option that may be
permitted under the Internal Revenue Code from time to time, provided, however
that (i) the date on which such options and related appreciation rights shall
expire, if not exercised, may not be later than ten years after the date of
grant of the option, (ii) in the case of options designated as incentive stock
options (as defined in Section 422 of the Internal Revenue Code), the aggregate
fair market value of stock optioned to an employee (determined at time of grant)
under this plan or any other plan of this Company and its subsidiaries with
respect to which incentive stock options are exercisable for the first time by
such employee during any calendar year shall be limited to $100,000 (unless such
Section 422 limit is revised, then in conformance with such revision) and (iii)
in case of any other statutory stock option permitted under the Internal Revenue
Code, then in accordance with such provisions as in effect from time to time.

Within the foregoing limitations, the Board shall have the authority in its
discretion to specify all other terms and conditions, including but not limited
to provisions for the exercise of options in installments, the time limits
during which options may be exercised, and in lieu of payment in cash, the
exercise in whole or in part of options by tendering common stock of the Company


                                        1


owned by the employee, valued at the fair market value on the date of exercise
or other acceptable forms of consideration equal in value to the option price.
The Board may, in its discretion, issue rules or conditions with respect to
utilization of common stock for all or part of the option price.

The Board may, in its discretion, grant stock appreciation rights and limited
stock appreciation rights (as hereinafter described) in connection with any
stock option, either at the time of grant of such stock option or any time
thereafter during the term of such stock option, except that limited stock
appreciation rights may be granted in connection with stock options granted
prior to June 7, 1988, only if stock appreciation rights were granted in
connection with such stock options prior to June 7, 1988. Except for the terms
of this Plan with respect to limited stock appreciation rights, each such
appreciation right shall be subject to the same terms and conditions as the
related stock option and shall be exercisable at such times and to such extent
as the Board shall determine, but only so long as the related option is
exercisable. The number of stock appreciation rights or limited stock
appreciation rights granted shall not exceed the number of shares which may be
purchased upon exercise of a related option. The number of both stock
appreciation rights and limited stock appreciation rights shall be reduced not
only by the number of appreciation rights exercised but also by the number of
shares purchased upon the exercise of a related option. A related stock option
shall cease to be exercisable to the extent surrendered for the exercise of an
appreciation right. Upon surrender to the Company of the unexercised related
stock option, or any portion thereof, a stock appreciation right shall entitle
the optionee to receive from the Company in exchange therefor (a) a payment in
stock as determined below, or (b) to the extent determined by the Board, the
cash equivalent of the fair market value of such payment in stock on the
exercise date had the employee been awarded a payment in stock instead of cash,
or any combination of stock and cash. The number of shares which shall be issued
pursuant to the exercise of stock appreciation rights shall be determined by
dividing (1) the total number of stock appreciation rights being exercised
multiplied by the amount by which the fair market value of a share of common
stock of the Company on the exercise date exceeds the option price of the
related option, by (2) the fair market value of a share of common stock of the
Company on the exercise date. No fractional shares shall be issued.

For all purposes of this Plan the fair market value of a share of stock shall be
the mean of the high and low prices of the Company's common stock on the
relevant date as reported on the New York Stock Exchange -- Composite
Transactions listing (or similar report), or, if no sale was made on such date,
then on the next preceding day on which such a sale was made.

Upon the termination of employment of any employee for any reason, his or her
options and any related appreciation rights shall terminate at that time with
respect to all shares which were not then purchasable by him or her, provided,
however, that if the termination of employment is by reason of death, disability
or retirement the Board may in its sole discretion provide that such options and
related appreciation rights shall not terminate upon death, disability or
retirement and may become immediately exercisable or continue to become
exercisable in accordance with the terms of the original grant.

Any shares in respect of which options and any related appreciation rights shall
be terminated by reason of death, termination of employment, passage of time or
for any other reason, may again


                                        2


be the subject of options granted to employees in accordance with the provisions
of the Plan. However, upon surrender of a stock option on exercise of the
related appreciation right, the number of shares subject to the surrendered
option shall be charged against the maximum number of shares issuable under the
Plan and shall not be available for future options.

Options and any related appreciation rights and other awards granted under this
Plan shall not be transferable other than by will or the laws of descent and
distribution and such options and any related appreciation rights shall be
exercisable during the employee's lifetime only by the employee or by the
employee's guardian or legal representative.

The number and kind of shares authorized for delivery under this Plan and, if
appropriate, the purchase price per share, may be adjusted appropriately in the
event of any stock split, stock dividend, combination of shares, merger,
consolidation, reorganization, or other change in the nature of the shares of
the Company (any one or more of the foregoing hereinafter a "corporate
reorganization"). The determination of what adjustments, if any, are appropriate
shall be made by the Board.

In the event of a dissolution or liquidation of the Company or a merger,
consolidation, sale of all or substantially all of its assets, or other
corporate reorganization in which the Company is not the surviving corporation
or any merger in which the Company is the surviving corporation but the holders
of its common stock receive securities of another corporation, any outstanding
options hereunder shall terminate, provided that each optionee shall, in such
event, have the right immediately prior to such dissolution, liquidation,
merger, consolidation, sale of assets or reorganization in which the Company is
not the surviving corporation or any merger in which the Company is the
surviving corporation but the holders of its common stock receive securities of
another corporation, to exercise any unexpired option and/or stock appreciation
right in whole or in part without regard to the exercise date contained in such
option. Nothing herein contained shall prevent the assumption and continuation
of any outstanding option or the substitution of a new option by the surviving
corporation. Options and any related appreciation rights that are not
exercisable shall become immediately exercisable in the event of a Change in
Control. For purposes of the Plan, a Change in Control shall mean

                  (i)      The acquisition by any individual, entity or group
         (within the meaning of Section 13(d) (3) or 14(d) (2) of the Securities
         Exchange Act of 1934, as amended (the "Exchange Act")), of beneficial
         ownership (within the meaning of Rule 13d-3 promulgated under the
         Exchange Act) of 20% or more of either (A) the then outstanding shares
         of common stock of the Company (the "Outstanding Company Common Stock")
         or (B) the combined voting power of the then outstanding voting
         securities of the Company entitled to vote generally in the election of
         directors (the "Outstanding Company Voting Securities"); provided,
         however, that the following acquisitions shall not constitute a Change
         of Control: (A) any acquisition directly from the Company (other than
         by exercise of a conversion privilege), (B) any acquisition by the
         Company or any of its subsidiaries, (C) any acquisition by any employee
         benefit plan (or related trust) sponsored or maintained by the Company
         or any of its subsidiaries or (D) any acquisition by any corporation
         with respect to which, following such acquisition, more than 70% of,
         respectively, the then outstanding shares of common stock of such
         corporation and the


                                        3


         combined voting power of the then outstanding voting securities of such
         corporation entitled to vote generally in the election of directors is
         then beneficially owned, directly or indirectly, by all or
         substantially all of the individuals and entities who were the
         beneficial owners, respectively, of the Outstanding Company Common
         Stock and Company Voting Securities immediately prior to such
         acquisition in substantially the same proportions as their ownership,
         immediately prior to such acquisition, of the Outstanding Company
         Common Stock and Outstanding Company Voting Securities, as the case may
         be; or

                  (ii)     During any period of two consecutive years,
         individuals who, as of the beginning of such period, constitute the
         Board (the "Incumbent Board"), cease for any reason to constitute at
         least a majority of the Board; provided, however, that any individual
         becoming a director subsequent to the beginning of such period whose
         election, or nomination for election by the Company's shareholders, was
         approved by a vote of at least a majority of the directors then
         comprising the Incumbent Board shall be considered as though such
         individual were a member of the Incumbent Board, but excluding, for
         this purpose, any such individual whose initial assumption of office
         occurs as a result of either an actual or threatened election contest
         (as such terms are used in Rule 14a-1 1 of Regulation 14A promulgated
         under the Exchange Act); or

                  (iii)    approval by the shareholders of the Company of a
         reorganization, merger or consolidation, in each case, with respect to
         which all or substantially all of the individuals and entities who were
         the beneficial owners, respectively, of the Outstanding Company Common
         Stock and Outstanding Company Voting Securities immediately prior to
         such reorganization, merger or consolidation, do not, following such
         reorganization, merger or consolidation, beneficially own, directly or
         indirectly, more than 70% of, respectively, the then outstanding shares
         of common stock and the combined voting power of the then outstanding
         voting securities entitled to vote generally in the election of
         directors, as the case may be, of the corporation resulting from such
         reorganization, merger or consolidation in substantially the same
         proportions as their ownership, immediately prior to such
         reorganization, merger or consolidation of the Outstanding Company
         Common Stock and Outstanding Company Voting Securities, as the case may
         be; or

                  (iv)     approval by the shareholders of the Company of (A) a
         complete liquidation or dissolution of the Company or (B) a sale or
         other disposition of all or substantially all of the assets of the
         Company, other than to a corporation, with respect to which following
         such sale or other disposition, more than 70% of, respectively, the
         then outstanding shares of common stock of such corporation and the
         combined voting power of the then outstanding voting securities of such
         corporation entitled to vote generally in the election of directors is
         then beneficially owned, directly or indirectly, by all or
         substantially all of the individuals and entities who were the
         beneficial owners, respectively, of the Outstanding Company Common
         Stock and Outstanding Company Voting Securities immediately prior to
         such sale or other disposition in substantially the same proportion as
         their ownership, immediately prior to such sale or other disposition,


                                        4


         of the Outstanding Company Common Stock and Outstanding Company Voting
         Securities, as the case may be.

The grant of a limited stock appreciation right will permit a grantee to
exercise such limited stock appreciation right for cash during a sixty-day
period commencing on the date on which any of the events described in the
definition of Change of Control occurs, each of which events shall hereinafter
be known as a "Change in Control Event." Notwithstanding the foregoing, however,
if the Change in Control Event occurs within six months after the date on which
a limited stock appreciation right was granted, then the sixty-day period during
which such limited stock appreciation right may be exercised for cash shall
commence six months after the date on which the limited stock appreciation right
was granted. The amount of cash received upon the exercise of any limited stock
appreciation right under either of the preceding two sentences shall equal the
excess, if any, of the fair market value of a share of the Company's common
stock on the date of exercise of the limited stock appreciation right, over the
option price of the stock option to which the limited stock appreciation right
relates.

The Board in lieu of or in addition to granting options under this Plan, may
make awards ("Stock Awards") in Common Stock or denominated in units of Common
Stock. All or part of any stock award may be subject to conditions established
by the Board, which may include, but are not limited to, continuous service with
the Company and attainment of specific performance objectives. Stock Awards may
include the awarding of additional shares upon attainment of performance
objectives. If shares of Common Stock are awarded subject to attainment of
performance objectives or continued service with the Company, the shares may be
registered in the Participant's names when initially awarded, but possession of
the certificates for the shares shall be retained by the Secretary of the
Company for the benefit of Participants, subject to the conditions of the Stock
Awards. In such event, each Participant shall have the right to receive all
dividends and other distributions made with respect to Stock Awards registered
in his or her name and shall have the right to vote or execute proxies with
respect to such registered shares. Stock Awards with respect to which the
restrictions are not removed in accordance with the provision of the Stock
Awards shall be forfeited and shall revert to the treasury of the Company.

Notwithstanding any other provisions of the Plan, the issuance or delivery of
any shares may be postponed for such period as may be required to comply with
any applicable requirements of any national securities exchange or any
requirements under any other law or regulation applicable to the issuance or
delivery of such shares, and the Company shall not be obligated to issue or
deliver any such shares if the issuance or delivery thereof shall constitute a
violation of any provision of any law or any regulation of any governmental
authority or any national securities exchange.

The Board shall have the power to interpret the provisions of this Plan and of
all options granted hereunder and to amend this Plan from time to time,
provided, however, that no amendment shall be made without the approval of
shareholders which has the effect of increasing the number of shares of stock
subject to this Plan (other than in connection with a corporate reorganization),
changing the class of employees eligible to participate, reducing the purchase
price of shares to an amount less than 100% of the fair market value on the date
of grant or extending the time during which options may be granted hereunder, or
otherwise materially increasing the benefits


                                        5


accruing to participants under this Plan. The Board shall have the authority to
amend the terms of any option or stock appreciation right subject to the
foregoing limitations and provided that no such amendment shall deprive any
optionee of any rights thereunder without his written consent unless such
amendment or rescission is required by law.

The Board of Directors may in its discretion elect not to proceed with this Plan
after its approval by the shareholders or may subsequently terminate this Plan
with respect to any shares for which options have not theretofore been granted.
Unless the time for granting options shall be extended with the approval of
shareholders, no options shall be granted under this Plan after April 15, 1997.


                                       6

EX-10.DD

                                                                Exhibit 10(DD)

January 7, 2003



Mr. David L. Burner
Chairman and Chief Executive Officer
Goodrich Corporation
2730 West Tyvola Road
Charlotte, NC  28217

Dear Dave:

This is to confirm your compensation and benefits arrangements and opportunities
through your retirement on April 30, 2004 as approved by the Compensation
Committee at its December 2, 2002 meeting, and confirmed by the Board of
Directors on December 3rd.

Through April 30, 2004, your base salary will remain $1,000,000 on an annual
basis and your Management Incentive Plan ("MIP") opportunity will continue at a
target level of 100%. You will have a full year MIP opportunity  in 2003 and a
pro-rata (4/12) opportunity in 2004 based on your April 30, 2004 retirement
date.

The Board awarded you a stock option grant for 2003 of 181,000 shares,
exercisable on the same terms as other senior executive officers. The Board also
granted you a Long-Term Incentive Plan ("LTIP") award of 53,000 performance
shares as a target opportunity for the 2003-2005 period. Any actual  pay-out of
shares under the 2002 - 2004 and 2003 - 2005 LTIP awards will be  calculated  on
a pro-rata basis using your April 30, 2004 retirement date in accordance  with
the Plan.  Neither a stock-option  award nor an LTIP award will be granted to
you for calendar year 2004.

You will continue to participate through April 30, 2004 in all Company pension,
savings and health and welfare plans or arrangements for which you are currently
eligible. Also, through April 30, 2004, you will continue to receive perquisites
and other benefits of the type currently available to other senior executive
officers.



Mr. David L. Burner
January 7, 2003
Page 2



Office space and administrative support outside the Company's headquarters will
be provided beginning October, 2003 and extending through April 30, 2007.

Sincerely,



James R. Wilson
Chairman - Compensation Committee
Goodrich Corporation Board of Directors


cc:     James J. Glasser (Chairman -- Governance Committee)

EX-10.EE

                                                                  EXHIBIT 10(EE)

                                                               1992 STOCK OPTION
                                                              AND INCENTIVE PLAN




                              COLTEC INDUSTRIES INC
                      1992 STOCK OPTION AND INCENTIVE PLAN

1.       Purpose. The purpose of the Plan is to provide an additional incentive
         to officers and other eligible key employees, upon whom
         responsibilities for the successful operation, administration and
         management of Coltec Industries Inc (the "Corporation") rest and whose
         present or potential contributions are important to the continued
         success of the Corporation, and to enable the Corporation to attract
         and retain in its employ highly qualified persons for the successful
         conduct of its business. It is intended that this purpose will be
         effected through the granting of Incentive Stock Rights, Stock Options,
         Stock Appreciation Rights, Restricted Stock and Dividend Equivalents,
         as provided herein, and the making of loans to accomplish the purposes
         of the Plan.

2.       Definitions. For purposes of this Plan:

         a)       "Award" means an Incentive Stock Right, Stock Option, Stock
                  Appreciation Right, Restricted Stock grant and/or Dividend
                  Equivalent.

         b)       "Award Agreement" means an agreement granting an Award.

         c)       "Board of Directors" means the Board of the Directors of the
                  Corporation.

         d)       "Change in Control" means the occurrence of an event described
                  in Section 13(a) hereof.

         e)       "Code" means the Internal Revenue Code of 1986, as amended.

         f)       "Committee" means the Stock Option and Compensation Committee
                  appointed by the Board of Directors to administer the Plan.

         g)       "Common Stock" means the Common Stock, par value $.01 per
                  share, of the Corporation.

         h)       "Corporation" means Coltec Industries Inc, a Pennsylvania
                  corporation.

         i)       "Dividend Equivalent" means the right to receive, on a current
                  or deferred basis, and subject to such conditions as may be
                  imposed by the Board of Directors, cash payments from the
                  Corporation equal to the amount which would have been received
                  had a person owned a specified number of shares of Common
                  Stock.

         j)       "Exercise Date" means the date upon which a Stock Option or
                  Stock Appreciation Right is exercised.

         k)       "Fair Market Value" means the fair market value of the Common
                  Stock as determined by the Committee in its sole discretion;
                  provided, however, that (A) if


Restated as of May 7, 1998                                                     1


                  the Common Stock is admitted to trading on a national
                  securities exchange, Fair Market Value on any date shall be
                  the last sale price reported for the Common Stock on such
                  exchange on such date or on the last date preceding such date
                  on which a sale was reported; (B) if the Common Stock is
                  admitted to quotation on the National Association of
                  Securities Dealers Automated Quotation System ("NASDAQ") or
                  other comparable quotation system and has been designated as a
                  National market System ("NMS") security, Fair Market Value on
                  any date shall be the last sale price reported for the Common
                  Stock on such system on such date or, if no sale occurred on
                  such date, on the last day preceding such date on which a sale
                  was reported, or (C) if the Common Stock is admitted to
                  quotation on NASDAQ and has not been designated a NMS
                  security, Fair Market Value on any date shall be the average
                  of the highest bid and lowest asked prices of Common Stock on
                  such system on such date.

         l)       "Incentive Stock Option" means an option to acquire stock
                  within the meaning of Section 422 of the Code.

         m)       "Incentive Stock Right" means the right to receive, without
                  payment to the Corporation, shares of Common Stock, subject to
                  the terms, conditions and restrictions described in Section 8
                  hereof.

         n)       "Nonqualified Stock Option" means a Stock Option, which is not
                  an Incentive Stock Option.

         o)       "Public Offering" means the initial underwritten public
                  offering of Common Stock.

         p)       "Restricted Stock" means shares of Common Stock issued to a
                  participant, without payment to the Corporation, subject to
                  the terms, conditions and restrictions described in Section 10
                  hereof.

         q)       "Right" means a Stock Appreciation Right or an Incentive Stock
                  Right.

         r)       "Stock Appreciation Right" means a right to receive, without
                  payment to the Corporation, a number of shares of Common Stock
                  and/or cash, determined pursuant to a formula based upon the
                  difference between a price determined in accordance with
                  Section 9(b)(ii) and the Fair Market Value of a share of
                  Common Stock on the date of exercise of such Stock
                  Appreciation Right.

         s)       "Stock Option" means an Incentive Stock Option or Nonqualified
                  Stock Option providing the holder thereof with the right to
                  purchase Common Stock at a price to be determined in
                  accordance with Section 9(a)(i) of the Plan.

         t)       "Subsidiary" means any future or present corporation which
                  would be a "subsidiary corporation" of the Corporation as the
                  term is defined in Section 424 of the Code.


Restated as of May 7, 1998                                                     2


3.       Duration of Plan. The Plan shall remain in effect until terminated by
         the Board of Directors and thereafter until all Incentive Stock Rights,
         Stock Options, Stock Appreciation Rights, Restricted Stock and Dividend
         Equivalents granted under the Plan are satisfied by the issuance of
         shares of Common Stock or the payment of cash or are terminated under
         the terms of the Plan or under the Award Agreements entered into in
         connection with the grant thereof.

4.       Shares of Stock Subject to the Plan. The number of shares of Common
         Stock under the Plan that may be issued pursuant to Incentive Stock
         Rights, Stock Options (including any Stock Options granted pursuant to
         Section 12(b) hereof), Stock Appreciation Rights and Restricted Stock
         grants shall not exceed, in the aggregate, 12,160,000 shares of the
         Common Stock. Such shares may be in whole or in part as the Board of
         Directors shall from time to time determine authorized and unissued
         shares or issued shares, which may have been reacquired by the
         Corporation. In no event shall the number of shares of Restricted Stock
         issued hereunder after May 6, 1998 be in excess of forty percent (40%)
         of any increase in the number of shares authorized to be issued under
         the plan above 7,360,000 shares. Any share subject to an Incentive
         Stock Right, Stock Option, Stock Appreciation Right or Restricted Stock
         grant which for any reason is forfeited due to expiration, cancellation
         or termination while unexercised may again be available for purposes of
         the Plan if the forfeiting participant received no benefit of ownership
         (not including voting rights) from such shares. The number of Dividend
         Equivalents which may be granted under the Plan will be as determined
         by the Committee in its discretion.

5.       Awards Under the Plan. Awards under the Plan may be of five types,
         namely, "Incentive Stock Rights", "Stock Options", "Stock Appreciation
         Rights", "Restricted Stock" and "Dividend Equivalents". Awards may be
         granted in conjunction with each other, at the same time or at
         different times, and may provide for the exercise of one to reduce
         proportionately or cancel the other.

6.       Eligible Employees. Awards may be granted only to salaried employees
         who are officers or who are employed in an executive, administrative,
         operational, sales or professional capacity by the Corporation or its
         Subsidiaries. Awards may be granted to a director of the Corporation
         provided that the director is also an officer or salaried employee of
         the Corporation or Subsidiary. In determining the employees to whom
         Awards shall be granted and the number of such Awards to be granted,
         the Committee shall take into account the duties of the employees,
         their present and potential contributions to the success of the
         Corporation, their other compensation provided pursuant to any plan or
         as salary or otherwise and such other factors as it shall deem relevant
         in connection with accomplishing the purposes of the Plan.

         Awards shall not be affected by any change of duties or positions so
         long as the holder continues to be an employee of the Corporation or of
         a Subsidiary. Nothing in the plan or in any Award or in any agreement
         with respect thereto entered into pursuant to the Plan shall confer
         upon any employee any right to continue in the


Restated as of May 7, 1998                                                     3


         employ of the Corporation or of any of its Subsidiaries, or interfere
         in any way with the right of the Corporation or any such Subsidiary to
         terminate such employee's employment at any time.

7.       Administration of the Plan. Within the limitations described herein,
         the Committee shall administer the Plan, select the employees to whom
         Awards will be granted, determine the number of Awards to be granted to
         each such employee and interpret, construe and implement the provisions
         of the Plan. The Committee shall consist of no fewer than two members
         of the Board of Directors who shall serve at the pleasure of the Board
         of Directors. The Committee shall have authority to adopt rules and
         regulations for administering the Plan. Decisions of the Committee
         shall be binding on the Corporation and on all employees eligible to
         participate in the Plan. The Board of Directors may from time to time
         appoint members of the Committee in substitution for or in addition to
         members previously appointed and may fill vacancies, however caused, in
         the Committee. All determinations of the Committee at a meeting shall
         be made by a majority of the members in attendance. Any decision or
         determination reduced to writing and signed by all the members shall be
         fully as effective as if it had been made by a majority vote at a
         meeting duly called and held. No member of the Committee shall be
         personally liable for any action, determination or interpretation made
         in good faith with respect to the Plan, and all members of the
         Committee shall be fully indemnified by the Corporation with respect to
         any such action, determination or interpretation. No employee may be
         granted Stock Options or Stock Appreciation Rights under the Plan in
         any thirty-six month period beginning on or after January 1, 1994 with
         respect to a number of shares of Common Stock which is in excess of
         twenty-five percent (25%) of the total number of shares of Common Stock
         authorized to be issued pursuant to the Plan immediately following the
         date of the annual meeting of shareholders in 1994.

8.       Incentive Stock Rights. Incentive Stock Rights shall be evidenced by
         Incentive Stock Rights Agreements in such form and not inconsistent
         with the Plan as the Committee shall approve from time to time, which
         Award Agreements shall contain in substance the following terms and
         conditions:

         a)       Number of Shares, Incentive Period.

                  An Incentive Stock Rights Agreement shall specify the number
                  of shares of Common Stock to which it pertains and shall
                  specify that the holder is entitled to receive, without
                  payment to the Corporation, such shares of Common Stock in
                  consideration for services performed for the Corporation or
                  for its benefit by the person receiving the Right upon the
                  lapse of a specified period of time (the "Incentive Period")
                  and upon compliance with any other terms contained in such
                  Award Agreement.

         b)       Termination of Employment, Leave of Absence. The Incentive
                  Stock Rights Agreement shall contain such provisions
                  concerning termination of employment (by reason of death,
                  disability or otherwise) and leaves of absence as shall be


Restated as of May 7, 1998                                                     4


                  determined by the Committee. Such provisions may include, but
                  are not limited to, granting the right to receive all or a
                  portion of the shares of Common Stock covered by the Incentive
                  Stock Rights, partial or complete acceleration of the time
                  periods in relation to which the right to receive shares is
                  granted, the waiver of forfeiture provisions for leaves of
                  absence and other periods when not employed by the Corporation
                  and the receipt of shares by personal representatives, heirs
                  or legatees.

         c)       Issuance of Shares. Upon the lapse of an Incentive Period, the
                  Corporation shall, without transfer or issue tax to the person
                  entitled to receive the shares of Common Stock, deliver to
                  such person a certificate or certificates for the number of
                  shares as to which such Incentive Period has lapsed.

9.       Stock Options and Stock Appreciation Rights.

         a)       Stock Options. Stock Options shall be evidenced by Stock
                  Option Agreements in such form and not inconsistent with the
                  Plan as the Committee shall approve from time to time, which
                  Award Agreements shall contain in substance the following
                  terms and conditions:

                  i.       Price. The purchase price per share of Common Stock
                           deliverable upon the exercise of a Stock Option shall
                           be the Fair Market Value of such Common Stock on the
                           date the Stock Option is granted, but in no event
                           less than the par value of such Common Stock (the
                           "Exercise Price").

                  ii.      Number of Shares, Exercise Period. The Stock Option
                           Agreement shall specify the number of shares of
                           Common Stock to which it pertains. The number of
                           shares subject to a Stock Option shall be reduced on
                           a share-for-share basis to the extent that shares
                           under such Stock Option are used to calculate the
                           shares of Common Stock or cash to be received by
                           exercise of a related Stock Appreciation Right, if
                           any. At the time a Stock Option is granted, the
                           Committee shall fix the terms and conditions upon
                           which Stock Options can be exercised, including
                           fixing the periods during which such Stock Option or
                           any portion thereof may be exercised, which period
                           shall not be more than 10 years nor less than one
                           year (such period referred to as the "Exercise
                           Period"). The Committee, in the Stock Option
                           Agreement or otherwise, may allow partial exercise
                           from time to time during the Exercise Period.

                  iii.     Method of Exercise, Medium and Time of Payment. An
                           Option shall be exercised by giving written notice of
                           such exercise to the Corporation. The purchase price
                           of shares of Common Stock purchased pursuant to a
                           Stock Option Agreement shall be paid for at the time
                           of purchase in full in cash or, in the discretion of
                           the Committee, in whole shares of Common Stock with a
                           Fair Market Value (as of the date immediately
                           preceding the Exercise Date) at least equal to the
                           purchase price (or in a combination of


Restated as of May 7, 1998                                                     5


                           cash and whole shares of Common Stock). Such whole
                           shares of Common Stock may be previously owned shares
                           or shares, which would otherwise have been received
                           upon exercise of the Stock Option. In its discretion,
                           the Committee may also provide for a cashless
                           exercise procedure to exercise Stock Options (whereby
                           cash would be transmitted to the Corporation by a
                           broker or other entity). Upon receipt of payment, the
                           Corporation shall, without transfer or issue tax to
                           the optionee or other person entitled to exercise the
                           Stock Option, deliver to such person a certificate or
                           certificates for such shares.

                  iv.      Termination of Employment, Leave of Absence. Each
                           Stock Option Agreement shall contain such provisions
                           concerning termination of employment (by reason of
                           death, disability or otherwise) and leaves of absence
                           as shall be determined by the Committee. Such
                           provisions may include, but are not limited to,
                           granting the right to make a partial exercise of a
                           Stock Option, partial or complete acceleration of any
                           time periods in relation to which the exercisability
                           of a Stock Option is calculated, waiver of forfeiture
                           provisions for leaves of absence and other periods
                           when not employed by the Corporation and the
                           extension of any Exercise Periods to cover such
                           leaves of absence or periods when not employed by the
                           Corporation and exercise by personal representatives,
                           heirs or legatees.

                  v.       Incentive Stock Options. No optionee shall be granted
                           Incentive Stock Options hereunder that in the
                           aggregate with all other Incentive Stock Options
                           granted to such optionee (under all plans of the
                           Corporation or any of its Subsidiaries) entitle the
                           optionee to purchase in any year through the exercise
                           of those such options which first became exercisable
                           in such year (whether under their original terms or
                           as a result of the occurrence of Change in Control),
                           stock of the Corporation or any subsidiary of the
                           Corporation having in the aggregate a Fair Market
                           Value (determined in the case of each such option as
                           of the time such option was granted) in excess of
                           $100,000. The previous sentence shall not apply to
                           the extent the United States Internal Revenue Service
                           publicly issues a private ruling to the Corporation,
                           any optionee of the Corporation, or any legatee,
                           personal representative or distributee of an optionee
                           or states in proposed, temporary or final
                           regulations, provisions which allow that the exercise
                           of an optionee's Incentive Stock Options upon the
                           occurrence of a Change in Control do not violate
                           Section 422(d)(1) of the Code.

         b)       Stock Appreciation Rights. The Committee, in its discretion,
                  may grant Stock Appreciation Rights to an eligible employee
                  whether or not such employee is also granted Stock Options
                  under the Plan. Such Stock Appreciation Rights shall be
                  evidenced by stock Appreciation Right Agreements in such form
                  and not inconsistent with this Plan as the Committee shall
                  approve from time to time, which Award Agreements shall
                  contain in substance the following terms and conditions:


Restated as of May 7, 1998                                                     6


                  i.       Exercise. A Stock Appreciation Right shall entitle a
                           holder thereof, to the extent he or she so designates
                           from time to time, to receive without payment to the
                           Corporation, a number of shares of Common Stock,
                           cash, or a combination of cash and shares as elected
                           by the Committee, as determined under subsection
                           (ii). Such shares and/or cash shall be issued or paid
                           in consideration of services performed for the
                           Corporation or for its benefit by the holder of such
                           Stock Appreciation Right. A holder wishing to
                           exercise a Stock Appreciation Right shall give
                           written notice of such exercise to the Corporation.
                           Upon receipt of such notice, the Corporation shall:
                           (a) without transfer or issue tax to such person,
                           deliver to the person exercising the Stock
                           Appreciation Right a certificate or certificates for
                           shares of Common Stock and/or (b) pay cash.

                  ii.      Number of Shares or Amount of Cash. The number of
                           shares of Common Stock which shall be issued pursuant
                           to the exercise of a Stock Appreciation Right shall
                           be determined by dividing,

                           1)       that portion, as elected by the holder of
                                    the Stock Appreciation Right, of the total
                                    number of shares in relation to which such
                                    Stock Appreciation Right was granted,
                                    multiplied by the amount (if any) by which
                                    the Fair Market Value of a share of Common
                                    Stock on the Exercise Date exceeds an amount
                                    equal to the Fair Market Value of a share of
                                    Common Stock on the date that such Stock
                                    Appreciation Right is granted, which may not
                                    be less than the par value of such Common
                                    Stock, determined by the Committee in
                                    connection with such grant, by

                           2)       the Fair Market Value of a share of Common
                                    Stock on the Exercise Date.

                                    In lieu of issuing shares of Common Stock on
                                    the exercise of a Stock Appreciation Right,
                                    the Committee may elect to pay the cash
                                    equivalent of the Fair Market Value on the
                                    Exercise Date of any or all the shares,
                                    which would otherwise be issuable. No
                                    fractional shares shall be issued under this
                                    subsection (ii); instead, a cash adjustment
                                    equal to the same fraction of the fair
                                    market value per share of Common Stock on
                                    the Exercise Date shall be made.

                  iii.     Additional Terms. At the time a Stock Appreciation
                           Right is granted, the Committee shall set the terms
                           and conditions upon which such Stock Appreciation
                           Right may be exercised and the number of shares of
                           Common Stock in relation to which such Stock
                           Appreciation Right is granted and may provide that
                           the Stock Appreciation Right is being granted in
                           connection with a related Stock Option. Each Stock
                           Appreciation Right Agreement shall contain such
                           provisions concerning


Restated as of May 7, 1998                                                     7


                           termination of employment (by reason of death,
                           disability or otherwise) and leaves of absence as
                           shall be determined by the Committee. Such provisions
                           may include, but are not limited to, granting the
                           right to partially exercise a Stock Appreciation
                           Right, partial or complete acceleration of any time
                           periods in relation to which the exercisability of a
                           Stock Appreciation Right is calculated, waiver of
                           forfeiture provisions for leaves of absence and other
                           periods when not employed by the Corporation and the
                           extension of any period during which such Stock
                           Appreciation Right or any portion thereof may be
                           exercised to cover such leaves of absence or periods
                           when not employed by the Corporation and exercise by
                           personal representatives, heirs or legatees.

                  iv.      Stock Appreciation Rights Granted in Connection with
                           Stock Options. If the Committee has provided that a
                           Stock Appreciation Right has been granted in
                           connection with a Stock Option, the amounts
                           determined by the Committee as the purchase price per
                           share of Common Stock upon the exercise of a Stock
                           Option under Section 9(a)(i) and the amount
                           determined by the Committee under Section 9(b)(ii)(1)
                           shall be the same, the exercise of a Stock
                           Appreciation Right shall cancel the related Stock
                           Option to the extent of the number of shares as to
                           which such Stock Appreciation was exercised and the
                           exercise of a Stock Option shall cancel the related
                           Stock Appreciation Right to the extent of the number
                           of shares as to which such Stock Option was
                           exercised.

10.      Restricted Stock. Restricted Stock shall be evidenced by Restricted
         Stock Agreements in such form and not inconsistent with the Plan as the
         Committee shall approve from time to time, which Award Agreements shall
         contain in substance the following terms and conditions:

                  i.       Number of Shares, Restricted Period. A Restricted
                           Stock Agreement shall specify the number of shares of
                           Common Stock to which it pertains and shall specify
                           that the holder is entitled to receive, without
                           payment to the Corporation, such shares of Common
                           Stock in consideration for services performed for the
                           Corporation or for its benefit by the person
                           receiving the right upon (x) the achievement of
                           certain performance goals measuring performance over
                           a period of time of at least one year subsequent to
                           the date of such Restricted Stock Agreement, or (y)
                           the lapse of a specified period of time, which period
                           of time shall in no event be shorter than three years
                           (the "Restricted Period") and upon compliance with
                           any other terms contained in such Award Agreement.

                  ii.      Termination of Employment, Leave of Absence. The
                           Restricted Stock Agreement shall contain such
                           provisions concerning termination of employment (by
                           reason of death, disability or otherwise) and leaves
                           of absence as shall be determined by the Committee.
                           Such provisions may include, but are not limited to,
                           granting the right to receive all or a portion


Restated as of May 7, 1998                                                     8


                           of the shares of Common Stock covered by the
                           Restricted Stock Agreement, partial or complete
                           acceleration of the time periods in relation to which
                           the right to receive shares is granted, the waiver of
                           forfeiture provisions for leaves of absence and other
                           periods when not employed by the Corporation and the
                           receipt of shares by personal representatives, heirs
                           or legatees.

                  iii.     Issuance of Shares. Upon the lapse of a Restricted
                           Period, the Corporation shall, without transfer or
                           issue tax to the person entitled to receive the
                           shares of Common Stock, deliver to such person a
                           certificate or certificates for the number of shares
                           as to which such Restricted Period has lapsed.

                  iv.      Dividends, Voting. The Restricted Stock Agreement
                           shall contain such provisions concerning dividends
                           and voting with respect to Restricted Stock as
                           determined by the Committee.

11.      Dividend Equivalents. The Committee, in its discretion, may grant to
         eligible employees Dividend Equivalents. Dividend Equivalents shall be
         evidenced by Dividend Equivalent Agreements in such form and not
         inconsistent with the Plan as the Committee shall approve from time to
         time, which agreements shall contain in substance the following terms
         and conditions:

                  i.       Number of Shares, Duration. A Dividend Equivalent
                           Agreement shall specify the number of shares of
                           Common Stock to which it relates and provide that the
                           holder of a Dividend Equivalent shall be entitled to
                           receive from the Corporation cash payments, either
                           current or deferred and subject to such conditions as
                           may be imposed, in the same amounts (or such lesser
                           fraction of such amounts as may be specifically set
                           forth therein) that the holder of record of such
                           number of shares of Common Stock would be entitled to
                           receive as cash dividends on such Common Stock unless
                           otherwise limited in the Dividend Equivalent
                           Agreement. The Dividend Equivalent Agreement shall
                           state the expiration date for such Dividend
                           Equivalents. The right to cash payment in respect of
                           a Dividend Equivalent shall apply to all dividends
                           the record date for which occurs at any time during
                           the period commencing on the date the Dividend
                           Equivalent is granted and ending on the date such
                           Dividend Equivalent expires or is terminated,
                           whichever occurs first.

                  ii.      Dividend Equivalents Granted in Conjunction with
                           Incentive Stock Rights, Stock Options or Stock
                           Appreciation Rights. The Committee may, in its
                           discretion, grant Dividend Equivalents in conjunction
                           with the grant of Incentive Stock Rights, Stock
                           Options or Stock Appreciation Rights. In such event,
                           the Dividend Equivalent Agreements entered into shall
                           provide that the holder thereof is entitled to
                           receive from the Corporation cash payments either
                           current or deferred in the same amounts (or such


Restated as of May 7, 1998                                                     9


                           lesser fraction of such amounts as may be
                           specifically set forth in the Dividend Equivalent
                           Agreement) that the holder of record of a number of
                           shares of Common Stock equal to the number of shares
                           covered by such Stock Option or Right would be
                           entitled to receive as dividends on such Common Stock
                           unless otherwise limited in the Dividend Equivalent
                           Agreement. Such right to cash payment shall apply to,
                           and such Dividend Equivalents shall remain
                           outstanding in respect of all cash dividends, the
                           record date for which occurs at any time during the
                           period commencing on the date the related Stock
                           Option or Right is granted and ending on the date
                           that such Stock Option or Right is exercised, expires
                           or terminates, whichever occurs first.

                  iii.     Termination of Employment, Leaves of Absence. The
                           Dividend Equivalent Agreement shall contain such
                           provisions, concerning termination of employment (by
                           reason of death, disability or otherwise) and leaves
                           of absence as shall be determined by the Committee.

12.      Corporate Transactions.

         a)       Change in Shares of Common Stock. If the outstanding shares of
                  Common Stock of the Corporation are increased, decreased or
                  exchanged for different securities through reorganization,
                  merger, consolidation, recapitalization, reclassification,
                  stock split, stock dividend or similar capital adjustment, the
                  number of shares of Common Stock available under the Plan
                  shall be increased or decreased proportionately, as the case
                  may be, and the number of shares deliverable upon the exercise
                  thereafter, or in relation to which benefits are calculated,
                  of any Stock Option or Stock Appreciation Right or upon
                  distribution pursuant to Incentive Stock Rights or Restricted
                  Stock theretofore granted shall be increased or decreased
                  proportionately, as the case may be, without change in the
                  aggregate purchase price (where applicable) and the number of
                  shares in relation to which the amount of cash distributable
                  under Dividend Equivalents is calculated shall also be
                  increased or decreased proportionately.

         b)       Assumption of Stock Options. If the Corporation (or a direct
                  or indirect Subsidiary) acquires another corporation or merges
                  or engages in a similar transaction contemplated by Section
                  424 of the Code, the Corporation may assume stock options held
                  by employees of the other corporation in accordance with such
                  Section 424. Upon any such assumption, the Corporation may
                  grant Stock Options in a manner not inconsistent with the
                  Plan, provided that no Stock Option so granted shall be
                  granted to any person who is then a director or officer of the
                  Corporation.

13.      Change in Control.

         a)       Definition of Change in Control. For purposes of the Plan, a
                  "Change in Control of the Corporation" shall be deemed to have
                  occurred if:


Restated as of May 7, 1998                                                    10


                  i.       any "person" (as defined in Sections 13(d) and 14(d)
                           of the Exchange Act), other than the Corporation, any
                           trustee or other fiduciary holding securities under
                           an employee benefit plan of the Corporation, or any
                           corporation owned, directly or indirectly, by the
                           shareholders of the Corporation in substantially the
                           same proportions as their ownership of stock of the
                           Corporation, acquires "beneficial ownership" (as
                           defined in Rule 13d-3 under the Exchange Act) of
                           securities representing more than 35% of the combined
                           voting power of the Company; or

                  ii.      during any period of two consecutive years,
                           individuals who at the beginning of such period
                           constitute the Board of Directors and any new
                           director (other than a director designated by a
                           person who has entered into an agreement with the
                           Corporation to effect a transaction described in
                           subsections 13(a)(i), 13(a)(iii) or 13(a)(iv)) whose
                           election by the Board of Directors or nomination for
                           election by the Corporation's shareholders was
                           approved by a vote of at least two-thirds (2/3) of
                           the directors then still in office who either were
                           directors at the beginning of the period or whose
                           election or nomination for election was previously so
                           approved, cease for any reason to constitute a
                           majority thereof; or

                  iii.     the shareholders of the Corporation approve a merger
                           other than (i) a merger which would result in the
                           voting securities of the Corporation outstanding
                           immediately prior thereto continuing to represent
                           (either by remaining outstanding or by being
                           converted into voting securities of the surviving
                           entity), in combination with ownership of any trustee
                           or other fiduciary holding securities under an
                           employee benefit plan of the Corporation, at least
                           67% of the combined voting power of the voting
                           securities of the Corporation or such surviving
                           entity outstanding immediately after such merger or
                           (ii) a merger effected to implement a
                           recapitalization of the Corporation (or similar
                           transaction) in which no person acquires more than
                           50% of the combined voting power of the Corporation's
                           then outstanding securities; or

                  iv.      the shareholders of the Corporation approve a plan of
                           complete liquidation of the Corporation or a sale of
                           substantially all of the Corporation's assets.

         b)       Effect of Change in Control Upon Awards. Upon a Change in
                  Control of the Corporation, the Committee, in order to protect
                  the holders of Awards granted under this Plan, in its sole
                  discretion may (i) accelerate any time periods relating to the
                  exercise or realization of such Awards so that such Awards may
                  be exercised or realized in full on or before a date fixed by
                  the Committee, (ii) provide for the purchase of such Awards
                  for an amount of cash equal to the amount which could have
                  been attained upon the exercise or realization of such Awards
                  had such Awards been currently exercisable (which in the event
                  of a Change in Control set forth in Section 13(a)(i) shall be
                  based upon the


Restated as of May 7, 1998                                                    11


                  amount of cash and the Fair Market Value of other
                  consideration tendered for such outstanding shares), (iii)
                  make such adjustment to the rights then outstanding as the
                  Committee deems appropriate to reflect such transaction or
                  change or (iv) cause the Awards then outstanding to be
                  assumed, or new Awards substituted therefor, by the surviving
                  corporation in such change. The Committee may, in its
                  discretion, include such further provisions and limitations in
                  any Award Agreement as it may deem equitable and in the best
                  interests of the Corporation.

14.      Loans to Plan Participants. On such terms and conditions as shall be
         approved by the Committee, the Corporation or any Subsidiary may
         directly or indirectly lend money to any employee or other person to
         accomplish the purposes of this Plan, including to assist such person
         to acquire or carry shares of Common Stock acquired upon the exercise
         of Stock Options granted hereunder, and separately to lend money to any
         employee or other person to pay taxes with respect to any of the
         transactions contemplated by this Plan.

15.      General Restriction. Each Award shall be subject to the requirement,
         that, if at any time the Committee shall determine, in its discretion,
         that the listing, registration or qualification of the shares or other
         securities subject to such Award upon any securities exchange or under
         any state or Federal law, or the consent or approval of any government
         regulatory body, is necessary or desirable as a condition of, or in
         connection with, the granting thereof or the issue or purchase of
         shares or payments of any amounts thereunder, such Award may not be
         exercised in whole or in part and no amounts may be received thereunder
         or under such Dividend Equivalents unless such listing, registration,
         qualification, consent or approval shall have been effected or obtained
         free of any conditions not acceptable to the Committee.

16.      Rights as a Shareholder. The holder of an Award shall have no rights as
         a shareholder with respect to any shares covered thereof except as
         expressly contained or provided for in the Award Agreement or the Plan
         until the date of issuance of a stock certificate to him or her for any
         such shares issued pursuant to any Award. Except as otherwise expressly
         provided in the Plan or an Award Agreement, no adjustment shall be made
         for dividends or other rights for which the record date is prior to the
         date such stock certificate is issued.

17.      Non-Assignability of Awards. No Award shall be assignable or
         transferable by the recipient except by will or by the laws of descent
         and distribution. An Award shall be exercisable only by the recipient
         or his or her personal representatives, heirs or legatees.
         Notwithstanding the foregoing, the Committee in its discretion, after
         making suitable provision with the employee to provide for the payment
         of any required withholding upon the option's exercise, may authorize a
         recipient who is an employee of the Corporation or one of its
         Subsidiaries to transfer a Nonqualified Stock Option to any member of
         the employee's immediate family, to a trust established solely for the
         benefit of one or more members of the employee's immediate family or to
         a partnership of which the only individuals or entities who are


Restated as of May 7, 1998                                                    12


         or could be partners are members of the employee's immediate family
         and/or a trust established solely for the benefit of one or more
         members of the employee's immediate family (collectively, `Permitted
         Transferee'). For this purpose, `immediate family' shall mean the
         employee's spouse, children, present or former stepchildren,
         grandchildren, present or former stepgrandchildren, parents, present or
         former stepparents, grandparents, siblings (including half- brothers
         and sisters), in-laws and relationships arising due to legal adoption.
         The Committee's authorization to allow such a transfer must be
         evidenced by the written Stock Option Agreement pursuant to which the
         Nonqualified Stock Option is awarded, or by a written amendment
         thereto. In the event of a transfer, the Permitted Transferee may
         exercise the Nonqualified Stock Option generally in accordance with the
         terms of this Plan and the Stock Option Agreement, but may not
         subsequently assign or transfer the Nonqualified Stock Option except by
         will or by the laws of descent and distribution. The foregoing sentence
         shall not be interpreted to prohibit a Permitted Transferee that is
         either a trust or partnership from modifying or expanding its
         beneficiaries or partners, respectively, provided that such
         beneficiaries or partners also independently would be considered
         Permitted Transferees.

         No Option shall be exercisable and no transfer of the shares of Common
         Stock underlying such Option (the "Underlying Shares") may be made to
         any Permitted Transferee; and any attempt to exercise any Option or to
         transfer any Underlying Shares to any Permitted Transferee shall be
         void and of no effect, unless and until (i) a registration statement
         under the Securities Act of 1933, as amended (the "Securities Act"),
         has been duly filed and declared effective pertaining to the Underlying
         Shares and the Underlying Shares have been duly qualified under
         applicable state securities or blue sky laws or (ii) the Board, in its
         sole discretion after securing the advice of counsel, determines, or
         the Permitted Transferee provides an opinion of counsel satisfactory to
         the Board, that such registration or qualification is not required as a
         result of the availability of an exemption from registration or
         qualification under such laws.

18.      Withholding Taxes. Whenever under the Plan shares are to be issued in
         satisfaction of Awards, the Corporation shall have the right to require
         the employee (or if the employee is not then living, the employee's
         estate) to remit to the Corporation an amount sufficient to satisfy
         Federal, state and local withholding tax requirements prior to the
         delivery of any certificate or certificates for such shares. Whenever
         under the Plan payments are to be made in cash, such payments shall
         include an amount sufficient to satisfy Federal, state and local
         withholding tax requirements.

19.      Amendment of the Plan. The Board of Directors may at any time and from
         time to time terminate, modify, or amend the Plan in any respect,
         except that no termination, modification or amendment shall be
         effective without shareholder approval if such approval is required to
         comply with Rule 16b-3 under the Exchange Act or to comply with any
         other law, regulation or stock exchange rule. The termination or any
         modification or amendment of the Plan shall not, without the consent of
         an employee, affect his or her rights under an Award previously granted
         to him or her. With the


Restated as of May 7, 1998                                                    13


         consent of the employee affected, the Committee may amend outstanding
         Award Agreements in a manner not inconsistent with the Plan. The
         Committee may not, however, amend any outstanding Award Agreements to
         decrease the Exercise Price set forth in such Award Agreements.

20.      Effectiveness of the Plan. The Plan shall become effective immediately
         prior to the consummation of the Public Offering, subject to approval
         by the shareholders of the Corporation.

21.      Nonexclusively of the Plan. Neither the adoption of the Plan by the
         Board of Directors and the shareholders of the Corporation nor any
         provision of the Plan shall be construed as creating any limitations on
         the power of the Board of Directors to adopt such additional
         compensation arrangements as it may deem desirable and such
         arrangements may be either generally applicable or applicable only in
         specific cases nor shall the Plan be construed as restricting the
         Committee's ability to grant any rights under the Plan to any person by
         reason of such person holding or being granted rights or options or
         participating in any other plans, arrangements or agreements.

22.      Additional Incentive Benefits. In addition to the Awards described in
         the Plan which may be granted by the Committee, the Board of Directors
         may, at its discretion, create and permit the Committee to grant such
         other incentive benefits ("Incentive Benefits") under the Plan as it
         believes are desirable (including, without limitation, stock bonus
         awards), provided that:

         i.       any such Incentive Benefits shall be governed by the terms of
                  the Plan as in effect on the date of grant of such Incentive
                  Benefits, and for such purposes, notwithstanding the
                  provisions of Section 19, the Board of Directors may amend the
                  Plan to create and describe such Incentive Benefits and the
                  governing terms thereof;

         ii.      the creation of such Incentive Benefits may not, without
                  shareholder approval (1) increase the total number of shares
                  of Common Stock issuable under the Plan, or (2) materially
                  modify the requirements as to eligibility for participation in
                  the Plan; and

         iii.     the Board of Directors shall not have the power to create and
                  grant Incentive Benefits which would result in the grant of a
                  prohibited tandem stock option or other prohibited tandem
                  arrangement, with respect to any Incentive Stock Options
                  granted under the Plan, as described in applicable regulations
                  under Section 422 of the Code.


Restated as of May 7, 1998                                                    14

EX-10.FF

                                                                 EXHIBIT 10(FF)


                      1995 ROHR, INC. STOCK INCENTIVE PLAN

1.       PURPOSE OF THE PLAN

         The purpose of this 1995 Stock Incentive Plan ("Plan") of Rohr, Inc., a
Delaware corporation (the "Company"), is to enable the Company and its
Subsidiaries to attract, retain and motivate their employees by providing for or
increasing the proprietary interests in the Company of such employees and
further align their interests with those of the Company's stockholders.

2.       PLAN AWARDS

         (a)      To carry out the purposes of the Plan, the Company and its
Subsidiaries will from time to time enter into various arrangements with persons
eligible to participate therein and confer various benefits upon them. The
following such arrangements or benefits are authorized under the Plan if their
terms and conditions are not inconsistent with the provisions of the Plan: Stock
Options, Forfeitable Stock, and Stock Bonuses. Such arrangements and benefits
pursuant to the Plan are generically sometimes herein referred to as "Awards."
The authorized categories of benefits for which Awards may be granted are
defined as follows:

                  Stock Options: A Stock Option is a right granted under the
Plan to purchase a specified number of shares of Common Stock at such exercise
price, at such times, and on such other terms and conditions as are specified in
the Award.

                  Forfeitable Stock: Forfeitable Stock is Common Stock sold
under the Plan at a discount of at least 50 percent from its Fair Market Value
or at its par value, but subject during specified periods of time to such
restrictions on its transferability and repurchase rights as are expressed in
the Award and as may constitute a substantial condition of forfeiture while in
effect.

                  Stock Bonuses: A Stock Bonus is the issuance or delivery of
unrestricted or restricted shares of Common Stock under the Plan as a bonus for
services rendered or to be rendered in the employ of the Company or Subsidiary.

         (b)      An Award may consist of one such arrangement or benefit or two
or more of them in tandem or in the alternative. Among other things, any such
Award may but need not also provide for the satisfaction of any applicable tax
withholding obligation by the retention of shares to which the grantee would
otherwise be entitled or by the grantee's delivery of previously owned shares or
other property.

         (c)      Common Shares may be issued pursuant to an Award for any
lawful consideration as determined by the Committee (as defined in Section 6
below), including, without limitation, services rendered by the recipient of
such Award.

         (d)      Subject to the provisions of this Plan, the Committee, in its
sole and absolute discretion, shall determine all of the terms and conditions of
each Award granted under this Plan, which terms and conditions may include,
among other things:


                                        1


                  (i)      a provision permitting the recipient of such Award,
including any recipient who is a director or officer of the Company, to pay the
purchase price of the Common Shares or other property issuable pursuant to such
Award, or such recipient's tax withholding obligation with respect to such
issuance, in whole or in part, by any one or more of the following:

                           (A)      the delivery of previously owned shares of
capital stock of the Company (including "pyramiding") or other property,
provided that the Company is not then prohibited from purchasing or acquiring
shares of its capital stock or such other property, or

                           (B)      a reduction in the amount of Common Shares
or other property otherwise issuable pursuant to such Award; and

                  (ii)     any provision required in order for such Award to
qualify as an Incentive Stock Option, provided that the recipient of such Award
is eligible under the Internal Revenue Code (the "Code") to receive an Incentive
Stock Option.

         (e)      Notwithstanding any other provision of this Plan:

                  (i)      no Employee shall be granted Incentive Stock Options
that are exercisable for the first time by any individual in any one calendar
year (under all plans of the Company and any Subsidiary) with respect to Common
Shares having a value at the time of grant in excess of $100,000;

                  (ii)     the Company may not change the exercise price of or
replace any Stock Option granted hereunder (other than any adjustment provided
in Section 3 below); and

                  (iii)    no Stock Option may be granted with an exercise price
less than 100% of the Fair Market Value of the underlying Common Stock on the
date the Committee approves such Stock Option.

         (f)      Notwithstanding any other provision of this Plan, no Employee
shall be granted Awards hereunder with respect to in excess of 400,000 shares of
Common Stock during any calendar year. This limitation is intended to satisfy
the requirements of Section 162(m) of the Code so that compensation attributable
to Awards hereunder qualify as performance-based compensation under Section
162(m) of the Code. The limitation under this subsection (f) shall be subject to
adjustment under Section 3 hereof, but only to the extent permitted under
Section 162(m) of the Code.

         (g)      No Employee shall be granted any Award hereunder to replace
any Award granted under any other Company stock incentive plan where the purpose
of such replacement is to reduce the per share exercise or purchase price of
such award.


                                       2


3.       STOCK SUBJECT TO PLAN

         (a)      The kind and maximum of shares of stock that may be sold or
issued under the Plan, whether upon exercise of Stock Options or in settlement
of other Awards, shall be 1,800,000 shares of Common Stock (subject to the
adjustments set forth hereinbelow). If the outstanding shares of stock of the
class then subject to the Plan are increased or decreased, or are changed into
or are exchanged for a different number or kind of shares or securities or other
forms of consideration, as a result of one or more reorganizations,
recapitalizations, restructurings, reclassifications, stock splits, reverse
stock splits, stock dividends or the like, appropriate adjustments shall be made
in the number and/or kind of shares or securities or other forms of
consideration which may thereafter be sold or issued under the Plan for which
Awards (including Incentive Stock Options) may thereafter be granted and for
which outstanding Awards previously granted under the Plan may thereafter be
exercised or settled; provided, however, that adjustments pursuant to this
Section 3 shall be limited to those that will not adversely affect the status of
outstanding Stock Options as Incentive Stock Options.

         (b)      The aggregate number of shares that may be issued and issuable
as Forfeitable Stock (including Forfeitable Stock issued as Stock Bonuses) under
this Plan shall not exceed 360,000 shares, subject to adjustments as provided
hereinabove.

         (c)      For purposes of this Section 3, the aggregate number of Common
Shares issued and issuable pursuant to all Awards granted under this Plan shall
at any time be deemed to be equal to the sum of the following:

                  (i)      the number of Common Shares that were issued prior to
such time pursuant to Awards granted under this Plan, other than Common Shares
that were subsequently reacquired by the Company for no more than the price at
which they were sold (plus any interest thereon) pursuant to the terms and
conditions of the Award, provided that Common Shares that were subject to a
Stock Option, if that Stock Option has subsequently expired, terminated or been
canceled without such shares having been sold or issued thereunder, shall not be
deemed sold or issued and shall again be considered as shares for which Awards
may be granted under the Plan; plus

                  (ii)     the number of Common Shares that were otherwise
issuable prior to such time pursuant to Awards granted under this Plan, but that
were withheld by the Company as payment of the purchase price of the Common
Shares issued pursuant to such Awards or as payment of the recipient's tax
withholding obligation with respect to such issuance; plus

                  (iii)    the maximum number of Common Shares issuable at or
after such time pursuant to Awards granted under this Plan prior to such time.

         (d)      The shares of the stock sold or issued under the Plan may be
obtained from the Company's authorized but unissued shares, from reacquired or
treasury shares, or from outstanding shares to be acquired in the market from
private sources.


                                        3


4.       PERSONS ELIGIBLE TO PARTICIPATE

         Any person, including any director of the Company, who is a regular
salaried employee of the Company or any of its Subsidiaries (a "Salaried
Employee" or an "Employee") shall be eligible to be considered for the grant of
Awards hereunder.

5.       PLAN EFFECTIVENESS AND DURATION

         The Plan shall become effective upon its adoption by the Company's
Board of Directors (the "Board"), and shall continue until terminated by the
Board, but no shares may be sold or issued hereunder until the Plan has been
approved by the holders of a majority of the outstanding shares of the Company's
Common Stock present, or represented, and entitled to vote at a meeting of the
Company's stockholders, other than shares awarded subject to the condition
subsequent that such approval is obtained. Incentive Stock Options may not be
granted under the Plan after July 25, 2005, although any such Incentive Stock
Option that was duly granted on or before July 25, 2005, may thereafter be
exercised in accordance with its terms.

6.       ADMINISTRATION OF THE PLAN

         The Plan shall be administered by the Board or, in the discretion of
the Board, a committee appointed thereby (the "Committee"). Subject to the
provisions of the Plan, the Board, or the Committee, shall have full and final
authority in its discretion to select the Employees to whom Awards shall be
granted hereunder, to grant such Awards, to determine the terms and provisions
of such Awards and the number of shares to be sold or issued pursuant thereto,
and to adopt, amend, and rescind such rules and regulations as, in its opinion,
may be advisable in the administration of the Plan. The Committee may delegate
to Company officers or others its authority with respect to any Awards that may
be granted to Employees who are not then officers of the Company or subject to
Section 16 of the 1934 Act; provided, that the issuance of shares on exercise or
settlement of any Awards must be or have been authorized by the Board or the
Committee. The interpretation and construction by the Board or the Committee of
any term or provision of the Plan or of any Award granted thereunder shall be
final and binding upon all participants in the Plan.

7.       SECTION 16 PERSONS

         Notwithstanding any other provision herein, any Award granted hereunder
to an Employee who is then subject to Section 16 of the 1934 Act shall be
subject to the following limitations:

         (a)      The Committee exercising the authority described in Paragraph
6 with respect to that Award shall consist of two or more members of the Board
who are not Salaried Employees.

         (b)      The Award may provide for the issuance of shares of Common
Stock as a Stock Bonus for no consideration other than services rendered or to
be rendered.


                                        4


         (c)      No Award may be sold or otherwise transferred for at least six
months after it is acquired (except on death or disability or pursuant to a
qualified domestic relations order as defined by the Internal Revenue Code or
the Employee Retirement Income Security Act).

         (d)      Any Stock Option granted to such Employee pursuant to the Plan
shall not be transferable other than by will or the laws of descent and
distribution or pursuant to a qualified domestic relations order as defined
above, shall be exercisable during the Employee's lifetime only by the Employee
or by his or her guardian or legal representative, and may not be exercisable
for at least six months after it is granted (except on death or disability or
pursuant to a qualified domestic relations order as defined above).

8.       CHANGES IN CONTROL

         The Board, may, in its discretion, authorize any or all of the
following actions as a result of or in anticipation of any Change in Control of
the Company, and any Award may but need not expressly provide for such actions
upon the occurrence of a Change in Control: (1) the acceleration of unmatured
installments or vesting provisions under any outstanding Awards, (2) the lapsing
or expiration of restrictions or limitations under any outstanding Awards, and
(3) the settlement for cash of outstanding Awards or portions thereof.

9.       AMENDMENT AND TERMINATION

         The Board may alter, amend, suspend or terminate the Plan at any time
and in any manner subject to the following limitations: (a) no such action of
the Board, unless taken with the approval of the shareholders of the Company,
may (i) increase the maximum number of shares that may be made subject to sale
or issuance or may be sold or issued under the Plan, (ii) alter the class of
persons eligible to participate in the Plan, (iii) change the exercise price of
or replace any Stock Option granted hereunder or under any other Company stock
incentive plan where the purpose of such replacement is to reduce the per share
exercise or purchase price of such award (other than any adjustment provided in
Section 3), or (iv) grant a Stock Option with an exercise price less than 100
percent of the Fair Market Value of the underlying Common Stock on the date the
Committee approves such option; and (b) no such amendment or termination shall
deprive the recipient of any Award theretofore granted under this Plan, without
the consent of such recipient, of any of his or her rights thereunder or with
respect thereto.

         However, the Board may in its discretion determine, with respect to any
other amendments of the Plan, that such amendments shall only become effective
upon approval by the stockholders of the Company, if the Board determines that
such stockholder approval may be advisable, such as for the purpose of obtaining
or retaining any statutory or regulatory benefits under securities or tax or
other laws, or of satisfying any applicable stock exchange listing requirements.

10.      CERTAIN DEFINITIONS

         The authorized categories of benefits for which Awards may be granted
under this Plan


                                        5


are defined in Paragraph 2 above. In addition, the following terms used in this
Plan shall have the following meanings, subject to any amendments in accordance
with Paragraph 10 above:

         An "Acquiring Person" shall mean any Person who or which, together with
all Affiliates and Associates (as such terms are defined in Rule 12b-2 of the
General Rules and Regulations under the 1934 Act, as in effect on July 26, 1995)
of such Person, shall be the Beneficial Owner (as defined in Rule 13d-3 of the
General Rules and Regulations under the 1934 Act, as in effect on July 26, 1995)
of 15% or more of the Voting Shares of the Company then outstanding; provided,
however, that an Acquiring Person shall not include the Company, any
wholly-owned subsidiary of the Company and any employee benefit plan of the
Company or of a subsidiary of the Company or any Person holding Voting Shares of
the Company for or pursuant to the terms of any such plan. For purposes of this
paragraph, the percentage of the outstanding shares of Voting Shares of which a
Person is a Beneficial Owner shall be calculated in accordance with said Rule
13d-3.

         "Change in Control" shall mean: (A) an agreement shall have been
entered or a document signed providing for the merger, consolidation or
liquidation of the Company; (B) the beneficial ownership (the direct or indirect
beneficial ownership for purposes of Section 13(d) of the 1934 Act and
Regulations 13D-G thereunder, or any comparable or successor law or regulation)
of 40 percent or more of the Company's shares is acquired by any person or
associated or affiliated group of persons (as defined by Rule 12b-2 of the
General Rules and Regulations under the 1934 Act, as in effect on July 26,
1995); (C) an agreement shall have been entered into or a document signed
providing for the sale, mortgage, lease or other transfer in one or more
transactions (other than transactions in the ordinary course or business) of the
assets or earning power aggregating more than 50 percent of the assets or
earning power of the Company and its subsidiaries (taken as a whole) to any
Person or associated or affiliated group of Persons; or (D) any Acquiring Person
shall receive the benefit, directly or indirectly (except proportionately as a
shareholder or upon terms and conditions not less favorable to the Company than
the Company would be able to obtain in arm's length negotiations with an
unaffiliated party) of any loans, advances, guarantees, pledges or other
financial assistance, or any tax credits or other tax advantage provided by the
Company or its subsidiaries; or (E) Change in Control shall also mean, and a
Change of Control shall be deemed to have occurred, if at anytime, the Board of
Directors of the Company shall be composed of a majority of Directors which are
not Continuing Directors.

         "Common Stock" is the Company's common stock, $1 par value, as
constituted on July 26, 1995, and as thereafter adjusted as a result of any one
or more events requiring adjustment of outstanding Awards under Paragraph 3
above.

         "Continuing Director" shall mean a director if he or she was a member
of the Board of Directors as of July 26, 1995 and any successor of a Continuing
Director or director filling a newly created position on the Board of Directors
who is elected or nominated to succeed a Continuing Director or to fill such
newly created position by a majority of Continuing Directors then on the Board.


                                        6


         "Fair Market Value" of shares of stock shall be calculated on the basis
of the closing price of stock of that class on the day in question (or, if such
day is not a trading day in the U.S. securities markets, on the nearest
preceding trading day), as reported with respect to the principal market (or the
composite of the markets, if more than one) in which such shares are then
traded, or, if no such closing prices are reported, on the basis of the mean
between the high bid and low asked prices that day on the principal market or
national quotation system on which such shares are then quoted or, if not so
quoted, as furnished by a professional securities dealer making a market in such
shares selected by the Board or the Committee.

         An "Incentive Stock Option" is a Stock Option that qualifies as an
"incentive stock option" as defined under Section 422 (or any applicable
successor provisions) of the Internal Revenue Code and that includes an express
provision that it is intended to be an Incentive Stock Option.

         "Person" shall mean any individual, firm, partnership, corporation,
trust, estate, association, group (as such term is used in Rule 13d-5 under the
1934 Act) or other entity, and any two or more of the foregoing acting in
concert or pursuant to an agreement, arrangement, or understanding for the
purpose of acquiring, holding, voting or disposing of capital stock of the
Company, and shall include any successor (by merger or otherwise) of such
entity.

         A "Subsidiary" of the Company is any corporation, partnership or other
entity in which the Company directly or indirectly owns 50% or more of the total
combined power to cast votes in the election of directors, trustees, managing
partners or similar officials.

         The "1934 Act" means the Securities Exchange Act of 1934, as in effect
from time to time.

         "Voting Shares" shall mean (i) shares of the Company's $1 par value
common stock, and (ii) any other share of capital stock of the Company entitled
to vote generally in the election of directors or entitled to vote in respect of
any merger, consolidation, sale of all or substantially all of the Company's
assets, liquidation, dissolution or winding up. References to a percentage or
portion of the outstanding Voting Shares shall be deemed a reference to the
percentage or portion of the total votes entitled to be cast by the holders of
the outstanding Voting Shares.

         IN WITNESS WHEREOF, Rohr, Inc. has caused the Plan to be executed as of
the 2nd day of December, 1995, to be effective as of the Effective Date.

                                                  ROHR, INC.



                                                  By:   /s/ R. W. Madsen
                                                        -----------------
                                                         R. W. Madsen
                                                         Vice President, General
                                                         Counsel and Secretary


                                        7

EX-10.GG

                                                                 EXHIBIT 10(GG)


                                 FIRST AMENDMENT
                               TO THE ROHR, INC.,
                            1995 STOCK INCENTIVE PLAN

         Pursuant to the provisions of Section 9, the 1995 Stock Incentive Plan
is hereby amended as follows:

1.       Paragraph 8 is hereby amended to read in full as follows:

         (a)      A heading "(a)" is placed in front of the existing language of
paragraph 8.

         (b)      A new subparagraph is hereby added:

                  "(b)     If there is a Change in Control of the Company which
         occurs due to the provisions of subparagraph 10(B) below, then: (i) in
         the case of the beneficial ownership of 40 percent or more of the
         Company's shares (as ownership is defined and provided for in such
         subparagraph 10(B)), then (A) the restrictions on the restricted stock
         of all Plan participants (whether or not they are then active
         Employees) shall be lifted forthwith and (B) all shares granted
         pursuant to stock options which are not then exercisable under the
         terms of the applicable option agreements shall become immediately
         exercisable in full at any time for the remainder of their term; and
         (ii) in the case of the beneficial ownership of 20 percent or more of
         the Company's shares (as ownership is defined and provided for in such
         subparagraphs 10(B)), then (A) the restrictions on the restricted stock
         of any Participant whose employment is terminated within two years
         after the Change in Control (except for a Voluntary Termination or a
         Termination for Cause, as defined in any applicable stock option or
         restricted stock agreement entered pursuant to the Plan) shall be
         lifted forthwith and (B)~jL shares granted pursuant to stock options of
         such terminated Employee which are not then exercisable under the terms
         of the applicable option agreements shall become immediately
         exercisable in full at any time for the remainder of their term;
         provided, however, in connection with said Change in Control, said
         participant will not have obtained in the case of either (i) or (ii)
         above, except proportionately as a shareholder, a participatory
         interest in the ownership of the surviving corporation (in the case of
         a merger or consolidation), in the ownership of the entity beneficially
         owning the requisite percentage of company stock (in the case of an
         entity owning 20 percent of Rohr), in the receipt of assets of earning
         power (in the case of a transfer of 50 percent or more of the assets or
         earning power), or in the loans, advances, guarantees, pledges or other
         financial assistance or tax credits."

                  (2)      a reduction within twenty-four (24) months after the
         occurrence of a Change in Control in the Plan participant's base salary
         as in effect on the date of the Change in Control, or the Company's
         failure to increase the Plan Participant's base salary after a Change
         in Control at a rate which is substantially similar to the average
         increase in base salary effected during the preceding twelve (12)
         months for those executives of the Company who are in the same
         compensation category as the Plan participant, that is, on the officer
         payroll or the executive payroll, as the case may be;


                                        1


                  (3)      any failure by the Company to continue in effect any
         benefit plan or arrangement or any material fringe benefit in which the
         Plan participant was participating immediately prior to a Change in
         Control, or to substitute and continue other plans providing the Plan
         participant with substantially similar benefits, or any action by the
         Company that would adversely affect the Plan participant's
         participation in or materially reduce the Plan participant's benefits
         under any such benefit plan or arrangement or deprive the Plan
         participant of any material fringe benefit enjoyed by the Plan
         participant at the time of the Change in Control;

                  (4)      any failure by the Company to continue in effect any
         incentive plan or arrangement, such as but not limited to the
         Management Incentive Plan (Restated 1982), as amended, in which the
         Plan participant is participating at the time of a Change in Control,
         or to substitute and continue other plans or arrangements providing the
         Plan participant with substantially similar benefits, or the taking of
         any action by the Company that would adversely affect the Plan
         participant's participation in any such -incentive plan or reduce the
         Plan participant's benefits under any such incentive plan in an amount
         which is not substantially similar, on a percentage basis, to the
         average percentage reduction of benefits under any such incentive plan
         effected during the preceding twelve (12) months for all executives of
         the Company participating in any such incentive plan in the same
         compensation category as the Plan participant;

                  (5)      the Plan participant's relocation to any place other
         than the location at which the Plan participant performed the Plan
         participant's duties prior to a Change in Control; or

                  (6)      any material breach by the Company of any provision
         of this Agreement.


                                        2

EX-10.HH

                                                                EXHIBIT 10(HH)


                                SECOND AMENDMENT
                               TO THE ROHR, INC.,
                            1995 STOCK INCENTIVE PLAN

         Pursuant to the provisions of Section 9, the 1995 Stock Incentive Plan
is hereby amended as follows:

1.       Paragraph 9 is hereby amended to read in full as follows:

         "The Board or the Executive Compensation and Development Committee (the
         "Committees) may alter, amend, suspend or terminate the Plan at any
         time and in any manner subject to the following limitations: (a) no
         such action of the Board or the Committee, unless taken with the
         approval of the shareholders of the Company, may (i) increase the
         maximum number of shares that may be made subject to sale or issuance
         or may be sold or issued under the Plan, (ii) alter the class of
         persons eligible to participate in the Plan, (iii) change the exercise
         price of or replace any Stock Option granted hereunder or under any
         other Company stock incentive plan where the purpose of such
         replacement is to reduce the per share exercise or purchase price of
         such award (other than any adjustment provided in Section 3), or (iv)
         grant a Stock Option with an exercise price less than 100 percent of
         the Fair Market Value of the underlying Common Stock on the date the
         Committee approves such option; and (b) no such amendment or
         termination shall deprive the recipient of any Award theretofore
         granted under this Plan, without the consent of such recipient, of any
         of his or her rights thereunder or with respect thereto.

                  However, the Board or the Committee may in its discretion
         determine, with respect to any other amendments of the Plan, that such
         amendments shall only become effective upon approval by the
         stockholders of the Company, if the Board or the Committee determines
         that such stockholder approval may be advisable, such as for the
         purpose of obtaining or retaining any statutory or regulatory benefits
         under securities or tax or other laws, or of satisfying any applicable
         stock exchange listing requirements."

2.       In all other respects, the Plan is hereby ratified and confirmed.

         IN WITNESS WHEREOF, Rohr, Inc., has caused its duly authorized officer
to execute this Amendment on the 13th day of September 1996.

                                             ROHR, INC.



                                             By: /s/  R.W. Madsen
                                                 ------------------
                                                 R.W. Madsen
                                                 Vice President, General Counsel
                                                 and Secretary

EX-10.LL

                                                                  EXHIBIT 10(LL)

                      DIRECTORS' DEFERRED COMPENSATION PLAN

                      ------------------------------------

              ADOPTED BY THE BOARD OF DIRECTORS ON DECEMBER 3, 2002

RESOLVED, that effective January 1, 2003, a fixed retainer be paid to each
Director, except employees or former employees of the Company or its
subsidiaries within five years of their termination of employment who are
Directors, for services as a member of the Board of Directors, at a rate of
$50,000 per year. One-half of the fixed retainer shall be deferred under the
Directors' Deferred Compensation Plan (the "Plan") into a bookkeeping account
("Deferred Compensation Account") denominated in phantom shares ("Phantom
Shares") with each Phantom Share equal to the fair market value of one share of
Company common stock. Directors may elect to defer (the "Deferral Election") all
or a portion of the remaining fixed retainer and meeting fees described below
into the Deferred Compensation Account in Phantom Shares. The Deferral Election
shall remain in effect for the calendar year for which made and shall continue
in effect for each succeeding calendar year unless revoked or modified prior to
the commencement of such succeeding year.

Dividend equivalents will be accrued on all Phantom Shares under this Plan. Upon
the payment date of each dividend declared on the Company's common stock, that
number of additional Phantom Shares will be credited to each Director's account
which is equivalent in value to the aggregate amount of dividends which would be
paid if the number of Phantom Shares credited to each Director's account were
actual shares of the Company's common stock.

Upon termination of service as a Director for any reason, accrual shares of the
Company's common stock equal in number to the number of Phantom Shares credited
to the Director's account, less any applicable withholding, shall be promptly
paid to the Director or his or her designated beneficiary (or estate if no
beneficiary designated).

For all purposes of this Plan, the fair market value for the Company's common
stock and Phantom Shares shall be the mean of the high and low prices of the
Company's common stock on the relevant date as reported on the New York Stock
Exchange - Composite Transactions Listing (or similar report) or if no sale was
made on such date, then on the next preceding day on which such sale was made.

No award of Phantom Shares shall be assignable or transferable by the Directors,
except by will or by the laws of descent and distribution.


                                       1


The number of Phantom Shares credited to a Director's account shall be adjusted
to reflect any stock split, stock dividend, combination of shares, merger,
consolidation, reorganization, or other change in the structure of the Company
or the nature of the Company's common stock (the "event") in the same manner as
the event affects the Company's common stock.

The Board of Directors may alter or amend this Plan, in whole or in part, from
time to time, or terminate the Plan at any time, provided, however, no such
action shall adversely affect any rights or obligations with respect to awards
of Phantom Shares previously made under the Plan, without consent of the
individual Director.

RESOLVED FURTHER, that a fee of $1,500 be paid to each Director, except
employees or former employees of the Company or its subsidiaries within five
years of their termination of employment who are Directors, for attendance at
each duly called meeting of the Board and for attendance at each duly called
meeting of any Committee of the Board of which he or she is a member (other than
as Chairman), or which he or she is requested by the Chairman of such Committee
to attend, together with an allowance for any proper expenses incurred in
attending such meeting; and

RESOLVED FURTHER, that a fee of $2,500 be paid to each Director, except
employees or former employees of the Company or its subsidiaries within five
years of their termination of employment who are Directors, for attendance at
each duly called meeting of any Committee of the Board of which he or she is
Chairman, together with an allowance for any proper expenses incurred in
attending such meeting; and

RESOLVED FURTHER, that the officers of the Company be and they severally are
authorized to do and perform each and every act and thing and to execute and
deliver any and all documents as, on the advice of legal counsel of the Company,
such officers may deem necessary or advisable to implement the intent and
purpose of the preceding resolutions, such officer's execution thereof to be
conclusive evidence of the exercise of the discretionary authority herein
conferred.


                                        2

EX-13

                                                                      EXHIBIT 13

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION IN CONJUNCTION WITH THE AUDITED
CONSOLIDATED FINANCIAL STATEMENTS OF GOODRICH CORPORATION INCLUDED ELSEWHERE IN
THIS DOCUMENT.

THIS MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS. SEE "FORWARD-LOOKING STATEMENTS"
BELOW AND "CERTAIN BUSINESS RISKS" IN ITEM 1 OF OUR ANNUAL REPORT ON FORM 10-K
FOR A DISCUSSION OF THE UNCERTAINTIES, RISKS AND ASSUMPTIONS ASSOCIATED WITH
THESE STATEMENTS.

AS DISCUSSED BELOW, THE COMPANY'S ENGINEERED INDUSTRIAL PRODUCT (EIP) AND
PERFORMANCE MATERIALS (PM) SEGMENTS HAVE BEEN ACCOUNTED FOR AS DISCONTINUED
OPERATIONS. UNLESS OTHERWISE NOTED HEREIN, DISCLOSURES PERTAIN ONLY TO THE
COMPANY'S CONTINUING OPERATIONS.

SPECIAL ITEMS, AS USED THROUGHOUT "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" INCLUDE RESTRUCTURING AND
CONSOLIDATION COSTS, CERTAIN GAINS OR LOSSES ON THE SALE OF BUSINESSES, RESULTS
OF DISCONTINUED OPERATIONS, CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING, ASSET
IMPAIRMENT CHARGES AND ACQUISITION-RELATED CHARGES INCLUDING THE STEP-UP OF
INVENTORY AND IN-PROCESS RESEARCH AND DEVELOPMENT.

OVERVIEW

We are one of the largest worldwide suppliers of components, systems and
services serving the commercial, regional, business and general aviation
markets. We are also a leading supplier of aircraft and satellite systems
products to the global military and space markets. Our business is conducted on
a global basis with manufacturing, service and sales undertaken in various
locations throughout the world. Our products and services are principally sold
to customers in North America and Europe.

ACQUISITION OF AERONAUTICAL SYSTEMS

On October 1, 2002, we completed our acquisition of Aeronautical Systems from
TRW Inc. for approximately $1.5 billion in cash. At the time of acquisition, the
acquired businesses employed approximately 6,200 employees in 22 facilities in
nine countries, including manufacturing and service operations in the United
Kingdom, France, Germany, Canada, the United States and several Asia/Pacific
countries. Refer to Note B to the accompanying Consolidated Financial
Statements.

We financed the acquisition through a $1.5 billion, 364-day credit facility
provided by some of our existing lenders. This facility expires on July 29,
2003. In the fourth quarter of 2002, we repaid $1.3 billion of the credit
facility primarily through the use of cash flow from asset monetizations, cash
flow from operations, the successful completion of a secondary offering of
common stock for net proceeds of $216.2 million and the issuance of $800 million
of 5 and 10-year notes for net proceeds of $793.1 million. The proceeds from the
pending sale of our Avionics business, which was announced in January 2003 will
be used to reduce the balance of the credit facility.

As a result of integration activities with respect to Aeronautical Systems, we
expect to realize annual cost savings of approximately $30 million to $40
million, net of anticipated incremental costs, by the beginning of 2005. These
cost savings are expected to result from consolidation of duplicate facilities,
reduction of personnel, reduction of expenditures, expansion of procurement
initiatives and the use of best practices across the combined businesses.


                                       1


SPIN-OFF OF ENGINEERED INDUSTRIAL PRODUCTS

On May 31, 2002, we completed the tax-free spin-off of our Engineered Industrial
Products (EIP) segment. The spin-off was made through a tax-free distribution to
our shareholders of all of the capital stock of EnPro Industries, Inc. (EnPro),
a subsidiary that we formed in connection with the spin-off. In the spin-off,
our shareholders received one share of EnPro common stock for every five shares
of our common stock owned on May 28, 2002, the record date.

At the time of the spin-off, EnPro's only material asset was all of the capital
stock and certain indebtedness of Coltec Industries Inc (Coltec). Coltec and its
subsidiaries owned substantially all of the assets and liabilities of the EIP
segment, including the associated asbestos liabilities and related insurance.

Prior to the spin-off, Coltec also owned and operated an aerospace business.
Before completing the spin-off, Coltec's aerospace business assumed all
intercompany balances outstanding between Coltec and us, and Coltec then
transferred to us as a dividend all the assets, liabilities and operations of
its aerospace business, including these assumed balances. Following this
transfer and prior to the spin-off, all of the capital stock of Coltec was
contributed to EnPro, with the result that at the time of the spin-off Coltec
was a wholly-owned subsidiary of EnPro.

In connection with the spin-off, we and EnPro entered into a distribution
agreement, a tax matters agreement, a transition services agreement, an employee
matters agreement and an indemnification agreement, which govern the
relationship between us and EnPro after the spin-off and provide for the
allocation of employee benefits, tax and other liabilities and obligations
attributable to periods prior to the spin-off.

The spin-off was recorded as a dividend and resulted in a reduction of our
shareholders' equity of $409.1 million representing the recorded value of the
net assets of the business distributed, including cash of $47.0 million. The
distribution agreement provided for certain post-distribution adjustments
relating to the amount of cash to be included in the net assets distributed. At
December 31, 2002, the final adjustment had been calculated and is subject to a
dispute resolution process. We expect that the effect of the final resolution
of this process on our Consolidated Financial Statements will be immaterial.

The $150 million of outstanding Coltec Capital Trust 5 1/4 percent convertible
trust preferred securities (TIDES) that were reflected in liabilities of
discontinued operations remained outstanding as part of the EnPro capital
structure following the spin-off. The TIDES are convertible into shares of both
Goodrich and EnPro common stock until April 15, 2028. We have guaranteed amounts
owed by Coltec Capital Trust with respect to the TIDES and have guaranteed
Coltec's performance of its obligations with respect to the TIDES and the
underlying Coltec convertible subordinated debentures. EnPro, Coltec and Coltec
Capital Trust have agreed to indemnify us from any costs and liabilities arising
under or related to the TIDES after the spin-off.

Prior to the spin-off, Coltec acquired certain call options on our common stock
in order to partially hedge its exposure to fluctuations in the market price of
our stock resulting from the TIDES. These call options remained an asset of
Coltec following the spin-off.

SALE OF PERFORMANCE MATERIALS

On February 28, 2001, we completed the sale of our Performance Materials (PM)
segment to an investor group led by AEA Investors, Inc. for approximately $1.4
billion. Total net proceeds, after anticipated tax payments and transaction
costs, included approximately $1 billion in cash and $172 million in
payment-in-kind (PIK) debt securities issued by the buyer, which is now known as
Noveon International Inc. (Noveon). The transaction resulted in an after-tax
gain of $93.5 million. During the second quarter 2002, a dispute over the
computation of a post-closing working capital adjustment was resolved. The
resolution of this matter did not have an effect on the previously reported
gain.

In July 2002, we entered into an agreement with Noveon to amend certain
provisions of the PIK notes held by us to give Noveon the option to prepay the
securities at a discount greater than the original discount if they prepaid on
or before February 28, 2003. As a result of prepayments made in June and October
2002, Noveon prepaid a total of $62.5 million of the outstanding principal of
the PIK notes for $49.8 million in cash. Because these prepayments did not
exceed the original discount recorded at the inception of the notes, no gain or
loss was recognized.


                                       2


Pursuant to the terms of the transaction, we have retained certain assets and
liabilities, primarily pension, postretirement and environmental liabilities, of
Performance Materials. We have also agreed to indemnify Noveon for liabilities
arising from certain events as defined in the agreement. Such indemnification is
not expected to be material to our financial condition, but could be material to
our results of operations in a given period.

OTHER ACQUISITIONS AND DIVESTITURES

ACQUISITIONS

The following acquisitions were recorded using the purchase method of
accounting. Their results of operations have been included in our results since
their respective dates of acquisition. Acquisitions made by businesses included
within the Performance Materials and Engineered Industrial Products are not
discussed below.

During 2001, we acquired a manufacturer of aerospace lighting systems and
related electronics, as well as the assets of a designer and manufacturer of
inertial sensors used for guidance and control of unmanned vehicles and
precision-guided systems. Total consideration aggregated $113.8 million, of
which $102.6 million represented goodwill and other intangible assets.

During 2000, we acquired a manufacturer of earth and sun sensors for attitude
determination and control ejection seat technology; a manufacturer of fuel
nozzles; a developer of avionics and displays; the assets of a developer of
precision electro-optical instrumentation serving the space and military
markets; an equity interest in a joint venture focused on developing and
operating a comprehensive open electronic marketplace for aerospace aftermarket
products and services; a manufacturer of precision and large optical systems,
laser encoding systems, and visual surveillance systems for day and night use;
and a supplier of pyrotechnic devices for space, missile, and aircraft systems.
Total consideration aggregated $242.6 million, of which $105.4 million
represented goodwill and other intangible assets.

The impact of these acquisitions was not material in relation to our results of
operations. Consequently, pro forma information is not presented. See Note B to
the accompanying Consolidated Financial Statements.

DIVESTITURES

During 2002, we sold a business and a minority interest in a business resulting
in a pre-tax gain of $2.5 million. The gain has been reported in other income
(expense)- net.

During 2001, we sold a minority interest in a business, resulting in a pre-tax
gain of $7.2 million. The gain has been reported in other income (expense)- net.

During 2000, we sold a product line of a business, resulting in a pre-tax gain
of $2.0 million. The gain has been reported in other income (expense)- net.

For dispositions accounted for as discontinued operations, refer to Note U to
the accompanying Consolidated Financial Statements.

BUSINESS SEGMENTS

At December 31, 2002, we operated in five business segments: Aerostructures and
Aviation Technical Services; Landing Systems; Engine and Safety Systems;
Electronic Systems; and Aeronautical Systems. A summary of the products and
services provided by our business segments is presented below.


                                       3


AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES

The core products of our Aerostructures division are nacelles, pylons, thrust
reversers and related aircraft engine housing components. We are a leading
worldwide supplier of nacelles, which are the aerodynamic structures that
surround engines, and pylons, which are the engine-to-wing structures that
support engines and provide the critical connective conduit for fuel delivery
and numerous engine-driven aircraft systems. In addition, we manufacture a range
of specialized aerostructures, including lightweight, temperature-resistant
auxiliary power unit tailcones for jetliners, corrosion-resistant structures for
tactical military aircraft, and rigid cargo barriers for freighter aircraft. We
also manufacture a variety of galley, wing, nacelle, thrust reverser, flight
control surface and assembly components for out-of-production aircraft.

Through our Aviation Technical Services division, we service approximately 550
aircraft each year and are among the largest independent providers of
maintenance, repair, overhaul and modification services in the world. Services
provided by our Aviation Technical Services division range from the repair of
individual components and systems to heavy maintenance and modifications of
large commercial aircraft and business jet aircraft. We perform comprehensive
total aircraft maintenance, repair, overhaul and modification for many
commercial airlines, independent operators, aircraft leasing companies and
airfreight carriers.

LANDING SYSTEMS

Our Landing Systems segment provides systems and components related to aircraft
taxi, take-off, landing and stopping. Several divisions within this segment are
linked by their ability to contribute to the integration, design, manufacture
and service of entire aircraft undercarriage systems, including landing gear,
wheels and brakes, and certain brake controls. We differentiate ourselves from
component suppliers by providing integrated systems, delivered as completely
pre-assembled units to airframe manufacturers. We also provide complete repair
and overhaul services for landing gear, wheels and brakes. In addition, through
our engineered polymer products division, we design and produce components made
from proprietary, high-performance composite material systems used in naval
ships and submarines to improve acoustic characteristics and reduce radar
signature of exposed superstructures.

ENGINE AND SAFETY SYSTEMS

Our Engine and Safety Systems segment produces a variety of products used in
engine systems, including fuel delivery systems, electronic and mechanical
controls, pumps, metering devices, manifolds and rotating components such as
disks, blisks, shafts and airfoils for both aerospace and industrial gas turbine
applications. The segment also produces evacuation systems such as slides and
floats and seats for pilots, observers and flight attendants. Our de-icing and
specialty systems division produces ice protection systems for general aviation,
heating and related systems for large commercial transport aircraft, and potable
water systems for regional and business aircraft. We also supply electrothermal
ice protection systems for airframe, propeller and helicopter rotor applications
and specialty heating systems, water heaters and other internal and external
heated components for large commercial transport aircraft. Through our
propulsion systems division, we provide research, design, development,
qualifications and manufacture of advanced aircrew escape systems. We also
supply individual components such as rocket motors and catapults, pyrotechnic
gas generators, ejection seats, precision electro-explosive devices,
propellants, linear actuators, and safety and arming devices.

ELECTRONIC SYSTEMS

Our Electronic Systems segment produces a wide array of products that provide
flight performance measurements, flight management, and control and safety data.
We supply a variety of high-performance sensor systems, such as stall warning
systems and systems that measure, manage and/or monitor aircraft fuel; oil
debris; engine, transmission and structural health; and aircraft motion and
control. We also supply a variety of avionics systems and other instruments,
including warning and detection systems, ice detection systems, test equipment,
aircraft lighting systems, landing gear cables and harnesses, satellite control,
data management and payload systems, launch and missile telemetry systems,
airborne reconnaissance systems and laser warning systems. In addition, our
optical and space systems division designs and builds high-performance,
custom-engineered electronics, optics and electro-optical products for defense,
aerospace, scientific and commercial applications. We also produce directional
surveying equipment for use by companies operating in petroleum, mining and
utility industries.


                                       4


AERONAUTICAL SYSTEMS

Aeronautical Systems manufactures highly engineered systems and equipment in the
following product groups:

         -        Engine controls. This product group consists of engine control
                  systems and components for jet engines used on commercial and
                  military aircraft, including fuel metering controls, fuel
                  pumping systems, electronic control software and hardware,
                  variable geometry actuation controls, afterburner fuel pump
                  and metering unit nozzles, and engine health monitoring
                  systems.

         -        Flight controls. This product group includes actuators for
                  primary flight control systems that operate elevators,
                  ailerons and rudders, as well as secondary flight controls
                  systems such as flaps and slats.

         -        Power systems. This product group consists of systems that
                  produce and control electrical power for commercial and
                  military aircraft, including electric generators for both main
                  and back-up electrical power, electric starters, and electric
                  starter generating systems, as well as power management and
                  distribution systems.

         -        Cargo systems. This product group consists of fully-integrated
                  main deck and lower lobe cargo systems for wide body aircraft.

         -        Hoists and winches. This product group consists of airborne
                  hoists and winches used on both helicopters and fixed wing
                  aircraft.

         -        Actuation systems. This product group consists of systems that
                  control the movement of steering systems for missiles as well
                  as electro-mechanical systems that are characterized by high
                  power, low weight, low maintenance, resistance to extreme
                  temperatures and vibrations, and high reliability.

SEGMENT REORGANIZATION

Effective January 1, 2003, we reorganized our organization into three business
segments: Airframe Systems, Engine Systems and Electronic Systems. The
reorganization was designed to enhance communication and maximize synergies in a
streamlined organization. Segment financial results will be restated effective
January 1, 2003 beginning with the first quarter 2003.


                                       5


2002 RESULTS
- -------------------------------------------------------------------------------

The following table summarizes our results of operations for 2002 and 2001.



                                                                               YEAR-ENDED DECEMBER 31,
(IN MILLIONS)                                                                  2002(1)                               2001(2)
                                                            2002              ADJUSTED            2001              ADJUSTED
                                                         ---------           ---------          ---------          ---------
                                                                                                       
Sales                                                    $ 3,910.2           $ 3,910.2          $ 4,184.5          $ 4,184.5
                                                         ---------           ---------          ---------          ---------
Segment Operating Income                                 $   420.6           $   532.9          $   444.8          $   644.1
                                                         ---------           ---------          ---------          ---------

Income from Continuing Operations                        $   165.9           $   244.0          $   176.9          $   306.3
Income (loss) from Discontinued Operations                   (11.9)                 --              112.3                 --
Cumulative Effect of an Accounting Change                    (36.1)                 --                 --                 --
                                                         ---------           ---------          ---------          ---------
Net Income                                               $   117.9           $   244.0          $   289.2          $   306.3
                                                         =========           =========          =========          =========

Diluted EPS                                              $    1.14           $    2.31          $    2.76          $    2.87
                                                         =========           =========          =========          =========

Net Cash Provided by Operating Activities                $   539.2                              $   382.6
                                                         =========                              =========
Free Cash Flow (3)                                       $   487.1                              $   222.5
                                                         =========                              =========


(1)      Results exclude the effect of special items consisting of a $41.3
         million charge ($27.7 million after-tax), or $0.26 per diluted share,
         for restructuring and consolidation costs and a $2.4 million gain ($1.6
         million after-tax), or $0.02 per diluted share, from the sale of a
         business. Results also exclude special items relating to the
         acquisition of Aeronautical Systems including in-process research and
         development expense of $12.5 million ($12.5 million after-tax), or
         $0.12 per diluted share, and the step-up of inventory to fair market
         value and subsequent sales of the inventory resulting in reduced profit
         margins of $58.8 million ($39.5 million after-tax), or $0.38 per
         diluted share. Results also exclude the after-tax effect of a loss from
         discontinued operations ($11.9 million, or $0.09 per diluted share) and
         a charge for the cumulative effect of a change in accounting for
         goodwill of $36.1 million after-tax, or $0.34 per diluted share.

(2)      Results exclude the effect of special items consisting of a $107.3
         million charge ($71.3 million after-tax), or $0.67 per diluted share,
         for restructuring and consolidation costs, a $94.5 million charge
         ($62.8 million after-tax), or $0.59 per diluted share recorded in cost
         of sales for inventory adjustments and a $7.2 million gain ($4.7
         million after-tax), or $0.04 per diluted share from the sale of a
         portion of our interest in a business. Results also exclude the
         after-tax effect of income from discontinued operations ($112.3
         million, or $1.11 per diluted share).

(3)      Free cash flow is defined as operating cash flow adjusted for cash
         payments related to special items of $55.2 million in 2002 and $30.3
         million in 2001 less capital expenditures of $107.3 million in 2002 and
         $190.5 million in 2001. We believe free cash flow provides meaningful
         additional information on our operating results and on our ability to
         service our long-term debt and other fixed obligations and to fund our
         continued growth. Free cash flow should not be construed as an
         alternative to operating income (loss) as determined in accordance with
         generally accepted accounting principles in the United States (GAAP),
         as an alternative to cash flow from operating activities as determined
         in accordance with GAAP, or as a measure of liquidity. Because free
         cash flow is not calculated in the same manner by all companies, our
         presentation may not be comparable to other similarly titled measures
         reported by other companies.

Special items include restructuring and consolidation costs, gains or losses on
the sale of businesses, results of discontinued operations, asset impairment
charges and the cumulative effect of an accounting change. Special items also
include acquisition-related charges including the step-up of inventory and
in-process research and development. We believe that excluding special items
provides meaningful information of our operating results. Amounts adjusted to
exclude special items should not be construed as an alternative to amounts
determined in accordance with GAAP. Because amounts adjusted to exclude special
items are not calculated in the same manner by all companies, our presentation
may not be comparable to other similarly titled amounts reported by other
companies.


                                       6


Sales

Sales declined in 2002 by $274.3 million or 6.6 percent to $3,910.2 million from
$4,184.5 million in 2001. Sales in 2002 include $264.4 million from the
Aeronautical Systems businesses that were acquired on October 1, 2002. Sales
also include our aerospace lighting systems business acquired in September 2001.
Excluding sales of our lighting systems business for both years and sales of the
Aeronautical Systems business in 2002, sales declined 13.6 percent from 2001.
Substantially all of our businesses experienced sales declines except for our
pump and engine control business which is included in the Engine and Safety
Systems segment and the optical and space systems business included in our
Electronic Systems segment. For further information regarding sales changes by
business segment, refer to "Business Segment Performance" below.

Segment Operating Income

Segment operating income was $420.6 million for 2002 and $444.8 million for
2001. Segment operating income, excluding special items, declined $111.2
million, or 17.3 percent from $644.1 million in 2001 to $532.9 million in 2002.
Adjusted for special items as discussed above and for the impact of the
operating income related to the lighting systems business acquired in September
2001 and the Aeronautical Systems business acquired in October 2002, segment
operating income declined approximately 18.6 percent. The segment operating
income decline was consistent with the sales declines in all of our businesses.
In addition, as discussed in "Business Segment Performance" below, contract loss
provisions of $26.8 million and $5.4 million of pre-certification cost
write-offs recorded by the Aerostructures business in the third and fourth
quarters of 2002 added to the decline. Segment operating income improved in our
pump and engine control and optical and space systems businesses consistent with
the sales improvements in those businesses. For further information regarding
operating income changes by business segment, refer to "Business Segment
Performance" below.

Income from Continuing Operations

Income from continuing operations, as reported, was $165.9 million in 2002 and
$176.9 million in 2001. Income from continuing operations, excluding special
items, declined $62.3 million, or 20.3 percent to $244.0 million in 2002
compared to $306.3 million in 2001. The decline in sales discussed above was a
significant contributor to the income decline. Partially offsetting these
declines was an increase in interest income in 2002 compared with the prior year
resulting, in part, from interest income on the F-14 aircraft program claim
settlement in 2002.

The 2002 special items include the effect of $41.3 million of restructuring and
consolidation costs and a $2.4 million gain from the sale of a business and
items relating to the acquisition of Aeronautical Systems including in-process
research and development expense of $12.5 million and the effect of the step-up
of inventory to fair market value which was sold amounting to $58.8 million.

The 2001 special items include the effect of a $107.3 million charge for
restructuring and consolidation costs, a $94.5 million charge related primarily
to reducing our investment in the B717 program and in our Super 27 re-engining
program, and a $7.2 million gain from the sale of a portion of our interest in a
business.

Income (Loss) from Discontinued Operations

Income from discontinued operations decreased $124.2 million from income during
2001 of $112.3 million to a loss of $11.9 million during 2002. Sales from
discontinued operations declined from $828.9 million during 2001 to $289.5
million in 2002. The 2001 sales included two months of Performance Material
sales of $187.0 million, which did not recur in 2002. In addition, 2002 sales
include only five months of EIP sales due to the EnPro spin-off, which occurred
on May 31, 2002. Also, the decrease results from lower earnings from operations
of the EIP segment, discontinued in 2001, compared to 2002 resulting, in part,
from an $11.0 million pre-tax charge for a court ruling relating to an employee
benefit matter of a previously discontinued business. Fees and expenses related
to the spin-off recorded during 2002 also contributed to the loss. Also,
discontinued operations during 2001 include the operations of the Performance
Materials segment for two months and the gain on sale of that segment of $93.5
million.


                                       7


Cumulative Effect of an Accounting Change

During the second quarter of 2002, we performed the first of the required
impairment tests of goodwill and indefinite lived intangible assets. Based on
those results, we determined that it was likely that goodwill relating to the
Aviation Technical Services "reporting unit" (ATS) had been impaired. ATS is
included in the Aerostructures and Aviation Technical Services business segment.
During the third quarter of 2002, we completed our measurement of the goodwill
impairment and recognized an impairment charge of $36.1 million (representing
total goodwill of this reporting unit), which was nondeductible for income tax
purposes and was reported as a cumulative effect of an accounting change
retroactively to January 1, 2002.

Net Cash Provided by Operating Activities

Cash flow provided by operating activities increased by $156.6 million to $539.2
million in 2002 from $382.6 million in 2001. The increase in cash flow from
operations resulted from improved management of Accounts Receivable and
Inventory, and lower estimated tax payments in 2002. Also included in 2002 cash
flow provided by operating activities was approximately $29.4 million resulting
from the sale of an interest rate swap agreement associated with $200 million of
our long-term debt and $30.8 million of cash received from the sale of hedges
acquired in the acquisition of Aeronautical Systems. Offsetting the favorable
cash flow was a decrease in Accounts Payable.

Free Cash Flow

Free cash flow, defined as cash flow provided by operating activities adjusted
for cash payments related to special items less cash used for capital
expenditures, increased $264.6 million to $487.1 million in 2002 from $222.5
million in 2001. The increase was principally a result of the increase in cash
flow provided by operations. Cash used to pay special items increased in 2002 by
$24.9 million partially reducing the cash provided by operating activities.
Improving free cash flow, however, was a reduction in the level of capital
expenditures in 2002 by $83.2 million from the 2001 levels. Capital expenditures
in 2001 included a large expenditure to implement an enterprise resource
planning project in our Aerostructures business that was substantially complete
by the end of 2001.

OUTLOOK

The current world economic and political environment is uncertain and subject to
rapid and radical change. As a result, forecasting with any degree of accuracy
in this environment is difficult. We have based our outlook for 2003 on various
assumptions that may change over the course of the year. The outlook described
below assumes that there is no significant adverse impact on us and on our
customers from potential military conflicts or acts of terrorism. Additionally,
it does not assume additional airline bankruptcy filings.

Regarding the market segments in which we operate, the outlook also assumes that
the demand for large commercial transport original equipment declines in line
with manufacturers' forecasts for delivery, from 684 deliveries in 2002 to about
550 in 2003. Aftermarket sales are expected to be relatively flat, as the
airlines continue a slow recovery from the events of September 11, 2001 and in
view of the current economic conditions. Regional and business sales should show
a slight increase in 2003 as deliveries of new regional jets continue to be
relatively strong, and military sales should increase roughly in line with
global military budgets.

Overall sales are expected to increase to between $4.4 billion to $4.5 billion
in 2003. These expectations include the full year contribution of Aeronautical
System, and the loss of between $100 million to $200 million in sales associated
with businesses such as Avionics, that are expected to be divested in 2003 and
treated as discontinued operations.

Segment operating income, as reported, is expected to improve in 2003 due to the
successful implementation of our restructuring actions, the expected positive
contribution from Aeronautical Systems and the absence of 2002
acquisition-related charges, including the step-up of inventory and in-process
research and development, and higher restructuring costs in 2002 than expected
in 2003. However, segment operating income, as reported, will be reduced by
higher pension expense of $49 million in 2003. Overall margins on segment
operating income, as reported, are expected to increase in 2003 for the same
reasons as noted for segment operating income, as reported.


                                       8


Based on the assumptions and expectations noted above, we expect 2003 earnings
per diluted share, as reported, to be between $1.55 and $1.70. Included in our
estimate is approximately $20 million to $25 million, pre-tax, or between $0.11
and $0.14 per diluted share, for restructuring activities identified to date.
Further weakness in served markets may result in additional restructuring
actions.

Cash flow generation continues to be a key focus for us, and for 2003 we expect
cash flow from operating activities to be approximately $350 million to $400
million. Cash payments in 2003 for restructurings that have already been
announced, or are anticipated at this time, are expected to be between $35
million and $45 million. Capital expenditures are expected to be $150 million to
$170 million.

STATUS OF PENSION PLANS

Due to significant declines in the financial markets during 2002, our pension
plans were under-funded at December 31, 2002. During the fourth quarter, we
recognized a non-cash charge to equity of $328 million after-tax. This charge
did not impact reported net income, and will reverse in future periods if
interest rate increases, improved investment results, or contributions cause the
pension plans to return to a fully funded status.

As a result of the under-funded status of the pension plans at year-end 2002 and
a reduction in the expected return on plan assets, non-cash pension expense will
be approximately $49 million pre-tax ($33 million after-tax, or $0.25 per
diluted share) higher in 2003 than in 2002. For 2003, total non-cash pension
expense is expected to be approximately $82 million ($55 million after-tax, or
$0.47 per diluted share).

RESTRUCTURING AND CONSOLIDATION ACTIVITIES

During 2002, we initiated a number of restructuring activities in each of our
business segments. The total segment restructuring and consolidation costs in
2002 were $41.0 million consisting principally of personnel-related costs at
existing businesses and several plant closures in response to reduced business
volumes. As a result of the current uncertainty in the airline industry and the
potential for changes in the original aircraft manufacturing rates, we continue
to assess the potential for additional restructuring charges to meet those
changes. More detailed information on restructuring and consolidation costs is
included in Note C to the accompanying Consolidated Financial Statements.

During 2001, such charges and unusual inventory adjustments approximated $206.4
million, including $201.8 million from continuing operations and $4.6 million
from discontinued operations. These charges were largely related to the
anticipated decline in sales to the commercial air transport market resulting
from the terrorist attacks of September 11th. As previously announced, these
charges were primarily related to aerospace facility consolidations, a
significant workforce reduction (approximately 3,200 positions), asset
impairment charges and costs associated with our investment in the Boeing 717
program and in the Super 727 re-engining program.


                                       9


RESULTS OF OPERATIONS

TOTAL COMPANY

(IN MILLIONS)



                                                                              2002                 2001                 2000
                                                                           ----------           ----------           ----------
                                                                                                            
SALES:
  Aerostructures and Aviation Technical Services                           $  1,176.9           $  1,493.6           $  1,427.0
  Landing Systems                                                             1,038.2              1,149.1              1,057.7
  Engine and Safety Systems                                                     638.8                762.6                644.4
  Electronic Systems                                                            791.9                779.2                571.4
  Aeronautical Systems                                                          264.4                   --                   --
                                                                           ----------           ----------           ----------
        Total Sales                                                        $  3,910.2           $  4,184.5           $  3,700.5
                                                                           ==========           ==========           ==========

OPERATING and NET INCOME:
  Aerostructures and Aviation Technical Services                           $    169.9           $    226.0           $    209.6
  Landing Systems                                                               140.1                153.1                149.0
  Engine and Safety Systems                                                      79.2                131.9                117.5
  Electronic Systems                                                            135.3                133.1                117.5
  Aeronautical Systems                                                            8.4                   --                   --
                                                                           ----------           ----------           ----------
        Adjusted Segment Operating Income                                       532.9                644.1                593.6

  Restructuring and consolidation costs                                         (41.3)              (107.3)               (44.2)
  Aeronautical Systems inventory step-up                                        (58.8)                  --                   --
  In-process research and development                                           (12.5)                  --                   --
  Unusual inventory adjustments                                                    --                (94.5)                  --
  Corporate general and administrative costs                                    (59.0)               (57.7)               (59.7)
                                                                           ----------           ----------           ----------
        Total Operating Income                                                  361.3                384.6                489.7
  Net interest expense                                                          (73.6)               (83.7)              (102.1)
  Other income (expense) - net                                                  (18.1)               (19.2)               (20.6)
  Income tax expense                                                            (93.2)               (94.3)              (121.3)
  Distribution on Trust preferred securities                                    (10.5)               (10.5)               (10.5)
                                                                           ----------           ----------           ----------
  Income from continuing operations                                             165.9                176.9                235.2
  Income (loss)  from discontinued operations - net of taxes                    (11.9)               112.3                 90.7
  Cumulative effect of an accounting change                                     (36.1)                  --                   --
                                                                           ----------           ----------           ----------
        Net income                                                         $    117.9           $    289.2           $    325.9
                                                                           ==========           ==========           ==========


Fluctuations in sales and segment operating income are discussed within the
BUSINESS SEGMENT PERFORMANCE section below.

Restructuring and consolidation costs: We have recorded restructuring and
consolidation costs in each of the last three years. These costs are discussed
in detail above and in Note C to the accompanying Notes to Consolidated
Financial Statements.

Inventory step-up: The inventory for Aeronautical Systems was increased to
record it at its fair market value at the time of acquisition. Subsequent sales
of the acquired inventory increased Cost of Sales and reduced our profit
margins.

In-process research and development: The charge reflects the valuation of
Aeronautical Systems for in-process research and development projects that had
not reached technical feasibility and had no alternative future use. The charge
was reported in Selling and Administrative Costs.


                                       10


Unusual inventory adjustments: These costs were classified within cost of sales
and related primarily to inventory adjustments associated with our investment in
the Boeing 717 program and in our Super 27 re-engining program due to reduced
expectations for these programs. The reduced expectations for the Boeing 717
program related directly to Boeing's announced production schedule reductions
for this program during the fourth quarter of 2001, while the Super 27 reduction
in expectations was primarily due to deteriorating economic conditions and the
September 11th terrorist attacks.

Corporate general and administrative costs: Corporate general and administrative
costs, as a percent of sales, slightly increased in 2002. Such costs, as a
percent of sales, were 1.5 percent, 1.4 percent and 1.6 percent in 2002, 2001
and 2000, respectively. The reduction in costs in 2001 was primarily due to
lower incentive compensation costs due to the Company's depressed stock price at
the end of the year, partially offset by rebranding costs incurred during 2001
associated with the Goodrich name change.

Net interest expense: Net interest expense decreased $10.1 million from $83.7
million in 2001 to $73.6 million in 2002. The decrease was due to an increase in
interest income from the PIK notes resulting from 12 months of interest income
in 2002 compared to 10 months of interest income in 2001. In addition, interest
income includes $5.4 million in 2002 relating to the settlement of a contract
dispute on the F-14 claim. The impact of increased borrowings to finance the
acquisition of Aeronautical Systems businesses in October 2002 was offset by
declines in the average interest rates on short-term financings. We also had
higher short-term debt prior to the Performance Materials sale during the first
quarter of 2001 when interest rates were at significantly higher levels than
later in 2001 and 2002.

The significant decrease between 2001 and 2000 was due to the sale of
Performance Materials during the first quarter of 2001. We were able to reduce
our short-term indebtedness with the proceeds from the sale and record interest
income going forward on the PIK notes issued by the buyer. We recorded $23.3
million and $17.6 million of PIK interest income during 2002 and 2001,
respectively. See additional discussion of the PIK notes in Note F to the
accompanying Consolidated Financial Statements.

Other income (expense) - net: The table below allows other income(expense) - net
to be evaluated on a comparable basis.

(IN MILLIONS)



                                                                             2002               2001               2000
                                                                           --------           --------           --------
                                                                                                        
As reported                                                                $  (18.1)          $  (19.2)          $  (20.6)
Gains/(losses) on sale of businesses                                            2.5                7.2                2.0
                                                                           --------           --------           --------
Adjusted Other income (expense) - net                                      $  (20.6)          $  (26.4)          $  (22.6)
                                                                           ========           ========           ========


Included within other income (expense) - net are gains and losses from the sale
of businesses. Excluding these items, other income(expense) - net was expense of
$20.6 million, $26.4 million and $22.6 million in 2002, 2001 and 2000,
respectively.

The decrease in expenses in 2002 resulted from the sale of an intangible asset
($12.0 million) offset in part by settlement of litigation and legal fees ($3.5
million), increased minority interest expense ($1.4 million) and lower income
from a captive insurance company ($1.4 million).

The increase in costs in 2001 was primarily due to increased retiree healthcare
benefit costs associated with previously disposed of businesses - mostly related
to the Performance Materials disposition during the first quarter of 2001
(approximately $7 million), and increased earnings attributable to minority
interests (approximately $5 million), partially offset by higher income from
subsidiaries accounted for under the equity method (approximately $2 million)
and lower costs associated with executive life insurance programs (approximately
$3 million).

Income tax expense: Our effective tax rate from continuing operations was 34.6
percent, 33.5 percent and 33.1 percent in 2002, 2001 and 2000, respectively. The
increase in the effective tax rate from 2001 to 2002 was due to a lower tax
benefits from export sales which was due to the lower sales volume in 2002,
higher incremental U.S. tax on the deemed repatriation of foreign earnings and
the write-off of in-process research and development with no tax benefit. The
increase in the 2001 effective tax rate from 2000 was primarily attributable to
earnings of foreign operations that were subject to taxation at higher rates
than U.S. earnings.


                                       11


Income from Continuing Operations: Income from continuing operations included
various charges or gains, referred to as special items, which affected reported
earnings. Excluding the effects of special items, income from continuing
operations in 2002 was $244.0 million, or $2.31 per diluted share, compared with
$306.3 million, or $2.87 per diluted share, in 2001 and $265.5 million, or $2.43
per diluted share, in 2000. The following table presents the impact of special
items on earnings per diluted share. Additional information regarding
restructuring and consolidation costs can be found above and in Note C of the
accompanying Consolidated Financial Statements.



EARNINGS PER DILUTED SHARE                                                   2002               2001               2000
- --------------------------                                                 --------           --------           --------
                                                                                                        
Income from continuing operations                                          $   1.57           $   1.65           $   2.16

    Restructuring and consolidation costs                                      0.26               0.67               0.26
    Unusual inventory adjustments                                                --               0.59                 --
    Aeronautical Systems inventory step-up                                     0.38                 --                 --
    In-process research and development                                        0.12                 --                 --
    Net (gain) loss on divested businesses                                    (0.02)             (0.04)              0.01
                                                                           --------           --------           --------
        Income from continuing operations,
           excluding special items                                         $   2.31           $   2.87           $   2.43
                                                                           ========           ========           ========


Income from continuing operations for the year ended December 31, 2002 included
a $41.3 million charge ($27.7 million after-tax), or $0.26 per share, for
restructuring and consolidation costs, a $58.8 million charge ($39.5 million
after-tax), or $0.38 per share, for the step-up of the Aeronautical Systems
inventories to fair value and the subsequent sale of the inventory, a charge of
$12.5 million ($12.5 million after-tax), or $0.12 per share, for the valuation
of in-process research and development of Aeronautical Systems and a gain on the
sale of a business of $2.4 million ($1.6 million after-tax), or $0.02 per share.

Income from continuing operations for the year ended December 31, 2001 included
a $107.3 million charge ($71.3 million after-tax), or $0.67 per diluted share,
for restructuring and consolidation costs, a $94.5 million charge ($62.8 million
after-tax), or $0.59 per diluted share, related primarily to the reduction in
our investment in the B717 program and in our Super 27 re-engining program and a
$7.2 million gain ($4.7 million after-tax), or $0.04 a diluted share, from the
sale of a portion of our interest in a business.

Income from continuing operations for the year ended December 31, 2000 included
a $44.2 million charge ($28.6 million after-tax), or $0.26 per diluted share, of
restructuring and consolidation costs and a $2.5 million charge ($1.7 million
after-tax), or $0.01 per diluted share, for the impairment loss on a business
held for sale.

(IN MILLIONS)



INCOME (LOSS) FROM DISCONTINUED OPERATIONS                                   2002               2001               2000
- ------------------------------------------                                 --------           --------           --------
                                                                                                        
Performance Materials                                                      $     --           $   91.4           $   39.6
Special Items - PM                                                               --              (93.5)              (0.1)
                                                                           --------           --------           --------
                                                                           $     --           $   (2.1)          $   39.5
                                                                           --------           --------           --------

EIP                                                                        $  (11.9)          $   20.9           $   51.1
Special Items - EIP                                                             0.9                2.9                0.9
                                                                           --------           --------           --------
                                                                           $  (11.0)          $   23.8           $   52.0
                                                                           --------           --------           --------

    Total income (loss) from discontinued operations                       $  (11.9)          $  112.3           $   90.7
                                                                           ========           ========           ========

    Total income (loss) from discontinued
        operations - excluding special items                               $  (11.0)          $   21.7           $   91.5
                                                                           ========           ========           ========



                                       12


Income (Loss) from Discontinued Operations: Income (loss) from discontinued
operations decreased from income of $112.3 million during 2001 to a loss of
$11.9 million during 2002. Sales from discontinued operations declined from
$828.9 million during 2001 to $289.5 million during 2002. The 2001 sales
included two months of Performance Materials sales of $187.0 million. In
addition, 2002 includes only five months of EIP sales due to the EnPro spin-off,
which occurred on May 31, 2002. The decrease from lower earnings from operations
of the EIP segment discontinued in 2001 compared to 2002 resulted, in part, from
a $11.0 million pre-tax charge for a court ruling relating to an employee
benefit matter of a previously discontinued business. Fees and expenses related
to the spin-off during 2002 also contributed to the loss. Discontinued
operations for 2001 included the operations of the Performance Materials segment
for two months and the gain on the sale of the segment of $93.5 million.

Income from discontinued operations increased $21.6 million from $90.7 million
in 2000 to $112.3 million in 2001. Income from discontinued operations,
excluding special items, decreased $69.8 million, from $91.5 million in 2000 to
$21.7 million in 2001. The decrease attributable to Performance Materials was
primarily due to the sale of the business in February 2001 (two months of
earnings in 2001 versus 12 months in 2000). The decrease in earnings
attributable to EIP was mostly due to the factors noted below.

EIP sales decreased $21.4 million, or 3.2 percent, from $663.3 million in 2000
to $641.9 million in 2001. Excluding the September 2001 acquisition of Glacier
Bearings, sales declined by approximately seven percent with only Fairbanks
Morse Engine showing an increase in sales. The increase in sales at Fairbanks
Morse related primarily to higher shipments to the commercial power generation
market that generally carry lower margins than sales to its other markets.
Weakness in the chemical, petroleum, pulp and paper, heavy-duty vehicle and
general industrial markets was the primary factor behind the decrease in sales
at the segment's other businesses. Average capacity utilization in U.S.
factories fell to 20 year lows in 2001 while domestic industrial production has
fallen each month since mid-2000. These factors have contributed to a cutback in
capital spending and delays in scheduled maintenance programs throughout the
process industries. In addition to the lower volumes noted above, profitability
was also negatively impacted by the segment's inability to reduce fixed costs at
the same rate as sales declined, increased foreign competition due to the strong
U.S. dollar which drove average pricing levels down in certain product lines,
and an unfavorable mix of products sold. Restructuring charges (before tax)
amounted to $4.6 million and $1.4 million in 2001 and 2000, respectively.

Special items related to discontinued operations of Performance Materials, net
of tax, included $93.5 million related to the gain on sale of Performance
Materials in 2001 and $0.1 million of income related to a net adjustment of
amounts previously recorded for consolidation activities in 2000.

Special items related to discontinued operations of EIP, net of tax, included
$0.9 million, $2.9 million and $0.9 million of costs in 2002, 2001 and 2000,
respectively, related to restructuring and consolidation activities.

Cumulative Effect of an Accounting Change: During the second quarter of 2002, we
performed the first of the required impairment tests of goodwill and indefinite
lived intangible assets. Based on those results, we determined that is was
likely that goodwill relating to the Aviation Technical Services (ATS) reporting
unit had been impaired. ATS is included in the Aerostructures and Aviation
Technical Services segment. During the third quarter of 2002, we completed our
measurement of the goodwill impairment and recognized an impairment charge of
$36.1 million, representing the total goodwill of this reporting unit, which was
reported retroactively as a cumulative effect of an accounting change in the
first quarter of 2002.


                                       13


BUSINESS SEGMENT PERFORMANCE

SEGMENT ANALYSIS

Due to the acquisition of Aeronautical Systems, we increased the number of our
business segments. Our operations are now classified into five business
segments: Aerostructures and Aviation Technical Services, Landing Systems,
Engine and Safety Systems, Electronic Systems and Aeronautical Systems.

An expanded analysis of sales and operating income by business segment follows.

Segment operating income, as recorded, is total segment revenue reduced by
operating expenses directly identifiable with that business segment. Segment
operating income, as adjusted, is total segment revenue reduced by operating
expenses directly identifiable with that business segment, except for
restructuring and consolidation costs, unusual inventory adjustments, step of
inventory and in-process research and development, which are presented
separately. See Note C to the accompanying Consolidated Financial Statements for
further discussion of restructuring and consolidation costs. See Note B to the
accompanying Consolidated Financial Statements for further discussion on the
inventory step-up and in-process research and development related to the
acquisition of Aeronautical Systems.

2002 COMPARED WITH 2001



                                                                                                                 % OF SALES
                                                                                                             -------------------
                                                                   2002            2001       % CHANGE        2002         2001
                                                                 --------        --------     --------       ------       ------
                                                                       (IN MILLION)
                                                                                                           
SALES:
  Aerostructures and Aviation Technical Services                 $1,176.9        $1,493.6        (21.2)
  Landing Systems                                                 1,038.2         1,149.1         (9.7)
  Engine and Safety Systems                                         638.8           762.6        (16.2)
  Electronic Systems                                                791.9           779.2          1.6
  Aeronautical Systems                                              264.4              --        100.0
                                                                 --------        --------
        Total Sales                                              $3,910.2        $4,184.5         (6.6)
                                                                 ========        ========
SEGMENT OPERATING INCOME, as reported:
  Aerostructures and Aviation Technical Services                 $  158.1        $   95.7         65.2         13.4          6.4
  Landing Systems                                                   138.2           108.4         27.5         13.3          9.4
  Engine and Safety Systems                                          58.9           114.2        (48.4)         9.2         15.0
  Electronic Systems                                                128.3           126.5          1.4         16.2         16.2
  Aeronautical Systems                                              (62.9)             --           --        (23.8)          --
                                                                 --------        --------
        Segment Operating Income                                 $  420.6        $  444.8         (5.4)        10.8         10.6
                                                                 ========        ========

SEGMENT OPERATING INCOME, excluding special items:
  Aerostructures and Aviation Technical Services                 $  169.9        $  226.0        (24.8)        14.4         15.1
  Landing Systems                                                   140.1           153.1         (8.5)        13.5         13.3
  Engine and Safety Systems                                          79.2           131.9        (40.0)        12.4         17.3
  Electronic Systems                                                135.3           133.1          1.7         17.1         17.1
  Aeronautical Systems                                                8.4              --        100.0          3.2           --
                                                                 --------        --------
        Segment Operating Income                                 $  532.9        $  644.1        (17.3)        13.6         15.4
                                                                 ========        ========



                                       14


AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES SEGMENT

Sales decreased $316.7 million or 21.2 percent from $1,493.6 million in 2001 to
$1,176.9 million in 2002. The decrease resulted from significant declines in
sales in our Aerostructures business on most Boeing and Airbus programs and a
substantial decline in sales of spare parts for out-of-production aircraft.
These sales declines are largely due to the reduction of older aircraft by
airlines subsequent to September 11, 2001. Sales of spare parts for
in-production aircraft increased but were partially offset by a decline in sales
on the Super 27 re-engining program. Sales at our Aerostructures maintenance,
repair and overhaul facilities declined slightly from 2001. Sales also declined
in our maintenance, repair, modification and overhaul business conducted by
Aviation Technical Services. This decline was slightly less than four percent on
lower volume.

Operating income, as reported, increased from $95.7 million in 2001 to $158.1
million in 2002. Operating income, excluding special items, declined $56.1
million, or 24.8 percent from $226.0 million in 2001 to $169.9 million in 2002.
The lower operating income resulted from the decline in volume. In addition, in
the third quarter of 2002, Aerostructures recorded $26.8 million of contract
loss provisions on five contracts. These loss provisions resulted from increased
overhead rates due, in part, to a lower manufacturing base as volume declined
consistent with the lower level of aircraft production rates. The increased
overhead rates also resulted from projected cost increases in fringe benefit
rates resulting from expected future increases in pension expense. Also, higher
than anticipated spending on pre-certification costs on the Trent 900 contract
contributed an additional $5.4 million of losses. Aerostructures also recorded
approximately $8 million of favorable reserve adjustments in 2002. Our Aviation
Technical Services business improved slightly.

Special items included $11.8 million in restructuring and consolidation costs in
2002, consisting of $9.1 million in personnel-related costs and $2.7 million in
consolidation costs. These costs were incurred as part of a program to
restructure facilities and adjust personnel levels in response to the decline in
manufacturing volume.

In 2001, the segment reported as special items, an unusual inventory adjustment
for $94.5 million for our investment in the Boeing 717 program and our Super 27
re-engining program due to reduced expectations for these programs. The reduced
expectation for the Boeing 717 program relates to Boeing's announced production
schedule reduction for this program during the fourth quarter of 2001 while the
Super 27 reduction in expectations was primarily due to deteriorating economic
conditions and the September 11th terrorist attacks. In addition, the segment
recorded $35.8 million in restructuring and consolidation costs, consisting of
$17.3 million in personnel-related costs, $18.1 million in asset impairments and
$0.4 million in facility consolidation and closure costs. These costs were
incurred in response to the decline in volume, particularly resulting from
reduced original equipment build rate declines, and lower anticipated spare
parts sales resulting from the general industry economic decline after September
11, 2001.

LANDING SYSTEMS SEGMENT

Landing Systems sales declined in 2002 by $110.9 million or 9.7 percent to
$1,038.2 million from the 2001 sales level of $1,149.1 million. Volume declines
were experienced across most original equipment landing gear and wheels and
brakes platforms manufactured by Boeing and Airbus. Significant volume declines
occurred on the Boeing 737 next generation aircraft, B777, B757 and B747
platforms for the landing gear business and on the Boeing 727, B737 and Airbus
A330 and A340 platforms in our commercial wheels and brakes business. The
reduced sales resulted from decreased demand for new aircraft original equipment
and decreased airline utilization, lowering demand for landing gear original
equipment and aftermarket wheel and brake replacements. These declines were
partially offset by increases in sales to military programs such as the C-17,
F-14 and F-16 programs. Volume slowdowns also occurred in our landing gear
services business resulting from lower customer demand. Wheels and brakes
service business showed a small increase in volume from 2001.

Operating income, as reported, increased to $138.2 million in 2002 from $108.4
million in 2001. Operating income, excluding special items, declined in 2002 by
$13.0 million or 8.5 percent to $140.1 million from the 2001 operating income
level of $153.1 million. Volume declines in the landing gear and wheels and
brakes original equipment businesses accounted for most of the decline.
Operating income, excluding special items, in the landing gear services business
improved significantly over 2001 as a result of actions taken in 2001 to
rationalize personnel and rotable gear levels. Operating income, excluding
special items, was further impacted by a write-off of inventory, capitalized
sales incentives and supplier termination costs of $16.6 million in 2002,
relating to the Fairchild Dornier 728 and 928 programs. Improving operating
income in 2002 was a June settlement with an insurance company for prior claims
of $8.9 million.


                                       15


Special items included $1.9 million of restructuring and consolidation costs in
2002. These costs consisted of $1.6 million in personnel-related costs and $0.3
million in consolidation costs. These costs were incurred to further reduce work
force and rationalize facilities to meet the volume declines discussed above.

During 2001, the segment recorded $44.7 million of restructuring and
consolidation costs, consisting of $4.0 million in personnel-related costs,
$26.4 million in asset impairments and $14.3 million in facility consolidation
and closure costs. These costs were incurred to close a landing gear services
facility resulting from reduced customer demand and to recognize the impairment
in certain landing gear services rotable assets resulting from significantly
reduced demand for those assets.

ENGINE AND SAFETY SYSTEMS SEGMENT

Engine and Safety systems sales for 2002 decreased $123.8 million, or 16.2
percent to $638.8 million, from $762.6 million in 2001. Sales were significantly
lower than in 2002 throughout the product lines in power generation as well as
aerospace original equipment and aftermarket. Pump and engine controls,
primarily supporting the military sector, showed stronger sales than in 2001.
Sales declines were primarily related to volume declines resulting from weaker
customer demand in the engine structural and rotating components, aircraft
evacuation products and aircraft ice detection systems.

Operating income, as reported, declined from $114.2 million in 2001 to $58.9
million in 2002. Operating income, excluding special items, declined $52.7
million, or 40.0 percent in 2002 to $79.2 million, from $131.9 million in 2001.
Operating income, excluding special items, declined due to lower volume,
investments in new program awards and weaker product mix with lower aftermarket
sales. Research and development spending for 2002 was also higher than in 2001.
Operating efficiencies as a result of cost reduction initiatives associated with
the restructuring programs partially improved 2002 results. Further improvements
are expected upon realizing full year benefits.

Special items in 2002 included $20.3 million in restructuring and consolidation
costs, consisting of $15.7 million in personnel-related costs and $4.6 million
in consolidation costs. These costs were incurred to reduce personnel and close
a facility in response to the decline in manufacturing volume.

Special items in 2001 included $17.7 million in restructuring and consolidation
costs, consisting of $6.8 million in personnel-related costs, $7.7 million in
asset impairments and $3.2 million in facility consolidation and closure costs.

ELECTRONIC SYSTEMS SEGMENT

Sales increased $12.7 million, or 1.6 percent, from $779.2 million during 2001
to $791.9 million during 2002. Sales during 2002 include $30.1 million in
incremental sales related to the acquisition of our lighting systems business
completed in September 2001. Excluding the effect of this acquisition, sales
decreased by $17.3 million or 2.2 percent. The decrease in sales occurred in
most of the businesses and most commercial and regional OE markets. The
decreases were a result of lower aircraft manufacturing rates and a general
slowdown of aftermarket demand. These decreases were somewhat offset by
increased deliveries of military sensor products. Sales increases also occurred
in the optical systems business as a result of new contract awards.

Operating income, as reported, was $128.3 million in 2002 and $126.5 million in
2001. Operating income, excluding special items, increased $2.2 million, or 1.7
percent, from $133.1 million during 2001 to $135.3 million during 2002.
Excluding the effect of the acquisition referred to above, operating income
increased $2.7 million due to margin improvement at the optical systems business
and the reduction of goodwill amortization offset by decreased volume at most of
the segment's business. Improvements at the optical systems business had the
effect of slightly increasing margins.

Special items in 2002 included $7.0 million in restructuring and consolidated
costs, consisting of $4.2 million of personnel-related costs and $2.8 million in
consolidation costs. These costs were incurred to respond to the reduced
manufacturing volume experienced in most businesses.

Special items in 2001 included $6.6 million in restructuring and consolidation
costs, consisting of $4.1 million in personnel-related costs and $2.5 million in
facility closure and consolidation costs.


                                       16


AERONAUTICAL SYSTEMS SEGMENT

The Aeronautical Systems business was acquired on October 1, 2002 and has been
accounted for as a purchase under SFAS No. 141. As a result, sales and operating
income are included in our results from the date of acquisition.

Sales subsequent to the acquisition were $264.4 million. Of the total segment
sales, 46 percent were for sales of flight controls, engine controls, power
systems and cargo systems original equipment. Sales of aftermarket products were
54 percent of the total segment sales.

Operating income, as reported, subsequent to the date of acquisition, was a loss
of $62.9 million in 2002. Operating income, excluding special items, in 2002 was
$8.4 million. Operating income, excluding special items, was significantly
affected by the low original equipment manufacturing volumes and by the start-up
of new production platforms for which costs are higher than in a mature
production phase. Sales of aftermarket products and services remain strong
despite generally depressed market conditions. Operating income, excluding
special items, was also negatively impacted by development costs on a number of
new products including the Airbus 380 flight control and power generation
systems. These development costs are expected to continue through mid-2005.

Special items included the effect of the write-up of inventory that was sold
subsequent to the acquisition of $58.8 million and in-process research and
development of $12.5 million charged to operations as a result of the purchase
price allocation.

Restructuring and consolidation costs, qualifying under Emerging Issues Task
Force Issue No. 95-3, identified with programs during the first nine months of
2003, will be allocated to the opening balance and will not reduce operating
income.


                                       17


2001 COMPARED WITH 2000



                                                                                                                % OF SALES
                                                                                                            ------------------
                                                                 2001            2000        % CHANGE        2001        2000
                                                              ---------       ---------      --------       -----       ------
                                                                    (IN MILLION)
                                                                                                         
SALES:
  Aerostructures and Aviation Technical Services              $ 1,493.6       $ 1,427.0          4.7
  Landing Systems                                               1,149.1         1,057.7          8.6
  Engine and Safety Systems                                       762.6           644.4         18.3
  Electronic Systems                                              779.2           571.4         36.4
                                                              ---------       ---------
        Total Sales                                           $ 4,184.5       $ 3,700.5         13.1
                                                              =========       =========

SEGMENT OPERATING INCOME, as reported:
  Aerostructures and Aviation Technical Services              $    95.7       $   206.0        (53.5)         6.4        14.4
  Landing Systems                                                 108.4           123.7        (12.4)         9.4        11.7
  Engine and Safety Systems                                       114.2           115.8         (1.4)        15.0        18.0
  Electronic Systems                                              126.5           117.0          8.1         16.2        20.5
                                                              ---------       ---------
        Segment Operating Income                              $   444.8       $   562.5        (20.9)        10.6        15.2
                                                              =========       =========

SEGMENT OPERATING INCOME, excluding special items:
  Aerostructures and Aviation Technical Services              $   226.0       $   209.6          7.8         15.1        14.7
  Landing Systems                                                 153.1           149.0          2.8         13.3        14.1
  Engine and Safety Systems                                       131.9           117.5         12.3         17.3        18.2
  Electronic Systems                                              133.1           117.5         13.3         17.1        20.6
                                                              ---------       ---------
        Segment Operating Income                              $   644.1       $   593.6          8.5         15.4        16.0
                                                              =========       =========



AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES SEGMENT

Sales increased $66.6 million, or 4.7 percent, from $1,427.0 million during 2000
to $1,493.6 million in 2001. The increase was due to a significant increase in
Aerostructures related sales (approximately $92 million), offset by lower sales
at the segment's aviation technical services businesses (approximately $41
million). The segment's aviation technical services business performs
comprehensive total aircraft maintenance, repair, modification and overhaul
work. Most of the decrease in sales in this business unit was attributable to
lower aircraft maintenance work.

The increase in Aerostructures related sales (nacelles, pylons, thrust reversers
and related engine housing components and services) was primarily due to rate
increases on the CFM 56 (A319, A320 and A321 programs), PW4000, B717-200 and
V2500 programs, higher aftermarket spares sales, increased aftermarket services
and spares sales and several new programs (C-5 Pylon, F-15). Partially
offsetting these increases was a decrease in aftermarket sales on the Super 27
program as well as rate decreases on the CFM56-5 (A340) and RR535-E4 programs.

Operating income, as reported, decreased to $95.7 million in 2001 from $206.0
million in 2000. Operating income, excluding special items, increased $16.4
million, or 7.8 percent, from $209.6 million in 2000 to $226.0 million in 2001.
The increase was driven by the increase in sales noted above, productivity
improvements on several Aerostructures programs and reduced non-recurring
engineering costs associated with the terminated X-33 program. Partially
offsetting these increases were additional costs associated with the
implementation of an enterprise resource planning system at the segment's
Aerostructures businesses, increased losses of approximately $1 million
associated with the segment's aviation technical services business and the
closeout of the MD-11 and MD-90 contracts in 2000.


                                       18


LANDING SYSTEMS SEGMENT

Sales increased $91.4 million, or 8.6 percent, from $1,057.7 million during 2000
to $1,149.1 million during 2001. The increase in sales was primarily
attributable to higher sales of landing gear and wheels and brakes. Landing gear
sales increased across all major markets primarily due to increased sales of
original equipment to Boeing, Bombardier and the U.S. government, partially
offset by reduced pricing on several Boeing programs as a result of contract
extensions (through 2006) approved during mid-2001. Major programs contributing
to the increased sales of landing gear included the B757, B777, C-17, F18 and
RJ601 programs. The increased sales of wheels and brakes related primarily to
increased aftermarket sales in the commercial, regional, business and military
markets primarily on the A319/320, B747-400, B777, Embraer 145, DeHavilland Dash
8, F16 and Cessna programs, partially offset by decreased sales on the B727
out-of-production program. This increase in sales was partially offset by a
significant decrease in sales of landing gear overhaul services ($20.5 million),
primarily due to fewer customer removals as a result of airlines deferring or
reducing discretionary expenditures.

Operating income, as reported, decreased from $123.7 million in 2000 to $108.4
million in 2001. Operating income, excluding special items, increased $4.1
million, or 2.8 percent, from $149.0 million during 2000 to $153.1 million
during 2001. The increase was primarily due to the increase in volume noted
above as well as a favorable sales mix, partially offset by increased sales
incentives, reduced pricing as noted above, additional costs related to
expedited shipments of certain landing gear to Boeing and an increased loss
associated with providing landing gear overhaul services primarily due to the
decrease in volume noted above (this business recorded a slight loss in 2000).

ENGINE AND SAFETY SYSTEMS SEGMENT

Sales increased $118.2 million, or 18.3 percent, from $644.4 million during 2000
to $762.6 million during 2001. While all of the segment's product lines
experienced an increase in sales over the prior year, the increase was primarily
attributable to a significant increase in aftermarket sales of evacuation
products, particularly on the B747 program, increased sales of ejection seats,
increased demand for the segment's gas turbine products that serve both the
aerospace and industrial engine markets and acquisitions (approximately $30
million).

Operating income, as reported, was $114.2 million in 2001 and $115.8 million in
2000. Operating income, excluding special items, increased $14.4 million, or
12.3 percent, from $117.5 million during 2000 to $131.9 million during 2001. The
increase was primarily attributable to the increase in sales noted above,
partially offset by increased research and development expenses and
inefficiencies at one of the segment's location that produces gas turbine
products.

ELECTRONIC SYSTEMS SEGMENT

Sales increased $207.8 million, or 36.4 percent, from $571.4 million during 2000
to $779.2 million during 2001. The increase was driven primarily by space-based
acquisitions (approximately $160 million) and increased sales by the segment's
core businesses (approximately $55 million). The increase in sales at the
segment's core businesses was primarily attributable to increased sales of
sensors, fuel and utility systems as well as lightning detection and collision
avoidance units, partially offset by lower sales in the segment's legacy
space-based businesses. The increase in sensor sales was driven by increased
regional and business OE demand, airline retrofits and the resumption of
thermocouple shipments to the USAF. The fuel and utility sales increases were
due mostly to aftermarket sales of spares and retrofit products, particularly on
the B747 and B737 programs. The decrease in sales in the segment's legacy
space-based businesses was due primarily to program delays and cancellations.

Operating income, as reported, increased to $126.5 million in 2001 from $117.0
million in 2000. Operating income, excluding special items, increased $15.6
million, or 13.3 percent, from $117.5 million during 2000 to $133.1 million
during 2001. The increase was primarily due to the factors noted above,
partially offset by increased investments in technologies and products,
increased research and development expenses and higher costs related to the
consolidation and integration of acquisitions.

The significant reduction in operating margins of 20.6 percent in 2000 to 17.1
percent in 2001 was primarily attributable to program delays and cancellations
impacting the segment's space-based businesses and lower margins on sales from
acquired companies.


                                       19


LIQUIDITY AND CAPITAL RESOURCES

We currently expect to fund expenditures for capital requirements as well as
liquidity needs from a combination of internally generated funds and financing
arrangements. We believe that our internally generated liquidity, together with
access to external capital resources, will be sufficient to satisfy existing
commitments and plans, and also to provide adequate financial flexibility.

CREDIT FACILITIES

In July 2002, we entered into a $1.5 billion committed syndicated 364-day
revolving credit agreement that expires in July 2003. This credit facility was
used to finance the acquisition of Aeronautical Systems from TRW Inc. The
agreement was provided by a bank group that also participates in our global
syndicated revolvers. At December 31, 2002, this credit facility commitment had
been reduced to $200 million. This commitment reduction was primarily due to the
issuance of equity and long-term debt, cash from asset monetizations and
operating cash flow during the fourth quarter of 2002. See Notes I and R of the
accompanying Consolidated Financial Statements. We intend to repay and terminate
this agreement prior to its expiration date. The repayment is expected to be
funded from the proceeds from asset monetizations and cash flow from operations.

In December 2001, we entered into $750 million in committed global syndicated
revolving credit agreements. These credit agreements replaced the $600 million
of committed domestic revolving credit agreements and the $80 million committed
multi-currency revolving credit facility. The international bank group providing
credit under the agreements is substantially the same group that provided credit
under the previous agreements. The syndicated credit facilities consist of a
$425 million three-year agreement expiring in December 2004 and a $325 million
364-day agreement expiring in September 2003. We intend to renew the $325
million credit facility at its annual renewal date. At December 31, 2002, $155
million was borrowed under these committed revolving credit facilities.

We also maintain $100 million of uncommitted domestic money market facilities
and $6.8 million of uncommitted foreign working capital facilities with various
banks to meet short-term borrowing requirements. As of December 31, 2002, $23.5
million was borrowed under these facilities. These uncommitted credit facilities
are provided by a small number of commercial banks that also provide us with
committed credit through the syndicated revolving credit facilities and with
various cash management, trust and other services. As a result of these
established relationships, we believe that our uncommitted facilities are a
highly reliable and cost-effective source of liquidity.

Continued borrowing under our credit facilities is conditioned upon compliance
with financial and other covenants set forth in the related agreements. We are
currently in compliance with all such covenants. Our credit facilities do not
contain any rating downgrade triggers that would accelerate the maturity of our
indebtedness thereunder. However, a ratings downgrade would result in an
increase in the interest rate and fees payable under our syndicated revolving
credit facilities. Such a downgrade also could adversely affect our ability to
renew existing, or obtain access to new, credit facilities in the future and
could increase the cost of such new facilities.

LONG-TERM FINANCING

At December 31, 2002, we had long-term debt of $2,127.3 million, with maturities
ranging from 2004 to 2046. See Note I of the accompanying Financial Statements
for further information on the borrowings. Current maturities of long-term debt
at December 31, 2002 were $2.1 million.

In December 2002, we issued $300.0 million of 6.45 percent senior notes due in
2007 and $500.0 million of 7.625 percent senior notes due in 2012. The net
proceeds from the issuance of the senior notes were used to repay a portion of
the amounts outstanding under the $1.5 billion, 364-day credit facility.

In May 2002, we issued $296.9 million aggregate principal amount of 7.5 percent
senior notes due in 2008 in exchange for a like principal amount of Coltec's 7.5
percent senior notes due 2008. All of the $296.9 million of the Coltec senior
notes acquired by us in the exchange offer were sold to Coltec and thereafter
cancelled. The remaining $3.1 million of outstanding Coltec senior notes remain
outstanding as the obligation of Coltec, which is now a wholly owned subsidiary
of EnPro.


                                       20


In November 2002, we completed an offering of 14,950,000 shares of our common
stock. The net proceeds from the offering of approximately $216.2 million were
used to repay a portion of the amounts outstanding under the $1.5 billion,
364-day credit facility.

At December 31, 2002, we had the authority to issue up to $1.4 billion of debt
securities, series preferred stock, common stock, stock purchase contracts and
stock purchase units under our existing shelf registration. The net proceeds
from any securities issued pursuant to the shelf registration statement would be
used for general corporate purposes unless such proceeds are required to repay
borrowings under the $1.5 billion, 364-day credit facility.

QUIPS

At December 31, 2002 and 2001, $126.5 million was outstanding of 8.30%
Cumulative Quarterly Income Preferred Securities, Series A (QUIPS) issued by
BFGoodrich Capital, a Delaware business trust (Trust), all of the common equity
of which is owned by us. The QUIPS are supported by 8.30% Junior Subordinated
Debentures, Series A, due 2025 (QUIPS Debentures) issued by us. We have
unconditionally guaranteed all distributions required to be made by the Trust,
but only to the extent the Trust has funds legally available for such
distributions.

OFF-BALANCE SHEET ARRANGEMENTS

We utilize several forms of off-balance sheet financing arrangements. At
December 31, 2002, these arrangements included:



                                                         UNDISCOUNTED
                                                           MINIMUM
                                                         FUTURE LEASE            RECEIVABLES
(IN MILLIONS)                                              PAYMENTS                 SOLD
                                                         ------------            -----------
                                                                           
Tax Advantaged Operating Leases                              $  59
Standard Operating Leases                                      166
                                                            ------
                                                            $  225
                                                            ======
Short-term Receivables                                                               $ 97


Lease Agreements

We finance our use of certain equipment, including corporate aircraft, under
committed lease arrangements provided by financial institutions. These
arrangements allow us to claim a deduction for the tax depreciation on the
assets, rather than the lessor, and allow us to lease up to a maximum of $95
million at December 31, 2002. Since the terms of these arrangements meet the
accounting definition of operating lease arrangements, the aggregate sum of
future minimum lease payments is not reflected on our consolidated balance
sheet. At December 31, 2002, approximately $59 million of future minimum lease
payments were outstanding under these arrangements. We also have various other
operating lease agreements whose future minimum lease payments approximated $166
million at December 31, 2002. The increase from $81 million at December 31, 2001
resulted from leases that we assumed in the acquisition of Aeronautical Systems.
See Note J to the accompanying Consolidated Financial Statements for additional
disclosure.


                                       21


Sale of Receivables

At December 31, 2002 and 2001, we had in place a trade receivables
securitization program pursuant to which we could sell receivables up to a
maximum of $140 million and $110 million, respectively. Accounts receivable sold
under this program were $97.3 million at December 31, 2002 and 2001.

Continued availability of the securitization program is conditioned upon
compliance with financial and other covenants set forth in the related
agreements. We are currently in compliance with all such covenants. The
securitization agreement also includes a rating downgrade trigger pursuant to
which the agreement may be terminated upon a rating downgrade. If such an event
were to occur, we expect that we would have sufficient capital resources through
our existing revolving credit facilities to satisfy any termination
requirements.

During 2000, we entered into an agreement to sell certain long-term receivables
to a financial institution. The agreement contained recourse provisions under
which we were required to repurchase the receivables in certain events. In the
fourth quarter 2001, we repurchased approximately $20 million of these long-term
receivables at the request of the financial institution. In August 2002, we
repurchased $20.3 million of receivables as a result of a payment default by the
primary obligor and terminated the agreement.

SHARE REPURCHASE PROGRAM

On September 17, 2001, we announced a program to repurchase up to $300 million
of our common stock. We have repurchased 2.5 million shares through December 31,
2001. The total cost of these shares was approximately $50 million with an
average price of $20.29 per share.

No shares were repurchased under this program during 2002 and none are expected
to be repurchased in 2003.

CHANGE IN DIVIDEND POLICY

On May 17, 2002, we announced that our Board of Directors approved a change in
our dividend policy to achieve a net income payout ratio that we believe is
consistent with other leading aerospace companies. Our quarterly dividend on our
common stock was reduced to $0.20 per share from the previous level of $0.275
per share. The change was effective with the regular quarterly dividend payable
on July 1, 2002 to the shareholders of record as of June 10, 2002.

CASH FLOW

The following table summarizes our cash flow activity for 2002, 2001 and 2000:



Cash Flows Provided by (Used by):                               2002                     2001                    2000
                                                                ----                     ----                    ----
                                                                                                      
Operating activities                                        $     539.2               $   382.6                $  168.2
Investing activities                                        $  (1,509.0)              $  (288.8)               $ (349.4)
Financing activities                                        $   1,163.6               $  (936.3)               $   80.6
Discontinued operations                                     $    (132.6)              $   850.7                $  114.6



                                       22


OPERATING CASH FLOWS

Cash flow provided by operating activities increased by $156.6 million to $539.2
million in 2002 from $382.6 million in 2001. The increase in cash flow from
operations resulted from improved management of Accounts Receivable and
Inventory, and lower estimated tax payments in 2002. Also included in 2002 cash
flow provided by operating activities was approximately $29.4 million resulting
from the sale of an interest rate swap agreement associated with $200 million of
our long-term debt and $30.8 million of cash received from the sale of hedges
acquired in the acquisition of Aeronautical Systems. Offsetting the favorable
cash flow was a decrease in Accounts Payable.

Operating cash flow increased by $214.4 million, from $168.2 million in 2000 to
$382.6 million in 2001. The increase was primarily due to a $113.7 million
payment to the Internal Revenue Service (IRS) in 2000, increased cash earnings
from continuing operations, lower restructuring and consolidation cost payments
and lower tax payments, partially offset by working capital requirements during
2001.

INVESTING CASH FLOWS

We used $1,509.0 million of cash primarily for the acquisition of Aeronautical
Systems for $1,472.2 million and capital expenditures of $107.3 million offset
in part by a payment of $49.8 million of the PIK notes. Capital expenditures
were lower than in 2001 due to the expansion of our carbon producing
capabilities in 2001 and a large enterprise resource planning project at our
Aerostructures business that was substantially complete in 2001.

We used $288.8 million in investing activities in 2001 versus $349.4 million in
2000. The decrease was due primarily to lower spending on acquisitions
(approximately $128 million), partially offset by increased spending on capital
expenditures (approximately $57 million).

FINANCING CASH FLOWS

Financing activities provided $1,163.6 million of cash in 2002, consumed $936.3
million of cash in 2001 and provided $80.6 million in cash in 2000. The increase
in long-term and short-term debt and capital stock was to finance the
acquisition of Aeronautical Systems in 2002. The primary reason for the
increased use of cash in 2001 was the repayment of short-term indebtedness with
the proceeds from the Performance Materials sale. See Discontinued Operations
Cash Flow discussion below. We increased our borrowings in 2000 to finance
acquisitions as well as our share repurchase program.

DISCONTINUED OPERATIONS CASH FLOW

Cash requirements for discontinued operations of $132.6 million during 2002
includes $63.6 million of cash included in the net assets of the EIP business
distributed to shareholders, $47.0 million paid, net of insurance receipts, for
asbestos-related matters and $15.6 million relating to capital expenditures and
debt repayments. Cash provided by discontinued operations during 2001 of $850.7
million includes $960.0 million attributable to the sale of the Performance
Materials business in February 2001.

Cash flow from discontinued operations increased $736.1 million, from $114.6
million in 2000 to $850.7 million in 2001. Performance Materials accounted for
$960 million of this increase, partially offset by a decrease of $224 million in
cash flow attributable to the EIP segment. The Performance Materials increase
was primarily attributable to the sale of the business during the first quarter
of 2001, while the decrease in cash flow attributable to the EIP segment was
primarily attributable to the Glacier Bearings acquisition during 2001
(approximately $150 million) and increased payments related to the defense and
disposition of asbestos-related claims.


                                       23


NET DEBT-TO-CAPITALIZATION RATIO

Our net debt-to-capitalization ratio (net of cash and cash equivalents) was 68.7
percent at December 31, 2002 as compared to 47.2 percent at December 31, 2001.
For purposes of this ratio, the trust preferred securities are treated as
capital. The ratio increased due to debt financing of approximately $1.3 billion
relating to the acquisition of Aeronautical Systems. The additional $200 million
of purchase price of Aeronautical Systems was financed through the issuance of
$216.2 million of common stock in the fourth quarter of 2002.

COMMERCIAL AIRLINE CUSTOMERS

The downturn in the commercial air transport market, exacerbated by the
terrorist attacks on September 11, 2001, has adversely affected the financial
condition of many of our commercial airline customers. Many of these customers
have requested extended payment terms for future shipments and/or reduced
pricing. We review and evaluate these requests on a case-by-case basis. We
perform ongoing credit evaluations on the financial condition of all of our
customers and maintain reserves for uncollectible accounts receivable based upon
expected collectibility. Although we believe our reserves are adequate, we are
not able to predict the future financial stability of these customers. Any
material change in the financial status of any one or group of customers could
have a material adverse effect on our financial condition, results of operations
or cash flows. The extent to which extended payment terms are granted to
customers may negatively affect future cash flow.

One of our customers, Fairchild Dornier, commenced insolvency proceedings in
Germany in 2002. As a result, we recorded a $1.0 million charge during the first
quarter of 2002 related to accounts receivable from Fairchild Dornier and
recorded a $16.6 million charge during the second quarter of 2002 for
capitalized pre-production and inventory costs and supplier termination charges
relating to the Fairchild Dornier 728 and 928 integrated landing system program.

On August 11, 2002, US Airways announced that it had filed for protection under
Chapter 11 of the United States Bankruptcy Code. As of December 31, 2002, we had
accounts receivable for US Airways of approximately $2.6 million against which a
valuation reserve of $1.9 million was recorded. In addition, as of December 31,
2002, we had approximately $3.4 million of unamortized sales incentives recorded
as other assets and a 50 percent-owned investee had unamortized sales incentives
recorded of approximately $1.6 million. We continue to provide US Airways with
components under post-bankruptcy protection and to assess the realization of the
above pre-bankruptcy assets as information becomes available.

On December 9, 2002, the parent company of United Airlines announced that it and
certain of its U.S. subsidiaries had filed for protection under Chapter 11 of
the U.S. Bankruptcy Code. As of December 31, 2002, we had accounts receivable
from United Airlines of approximately $2.7 million against which a valuation
reserve of $1.2 million was recorded. In addition, as of December 31, 2002, we
had unamortized sales incentives recorded as other assets of approximately $4.5
million. We continue to provide United Airlines with components under
post-bankruptcy protection and to assess the realization of the pre-bankruptcy
assets as information becomes available.

INSURANCE COSTS AND AVAILABILITY

As a result of the terrorist attacks on September 11, 2001 and general market
conditions, our insurance costs have increased and certain types of coverage
have been eliminated or made available to us with less favorable terms and
conditions. We renewed our property and casualty programs in 2002 at a higher
cost, but with generally similar deductibles, terms and conditions as the
expiring policies, with the exception that our property insurance program was
renewed without coverage for terrorist acts, including associated business
interruption. Our property and general liability programs were renewed with
reduced limits of liability reflecting the spin-off of our industrial products
business, but in each case, limits were maintained at levels consistent with our
industry peers. Our property insurance, general liability and aircraft products
liability programs expire in mid-2003 and our executive risk program expires in
2004. We expect to renew our policies when these policies expire in 2003.


                                       24


CONTINGENCIES

GENERAL

There are pending or threatened against us or our 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. We believe that any
liability that may finally be determined with respect to commercial and
non-asbestos product liability claims should not have a material effect on our
consolidated financial position or results of operations. From time to time, we
are 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

We are subject to various domestic and international environmental laws and
regulations which may require that we investigate and remediate the effects of
the release or disposal of materials at sites associated with past and present
operations, including sites at which we have been identified as a potentially
responsible party under the federal Superfund laws and comparable state laws. We
are currently involved in the investigation and remediation of a number of sites
under these laws.

The measurement of environmental liabilities by us is based on currently
available facts, present laws and regulations and current technology. Such
estimates take into consideration our prior experience in site investigation and
remediation, the data concerning cleanup costs available from other companies
and regulatory authorities and the professional judgment of our environmental
specialists in consultation with outside environmental specialists, when
necessary. Estimates of our liability are further subject to uncertainties
regarding the nature and extent of site contamination, the range of remediation
alternatives available, evolving remediation standards, imprecise engineering
evaluations and estimates of appropriate cleanup technology, methodology and
cost, the extent of corrective actions that may be required and the number and
financial condition of other potentially responsible parties, as well as the
extent of their responsibility for the remediation.

Accordingly, as investigation and remediation of these sites proceed, it is
likely that adjustments in our accruals will be necessary to reflect new
information. The amounts of any such adjustments could have a material adverse
effect on our results of operations in a given period, but the amounts, and the
possible range of loss in excess of the amounts accrued, are not reasonably
estimable. Based on currently available information, however, we do not believe
that future environmental costs in excess of those accrued with respect to sites
with which we have been identified as a potentially responsible party are likely
to have a material adverse effect on our financial condition. There can be no
assurance, however, that additional future developments, administrative actions
or liabilities relating to environmental matters will not have a material
adverse effect on our results of operations or cash flows in a given period.

Environmental liabilities are recorded when our liability is probable and the
costs are reasonably estimable, which generally is not later than at completion
of a feasibility study or when we have recommended a remedy or have committed to
an appropriate plan of action. The liabilities are reviewed periodically and, as
investigations and remediation proceed, adjustments are made as necessary.
Liabilities for losses from environmental remediation obligations do not
consider the effects of inflation, and anticipated expenditures are not
discounted to their present value. The liabilities are not reduced by possible
recoveries from insurance carriers or other third parties, but do reflect
anticipated allocations among potentially responsible parties at federal
Superfund sites or similar state-managed sites and an assessment of the
likelihood that such parties will fulfill their obligations at such sites.

At December 31, 2002, our liabilities for environmental remediation obligations
totaled $92.7 million, of which $19.0 million was included in current
liabilities as Accrued Liabilities. Of the $92.7 million, $21.5 million was
associated with ongoing operations and $71.2 million was associated with
businesses previously disposed of or discontinued.

The timing of expenditures depends on a number of factors that vary by site,
including the nature and extent of contamination, the number of potentially
responsible parties, the timing of regulatory approvals, the complexity of the
investigation and remediation, and the standards for remediation. We expect that
we will expend present accruals over many years, and will complete remediation
of all sites with which we have been identified in up to 30 years. This period
includes operation and monitoring costs that are generally incurred over 15 to
25 years.


                                       25


TOLO LITIGATION

In May 2000, we and our subsidiary Rohr, Inc. were served with a complaint in a
lawsuit filed in the Superior Court of Orange County, California, by former
shareholders and certain former employees of Tolo, Inc. Tolo is a subsidiary of
Rohr that was acquired in 1997 pursuant to a stock purchase agreement. The
former shareholders alleged that we and Rohr breached the stock purchase
agreement by failing to pay $2.4 million under the terms of the agreement. In
September 2001, a jury found that we were liable to the shareholders for the
$2.4 million retained by Rohr under the stock purchase agreement and were also
assessed punitive damages of $48 million. The court subsequently reduced the
punitive damage award to $24 million. We and Rohr appealed the judgment.

In December 2002, the appellate court issued a ruling directing the trial court
to enter judgment in favor of us and Rohr on both the fraud claim and the breach
of contract claim. The plaintiffs' motion for rehearing of that ruling was
subsequently denied. On February 10, 2003, the plaintiffs filed a petition for
review with the California Supreme Court. We have until March 2, 2003 to respond
to the petition.

ASBESTOS

We and certain of our subsidiaries have been named as defendants in various
actions by plaintiffs alleging injury or death as a result of exposure to
asbestos fibers in products, or which may have been present in our facilities. A
number of these cases involve maritime claims, which have been and are expected
to continue to be administratively dismissed by the court. These actions
primarily relate to previously owned businesses. We believe that we have
substantial insurance coverage available to us related to any remaining claims.
As a result, we believe that these pending and reasonably anticipated future
actions are not likely to have a material adverse effect on our financial
condition or results of operations.

DISCONTINUED OPERATIONS

At the time of the EIP spin-off, two subsidiaries of Coltec were defendants in a
significant number of personal injury claims relating to alleged
asbestos-containing products sold by those subsidiaries. It is possible that
asbestos-related claims might be asserted against us on the theory that we have
some responsibility for the asbestos-related liabilities of EnPro, Coltec or its
subsidiaries, even though the activities that led to those claims occurred prior
to our ownership of any of those subsidiaries. Also, it is possible that a claim
might be asserted against us that Coltec's dividend of its aerospace business to
us prior to the spin-off was made at a time when Coltec was insolvent or caused
Coltec to become insolvent. Such a claim could seek recovery from us on behalf
of Coltec of the fair market value of the dividend.

No such claims have been asserted against us to date. We believe that we would
have substantial legal defenses against any such claims. In addition, the
agreement between EnPro and us that was used to effectuate the spin-off provides
us with an indemnification from EnPro covering, among other things, these
liabilities. Any such asbestos-related claims would likely require, as a
practical matter, that Coltec's subsidiaries were unable to satisfy their
asbestos-related liabilities and that Coltec was found to be responsible for
these liabilities and was unable to meet its financial obligations. We believe
any such claims would be without merit and that Coltec was solvent both before
and after the dividend. If we are ultimately found to be responsible for the
asbestos-related liabilities of Coltec's subsidiaries, we believe it would not
have a material adverse effect on our financial condition, but could have a
material adverse effect on our results of operations and cash flows in a
particular period. However, because of the uncertainty as to the number, timing
and payments related to future asbestos-related claims, there can be no
assurance that any such claims will not have a material adverse effect on our
financial condition, results of operations and cash flows. If a claim related to
the dividend of Coltec's aerospace business were successful, it could have a
material adverse impact on our financial condition, results of operations and
cash flows.


                                       26


GUARANTEES

We have guaranteed amounts owed by Coltec Capital Trust with respect to the $150
million of outstanding 5 1/4 percent convertible trust preferred securities
(TIDES), and have guaranteed Coltec's performance of its obligations with
respect to the TIDES and the underlying Coltec convertible subordinated
debentures. Following the spin-off of the EIP segment, the TIDES remained
outstanding as an obligation of Coltec Capital Trust and our guarantee with
respect to the TIDES remains an obligation of ours. EnPro, Coltec and Coltec
Capital Trust have agreed to indemnify us from any costs and liabilities arising
under or related to the TIDES after the spin-off.

In addition to our guarantee of the TIDES, we have an outstanding contingent
liability for guaranteed debt and lease payments of $4.5 million and for letters
of credit and bank guarantees of $43.1 million at December 31, 2002.

CERTAIN CONTRACTS AND INVESTMENT

Our Aerostructures business re-engines 727 aircraft (the "Super 27 program").
The re-engining enables these aircraft to meet sound attenuation requirements
and improve their fuel efficiency. At December 31, 2002, we had $44.7 million of
inventory and $61.2 million of long-term notes receivable with respect to the
Super 27 program. At December 31, 2001, $20.3 million of these notes receivable
had been sold to a financial institution. The agreement relating to the sale
contained recourse provisions. Due to a default by the primary obligor, we
repurchased the notes receivable in August 2002 and the agreement was
terminated. We believe that the recorded value of the notes receivable of $61.2
million is less than or equal to the fair value of the underlying collateral.
Collection of these receivables, as well as the recovery of some portion of our
investment in existing inventory balances, may be negatively affected should the
overall deterioration in the commercial airline market continue or if the market
for re-engined Super 27 program aircraft deteriorates further. Because of these
conditions, we will continue to assess the value of these assets and their
ultimate recovery.

Our Aerostructures business has a contract with Boeing on the B717-200 program
that is subject to certain risks and uncertainties. Recovery of pre-production
inventory balances of $31.2 million as of December 31, 2002 is subject to
Boeing's future production rate and delivery schedule as well as our future cost
structure and learning curve assumptions.

During 2000, we invested as a minority shareholder in Cordiem LLC (Cordiem).
Cordiem is an aerospace business venture between suppliers and airlines whose
purpose is to utilize Internet-based solutions to lower costs of business
transactions and inventory, to expand product awareness and availability to more
customers and to improve information flow between participants. As of
December 31, 2002, our investment in Cordiem, including internal-use software,
was $12.9 million. As of December 31, 2002, all equity partners had signed up
for services for 2003. There is, however, concern about the ability of certain
airlines to fulfill their pledges. We continue to monitor the recoverability of
our investment in Cordiem.


                                       27


NEW ACCOUNTING STANDARDS

In June 2001, the Financial Accounting Standards Board (FASB) issued Statement
No. 143 "Accounting for Asset Retirement Obligations" (SFAS 143). SFAS 143
addresses financial accounting and reporting for obligations associated with the
retirement of tangible long-lived assets and the associated asset retirement
costs. It applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development
and/or the normal operation of a long-lived asset, except for certain
obligations of lessees. SFAS 143 is effective for financial statements issued
for fiscal years beginning after June 15, 2002. We will adopt SFAS 143 on
January 1, 2003. We do not expect that SFAS 143 will have a material effect on
our consolidated financial condition or results of operations.

In October 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes
FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121); however it retains the
fundamental provisions of that statement related to the recognition and
measurement of the impairment of long-lived assets to be "held and used." In
addition, SFAS 144 provides more guidance on estimating cash flows when
performing a recoverability test, requires that a long-lived asset (group) to be
disposed of other than by sale (e.g. abandoned) be classified as "held and used"
until it is disposed of, and establishes more restrictive criteria to classify
an asset (group) as "held for sale." SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS 144 did not have a
material impact on our consolidated financial condition or results of
operations.

In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements
No. 4, 44 and 62, amendment of FASB Statement No. 13 and Technical Corrections"
(SFAS 145). SFAS 145 will require gains and losses on the extinguishments of
debt to be classified as income or loss from continuing operations rather than
as extraordinary items as previously required under Statement of Financial
Standards No. 4. Extraordinary treatment will be required for certain
extinguishments as provided in APB Opinion No. 30. SFAS 145 also amends
Statement of Financial Accounting Standards No. 13 to require certain
modifications to capital leases to be treated as a sale-leaseback and modifies
the accounting for sub-leases when the original lessee remains a secondary
obligor (or guarantor). SFAS 145 is effective for financial statements issued
after May 15, 2002,and with respect to the impact of the reporting requirements
of changes made to SFAS 4 for fiscal years beginning after May 15, 2002. The
adoption of the applicable provisions of SFAS 145 did not have an effect on our
financial statements.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 nullifies
Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS 146 applies to costs
associated with an exit activity that does not involve an entity newly acquired
in a business combination or with a disposal activity covered by SFAS 144. SFAS
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with earlier application encouraged. We do not expect that
SFAS 146 will have a material effect on our consolidated financial condition or
results of operations but it will impact the timing of charges, which could
impact comparability of results among reporting periods.

During November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires certain
guarantees to be recorded at fair value. The initial recognition and measurement
provisions of FIN 45 are applicable, on a prospective basis, to guarantees
issued or modified after December 31, 2002. FIN 45 also requires a guarantor to
make new disclosures regarding guarantees. The disclosure requirements are
effective for financial statements ending after December 15, 2002.

In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosures" (SFAS 148) which amends FASB Statement
No. 123 "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002.


                                       28


CRITICAL ACCOUNTING POLICIES

Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and
liabilities. On an on going basis, we evaluate our estimates, including those
related to customer programs and incentives, product returns, bad debts,
inventories, investments, intangible assets, income taxes, financing operations,
warranty obligations, excess component order cancellation costs, restructuring,
long-term service contracts, pensions and other post-retirement benefits, and
contingencies and litigation. We base our estimates on historical experience and
on various other assumptions that are believed to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.

We believe the following critical accounting policies affect our more
significant judgments and estimates used in the preparation of our consolidated
financial statements.

Revenue Recognition

For revenues not recognized under the contract method of accounting, we
recognize revenues from the sale of products at the point of passage of title,
which is at the time of shipment. Revenues earned from providing maintenance
service are recognized when the service is complete.

CONTRACT ACCOUNTING - PERCENTAGE OF COMPLETION

Revenue Recognition

We also have sales under long-term, fixed-priced contracts, many of which
contain escalation clauses, requiring delivery of products over several years
and frequently providing the buyer with option pricing on follow-on orders.
Sales and profits on each contract are recognized in accordance with the
percentage-of-completion method of accounting, using the units-of-delivery
method. We follow the guidelines of Statement of Position 81-1 (SOP 81-1),
"Accounting for Performance of Construction-Type and Certain Production-Type
Contracts" (the contract method of accounting) except that our contract
accounting policies differ from the recommendations of SOP 81-1 in that
revisions of estimated profits on contracts are included in earnings under the
reallocation method rather than the cumulative catch-up method. Under the
reallocation method, the impact of revisions in estimates related to units
shipped to date is recognized ratably over the remaining life of the contract
while under the cumulative catch-up method such impact would be recognized
immediately.

Profit is estimated based on the difference between total estimated revenue and
total estimated cost of a contract, excluding that reported in prior periods,
and is recognized evenly in the current and future periods as a uniform
percentage of sales value on all remaining units to be delivered. Current
revenue does not anticipate higher or lower future prices but includes units
delivered at actual sales prices. Cost includes the estimated cost of the
preproduction effort, primarily tooling and design, plus the estimated cost of
manufacturing a specified number of production units. The specified number of
production units used to establish the profit margin is predicated upon
contractual terms adjusted for market forecasts and does not exceed the lesser
of those quantities assumed in original contract pricing or those quantities
which we now expect to deliver in the timeframe/periods assumed in the original
contract pricing. Our policies only allow the estimated number of production
units to be delivered to exceed the quantity assumed within the original
contract pricing when we receive firm orders for additional units. The
timeframe/period assumed in the original contract pricing is generally equal to
the period specified in the contract. If the contract is a "life of program"
contract, then such period is equal to the time period used in the original
pricing model which generally equals the time period required to recover our
pre-production costs. Option quantities are combined with prior orders when
follow-on orders are released.


                                       29


The contract method of accounting involves the use of various estimating
techniques to project costs at completion and includes estimates of recoveries
asserted against the customer for changes in specifications. These estimates
involve various assumptions and projections relative to the outcome of future
events, including the quantity and timing of product deliveries. Also included
are assumptions relative to future labor performance and rates, and projections
relative to material and overhead costs. These assumptions involve various
levels of expected performance improvements. We reevaluate our contract
estimates periodically and reflect changes in estimates in the current and
future periods under the reallocation method.

Included in sales are amounts arising from contract terms that provide for
invoicing a portion of the contract price at a date after delivery. Also
included are negotiated values for units delivered and anticipated price
adjustments for contract changes, claims, escalation and estimated earnings in
excess of billing provisions, resulting from the percentage-of-completion method
of accounting. Certain contract costs are estimated based on the learning curve
concept discussed below.

Inventory

Inventoried costs on long-term contracts include certain preproduction costs,
consisting primarily of tooling and design costs and production costs, including
applicable overhead. The costs attributed to units delivered under long-term
commercial contracts are based on the estimated average cost of all units
expected to be produced and are determined under the learning curve concept,
which anticipates a predictable decrease in unit costs as tasks and production
techniques become more efficient through repetition. This usually results in an
increase in inventory (referred to as "excess-over average") during the early
years of a contract.

If in-process inventory plus estimated costs to complete a specific contract
exceeds the anticipated remaining sales value of such contract, such excess is
charged to current earnings, thus reducing inventory to estimated realizable
value.

IDENTIFIABLE INTANGIBLE ASSETS

Identifiable intangible assets are recorded at cost, or when acquired as part of
a business combination, at estimated fair value. These assets include patents
and other technology agreements, sourcing contracts, trademarks, licenses,
customer relationships and non-compete agreements. Intangible assets are
generally amortized using the straight-line method over estimated useful lives
of 5 to 25 years for all acquisitions completed prior to June 30, 2001. For
acquisitions completed subsequent to June 30, 2001, identifiable intangible
assets are amortized over their useful life using undiscounted cash flows, a
method that reflects the pattern in which the economic benefits of the
intangible assets are consumed.

Impairments of identifiable intangible assets are recognized when events or
changes in circumstances indicate that the carrying amount of the asset, or
related groups of assets, may not be recoverable and our estimate of
undiscounted cash flows over the assets remaining useful life are less than the
carrying value of the assets. The determination of undiscounted cash flow is
based on the segments' plans. The revenue growth is based upon aircraft build
projections from aircraft manufacturers and widely available external
publications. The profit margin assumption is based upon the current cost
structure and anticipated cost reductions. Measurement of the amount of
impairment may be based upon an appraisal, market values of similar assets or
estimated discounted future cash flows resulting from the use and ultimate
disposition of the asset.

SALES INCENTIVES

We offer sales incentives to certain commercial customers in connection with
sales contracts. These incentives may consist of up-front cash payments,
merchandise credits and/or free products. The cost of these incentives is
recognized in the period incurred unless it is specifically guaranteed of
recovery within the contract by the customer. If the contract contains such a
guarantee, then the cost of the sales incentive is capitalized and amortized
over the contract period.


                                       30


ENTRY FEES - INVESTMENT IN RISK AND REVENUE SHARING PROGRAMS

Major aerospace customers negotiate an entry fee, representing an up-front cash
investment in a new program. The payment effectively demonstrates our commitment
to participate in new product programs and is part of the exclusive supply
agreement. In return, we receive a percentage of the product sales in the supply
periods after flight certification. Entry fees differ from sales incentives as
entry fees are an investment in a program which will generate a benefit from the
total sales of the program, not just sales from our products while sales
incentives are recovered during the contract period of our products by a
specific guarantee of recovery by the customer. The entry fees are recognized as
Other Assets and amortized on a straight-line basis over the programs' useful
life following certification, which approximates 10 to 20 years. The value of
the investment is evaluated for impairment based on the criteria in Identifiable
Intangible Assets above. The estimated lives are reviewed periodically based
upon the expected program lives as communicated by the customer.

EMPLOYEE BENEFITS

Assumptions used in determining the projected benefit obligations and the fair
value of plan assets for our pension and postretirement benefits other than
pensions plans are evaluated by us with consultation with an outside actuary.
Changes in assumptions are based upon our historical data, such as the rate of
compensation increase and the long-term rate of return on plan assets.
Assumptions, including the discount rate, the long-term rate of return on plan
assets and the health care cost projections are evaluated and updated annually.

Based upon our evaluation of the U.S. plans, we have changed the expected
long-term rate of return on plan assets from 9.25 percent for 2002 to 9.00
percent for 2003. We have also changed the discount rate from 7.50 percent at
December 31, 2001 to 6.875 percent at December 31, 2002. The rate of
compensation decreased from 4.0 percent in 2001 to 3.86 percent in 2002. For
measurement at December 31, 2001, an 8.5 percent annual rate of increase in the
per capita cost of covered healthcare benefits was assumed with the rate assumed
to decrease gradually to 5.0 percent for 2006 and remain at that level,
thereafter. For measurement at December 31, 2002, a 10 percent annual rate of
increase in the per capita cost of covered healthcare was assumed with a gradual
decline to 5.0 percent for 2007 remaining at that level, thereafter.

PENDING SALE OF THE AVIONICS BUSINESS

On January 29, 2003, we announced that we had entered into a definitive
agreement to sell our Avionics business to L-3 Communications Corporation (L-3)
for $188 million. The transaction was approved by the boards of directors of our
company and L-3. Subject to customary regulatory approvals, the sale is expected
to close late in the first quarter or early in the second quarter of 2003.
After-tax proceeds are expected to be approximately $134 million and are
intended to be used to further reduce the borrowings under our $1.5 billion,
364-day credit agreement. The Avionics business will be reported as a
discontinued operation beginning with the first quarter 2003.


                                       31


FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY

Certain statements made in this document are forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995 regarding
our future plans, objectives and expected performance. Specifically, statements
that are not historical facts, including statements accompanied by words such as
"believe," "expect," "anticipate," intend," "estimate," or "plan," are intended
to identify forward-looking statements and convey the uncertainty of future
events or outcomes. We caution readers that any such forward-looking statements
are based on assumptions that we believe are reasonable, but are subject to a
wide range of risks, and actual results may differ materially.

Important factors that could cause actual results to differ include, but are not
limited to:

         -        the extent to which we are successful in integrating
                  Aeronautical Systems and achieving expected operating
                  synergies;

         -        the extent to which we are successful in completing the sale
                  of our Avionics business;

         -        global demand for aircraft spare parts and aftermarket
                  services;

         -        the impact of the terrorist attacks on September 11, 2001 and
                  their aftermath;

         -        the timing related to restoring consumer confidence in air
                  travel;

         -        the health of the commercial aerospace industry, including the
                  impact of bankruptcies in the airline industry;

         -        the effect of current financial market conditions on pension
                  plan assets including plan asset valuations, future expense
                  and plan contributions;

         -        demand for and market acceptance of new and existing products,
                  such as the Airbus A380 and the Joint Strike Fighter;

         -        potential cancellation of orders by customers;

         -        successful development of products and advanced technologies;

         -        competitive product and pricing pressures;

         -        the solvency of Coltec Industries Inc at the time of and
                  subsequent to the spin-off of EnPro Industries, Inc. and the
                  ability of Coltec's subsidiaries to satisfy their
                  asbestos-related liabilities following the spin-off;

         -        domestic and foreign government spending, budgetary and trade
                  policies;

         -        economic and political changes in international markets where
                  we compete, such as changes in currency exchange rates,
                  inflation rates, recession and other external factors over
                  which we have no control; and

         -        the outcome of contingencies (including completion of
                  acquisitions, divestitures, litigation and environmental
                  remediation efforts).

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 these
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 these statements were made or to reflect the occurrence
of unanticipated events.


                                       32


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to certain market risks as part of our ongoing business
operations, including risks from changes in interest rates and foreign currency
exchange rates that could impact our financial condition, results of operations
and cash flows. We manage our exposure to these and other market risks through
regular operating and financing activities, and on a limited basis, through the
use of derivative financial instruments. We intend to use such derivative
financial instruments as risk management tools and not for speculative
investment purposes.

INTEREST RATE EXPOSURE We are exposed to interest rate risk as a result of our
outstanding debt obligations. The table below provides information about our
financial instruments that are sensitive to changes in interest rates. The table
represents principal cash flows and related weighted average interest rates by
expected (contractual) maturity dates.

EXPECTED MATURITY DATES

(DOLLARS IN MILLIONS)



                                                                                                                    FAIR
                                    2003       2004      2005     2006       2007     THEREAFTER       TOTAL        VALUE
                                    ----       ----      ----     ----       ----     ----------       -----        -----
Debt
                                                                                           
  Fixed Rate....................   $  2.0      $1.3      $1.1     $1.1      $301.3     $1,800.5      $2,107.3      $2,202.4
    Average Interest Rate.......      3.7%      2.5%      3.0%     2.8%        6.4%         7.2%          7.0%
  Variable Rate.................   $379.4      $1.2      $1.2     $2.1      $  0.2     $   17.2      $  401.3      $  401.3
    Average Interest Rate.......      2.3%      3.4%      3.4%     4.6%        3.1%         2.0%          2.3%
Capital Lease Obligations.......   $  2.0      $1.5      $0.4     $ --      $   --     $     --      $    3.9      $    3.5


FOREIGN CURRENCY EXPOSURE We are exposed to foreign currency risks that arise
from normal business operations. These risks include transactions denominated in
foreign currencies, the translation of monetary assets and liabilities
denominated in currencies other than the functional currency of the subsidiary
and translation of income and expense and balance sheet amounts of our foreign
subsidiaries to the U.S. dollar. Our objective is to minimize our exposure to
transaction and income risks through our normal operating activities and,
where appropriate, through foreign currency forward exchange contracts.

As currency exchange rates fluctuate, translation of the statements of income of
international businesses into U.S. dollars will affect comparability of revenues
and expenses between years.

Upon the acquisition of Aeronautical Systems, we entered into additional foreign
exchange forward contracts to sell U.S. dollars for Great Britain Pounds and for
Euros in addition to our existing Euro contracts. These businesses have a
substantial portion of their costs in Great Britain Pounds and Euros but have
significant sales contracts that are denominated in U.S. dollars. These forward
contracts are used to mitigate potential volatility to cash flows arising from
changes in currency exchange rates. As of December 31, 2002 we had forward
contracts with an aggregate notional amount of $656.0 million to buy Great
Britain Pounds and contracts with an aggregate notional amount of $95.2 million
to buy Euros. These forward contracts mature on a monthly basis with maturity
dates that range from January 2003 to April 2007.

At December 31, 2002, a hypothetical 10 percent unfavorable change in exchange
rates would decrease the value of the forward contracts described above by $88.0
million.


                                       33


MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS

The Consolidated Financial Statements and Notes to Consolidated Financial
Statements of Goodrich Corporation and subsidiaries have been prepared by
management. These statements have been prepared in accordance with generally
accepted accounting principles and, accordingly, include amounts based upon
informed judgments and estimates. Management is responsible for the selection of
appropriate accounting principles and the fairness and integrity of such
statements.

The Company maintains a system of internal controls designed to provide
reasonable assurance that accounting records are reliable for the preparation of
financial statements and for safeguarding assets. The Company's system of
internal controls includes: written policies, guidelines and procedures;
organizational structures, staffed through the careful selection of people that
provide an appropriate division of responsibility and accountability; and an
internal audit program. Ernst & Young LLP, independent auditors, were engaged to
audit and to render an opinion on the Consolidated Financial Statements of
Goodrich Corporation and subsidiaries. Their opinion is based on procedures
believed by them to be sufficient to provide reasonable assurance that the
Consolidated Financial Statements are not materially misstated. The report of
Ernst & Young LLP follows.

The Board of Directors pursues its oversight responsibility for the financial
statements through its Audit Review Committee, composed of Directors who are not
employees of the Company. The Audit Review Committee meets regularly to review
with management and Ernst & Young LLP the Company's accounting policies,
internal and external audit plans and results of audits. To ensure complete
independence, Ernst & Young LLP and the internal auditors have full access to
the Audit Review Committee and meet with the Committee without the presence of
management.



/s/ D. L. BURNER
- ------------------------------------
D. L. Burner
Chairman
and Chief Executive Officer



/s/ ULRICH SCHMIDT
- ------------------------------------
Ulrich Schmidt
Executive Vice President
and Chief Financial Officer



/s/ R. D. KONEY, JR.
- ------------------------------------
R. D. Koney, Jr.
Vice President and Controller


                                       34


REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of
Goodrich Corporation

We have audited the accompanying consolidated balance sheet of Goodrich
Corporation and subsidiaries as of December 31, 2002 and 2001, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 2002. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Goodrich
Corporation and subsidiaries at December 31, 2002 and 2001, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States.

As described in Note H to the consolidated financial statements, the Company
adopted Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, effective January 1, 2002.

                                                         /s/ Ernst & Young LLP

Charlotte, North Carolina
February 4, 2003


                                       35


CONSOLIDATED STATEMENT OF INCOME

(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)



YEAR ENDED DECEMBER 31                                                        2002                 2001                 2000
- ----------------------                                                     ----------           ----------           ----------
                                                                                                            
SALES                                                                      $  3,910.2           $  4,184.5           $  3,700.5
Operating costs and expenses:
   Cost of sales                                                              2,945.6              3,203.1              2,735.8
   Selling and administrative costs                                             562.0                489.5                430.8
   Restructuring and consolidation costs                                         41.3                107.3                 44.2
                                                                           ----------           ----------           ----------
                                                                              3,548.9              3,799.9              3,210.8
                                                                           ----------           ----------           ----------
OPERATING INCOME                                                                361.3                384.6                489.7
Interest expense                                                               (106.2)              (107.8)              (107.3)
Interest income                                                                  32.6                 24.1                  5.2
Other income (expense)--net                                                     (18.1)               (19.2)               (20.6)
                                                                           ----------           ----------           ----------
Income from continuing operations before income
  taxes and Trust distributions                                                 269.6                281.7                367.0
Income tax expense                                                              (93.2)               (94.3)              (121.3)
Distributions on Trust preferred securities                                     (10.5)               (10.5)               (10.5)
                                                                           ----------           ----------           ----------
INCOME FROM CONTINUING OPERATIONS                                               165.9                176.9                235.2
Income (loss) from discontinued operations - net of taxes                       (11.9)               112.3                 90.7
Cumulative effect of change in accounting                                       (36.1)                  --                   --
                                                                           ----------           ----------           ----------
   NET INCOME                                                              $    117.9           $    289.2           $    325.9
                                                                           ==========           ==========           ==========

BASIC EARNINGS (LOSS) PER SHARE:
   Continuing operations                                                   $     1.60           $     1.72           $     2.24
   Discontinued operations                                                      (0.11)                1.08                 0.87
   Cumulative effect of change in accounting                                    (0.35)                  --                   --
                                                                           ----------           ----------           ----------
   NET INCOME                                                              $     1.14           $     2.80           $     3.11
                                                                           ==========           ==========           ==========

DILUTED EARNINGS (LOSS) PER SHARE:
   Continuing operations                                                   $     1.57           $     1.65           $     2.16
   Discontinued operations                                                      (0.09)                1.11                 0.88
   Cumulative effect of change in accounting                                    (0.34)                  --                   --
                                                                           ----------           ----------           ----------
   NET INCOME                                                              $     1.14           $     2.76           $     3.04
                                                                           ==========           ==========           ==========


See Notes to Consolidated Financial Statements.


                                       36


CONSOLIDATED BALANCE SHEET



(DOLLARS IN MILLIONS, EXCEPT SHARE AMOUNTS)
DECEMBER 31                                                                         2002                 2001
- -----------                                                                      ----------           ----------
                                                                                                
CURRENT ASSETS
Cash and cash equivalents....................................................    $    149.9           $     85.8
Accounts and notes receivable................................................         727.2                570.4
Inventories..................................................................         971.7                807.5
Deferred income taxes........................................................         121.3                112.9
Prepaid expenses and other assets............................................          38.0                 26.2
Assets of discontinued operations............................................            --                873.9
                                                                                 ----------           ----------
   TOTAL CURRENT ASSETS......................................................       2,008.1              2,476.7
Property ....................................................................       1,240.3                955.5
Prepaid pension..............................................................         250.5                238.7
Goodwill ....................................................................       1,194.2                747.3
Identifiable intangible assets...............................................         464.9                138.8
Payment-in-kind notes receivable, less discount
     ($11.0 and $22.2 at December 31, 2002 and 2001, respectively) ..........         141.7                168.4
Deferred income taxes........................................................          45.5                   --
Other assets ................................................................         644.4                475.0
                                                                                 ----------           ----------
   TOTAL ASSETS..............................................................    $  5,989.6           $  5,200.4
                                                                                 ==========           ==========

CURRENT LIABILITIES
Short-term bank debt.........................................................    $    379.2           $    113.3
Accounts payable.............................................................         443.0                386.6
Accrued expenses.............................................................         577.3                506.4
Income taxes payable.........................................................         150.8                119.2
Liabilities of discontinued operations.......................................            --                589.4
Current maturities of long-term debt and capital lease obligation............           3.9                  5.9
                                                                                 ----------           ----------
   TOTAL CURRENT LIABILITIES ................................................       1,554.2              1,720.8
Long-term debt and capital lease obligations ................................       2,129.0              1,307.2
Pension obligations .........................................................         722.1                155.5
Postretirement benefits other than pensions..................................         323.2                320.1
Deferred income taxes........................................................            --                 13.9
Other non-current liabilities ...............................................         202.8                196.5
Commitments and contingent liabilities.......................................            --                   --
Mandatorily redeemable preferred securities of trust.........................         125.4                125.0

SHAREHOLDERS' EQUITY
Common stock-- $5 par value
Authorized, 200,000,000 shares; issued, 130,568,582 shares in 2002 and
   115,144,771 shares in 2001 (excluding 14,000,000 shares
   held by a wholly owned subsidiary)........................................         652.9                575.7
Additional paid-in capital...................................................       1,027.4                973.5
Income retained in the business..............................................          36.1                333.7
Accumulated other comprehensive income (loss)................................        (369.1)              (110.1)
Unearned compensation........................................................          (1.6)                (0.6)
Common stock held in treasury, at cost (13,506,977 shares in 2002
   and 13,446,808 shares in 2001)............................................        (412.8)              (410.8)
                                                                                 ----------           ----------
   TOTAL SHAREHOLDERS' EQUITY................................................         932.9              1,361.4
                                                                                 ----------           ----------
   TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................................    $  5,989.6           $  5,200.4
                                                                                 ==========           ==========


See Notes to Consolidated Financial Statements.


                                       37


CONSOLIDATED STATEMENT OF CASH FLOWS



(DOLLARS IN MILLIONS)
YEAR ENDED DECEMBER 31                                                          2002                2001               2000
- ----------------------                                                       ----------           --------           --------
                                                                                                            
OPERATING ACTIVITIES
Income from continuing operations .................................          $    165.9           $  176.9           $  235.2
Adjustments to reconcile income from continuing operations
  to net cash provided by operating activities:
  Restructuring and consolidation:
    Expenses ......................................................                41.3              107.3               44.2
    Payments ......................................................               (55.2)             (30.3)             (57.5)
  In-process research and development .............................                12.5                 --                 --
  Aeronautical Systems inventory step-up ..........................                58.8                 --                 --
  Unusual inventory adjustments ...................................                  --               94.5                 --
  Depreciation and amortization ...................................               183.5              173.8              165.4
  Deferred income taxes ...........................................                (2.2)              25.3              (33.2)
  Net gains on sale of businesses .................................                (2.5)              (7.8)              (2.0)
  Payment-in-kind interest income .................................               (23.3)             (17.6)                --
  Change in assets and liabilities, net of effects of
    acquisitions and dispositions of businesses:
    Receivables ...................................................               112.8               21.6              (72.7)
    Change in receivables sold, net ...............................                  --               46.3               39.2
    Inventories ...................................................                57.5              (91.0)             (38.7)
    Other current assets ..........................................               (16.2)              (9.6)             (31.2)
    Accounts payable ..............................................               (96.3)               3.1               81.6
    Accrued expenses ..............................................               (27.7)              24.7                5.1
    Income taxes payable ..........................................               129.8              (60.0)               3.9
    Tax benefit on non-qualified options ..........................                 0.5                7.7                8.3
    Other non-current assets and liabilities ......................                  --              (82.3)            (179.4)
                                                                             ----------           --------           --------
  NET CASH PROVIDED BY OPERATING ACTIVITIES .......................               539.2              382.6              168.2
                                                                             ----------           --------           --------

INVESTING ACTIVITIES
Purchases of property .............................................              (107.3)            (190.5)            (133.8)
Proceeds from sale of property ....................................                15.1                2.0               26.4
Proceeds from sale of businesses ..................................                 6.0               18.9                4.8
Proceeds from payment-in-kind note ................................                49.8
Payments made in connection with acquisitions,
    net of cash acquired ..........................................            (1,472.6)            (119.2)            (246.8)
                                                                             ----------           --------           --------
    NET CASH USED BY INVESTING ACTIVITIES .........................            (1,509.0)            (288.8)            (349.4)
                                                                             ----------           --------           --------

FINANCING ACTIVITIES
Increase (decrease) in short-term debt, net .......................               264.0             (626.4)             501.3
Proceeds from issuance of long-term debt ..........................               793.1                4.9                5.0
Repayment of long-term debt and capital lease obligations .........                (1.4)            (187.0)             (14.7)
Proceeds from issuance of common stock ............................               220.2               51.4               25.4
Purchases of treasury stock .......................................                (4.9)             (47.1)            (300.4)
Dividends .........................................................               (96.9)            (113.7)            (117.6)
Distributions on Trust preferred securities .......................               (10.5)             (18.4)             (18.4)
                                                                             ----------           --------           --------
    NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES ..............             1,163.6             (936.3)              80.6
                                                                             ----------           --------           --------

DISCONTINUED OPERATIONS
Net cash (used) provided by discontinued operations ...............              (132.6)             850.7              114.6
                                                                             ----------           --------           --------
Effect of Exchange Rate Changes on Cash and Cash Equivalents ......                 2.9                0.1               (2.9)
                                                                             ----------           --------           --------
Net Increase in Cash and Cash Equivalents .........................                64.1                8.3               11.1
Cash and Cash Equivalents at Beginning of Year ....................                85.8               77.5               66.4
                                                                             ----------           --------           --------
Cash and Cash Equivalents at End of Year ..........................          $    149.9           $   85.8           $   77.5
                                                                             ==========           ========           ========


See Notes to Consolidated Financial Statements.


                                       38


CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY



                                                                                                     UNEARNED
                                                                          INCOME     ACCUMULATED    PORTION OF
                                           COMMON STOCK     ADDITIONAL   RETAINED       OTHER       RESTRICTED    TREA-
                                         ----------------     PAID-IN     IN THE    COMPREHENSIVE      STOCK      SURY
(IN MILLIONS)                            SHARES    AMOUNT    CAPITAL     BUSINESS   INCOME (LOSS)     AWARDS      STOCK      TOTAL
- -------------                            ------    ------   ----------   --------   -------------   ----------    -----      -----

                                                                                                   
BALANCE DECEMBER 31, 1999  ............  112,065   $560.3     $895.8      $(52.3)      $ (41.8)        $(1.2)    $(65.2)   $1,295.6
Net income.............................                                    325.9                                              325.9
Other comprehensive income (loss):
Unrealized translation
   adjustments.........................                                                  (16.4)                               (16.4)
Minimum pension liability
   adjustment..........................                                                    0.5                                  0.5
                                                                                                                           --------
Total comprehensive income.............                                                                                       310.0
Employee award programs................    1,230      6.2       27.0                                                 5.6       38.8
Purchases of stock for treasury........                                                                           (300.4)    (300.4)
Dividends (per share-- $1.10)..........                                   (115.5)                                            (115.5)
                                         ------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2000  ............  113,295    566.5      922.8       158.1         (57.7)         (1.2)     (360.0)   1,228.5
Net income.............................                                    289.2                                              289.2
Other comprehensive income (loss):
Unrealized translation
   adjustments net of
   reclassification adjustments
   for loss included in net
   income of $1.0......................                                                   (3.5)                                (3.5)
Minimum pension liability
   adjustment..........................                                                  (48.9)                               (48.9)
                                                                                                                           --------
Total comprehensive income.............                                                                                       236.8
Employee award programs................    1,850      9.2       50.7                                     0.6        (0.7)      59.8
Purchases of stock for treasury........                                                                            (50.1)     (50.1)
Dividends (per share-- $1.10)..........                                   (113.6)                                            (113.6)
                                         ------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2001  ............  115,145    575.7      973.5       333.7        (110.1)         (0.6)     (410.8)   1,361.4
Net income.............................                                    117.9                                              117.9
Other comprehensive income (loss):
Unrealized translation
   adjustments.........................                                                   37.4                                 37.4
Minimum pension liability
   adjustment..........................                                                 (327.8)                              (327.8)
Unrealized gain on cash flow
    hedges.............................                                                   19.4                                 19.4
                                                                                                                           --------
Total comprehensive income (loss)......                                                                                      (153.1)
Sale of common stock under public
       offering, net of expenses.......   14,950     74.8      141.4                                                          216.2
Employee award programs................      474      2.4       10.4                                    (1.0)       (2.0)       9.8
EnPro spin-off.........................                        (97.9)     (323.2)         12.0                               (409.1)
Dividends (per share-- $0.875).........                                    (92.3)                                             (92.3)
                                         ------------------------------------------------------------------------------------------
BALANCE DECEMBER 31, 2002  ............  130,569  $ 652.9   $1,027.4     $  36.1       $(369.1)        $(1.6)    $(412.8)  $  932.9
                                         ==========================================================================================


See Notes to Consolidated Financial Statements.


                                       39


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A. SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION The Consolidated Financial Statements reflect the accounts
of Goodrich Corporation and its majority-owned subsidiaries ("the Company" or
"Goodrich"). Investments in 20 to 50 percent-owned affiliates are accounted for
using the equity method. Equity in earnings (losses) from these businesses is
included in Other income (expense) -- net. Intercompany accounts and
transactions are eliminated.

As discussed in Note U, the Company's Performance Materials and Engineered
Industrial Products businesses have been accounted for as discontinued
operations. Unless otherwise noted, disclosures herein pertain to the Company's
continuing operations.

CASH EQUIVALENTS Cash equivalents consist of highly liquid investments with a
maturity of three months or less at the time of purchase.

ALLOWANCE FOR DOUBTFUL ACCOUNTS The Company evaluates the collectibility of
trade receivables based on a combination of factors. The Company regularly
analyzes significant customer accounts, and, when the Company becomes aware of a
specific customer's inability to meet its financial obligations to the Company,
such as in the case of bankruptcy filings or deterioration in the customer's
operating results or financial position, the Company records a specific reserve
for bad debt to reduce the related receivable to the amount the Company
reasonably believes is collectible. The Company also records reserves for bad
debt for all other customers based on a variety of factors including the length
of time the receivables are past due, the financial health of the customer,
macroeconomic considerations and historical experience. If circumstances related
to specific customers change, the Company's estimates of the recoverability of
receivables could be further adjusted.

SALE OF ACCOUNTS RECEIVABLE The Company adopted the provisions of Statement of
Financial Accounting Standards No. 140 (SFAS 140), "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities" on April 1,
2001. Prior to that, the Company accounted for the sale of receivables in
accordance with SFAS No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." Trade accounts receivable
sold are removed from the balance sheet at the time of sale.

INVENTORIES Inventories, other than inventoried costs relating to long-term
contracts, are stated at the lower of cost or market. Certain domestic
inventories are valued by the last-in, first-out (LIFO) cost method. Inventories
not valued by the LIFO method are valued principally by the average cost method.

Inventoried costs on long-term contracts include certain preproduction costs,
consisting primarily of tooling and design costs and production costs, including
applicable overhead. The costs attributed to units delivered under long-term
commercial contracts are based on the estimated average cost of all units
expected to be produced and are determined under the learning curve concept,
which anticipates a predictable decrease in unit costs as tasks and production
techniques become more efficient through repetition. This usually results in an
increase in inventory (referred to as "excess-over average") during the early
years of a contract.

If in-process inventory plus estimated costs to complete a specific contract
exceeds the anticipated remaining sales value of such contract, such excess is
charged to current earnings, thus reducing inventory to estimated realizable
value.

In accordance with industry practice, costs in inventory include amounts
relating to contracts with long production cycles, some of which are not
expected to be realized within one year.


                                       40


LONG-LIVED ASSETS Property, plant and equipment, including amounts recorded
under capital leases, are recorded at cost. Depreciation and amortization is
computed principally using the straight-line method over the following estimated
useful lives: buildings and improvements, 15 to 40 years; machinery and
equipment, 5 to 15 years. In the case of capitalized lease assets, amortization
is computed over the lease term if shorter. Repairs and maintenance costs are
expensed as incurred.

Goodwill represents the excess of the purchase price over the fair value of the
net assets of acquired businesses and was amortized by the straight-line method,
in most cases over 20 to 40 years for all acquisitions completed prior to June
30, 2001. Goodwill amortization is recorded in cost of sales. Effective July 1,
2001, the Company adopted the provisions of Statement of Financial Accounting
Standards No. 142 "Goodwill and Other Intangible Assets" (SFAS 142) applicable
to business combinations completed after June 30, 2001. Effective January 1,
2002, additional provisions of SFAS 142, relating to business combinations
completed prior to June 30, 2001 became effective and were adopted. Under the
provisions of SFAS 142, intangible assets deemed to have indefinite lives and
goodwill are not subject to amortization beginning January 1, 2002.

Identifiable intangible assets are recorded at cost, or when acquired as a part
of a business combination, at estimated fair value. These assets include patents
and other technology agreements, trademarks, licenses, customer relationships
and non-compete agreements. They are generally amortized using the straight-line
method over estimated useful lives of 5 to 25 years for all acquisitions
completed prior to June 30, 2001. For acquisitions completed subsequent to June
30, 2001, identifiable intangible assets are amortized over their useful life
using undiscounted cash flows, a method that reflects the pattern in which the
economic benefits of the intangible assets are consumed.

Impairments of long-lived assets are recognized when events or changes in
circumstances indicate that the carrying amount of the asset, or related groups
of assets, may not be recoverable and the Company's estimate of undiscounted
cash flows over the assets remaining estimated useful life are less than the
assets carrying value. Measurement of the amount of impairment may be based on
an appraisal, market values of similar assets or estimated discounted future
cash flows resulting from the use and ultimate disposition of the asset.

REVENUE AND INCOME RECOGNITION For revenues not recognized under the contract
method of accounting, the Company recognizes revenues from the sale of products
at the point of passage of title, which is at the time of shipment. Revenues
earned from providing maintenance service are recognized when the service is
complete.

A significant portion of the Company's sales in the Aerostructures and Aviation
Technical Services Segment are under long-term, fixed-priced contracts, many of
which contain escalation clauses, requiring delivery of products over several
years and frequently providing the buyer with option pricing on follow-on
orders. Sales and profits on each contract are recognized in accordance with the
percentage-of-completion method of accounting, using the units-of-delivery
method. The Company follows the guidelines of Statement of Position 81-1 (SOP
81-1), "Accounting for Performance of Construction-Type and Certain
Production-Type Contracts" (the contract method of accounting) except that the
Company's contract accounting policies differ from the recommendations of SOP
81-1 in that revisions of estimated profits on contracts are included in
earnings under the reallocation method rather than the cumulative catch-up
method.

Profit is estimated based on the difference between total estimated revenue and
total estimated cost of a contract, excluding that reported in prior periods,
and is recognized evenly in the current and future periods as a uniform
percentage of sales value on all remaining units to be delivered. Current
revenue does not anticipate higher or lower future prices but includes units
delivered at actual sales prices. Cost includes the estimated cost of the
preproduction effort (primarily tooling and design), plus the estimated cost of
manufacturing a specified number of production units. The specified number of
production units used to establish the profit margin is predicated upon
contractual terms adjusted for market forecasts and does not exceed the lesser
of those quantities assumed in original contract pricing or those quantities
which the Company now expects to deliver in the periods assumed in the original
contract pricing. Option quantities are combined with prior orders when
follow-on orders are released.

The contract method of accounting involves the use of various estimating
techniques to project costs at completion and includes estimates of recoveries
asserted against the customer for changes in specifications. These estimates
involve various assumptions and projections relative to the outcome of future
events, including the quantity and timing of product deliveries. Also included
are assumptions relative to future labor performance and rates, and projections
relative to material and overhead costs. These assumptions involve various
levels of expected performance improvements. The Company reevaluates its
contract estimates periodically and reflects changes in estimates in the current
and future periods under the reallocation method.


                                       41


Included in sales are amounts arising from contract terms that provide for
invoicing a portion of the contract price at a date after delivery. Also
included are negotiated values for units delivered and anticipated price
adjustments for contract changes, claims, escalation and estimated earnings in
excess of billing provisions, resulting from the percentage-of-completion method
of accounting. Certain contract costs are estimated based on the learning curve
concept discussed under Inventories above. Included in Accounts Receivables at
December 31, 2002 and 2001, were receivable amounts under contracts in progress
of $110.1 million and $107.2 million, respectively, that represent amounts
earned but not billable at the respective Balance Sheet dates. These amounts
become billable according to their contract terms, which usually consider the
passage of time, achievement of milestones or completion of the project.

SHIPPING AND HANDLING Shipping and handling costs are recorded in cost of sales.

FINANCIAL INSTRUMENTS The Company's financial instruments include cash and cash
equivalents, accounts and notes receivable, foreign currency forward contracts,
accounts payable and debt. Because of their short maturity, the carrying amount
of cash and cash equivalents, accounts and notes receivable, accounts payable
and short-term bank debt approximates fair value. Fair value of long-term debt
is based on quoted market prices or on rates available to the Company for debt
with similar terms and maturities.

The Company accounts for derivative financial instruments in accordance with
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133). Under SFAS 133, derivatives are
carried on the Balance Sheet at fair value. The fair value of foreign currency
forward contracts is based on quoted market prices.

STOCK-BASED COMPENSATION The Company accounts for stock-based employee
compensation in accordance with the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees," and related interpretations.

EARNINGS PER SHARE Earnings per share is computed in accordance with SFAS No.
128, "Earnings per Share."

RESEARCH AND DEVELOPMENT EXPENSE The Company performs research and development
under Company-funded programs for commercial products, and under contracts with
others. Research and development under contracts with others is performed on
both military and commercial products. Total research and development
expenditures from continuing operations in 2002, 2001 and 2000 were $236.0
million, $198.2 million and $186.0 million, respectively. Of these amounts,
$49.0 million, $49.0 million and $50.6 million, respectively, were funded by
customers. Research and development expense in 2002 includes the $12.5 million
of in-process research and development expense written-off related to the
Aeronautical Systems acquisition.

RECLASSIFICATIONS Certain amounts in prior year financial statements have been
reclassified to conform to the current year presentation.

USE OF ESTIMATES The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.

NEW ACCOUNTING STANDARDS

In June 2001, the FASB issued Statement No. 143 "Accounting for Asset Retirement
Obligations" (SFAS 143). SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the associated asset retirement costs. It applies to legal obligations
associated with the retirement of long-lived assets that result from the
acquisition, construction, development and/or the normal operation of a
long-lived asset, except for certain obligations of lessees. SFAS 143 is
effective for financial statements issued for fiscal years beginning after June
15, 2002. The Company will adopt SFAS 143 on January 1, 2003. The Company does
not expect that SFAS 143 will have a material effect on its consolidated
financial condition or results of operations.


                                       42


In October 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes
FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121); however it retains the
fundamental provisions of that statement related to the recognition and
measurement of the impairment of long-lived assets to be "held and used." In
addition, SFAS 144 provides more guidance on estimating cash flows when
performing a recoverability test, requires that a long-lived asset (group) to be
disposed of other than by sale (e.g. abandoned) be classified as "held and used"
until it is disposed of, and establishes more restrictive criteria to classify
an asset (group) as "held for sale." SFAS 144 is effective for fiscal years
beginning after December 15, 2001. The adoption of SFAS did not have a material
impact on the Company's consolidated financial condition or results of
operations.

In April 2002, the FASB issued Statement No. 145 "Rescission of FASB Statements
No. 4, 44 and 62, amendment of FASB Statement No. 13 and Technical Corrections"
(SFAS 145). SFAS 145 will require gains and losses on the extinguishments of
debt to be classified as income or loss from continuing operations rather than
as extraordinary items as previously required under Statement of Financial
Standards No. 4. Extraordinary treatment will be required for certain
extinguishments as provided in APB Opinion No. 30. SFAS 145 also amends
Statement of Financial Accounting Standards No. 13 to require certain
modifications to capital leases to be treated as a sale-leaseback and modifies
the accounting for sub-leases when the original lessee remains a secondary
obligor (or guarantor). SFAS 145 is effective for financial statements issued
after May 15, 2002, and with respect to the impact of the reporting requirements
of changes made to SFAS 4 for fiscal years beginning after May 15, 2002. The
adoption of the applicable provisions of SFAS 145 did not have an effect on the
Company's financial statements.

In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 nullifies
Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring)." SFAS 146 applies to costs
associated with an exit activity that does not involve an entity newly acquired
in a business combination or with a disposal activity covered by SFAS 144. SFAS
146 is effective for exit or disposal activities that are initiated after
December 31, 2002, with earlier application encouraged. The Company does not
expect that SFAS 146 will have a material effect on its consolidated financial
condition or results of operations but it will impact the timing of charges
which could impact comparability of results among reporting periods.

During November 2002, the FASB issued Interpretation No. 45 "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others" (FIN 45). FIN 45 requires certain
guarantees to be recorded at fair value. The initial recognition and measurement
provisions of FIN 45 are applicable, on a prospective basis, to guarantees
issued or modified after December 31, 2002. FIN 45 also requires a guarantor to
make significant new disclosures. The disclosure requirements are effective for
financial statements ending after December 15, 2002.

In December 2002, the FASB issued Statement No. 148 "Accounting for Stock-Based
Compensation-Transition and Disclosures" (SFAS 148) which amends FASB Statement
No. 123 "Accounting for Stock-Based Compensation" (SFAS 123). SFAS 148 provides
alternative methods of transition for a voluntary change to the fair value based
method of accounting for stock-based employee compensation. In addition, SFAS
148 amends the disclosure requirements of SFAS 123 to require more prominent and
more frequent disclosures in financial statements about the effects of
stock-based compensation. The transition guidance and annual disclosure
provisions of SFAS 148 are effective for fiscal years ending after December 15,
2002. The interim disclosure provisions are effective for financial reports
containing financial statements for interim periods beginning after December 15,
2002.


                                       43


NOTE B. ACQUISITIONS AND DISPOSITIONS

ACQUISITIONS

Aeronautical Systems

On October 1, 2002, the Company completed its acquisition of TRW Inc.'s
Aeronautical Systems businesses (Aeronautical Systems) for approximately $1.5
billion in cash. The acquisition included the purchase of substantially all of
the Aeronautical Systems businesses assets and the assumption of certain
liabilities as defined in the Master Agreement of Purchase and Sale. The
acquisition has been accounted for using the purchase method in accordance with
Financial Accounting Standard No. 141 "Business Combinations." The acquired
businesses design and manufacture commercial and military aerospace systems and
equipment, including engine controls, flight controls, power systems, cargo
systems, hoists and winches and actuation systems. The businesses enhanced our
global operations with approximately 6,200 employees in 22 facilities in nine
countries, including manufacturing and service operations in the United Kingdom,
France, Germany, Canada, the United States and several Asia/Pacific countries.
The acquired businesses expanded the number of products, systems and services
that the Company delivers to aircraft manufacturers and operators. Because the
businesses had previously been operated as one business segment, the Company
will continue to report the results of operations as a separate business segment
until the Company's integration plan is completed in 2003. The results of
operations of Aeronautical Systems have been included in the Company's results
for the fourth quarter of 2002.

The purchase price payable by the Company to TRW Inc. for the acquisition of the
Aeronautical Systems businesses is subject to potential upward or downward
adjustment based on the difference between the net assets of the businesses on
October 1, 2002 and the net assets of the businesses on May 31, 2002, both
calculated in the manner set forth in the Master Agreement of Purchase and Sale.
The purchase price will also be adjusted based on the funding status of certain
pension plans and other employee benefit arrangements. The above adjustments
have not been finalized as of December 31, 2002.

The allocation of the purchase price has been performed based on the assignment
of fair values to assets acquired and liabilities assumed. Fair values are
based, in part, on appraisals, performed by an independent appraisal firm, of
certain fixed assets and intangible assets. The purchase price allocation has
been based on preliminary estimates and is subject to change. Items that may
affect the ultimate purchase price allocation include revisions to intangible
asset appraisals, finalization of restructuring plans that qualify for accrual
in the opening balance sheet and other information that provides a better
estimate of the fair value of assets acquired and liabilities assumed.


                                       44


The following table summarizes the estimated fair values of the assets acquired
and liabilities assumed at the date of acquisition.

                               AT OCTOBER 1, 2002
                                  (IN MILLIONS)

                                                                                  
Current assets..................................................                        $  544.3
Property, plant and equipment...................................                           312.6
In-process research and development.............................                            12.5
Intangible assets subject to amortization (17-year
   weighted-average useful life): ..............................
Customer relationships (17-year weighted-
   average useful life).........................................         230.0
Technology (17-year weighted-
   average useful life).........................................          81.2
Favorable sourcing contracts (3-year weighted-
   average useful life).........................................           4.8
                                                                         -----
                                                                                           316.0
Goodwill........................................................                           500.6
Other non-current assets........................................                           146.5
                                                                                       ---------
   Total assets acquired........................................                         1,832.5
                                                                                       ---------

Current liabilities.............................................                           292.4
Non-current liabilities.........................................                            67.9
                                                                                       ---------
    Total liabilities assumed...................................                           360.3
                                                                                       ---------
    Net assets acquired.........................................                       $ 1,472.2
                                                                                       =========



The goodwill associated with the Aeronautical Systems acquisition is expected to
be fully deductible for tax purposes.

The fair value of in-process research and development (IPR&D) was determined by
an independent valuation using the discounted cash flow method, a variation of
the income approach. The IPR&D technologies included in the valuation were
variable frequency and electrohydrostatic actuation. The $12.5 million assigned
to research and development assets were written off at the date of acquisition
in accordance with FASB Interpretation No. 4, "Applicability of FASB Statement
No. 2 to Business Combinations Accounted for by the Purchase Method". Those
write-offs are included in selling and administrative expenses.

The following unaudited pro forma financial information presents the combined
results of operations of Goodrich and Aeronautical Systems as if the acquisition
had occurred at the beginning of the periods presented. The unaudited pro forma
financial information is not intended to represent or be indicative of the
consolidated results of operations or financial condition that would have been
reported had the acquisition been completed as of the dates presented, and
should not be taken as representative of the future consolidated results of
operations or financial condition.



                                                                         UNAUDITED
                                                                  --------------------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                             YEAR ENDED DECEMBER 31,
- ---------------------------------------                           --------------------------
                                                                  2002                  2001
                                                                  ----                  ----
                                                                              
Sales..................................................        $  4,665.7           $  5,286.3
Income from continuing operations......................        $    179.0           $    205.3
Net income.............................................        $    131.0           $    317.6

Diluted earnings per share:
Income from continuing operations......................        $     1.70           $     1.92
Net income.............................................        $     1.26           $     3.02



                                       45


Other Acquisitions

The following acquisitions were recorded using the purchase method of
accounting. Their results of operations have been included in the Company's
results since their respective dates of acquisition. Acquisitions made by
businesses included within the Performance Materials and Engineered Industrial
Products Segments are not discussed below.

During 2001, the Company acquired a manufacturer of aerospace lighting systems
and related electronics, and the assets of a designer and manufacturer of
inertial sensors used for guidance and control of unmanned vehicles and
precision-guided systems. Total consideration aggregated $113.8 million, of
which $102.6 million represented goodwill and other intangible assets.

During 2000, the Company acquired a manufacturer of earth and sun sensors for
attitude determination and control ejection seat technology; a manufacturer of
fuel nozzles; a developer of avionics and displays; the assets of a developer of
precision electro-optical instrumentation serving the space and military
markets; an equity interest in a joint venture focused on developing and
operating a comprehensive open electronic marketplace for aerospace aftermarket
products and services; a manufacturer of precision and large optical systems,
laser encoding systems, and visual surveillance systems for day and night use
and a supplier of pyrotechnic devices for space, missile, and aircraft systems.
Total consideration aggregated $242.6 million, of which $105.4 million
represented goodwill and other intangible assets.

The impact of these acquisitions was not material in relation to the Company's
results of operations. Consequently, pro forma information is not presented.

DISPOSITIONS

During 2002, the Company sold a business and a minority interest in a business,
resulting in a pre-tax gain of $2.5 million, which has been reported in other
income (expense)-net.

During 2001, the Company sold a minority interest in a business, resulting in a
pre-tax gain of $7.2 million, which has been reported in other income
(expense)-net.

During 2000, the Company sold a product line of one of its businesses, resulting
in a pre-tax gain of $2.0 million, which has been reported in other income
(expense)-net.

For dispositions accounted for as discontinued operations refer to Note U to the
Consolidated Financial Statements.

NOTE C. RESTRUCTURING AND CONSOLIDATION COSTS

The Company incurred $41.3 million ($27.7 million after-tax), $107.3 million
($71.3 million after-tax) and $44.2 million ($28.6 million after-tax) of
restructuring and consolidation costs in 2002, 2001 and 2000, respectively.
These charges related to the following segments:



                                                                   2002             2001              2000
                                                                   ----             ----              ----
(IN MILLIONS)
- -------------
                                                                                           
Aerostructures and Aviation Technical Services..........        $   11.8          $   35.8          $   3.6
Landing Systems.........................................             1.9              44.7             25.3
Engine and Safety Systems...............................            20.3              17.7              1.7
Electronic Systems......................................             7.0               6.6              0.5
                                                                --------          --------          -------
    Total Segment Charges...............................            41.0             104.8             31.1
Corporate...............................................             0.3               2.5             13.1
                                                                --------          --------          -------
                                                                $   41.3          $  107.3          $  44.2
                                                                ========          ========          =======



                                       46


Restructuring and consolidation reserves at December 31, 2002, as well as
activity during the year, consisted of:




                                                                               (IN MILLIONS)
                                                 --------------------------------------------------------------------------
                                                    BALANCE                                                      BALANCE
                                                 DECEMBER 31,                                                  DECEMBER 31,
                                                     2001             PROVISION             ACTIVITY              2002
                                                 ------------         ---------             --------           ------------
                                                                                                   
         Personnel-related costs...........        $  26.6             $  31.0             $  (39.9)             $  17.7
         Consolidation.....................           18.6                10.3                (23.2)                 5.7
                                                   -------             -------             ---------             -------
                                                   $  45.2             $  41.3             $  (63.1)             $  23.4
                                                   =======             =======             =========             =======


PROVISION

The following is a description of key components of the $41.3 million provision
for restructuring and consolidation costs in 2002:

Aerostructures and Aviation Technical Services: The segment recorded $11.8
million in restructuring and consolidation costs, consisting of $9.1 million in
personnel-related costs and $2.7 million in consolidation costs. Of the charge,
$0.4 million represents non-cash asset impairment charges.

The personnel-related charges were for employee severance and for voluntary
termination benefits. During the year, a total of 1,325 employees were
terminated. The consolidation costs related to machinery and equipment
relocation costs incurred in connection with a facility consolidation or
closure, which were expensed as incurred, and asset impairment charges of $0.4
million.

Landing Systems: The segment recorded $1.9 million in restructuring and
consolidation costs, consisting of $1.6 million in personnel-related costs and
$0.3 million in consolidation costs. Of the charge, $0.2 million represents
non-cash items, including $0.8 million in asset impairments and a reserve
reversal of $0.6 million related to a revision of estimated facility closure and
consolidation costs.

The personnel-related charges are for employee severance and benefits. During
the year, a total of 263 employees were terminated. Consolidation costs include
asset impairment charges of $0.8 million to write down assets held for sale or
disposal based on their estimated fair value and facility closure costs of $0.1
million for equipment relocation costs, which were expensed as incurred, offset
by the $0.6 million reserve reversal noted above.

Engine and Safety Systems: The segment recorded $20.3 million in restructuring
and consolidation costs, consisting of $15.7 million in personnel-related costs
and $4.6 million in consolidation costs. Of the charge, $2.0 million represents
non-cash asset impairment charges. The personnel-related charges are for
employee severance and benefits. During the year, a total of 707 employees were
terminated. Consolidation costs include $2.0 million in accelerated depreciation
and facility closure costs of $2.6 million for machinery and equipment
relocation, which were expensed as incurred, and other facility closure costs.

Electronic Systems: The segment recorded $7.0 million in restructuring and
consolidation costs, consisting of $4.2 million in personnel-related costs and
$2.8 million in consolidation costs. Of the charge, $0.2 million represents a
non-cash asset impairment charge.

The personnel-related charges are for employee severance and benefits. During
the year, a total of 339 employees were terminated. Consolidation costs included
$0.2 million in accelerated depreciation and $2.2 million in equipment
relocation costs, which were expensed as incurred, in connection with facility
closure or consolidation.

Aeronautical Systems: The segment established $6.7 million in restructuring
reserves in the opening balance sheet for employee severance in the fourth
quarter of 2002. During the quarter, a total of 149 employees were terminated.

Corporate: Restructuring and consolidation costs of $0.3 million represented
employee outplacement services and relocation costs.


                                       47


At December 31, 2002, approximately 650 employees remain to be terminated as a
result of the restructuring actions described above.

ACTIVITY

Of the $63.1 million in activity, $55.2 million represented cash payments. The
remaining $7.9 million represented asset write-offs, the reversal of an
acquisition-related reserve against goodwill and reclassifications of reserves
to other non-current liabilities, offset by acquisition-related reserves that
were established through the opening balance sheet.

Restructuring and consolidation reserves at December 31, 2001, as well as
activity during the year, consisted of:



                                                                                            PERFORMANCE
                                            BALANCE                                           MATERIALS          BALANCE
                                         DECEMBER 31,                                       RESTRUCTURING      DECEMBER 31,
  (IN MILLIONS)                              2000         PROVISION        ACTIVITY            RESERVE             2001
                                         ------------     ---------        --------         -------------      ------------
                                                                                                
Personnel-related costs                    $  12.9         $  35.0         $  (17.6)          $   (3.7)          $  26.6
Transaction costs                              1.9              --             (1.9)                 --               --
Consolidation costs                           43.4            72.3            (59.4)             (37.7)             18.6
                                           -------         -------         --------           --------           -------
                                           $  58.2         $ 107.3         $  (78.9)          $  (41.4)          $  45.2
                                           =======         =======         ========           ========           =======


PROVISION

The following is a description of key components of the $107.3 million provision
for restructuring and consolidation costs in 2001:

Aerostructures and Aviation Technical Services

The segment recorded $35.8 million in restructuring and consolidation costs,
consisting of $17.3 million in personnel-related costs, $18.1 million in asset
impairments and $0.4 million in facility consolidation and closure costs. $20.7
million of the charge represents non-cash items, including $2.6 million of
pension curtailment charges and $18.1 in asset impairments.

The personnel-related charges are for employee severance and benefits for 1,686
employees, 515 of which were terminated in 2001, leaving 1,171 employees to be
terminated as of December 31, 2001. Asset impairment charges included $7.8
million to write down assets held for sale or disposal based on their estimated
fair value and $10.3 million to write-off of long-term collateralized
receivables as a result of a deterioration in the value of the collateral.
Facility closure costs related to equipment relocation and a lease termination
fee.

Landing Systems

The segment recorded $44.7 million in restructuring and consolidation costs,
consisting of $4.0 million in personnel-related costs (net of $0.3 million
revision of prior estimate), $26.4 million in asset impairments (net of $1.3
million revision of prior estimate) and $14.3 million in facility consolidation
and closure costs. $26.7 million of the charge represents non-cash items,
including $0.6 million of pension curtailment charges and $27.7 million in asset
impairments, offset by a $1.6 million revision of prior estimates.

The personnel-related charges were for employee severance and benefits for 145
employees, 49 of which were terminated in 2001, leaving 96 employees to be
terminated as of December 31, 2001. Asset impairment charges related to the
write down of assets held for sale or disposal based on their estimated fair
value, comprised primarily of $25 million, representing the difference between
the carrying value and fair value for rotable assets identified for sale.
Facility closure costs related to lease termination costs ($2.1 million),
equipment relocation ($6.3 million), environmental clean-up ($1.5 million) and
facility clean-up and preparation for sale ($4.4 million).


                                       48


Engine and Safety Systems

The segment recorded $17.7 million in restructuring and consolidation costs,
consisting of $6.8 million in personnel-related costs, $7.7 million in asset
impairments and $3.2 million in facility consolidation and closure costs. $8.6
million of the charge represents non-cash items, including $0.9 million of
pension curtailment charges and $7.7 million in asset impairments.

The personnel-related charges were for employee severance and benefits for 801
employees, 235 of which were terminated in 2001, leaving 566 employees to be
terminated as of December 31, 2001. Asset impairment charges relate to the write
down of assets held for sale or disposal based on their estimated fair value.
Facility closure costs related to lease and contract termination costs and
facility clean-up costs to prepare the facility for sale.

Electronic Systems

The segment recorded $6.6 million in restructuring and consolidation costs,
consisting of $4.1 million in personnel-related costs and $2.5 million in
facility closure and consolidation costs. $0.3 million of the charge represents
a non-cash pension curtailment charge.

The personnel-related charges were for employee severance and benefits for 155
employees, 24 of which were terminated in 2001, leaving 131 employees to be
terminated as of December 31, 2001. Facility closure and consolidation costs
related to lease termination costs and equipment relocation.

Corporate

Restructuring and consolidation costs were $2.5 million, consisting of employee
severance and benefits for 15 employees terminated during the period and
employee relocation costs and change-in-control benefits associated with the
Coltec merger. There were no employees remaining to be terminated as of December
31, 2001.

ACTIVITY

Of the $78.9 million in activity, $30.3 million represented cash payments and
$56.8 million represented asset write-offs. These amounts were offset by a net
increase to the reserve of $8.2 million, principally acquisition-related
reserves that were established through the opening balance sheet.

Approximately $35 million of the $41.4 million of reserves recorded in 2000 for
restructuring costs associated with the sale of Performance Materials ($35.6
million in asset impairment costs; $2.1 million in consolidation costs; and $3.7
million in severance costs) were written-off in 2001. The remaining portion of
the reserve (approximately $6 million) was assumed by the buyer and accordingly
written-off against the gain on sale during 2001.


                                       49


Restructuring and consolidation reserves at December 31, 2000, as well as
activity during the year, consisted of:


                                                                                   PERFORMANCE
                                  BALANCE                                           MATERIALS           BALANCE
                                DECEMBER 31,                                      RESTRUCTURING        DECEMBER 31,
    (IN MILLIONS)                   1999         PROVISION        ACTIVITY           RESERVE               2000
                                ------------     ---------        --------        -------------        ------------
                                                                                        
Personnel-related costs           $  35.4         $  16.7         $  (42.9)          $   3.7              $  12.9
Transaction costs                     2.0              --             (0.1)               --                  1.9
Consolidation costs                   6.5            27.5            (28.3)             37.7                 43.4
                                  -------         -------         --------           -------              -------
                                  $  43.9         $  44.2         $  (71.3)          $  41.4              $  58.2
                                  =======         =======         ========           =======              =======


PROVISION

During 2000, the Company recorded net restructuring and consolidation costs of
$44.2 million consisting of:

         -        $18.8 million in personnel-related costs (offset by a credit
                  of $2.1 million representing a revision of prior estimates)
                  consisting of:

                  -        $9.5 million in settlement charges related to lump
                           sum payments made under a nonqualified pension plan
                           that were triggered by the Coltec merger.

                  -        $3.3 million in employee relocation costs associated
                           with the Coltec merger.

                  -        $6.0 million for work force reductions.

         -        $27.5 million in consolidation costs consisting of:

                  -        $11.7 million of accelerated depreciation related to
                           assets at the Company's Euless, Texas facility whose
                           useful lives had been reduced as a result of the
                           decision to consolidate the facility with the
                           Company's other landing gear facilities.

                  -        $2.5 million of asset impairment charges representing
                           the excess of the assets' carrying value over the
                           fair value less costs to sell.

                  -        $13.3 million for realignment activities, of which
                           $6.5 million represented equipment relocation costs
                           and $3.8 million represented facility closure costs
                           associated with the consolidation of the Company's
                           landing gear businesses. The remaining $3 million
                           related to similar costs at various other facilities.

ACTIVITY

The $71.3 million in activity during the year included $57.5 million related to
cash payments and $13.8 million related to the write-off of assets and
accelerated depreciation.

During negotiations with the buyer of Performance Materials, the buyer requested
that the Company absorb the cost of closing and/or selling certain of the
segment's textile businesses as a condition of the sale (the "Textile
Consolidation"). These actions included the closure and/or sale of certain
facilities, the sale of certain assets and the consolidation of certain
management functions. The estimated costs of these restructuring activities
included $35.6 million for asset impairments, $2.1 million for consolidation
costs and $3.7 million for severance costs.

Since the decision to perform the actions contemplated by the Textile
Consolidation was a direct result of the decision to dispose of the Performance
Materials segment, the costs associated with the Textile Consolidation were
reflected as an obligation/reserve in the consolidated Balance Sheet at December
31, 2000. The Income Statement effect was deferred and recognized as part of the
gain on sale in February 2001.


                                       50


NOTE D. EARNINGS PER SHARE

The computation of basic and diluted earnings per share for income from
continuing operations is as follows:



(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                                                 2002          2001           2000
- ---------------------------------------                                               --------      --------       --------
                                                                                                          
Numerator:
  Numerator for basic and diluted earnings per
    share -- income from continuing operations..............................          $  165.9      $  176.9       $  235.2
                                                                                      ========      ========       ========
Denominator:
  Denominator for basic earnings per
    share -- weighted-average share.........................................             103.7         103.1          104.8
Effect of dilutive securities:
  Stock options, employee stock purchase plan and restricted stock..........               0.4           0.6            1.0
  Performance share plans...................................................               0.2           0.3            0.4
  Convertible preferred securities..........................................               1.2           2.9            2.9
                                                                                      --------      --------       --------
  Dilutive potential common shares..........................................               1.8           3.8            4.3
                                                                                      --------      --------       --------
  Denominator for diluted earnings per
    share -- adjusted weighted-average shares and
    assumed conversion......................................................             105.5         106.9          109.1
                                                                                      ========      ========       ========
Per share income from continuing operations:
    Basic...................................................................          $   1.60      $    1.72      $   2.24
                                                                                      ========      =========      ========
    Diluted ................................................................          $   1.57      $    1.65      $   2.16
                                                                                      ========      =========      ========


At December 31, 2002, the Company had approximately 9.5 million stock options
outstanding (see Note T). Stock options are included in the diluted earnings per
share calculation using the treasury stock method, unless the effect of
including the stock options would be anti-dilutive. During 2002, 2001 and 2000,
there were anti-dilutive options excluded from the diluted earnings per share
calculation.

NOTE E. SALE OF RECEIVABLES

The Company has an agreement to sell certain trade accounts receivable, up to a
maximum of $140.0 million and $110.0 million at December 31, 2002 and 2001,
respectively. Receivables of $97.3 million were sold under this agreement and
reflected as a reduction of Accounts Receivable at December 31, 2002 and 2001.
The receivables were sold without recourse and at a discount, which is included
in interest expense.

Continued availability of the securitization is conditioned upon compliance with
covenants, related primarily to operation of the securitization, set forth in
the related agreements. The Company is in compliance with all such covenants at
December 31, 2002. The securitization agreement includes a rating downgrade
trigger pursuant to which the agreement may be terminated upon a downgrade of
our credit ratings below BB- by Standard & Poor's or Ba3 by Moody's Investor
Services. If such an event were to occur, the Company expects that it would have
sufficient capital resources through existing revolving credit facilities to
meet its needs.

During 2000, the Company entered into an agreement to sell certain long-term
receivables. This agreement contained recourse provisions under which the
Company was required to repurchase receivables in certain events. In the fourth
quarter 2001, the Company repurchased approximately $20 million of these
long-term receivables at the request of the financial institution. In August
2002, the Company repurchased $20.3 million of receivables as a result of a
payment default by the primary obligor and terminated this agreement.


                                       51


NOTE F.  PAYMENT-IN-KIND NOTES RECEIVABLE

The proceeds from the sale of the Company's Performance Materials segment
included $172 million in debt securities issued by the buyer in the form of
unsecured notes with interest payable in cash or payment-in-kind, at the option
of the issuer. Payment-in-kind refers to the issuer's ability to issue
additional debt securities with identical terms and maturities as the original
debt securities as opposed to making interest payments in cash. The notes have a
term of 10.5 years, and bear interest at a rate of 13 percent, which increases
to 15 percent if cash interest payments do not commence after the fifth year.

The Company initially recorded a discount of $21.2 million based on a 14 percent
discount rate. In July 2002, the Company entered into an agreement with Noveon
to amend certain provisions of the PIK notes held by the Company to give Noveon
the option to prepay the securities at a discount greater than the original
discount if they are prepaid on or before February 28, 2003. As a result of
prepayments made in June and October 2002, Noveon has prepaid a total of $62.5
million of the outstanding principal of the PIK notes for $49.8 million in cash.
Because the prepayments did not exceed the original discount recorded at the
inception of the note, no gain or loss was recognized.

Interest income on the notes is recognized using the effective interest method
and is recorded in Interest Income in the Consolidated Statement of Income. The
notes are classified as held-to-maturity in accordance with SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".

The Company does not currently believe a valuation allowance is necessary. The
Company will record a valuation allowance if events or changes in circumstances
indicate that the carrying amount of the notes may not be recoverable. The fair
market value of the notes at December 31, 2002 is approximately $140 million.


                                       52


NOTE G. INVENTORIES

Inventories consist of the following:



(IN MILLIONS)                                                       2002              2001
- -------------                                                    ----------         --------
FIFO or average cost (which approximates current costs):
                                                                              
  Finished products......................................        $    246.2         $  172.0
  In process.............................................             559.6            504.9
  Raw materials and supplies.............................             259.0            217.1
                                                                 ----------         --------
                                                                    1,064.8            894.0
  Reserve to reduce certain inventories to LIFO basis....             (40.3)           (42.2)
  Progress payments and advances.........................             (52.8)           (44.3)
                                                                 ===========        ========
      TOTAL..............................................        $    971.7         $  807.5
                                                                 ==========         ========


Approximately 13 and 15 percent of inventory was valued by the LIFO method in
2002 and 2001, respectively.

In-process inventories as of December 31, 2002, which include significant
deferred costs for long-term contracts accounted for under contract accounting,
are summarized by contract as follows (in millions, except quantities which are
number of aircraft):



                               (1)AIRCRAFT ORDER STATUS                  COMPANY ORDER STATUS           IN-PROCESS INVENTORY
                              --------------------------             ----------------------------   ------------------------------
                                                                                                                 PRE-
                                                                                                              PRODUCTION
                              DELIVERED    UN-     UN-                           (3)FIRM                      AND EXCESS-
                                 TO      FILLED  FILLED  (2)CONTRACT            UNFILLED  (4)YEAR    PRO-        OVER-
                              AIRLINES   ORDERS  OPTIONS  QUANTITY   DELIVERED   ORDERS  COMPLETE   DUCTION     AVERAGE      TOTAL
                              ---------  ------  ------- ----------- ---------  -------- --------   -------   -----------    -----
                                                                                              
717-200....................      114        40      88       200         117       57      2007    $   9.1      $  31.2     $  40.3
Embraer Tailcone...........        6       112     202       600          13       --      2011         --         18.9        18.9
CF34-10....................       --        30      72       750          --       --      2020         --         25.0        25.0
Trent 900..................       --        43      33       267          --       --      2019         --          3.4         3.4
7Q7........................       --        --      --        18          --       --      2006         --         21.3        21.3
Others.....................                                                                          120.2          4.2       124.4
                                                                                                   -------      -------     -------
In-process inventory
  related to long-term
  contracts................                                                                        $ 129.3      $ 104.0       233.3
                                                                                                    =======     =======
In-process inventory not
  related to long-term
  contracts................                                                                                                   326.3
                                                                                                                            -------
Balance at December 31,
  2002.....................                                                                                                 $ 559.6
                                                                                                                            =======


(1)      Represents the aircraft order status as reported by independent sources
         for the related aircraft and engine option.

(2)      Represents the number of aircraft used to obtain average unit cost.

(3)      Represents the number of aircraft for which the Company has firm
         unfilled orders.

(4)      The year presented represents the year in which the final production
         units included in the contract quantity are expected to be delivered.
         The contract may continue in effect beyond this date.

Based on revisions to the production schedule announced by Boeing at the end of
2001, the Company reevaluated its estimated costs to complete Boeing 717-200
contract, its learning curve assumptions as well as the number of aircraft
expected to be delivered. As a result of this analysis, the Company recorded a
charge of $76.5 million during the fourth quarter of 2001. The Company will
continue to record no margin on this contract based on its revised assumptions.
Recovery of the pre-production balance of $31.2 million at December 31, 2002 is
subject to Boeing's future production rate and delivery schedule as well as our
future cost structure and learning curve assumptions.


                                       53


NOTE H:  GOODWILL AND IDENTIFIABLE INTANGIBLE ASSETS

Under SFAS 142, intangible assets deemed to have indefinite lives and goodwill
are subject to annual impairment testing using the guidance and criteria
described in the standard. This testing requires comparison of carrying values
to fair values, and when appropriate, the carrying value of impaired assets is
reduced to fair value.

During the second quarter of 2002, the Company performed the first of the
required impairment tests of goodwill and indefinite lived intangible assets.
Based on those results, the Company determined that it was likely that goodwill
relating to the Aviation Technical Services "reporting unit" (ATS) had been
impaired. ATS is included in the Aerostructures and Aviation Technical Services
business segment. During the third quarter of 2002, the Company completed its
measurement of the goodwill impairment and recognized an impairment of $36.1
million (representing total goodwill of this reporting unit) which was
non-deductible for income tax purposes and was reported as a cumulative effect
of an accounting change retroactively to January 1, 2002.

Income from continuing operations, basic and diluted earnings per share for the
years ended December 31, 2002, 2001 and 2000, adjusted to exclude amounts no
longer being amortized, are as follows:



(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                                   2002               2001              2000
                                                                        --------          ---------          --------
                                                                                                    
Reported Income from Continuing Operations                              $  165.9          $   176.9          $  235.2
  Adjustments:
    Goodwill amortization                                                     --               30.4              22.2
    Income taxes                                                              --               (7.5)             (5.6)
                                                                        --------          ---------          --------
Adjusted Income from Continuing Operations                              $  165.9          $   199.8          $  251.8
                                                                        ========          =========          ========

Basic earnings per share:
  Reported                                                              $   1.60          $   1.72           $   2.24
  Adjusted                                                              $   1.60          $   1.94           $   2.40
Diluted earnings per share:
  Reported                                                              $   1.57          $   1.65           $   2.16
  Adjusted                                                              $   1.57          $   1.87           $   2.31


The changes in the carrying amount of goodwill for the year ended December 31,
2002, by segment are as follows:



                                                                             BUSINESS
                                                            BALANCE       COMBINATIONS                          BALANCE
                                                         DECEMBER 31,       COMPLETED                         DECEMBER 31,
                                                             2001         OR FINALIZED         OTHER              2002
                                                        -------------     ------------       ---------        ------------
         (IN MILLIONS)
                                                                                                  
         Aerostructures and Aviation Technical
           Services.................................      $   56.7          $     --          $  (36.1)        $     20.6
         Landing Systems............................          67.9                --              (9.1)              58.8
         Engine and Safety Systems..................         185.2              (2.8)               --              182.4
         Electronic Systems.........................         437.5              (5.7)               --              431.8
         Aeronautical Systems.......................            --             500.6                --              500.6
                                                          --------          --------         ---------         ----------
                                                          $  747.3          $  492.1         $  (45.2)         $  1,194.2
                                                          ========          ========         =========         ==========


The $36.1 million reduction in goodwill in Aerostructures and Aviation Technical
Services represents the cumulative effect of adoption of SFAS 142, which
resulted in goodwill impairment in the ATS reporting unit.

The $9.1 million reduction in goodwill in Landing Systems represented a
reclassification of intellectual property rights to patents, trademarks and
licenses upon the adoption of SFAS 142.


                                       54


The $2.8 million reduction in goodwill in Engine and Safety Systems represents
the elimination of an allowance that was established in the opening balance
sheet against a receivable that was subsequently collected ($0.4 million) and
the adjustment of a restructuring reserve that was established in the opening
balance sheet due to a change in estimated severance costs ($2.4 million).

The $5.7 million reduction in goodwill in Electronic Systems primarily
represents the finalization of the purchase price allocation relating to the
acquisition of the lighting systems business acquired in September 2001. The
adjustment consists of additional value of $6.1 million assigned to customer
relationships and reclassified to identifiable intangible assets offset by an
adjustment to the minority interest of that business which slightly increased
goodwill. This decrease was offset by a $0.4 million increase associated with an
adjustment to the purchase price of an acquisition due to an earn-out agreement.

The $500.6 million increase in Aeronautical Systems represents the goodwill
recorded in the opening balance sheet (see Note B).

Identifiable intangible assets as of December 31, 2002 are comprised of:



                                                        GROSS             ACCUMULATED
                                                       AMOUNT            AMORTIZATION                NET
                                                      --------           ------------             --------
         (IN MILLIONS)
                                                                                         
         Amortizable intangible assets:
           Patents, trademarks and licenses           $  155.3              $  41.5               $  113.8
           Customer relationships                        267.8                  5.0                  262.8
           Technology                                     82.2                  0.5                   81.7
           Non-compete agreements                          7.8                  5.6                    2.2
           Sourcing contracts                              4.8                  0.4                    4.4
                                                      --------              -------               --------
                                                      $  517.9              $  53.0               $  464.9
                                                      ========              =======               ========


Amortization of these intangible assets for the year ended December 31, 2002 was
$17.0 million. Amortization expense for these intangible assets is estimated to
be approximately $21 million in 2003 and $22 million per year from 2004 to 2007.
There were no indefinite lived identifiable intangible assets as of December 31,
2002.

NOTE I. FINANCING ARRANGEMENTS

SHORT-TERM BANK DEBT At December 31, 2002 the Company had $750.0 million in
committed global syndicated revolving credit agreements. These credit facilities
consist of a $425.0 million three-year agreement expiring in December 2004 and a
$325 million 364-day agreement expiring in September 2003. Borrowings under
these agreements bear interest, at the Company's option, at rates tied to the
agent bank's prime rate or for U.S. Dollar or Great Britain Pound borrowings,
the London interbank offered rate, and for Eurodollar borrowings, the EURIBO
rate. Under the agreement expiring in 2004, the Company is required to pay a
facility fee of 17.5 basis points per annum on the total $425 million committed
line. Under the 364-day agreement, the Company is required to pay a facility fee
of 15 basis points per annum on the total $325 million committed line. On these
two agreements, if the amount outstanding on the line of credit exceeds 33
percent of the total commitment, a usage fee of 12.5 basis points per annum on
the loan outstanding is payable by the Company. These fees and the interest rate
margin on outstanding revolver borrowings are subject to change as the Company's
credit ratings change. At December 31, 2002, $155.0 million was outstanding
pursuant to the three-year agreement. There were no borrowings under the 364-day
agreement at year end.

In addition, the Company had a $200.0 million committed syndicated 364-day
revolving credit agreement at December 31, 2002, all of which was outstanding as
of that date. This credit facility is the remaining commitment and borrowing
from the $1.5 billion credit facility established in July 2002 for the
Aeronautical Systems acquisition from TRW Inc.. Borrowings under this credit
agreement bear interest, at the Company's option, at rates tied to the agent
bank's prime rate or the London interbank offered rate. Under the agreement, the
Company is required to pay a facility fee of 15 basis points per annum on the
amount of the commitment available at any time.


                                       55


The Company also maintains $100.0 million of uncommitted domestic money market
facilities and $6.8 million of uncommitted foreign working capital facilities
with various banks, of which $83.3 million were unused and available at December
31, 2002.

Weighted-average interest rates on short-term borrowings were 2.8 percent, 5.8
percent and 6.6 percent during 2002, 2001 and 2000, respectively.

LONG-TERM DEBT At December 31, 2002 and 2001, long-term debt and capital lease
obligations consisted of:



(IN MILLIONS)                                                               2002                2001
- -------------                                                            ----------          ----------
                                                                                       
MTN notes payable....................................................    $    699.0          $    699.0
6.45% senior notes, maturing in 2007.................................         300.0                  --
7.5% senior notes, maturing in 2008..................................         296.9               300.0
6.6% senior notes, maturing in 2009..................................         225.6               207.3
7.625% senior notes, maturing in 2012................................         500.0                  --
IDRBs, maturing in 2023, 6.0%........................................          60.0                60.0
Other debt, maturing to 2020 (interest rates from 0.8% to 6.5%)......          45.8                37.7
                                                                         ----------          ----------
                                                                            2,127.3             1,304.0
Capital lease obligation (Note I)....................................           1.7                 3.2
                                                                         ----------          ----------
Total................................................................    $  2,129.0          $  1,307.2
                                                                         ==========          ==========


SENIOR NOTES In December 2002, the Company issued $300.0 million of 6.45 percent
senior notes due in 2007 and $500.0 million of 7.625 percent senior notes due in
2012. The net proceeds from the issuance of the notes were used to repay a
portion of the amounts outstanding under the $1.5 billion, 364-day credit
facility.

At December 31, 2001, the $300.0 million of 7.5 percent senior notes due in 2008
were obligations of Coltec. In May 2002, the Company issued $296.9 million
aggregate principal amount of 7.5 percent senior notes due in 2008 in exchange
for a like principal amount of Coltec's 7.5 percent senior notes due in 2008.
All $296.9 million of Coltec senior notes acquired by the Company in the
exchange offer were sold to Coltec and thereafter cancelled. The remaining $3.1
million of outstanding Coltec senior notes remain outstanding as the obligation
of Coltec, which is now a wholly-owned subsidiary of EnPro.

In 1999, the Company issued $200.0 million of 6.6 percent senior notes due in
2009. The Company entered into a fixed-to-floating interest rate swap to manage
the interest rate exposure associated with these notes. In September 2002, the
interest rate swap, which was accounted for as a fair value hedge, was
terminated. At termination, the Company received $29.4 million, comprised of a
$2.6 million receivable representing the amount owed on the interest rate swap
from the previous settlement date and $26.8 million representing the fair value
of the interest rate swap at the time of termination. The carrying amount of the
notes was increased by $26.8 million representing the change in fair value of
the debt due to changes in interest rates for the period hedged. This amount
will be amortized as a reduction to interest expense over the remaining term of
the debt.

MTN NOTES PAYABLE The Company has periodically issued long-term debt securities
in the public markets through a medium-term note program (referred to as the MTN
program), which commenced in 1995. MTN notes outstanding at December 31, 2002,
consisted entirely of fixed-rate non-callable debt securities. All MTN notes
outstanding were issued between 1995 and 1998, with interest rates ranging from
6.5 percent to 8.7 percent and maturity dates ranging from 2008 to 2046.

IDRBS The industrial development revenue bonds maturing in 2023 were issued to
finance the construction of a hangar facility in 1993. Property acquired through
the issuance of these bonds secures the repayment of the bonds.

Aggregate maturities of long-term debt, exclusive of capital lease obligations,
during the five years subsequent to December 31, 2002, are as follows (in
millions): 2003 -- $2.1; 2004 -- $2.5; 2005 -- $2.3; 2006 -- $3.3 and 2007 --
$301.5.

The Company's debt agreements contain various restrictive covenants that, among
other things, place limitations on the payment of cash dividends and the
repurchase of the Company's capital stock. Under the most restrictive of these
agreements, $384.2 million of income retained in the business and additional
capital was free from such limitations at December 31, 2002.


                                       56


NOTE J. LEASE COMMITMENTS

The Company leases certain of its office and manufacturing facilities as well as
machinery and equipment under various leasing arrangements. The future minimum
lease payments from continuing operations, by year and in the aggregate, under
capital leases and under noncancelable operating leases with initial or
remaining noncancelable lease terms in excess of one year, consisted of the
following at December 31, 2002:



                                                                                 NONCANCELABLE
                                                              CAPITAL              OPERATING
(IN MILLIONS)                                                  LEASES                LEASES
                                                              -------            -------------
                                                                              
2003....................................................      $   2.0               $   40.4
2004....................................................          1.5                   33.5
2005....................................................          0.4                   26.6
2006....................................................           --                   19.6
2007....................................................           --                   16.1
Thereafter..............................................           --                   88.5
                                                              -------               --------
Total minimum payments..................................          3.9               $  224.7
                                                                                    ========
Amounts representing interest...........................         (0.4)
                                                              -------
Present value of net minimum lease payments.............          3.5
Current portion of capital lease obligations............         (1.8)
                                                              -------
TOTAL...................................................      $   1.7
                                                              =======


Net rent expense from continuing operations consisted of the following:



(IN MILLIONS)                                                                2002                 2001            2000
- -------------                                                              --------             -------         -------
                                                                                                       
Minimum rentals......................................................      $   42.1             $  31.3         $  28.5
Contingent rentals...................................................           0.2                 1.6             1.7
Sublease rentals.....................................................          (0.2)               (0.1)           (0.1)
                                                                           --------             -------         -------
TOTAL................................................................      $   42.1             $  32.8         $  30.1
                                                                           ========             =======         =======


NOTE K. PENSIONS AND POSTRETIREMENT BENEFITS

The Company has several defined benefit pension plans covering eligible
employees. Plans covering salaried employees generally provide benefit payments
using a formula that is based on an employee's compensation and length of
service. Plans covering hourly employees generally provide benefit payments of
stated amounts for each year of service. The Company also sponsors several
unfunded defined benefit postretirement plans that provide certain health-care
and life insurance benefits to eligible employees. The health-care plans are
contributory, with retiree contributions adjusted periodically, and contain
other cost-sharing features, such as deductibles and coinsurance. The life
insurance plans are generally noncontributory.

The Company's general funding policy for qualified pension plans is to
contribute amounts at least sufficient to satisfy regulatory funding standards.
Assets for these plans consist principally investments in U.S. and international
equities, government and corporate bonds, and real estate. At December 31, 2002,
the pension plans held 2.0 million shares of the Company's common stock with a
fair value of $36.8 million.

Amortization of unrecognized transition assets and liabilities, prior service
cost and gains and losses (if applicable) are recorded using the straight-line
method over the average remaining service period of active employees, or
approximately 12 years.


                                       57


PENSIONS

The following table sets forth the status of the Company's defined benefit
pension plans as of December 31, 2002 and 2001, and the amounts recorded in the
Consolidated Balance Sheet at these dates. The pension benefits related to
discontinued operations retained by the Company are included in the amounts
below.



                                                                            U.S. PLANS                   NON-U.S. PLANS
                                                                     -------------------------       ---------------------
(IN MILLIONS)                                                           2002           2001            2002         2001
- -------------                                                        ----------     ----------       --------     --------
                                                                                                      
CHANGE IN PROJECTED BENEFIT OBLIGATIONS
  Projected benefit obligation at beginning of year.............     $  1,930.2     $  1,962.9       $   30.3      $  24.6
  Service cost..................................................           30.9           27.1            6.1          1.4
  Interest cost.................................................          147.7          142.6            6.8          1.8
  Amendments....................................................           14.5            4.2             --           --
  Actuarial (gains) losses......................................          170.0          (34.9)         (29.9)         1.8
  Participant contributions.....................................             --             --            2.0          0.8
  Acquisitions (divestitures)/other.............................           71.8            0.4          332.3          1.9
  Curtailment/settlement........................................             --             --           (0.4)         --
  Foreign currency translation..................................             --             --           10.2         (1.1)
  Benefits paid.................................................         (184.3)        (172.1)          (1.8)        (0.9)
                                                                     ----------     ----------       --------     --------
  Projected benefit obligation at end of year...................     $  2,180.8     $  1,930.2       $  355.6      $  30.3
                                                                     ----------     ----------       --------      -------
CHANGE IN PLAN ASSETS
  Fair value of plan assets at beginning of year................     $  1,815.0     $  2,083.2       $   27.6      $  27.7
  Actual return on plan assets..................................          (86.1)        (104.7)           6.4         (0.7)
  Acquisitions (divestitures)/other.............................           38.8             --          314.8           --
  Participant contributions.....................................             --             --            2.0          0.8
  Company contributions.........................................           43.3            8.6            4.1          1.9
  Foreign currency translation...................................            --             --           10.2         (1.2)
  Benefits paid.................................................         (184.3)        (172.1)          (1.8)        (0.9)
                                                                     ----------     ----------       --------     --------
  Fair value of plan assets at end of year......................     $  1,626.7     $  1,815.0       $  363.3      $  27.6
                                                                     ----------     ----------       --------      -------
FUNDED STATUS (UNDERFUNDED)
  Funded status.................................................     $   (554.1)    $   (115.2)      $    7.7      $  (2.7)
  Unrecognized net actuarial (gain) loss........................          660.2          250.7          (24.8)         4.4
  Unrecognized prior service cost...............................           49.0           41.9            0.4          0.5
  Unrecognized net transition obligation........................             --            1.5           (0.1)        (0.1)
                                                                     ----------     ----------       --------     ---------
  Prepaid (accrued) benefit cost................................     $    155.1     $    178.9       $  (16.8)     $   2.1
                                                                     ==========     ==========       ========     ========
AMOUNTS RECOGNIZED IN THE
  STATEMENT OF FINANCIAL
  POSITION CONSIST OF:
  Prepaid benefit cost..........................................     $    249.4     $    238.7       $    2.7      $   3.5
  Intangible asset..............................................           48.1           22.8            0.3           --
  Accumulated other comprehensive (income) loss.................          584.4           79.5            1.0           --
  Additional minimum liability..................................         (632.5)        (102.3)          (1.3)          --
  Accrued benefit liability.....................................          (94.3)         (59.8)         (19.5)        (1.4)
                                                                     ----------     ----------       --------     --------
  NET AMOUNT RECOGNIZED.........................................     $    155.1     $    178.9       $  (16.8)     $   2.1
                                                                     ==========     ==========       ========     ========
WEIGHTED-AVERAGE ASSUMPTIONS
  AS OF DECEMBER 31
  Discount rate.................................................          6.875%          7.50%          6.04%        6.73%
  Expected return on plan assets(1).............................           9.25%          9.25%          8.46%        7.79%
  Rate of compensation increase.................................           3.86%          4.06%          3.27%        3.69%


(1) - Effective January 1, 2003, the expected return on plan assets was changed
to 9.0% for U.S. plans.


                                       58


Defined benefit plans with projected benefit obligations exceeding the fair
value of plan assets were as follows at December 31, 2002 and 2001:



                                                                                  U.S. PLANS                  NON-U.S. PLANS
                                                                           -------------------------       --------------------
(IN MILLIONS)                                                                 2002            2001           2002        2001
- -------------                                                              ----------       --------       -------      -------
                                                                                                            
Aggregate fair value of plan assets...................................     $  1,626.7       $  404.4       $  24.7      $  14.2
Aggregate projected benefit obligation................................     $  2,180.8       $  533.0       $  39.2      $  17.1


Defined benefit plans with accumulated benefit obligations exceeding the fair
value of plan assets were as follows at December 31, 2002 and 2001:



                                                                                  U.S. PLANS                  NON-U.S. PLANS
                                                                           -------------------------       --------------------
(IN MILLIONS)                                                                 2002            2001           2002        2001
- -------------                                                              ----------       --------       -------      -------
                                                                                                            
Aggregate fair value of plan assets...................................     $  1,626.7       $  404.4       $  24.7      $   8.4
Aggregate accumulated benefit obligation..............................     $  2,104.1       $  516.4       $  33.8      $  10.7


In 2002, global capital market developments resulted in negative returns on the
Company's pension plan assets and a decline in the discount rate used to
estimate the pension liability. As a result, the Company adjusted the minimum
pension liability recorded in its consolidated Balance Sheet. The effect of this
adjustment was to increase the additional minimum pension liability by $531.5
million, increase intangible assets by $25.6 million, increase deferred income
tax assets by $178.1 million, and increase accumulated other comprehensive loss
by $327.8 million ($505.9 million on a pre-tax basis).



                                                                       U.S. PLANS                        NON-U.S. PLANS
                                                            ---------------------------------      --------------------------
(IN MILLIONS)                                                 2002         2001         2000        2002       2001      2000
- -------------                                               -------      -------      -------      -----      -----     -----
                                                                                                      
COMPONENTS OF NET
 PERIODIC BENEFIT COST (INCOME):
 Service cost .........................................     $  30.9      $  27.1      $  27.4      $ 6.1      $ 1.4     $ 1.4
 Interest cost ........................................       147.7        142.6        145.5        6.8        1.8       1.6
 Expected return on plan assets .......................      (166.9)      (186.5)      (188.2)      (8.8)      (2.2)     (2.1)
 Amortization of prior service cost ...................         9.2          8.1         12.0         --         --        --
 Amortization of transition obligation ................         1.5          3.1          1.1         --         --        --
 Recognized net actuarial (gain) loss .................         8.3         (3.5)        (8.6)       0.1         --        --
                                                            -------      -------      -------      -----      -----     -----
 Benefit cost (income) ................................        30.7         (9.1)       (10.8)       4.2        1.0       0.9
 Settlements and curtailments (gain)/loss .............         0.5         15.6          9.5         --         --        --
 Special termination benefit charge (credit) ..........         1.9          1.3           --         --         --        --
                                                            -------      -------      -------      -----      -----     -----
                                                            $  33.1      $   7.8      $  (1.3)     $ 4.2      $ 1.0     $ 0.9
                                                            =======      =======      =======      =====      =====     =====



                                       59


POSTRETIREMENT BENEFITS OTHER THAN PENSIONS

The following table sets forth the status of the Company's defined benefit
postretirement plans as of December 31, 2002 and 2001, and the amounts recorded
in the Consolidated Balance Sheet at these dates. The postretirement benefits
related to discontinued operations retained by the Company are included in the
amounts below.



 (IN MILLIONS)                                                                  2002          2001
- --------------                                                               ---------     ---------
                                                                                     
CHANGE IN PROJECTED BENEFIT OBLIGATIONS
  Projected benefit obligation at beginning of year.....................     $   349.5     $   350.3
  Service cost..........................................................           1.6           2.2
  Interest cost.........................................................          25.5          27.2
  Amendments............................................................          (0.2)           --
  Actuarial (gains) losses..............................................          59.2          14.4
  Acquisitions (divestitures)/other.....................................           8.8           2.3
  Curtailment/settlement................................................            --          (8.4)
  Benefits paid.........................................................         (35.9)        (38.5)
                                                                             ---------     ---------
  Projected benefit obligation at end of year...........................     $   408.5     $   349.5
                                                                             ---------     ---------
CHANGE IN PLAN ASSETS
  Fair value of plan assets at beginning of year........................     $      --     $      --
  Company contributions.................................................          35.9          38.5
  Benefits paid.........................................................         (35.9)        (38.5)
                                                                             ---------     ---------
  Fair value of plan assets at end of year..............................     $      --     $      --
                                                                             ---------     ---------
FUNDED STATUS (UNDERFUNDED)
  Funded status.........................................................     $  (408.5)    $  (349.5)
  Unrecognized net actuarial (gain) loss................................          50.2          (5.1)
  Unrecognized prior service cost.......................................          (0.9)         (0.8)
                                                                             ---------     ---------
  Accrued benefit cost..................................................     $  (359.2)    $  (355.4)
                                                                             =========     =========

WEIGHTED-AVERAGE ASSUMPTIONS
  AS OF DECEMBER 31
  Discount rate.........................................................         6.875%         7.50%


For measurement purposes, a 10.0 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2003. The rate was
assumed to decrease gradually to 5.0 percent for 2007 and remain at that level
thereafter.



(IN MILLIONS)                                                                          2002         2001         2000
- --------------                                                                       -------      -------       -------
                                                                                                       
COMPONENTS OF NET
  PERIODIC BENEFIT COST (INCOME):
  Service cost..................................................................     $   1.6      $   2.2       $   2.3
  Interest cost.................................................................        25.5         27.2          26.4
  Amortization of prior service cost............................................        (0.1)        (0.1)         (1.9)
  Recognized net actuarial (gain) loss..........................................          --          0.3           0.3
                                                                                     -------      -------       -------
  Benefit cost (income).........................................................        27.0         29.6          27.1
  Settlements and curtailments (gain)/loss......................................          --         (8.5)           --
  Special termination benefit charge (credit)...................................          --          1.0            --
                                                                                     -------      -------       -------
                                                                                     $  27.0      $  22.1       $  27.1
                                                                                     =======      =======       =======



                                       60


The table below quantifies the impact of a one percentage point change in the
assumed health care cost trend rate.



                                                                                     1 PERCENTAGE         1 PERCENTAGE
(IN MILLIONS)                                                                            POINT                POINT
                                                                                       INCREASE             DECREASE
                                                                                     ------------         ------------
                                                                                                    
Effect on total of service and interest cost components in 2002...................      $   1.6             $   1.4
Effect on postretirement benefit obligation as of December 31, 2002...............      $  25.4             $  22.2


The Company also maintains voluntary retirement savings plans for salaried and
wage employees. Under provisions of these plans, eligible employees can receive
Company matching contributions on up to the first 6 percent of their eligible
earnings. For 2002, 2001 and 2000, Company contributions amounted to $47.0
million, $36.9 million, and $37.5 million, respectively. Company contributions
include amounts related to employees of discontinued operations.

NOTE L. INCOME TAXES

Income from continuing operations before income taxes and Trust distributions as
shown in the Consolidated Statement of Income consists of the following:



(IN MILLIONS)                                                          2002            2001             2000
- -------------                                                        --------        --------         --------
                                                                                             
Domestic......................................................       $  269.0        $  225.7         $  314.6
Foreign.......................................................            0.6            56.0             52.4
                                                                     --------        --------         --------
TOTAL.........................................................       $  269.6        $  281.7         $  367.0
                                                                     ========        ========         ========


A summary of income tax (expense) benefit from continuing operations in the
Consolidated Statement of Income is as follows:



(IN MILLIONS)                                                        2002             2001               2000
- -------------                                                      --------         --------           ---------
                                                                                              
Current:
  Federal.....................................................     $   (6.5)        $  (43.3)          $  (128.7)
  Foreign.....................................................          0.8            (29.3)              (19.6)
  State.......................................................         (3.9)            (3.2)               (6.2)
                                                                   --------         --------           ---------
                                                                       (9.6)           (75.8)             (154.5)
                                                                   --------         --------           ---------
Deferred:
  Federal.....................................................        (82.2)           (24.8)               46.1
  Foreign.....................................................         (1.4)             6.3               (12.9)
                                                                   --------         --------           ---------
                                                                      (83.6)           (18.5)               33.2
                                                                   --------         --------           ---------
      TOTAL...................................................     $  (93.2)        $  (94.3)          $  (121.3)
                                                                   ========         ========           =========



                                       61


Significant components of deferred income tax assets and liabilities at December
31, 2002 and 2001, are as follows:



(IN MILLIONS)                                                                          2002            2001
- -------------                                                                       ---------       ---------
                                                                                              
Deferred income tax assets:
  Accrual for postretirement benefits other than pensions.....................      $   159.2       $   144.1
  Inventories.................................................................           69.2            57.0
  Other nondeductible accruals................................................           37.5            41.4
  Tax credit and net operating loss carryovers................................           37.1            37.1
  Employee benefits plans.....................................................           11.6             4.6
  Pensions....................................................................          170.7             1.8
  Other.......................................................................           62.1            92.0
                                                                                    ---------       ---------
    Total deferred income tax assets..........................................          547.4           378.0
                                                                                    ---------       ---------
Deferred income tax liabilities:
  Tax over book depreciation..................................................          (91.4)          (73.5)
  Tax over book intangible amortization.......................................          (75.7)          (65.6)
  Tax over book interest expense..............................................          (84.9)          (82.2)
  Other.......................................................................         (128.6)          (57.7)
                                                                                    ---------       ---------
    Total deferred income tax liabilities.....................................         (380.6)         (279.0)
                                                                                    ---------       ---------
NET DEFERRED INCOME TAX ASSET.................................................      $   166.8       $    99.0
                                                                                    =========       =========


Management has determined, based on the Company's history of prior earnings and
its expectations for the future, that taxable income of the Company will more
likely than not be sufficient to recognize fully these net deferred tax assets.
In addition, management's analysis indicates that the turnaround periods for
certain of these assets are for long periods of time or are indefinite. In
particular, the turnaround of the largest deferred tax asset related to the
accrual for postretirement benefits other than pensions will occur over an
extended period of time and, as a result, will be realized for tax purposes over
those future periods. The tax credit and net operating loss carryovers,
principally relating to Rohr, are primarily comprised of federal net operating
loss carryovers of $62.8 million, which expire in the years 2005 through 2013,
and investment tax credit and other credits of $15.1 million, which expire in
the years 2003 through 2014. The remaining deferred tax assets and liabilities
approximately match each other in terms of timing and amounts and should be
realizable in the future, given the Company's operating history.

The effective income tax rate from continuing operations varied from the
statutory federal income tax rate as follows:



                                                                                            PERCENT OF INCOME
                                                                                                 PRETAX
                                                                              --------------------------------------------
                                                                               2002               2001               2000
                                                                              ------             ------             ------
                                                                                                           
Statutory federal income tax rate..................................             35.0%              35.0%              35.0%
Amortization of nondeductible goodwill.............................               --                1.4                0.7
Credits............................................................               --               (0.5)              (0.4)
State and local taxes..............................................              0.9                0.7                1.1
Tax exempt income from foreign sales corporation...................             (5.7)              (6.7)              (3.8)
Trust distributions................................................             (1.4)              (1.3)              (1.0)
Repatriation of non-U.S. earnings..................................              3.1                0.9               (0.4)
In-process research and development................................              1.6                 --                 --
Other items........................................................              1.1                4.0                1.9
                                                                              ------             ------             ------
Effective income tax rate..........................................             34.6%              33.5%              33.1%
                                                                              ======             ======             ======


The Company has not provided for U.S. federal and foreign withholding taxes on
$244.3 million of foreign subsidiaries' undistributed earnings as of December
31, 2002, because such earnings are intended to be reinvested indefinitely. It
is not practical to determine the amount of income tax liability that would
result had such earnings actually been repatriated. On repatriation, certain
foreign countries impose withholding taxes. The amount of withholding tax that
would be payable on remittance of the entire amount of undistributed earnings
would approximate $19.8 million.


                                       62


NOTE M. BUSINESS SEGMENT INFORMATION

Due to the acquisition of Aeronautical Systems from TRW in 2002, the spin-off of
the Engineered Industrial Products segment in 2002, and the sale of the
Performance Materials segment in 2001, the Company redefined its segments. The
Company's operations are now classified into five business segments:
Aerostructures and Aviation Technical Services, Landing Systems, Engine and
Safety Systems, Electronic Systems and Aeronautical Systems. Accordingly, the
Company has reclassified all periods based on its revised segment reporting.

AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES

The core products of the Company's Aerostructures division are nacelles, pylons,
thrust reversers and related aircraft engine housing components. The Company is
a leading worldwide supplier of nacelles, which are the aerodynamic structures
that surround engines, and pylons, which are the engine-to-wing structures that
support engines and provide the critical connective conduit for fuel delivery
and numerous engine-driven aircraft systems. In addition, the Company
manufactures a range of specialized aerostructures, including lightweight,
temperature-resistant auxiliary power unit tailcones for jetliners,
corrosion-resistant structures for tactical military aircraft, and rigid cargo
barriers for freighter aircraft. The Company also manufactures a variety of
galley, wing, nacelle, thrust reverser, flight control surface and assembly
components for out-of-production aircraft.

Through the Aviation Technical Services division, the Company services
approximately 550 aircraft each year and is among the largest independent
providers of maintenance, repair, overhaul and modification services in the
world. Services provided by the Company's Aviation Technical Services division
range from the repair of individual components and systems to heavy maintenance
and modifications of large commercial aircraft and business jet aircraft. The
Company performs comprehensive total aircraft maintenance, repair, overhaul and
modification for many commercial airlines, independent operators, aircraft
leasing companies and airfreight carriers.

LANDING SYSTEMS

The Company's Landing Systems segment provides systems and components related to
aircraft taxi, take-off, landing and stopping. Several divisions within this
segment are linked by their ability to contribute to the integration, design,
manufacture and service of entire aircraft undercarriage systems, including
landing gear, wheels and brakes, and certain brake controls. The Company
differentiates itself from component suppliers by providing integrated systems,
delivered as completely pre-assembled units to airframe manufacturers. The
Company also provides complete repair and overhaul services for landing gear,
wheels and brakes. In addition, through the Company's engineered polymer
products division, the Company designs and produces components made from
proprietary, high-performance composite material systems used in naval ships and
submarines to improve acoustic characteristics and reduce radar signature of
exposed superstructures.

ENGINE AND SAFETY SYSTEMS

The Company's Engine and Safety Systems segment produces a variety of products
used in engine systems, including fuel delivery systems, electronic and
mechanical controls, pumps, metering devices, manifolds and rotating components
such as disks, blisks, shafts and airfoils for both aerospace and industrial
gas turbine applications. The segment also provides evacuation systems such
as slides and floats and seats for pilots, observers and flight attendants. The
Company's de-icing and specialty systems division produces ice protection
systems for general aviation, heating and related systems for large commercial
transport aircraft, and potable water systems for regional and business
aircraft. The Company also supplies electrothermal ice protection systems for
airframe, propeller and helicopter rotor applications and specialty heating
systems, water heaters and other internal and external heated components for
large commercial transport aircraft. Through the Company's propulsion systems
division, the Company provides research, design, development, qualifications and
manufacture of advanced aircrew escape systems. The Company also supplies
individual components such as rocket motors and catapults, pyrotechnic gas
generators, ejection seats, precision electro-explosive devices, propellants,
linear actuators, and safety and arming devices.


                                       63


ELECTRONIC SYSTEMS

The Company's Electronic Systems segment produces a wide array of products that
provide flight performance measurements, flight management, and control and
safety data. The Company supplies a variety of high-performance sensor systems,
such as stall warning systems and systems that measure, manage and/or monitor
aircraft fuel; oil debris; engine, transmission and structural health; and
aircraft motion and control. The Company also supplies a variety of avionics
systems and other instruments, including warning and detection systems, ice
detection systems, test equipment, aircraft lighting systems, landing gear
cables and harnesses, satellite control, data management and payload systems,
launch and missile telemetry systems, airborne reconnaissance systems and laser
warning systems. In addition, the Company's optical and space systems division
designs and builds high-performance, custom-engineered electronics, optics and
electro-optical products for defense, aerospace, scientific and commercial
applications. The Company also produces directional surveying equipment for use
by companies operating in petroleum, mining and utility industries.

AERONAUTICAL SYSTEMS

Aeronautical Systems manufactures highly engineered systems and equipment in the
following product groups:

         -        Engine controls. This product group consists of engine control
                  systems and components for jet engines used on commercial and
                  military aircraft, including fuel metering controls, fuel
                  pumping systems, electronic control software and hardware,
                  variable geometry actuation controls, afterburner fuel pump
                  and metering unit nozzles, and engine health monitoring
                  systems.

         -        Flight controls. This product group includes actuators for
                  primary flight control systems that operate elevators,
                  ailerons and rudders, as well as secondary flight controls
                  systems such as flaps and slats.

         -        Power systems. This product group consists of systems that
                  produce and control electrical power for commercial and
                  military aircraft, including electric generators for both main
                  and back-up electrical power, electric starters, and electric
                  starter generating systems, as well as power management and
                  distribution systems.

         -        Cargo systems. This product group consists of fully-integrated
                  main deck and lower lobe cargo systems for wide body aircraft.

         -        Hoists and winches. This product group consists of airborne
                  hoists and winches used on both helicopters and fixed wing
                  aircraft.

         -        Actuation systems. This product group consists of systems that
                  control the movement of steering systems for missiles as well
                  as electro-mechanical systems that are characterized by high
                  power, low weight, low maintenance, resistance to extreme
                  temperatures and vibrations, and high reliability.

Segment operating income is total segment revenue reduced by operating expenses
identifiable with that business segment, except that in-process research and
development, the Aeronautical Systems inventory step-up, restructuring and
consolidation costs, and unusual inventory adjustments are presented separately.
Unusual inventory adjustments are classified within cost of sales and relate
primarily to inventory adjustments associated with reducing the Company's
investment in the Boeing 717 program and in its Super 27 re-engining program due
to reduced expectations for these programs. The reduced expectations for the
Boeing 717 program relate directly to Boeing's announced production schedule
reductions for this program during the fourth quarter of 2001, while the Super
27 reduction in expectations was primarily due to deteriorating economic
conditions and the September 11th terrorist attacks.

The accounting policies of the reportable segments are the same as those for the
consolidated Company. There are no significant intersegment sales.


                                       64




(in millions)                                                             2002                2001                 2000
- -------------                                                          ----------          ----------           ----------
                                                                                                       
SALES
Aerostructures and Aviation Technical Services..................       $  1,176.9          $  1,493.6           $  1,427.0
Landing Systems.................................................          1,038.2             1,149.1              1,057.7
Engine and Safety Systems.......................................            638.8               762.6                644.4
Electronic Systems..............................................            791.9               779.2                571.4
Aeronautical Systems............................................            264.4                  --                   --
                                                                       ----------          ----------           ----------
         TOTAL SALES............................................       $  3,910.2          $  4,184.5           $  3,700.5
                                                                       ==========          ==========           ==========
OPERATING INCOME
Aerostructures and Aviation Technical Services...................      $    169.9          $    226.0           $    209.6
Landing Systems..................................................           140.1               153.1                149.0
Engine and Safety Systems........................................            79.2               131.9                117.5
Electronic Systems...............................................           135.3               133.1                117.5
Aeronautical Systems.............................................             8.4                  --                   --
                                                                       ----------          ----------           ----------
                                                                            532.9               644.1                593.6
Corporate General and Administrative Expenses....................           (59.0)              (57.7)               (59.7)
Restructuring and Consolidation Costs............................           (41.3)             (107.3)               (44.2)
In-process research and development written off..................           (12.5)                 --                   --
Aeronautical System inventory step-up............................           (58.8)                 --                   --
Unusual Inventory Adjustments....................................              --               (94.5)                  --
                                                                       ----------          ----------           ----------
         TOTAL OPERATING INCOME..................................      $    361.3          $    384.6           $    489.7
                                                                       ==========          ==========           ==========

SPECIAL ITEMS
Aerostructures and Aviation Technical Services...................      $     11.8          $    130.3           $      3.6
Landing Systems..................................................             1.9                44.7                 25.3
Engine and Safety Systems........................................            20.3                17.7                  1.7
Electronic Systems...............................................             7.0                 6.6                  0.5
Aeronautical Systems.............................................            71.3                  --                   --
                                                                       ----------          ----------           ----------
         TOTAL SEGMENT SPECIAL ITEMS.............................      $    112.3          $    199.3           $     31.1
                                                                       ==========          ==========           ==========

ASSETS
Aerostructures and Aviation Technical Services...................      $  1,135.7          $  1,176.6           $  1,216.6
Landing Systems..................................................           891.8               949.0                935.8
Engine and Safety Systems........................................           486.2               529.7                516.6
Electronic Systems...............................................           927.5             1,013.9                843.4
Aeronautical Systems.............................................         1,785.1                  --                   --
Assets of Discontinued Operations................................              --               873.9              2,044.0
Corporate........................................................           763.3               657.3                495.9
                                                                       ----------          ----------           ----------
         TOTAL ASSETS............................................      $  5,989.6          $  5,200.4           $  6,052.3
                                                                       ==========          ==========           ==========



                                       65




(in millions)                                                                   2002              2001               2000
- -------------                                                                ---------          ---------          ---------
                                                                                                          
CAPITAL EXPENDITURES
Aerostructures and Aviation Technical Services ....................          $    28.8          $    64.9          $    38.8
Landing Systems ...................................................               34.0               62.3               42.5
Engine and Safety Systems .........................................               13.0               30.4               26.9
Electronic Systems ................................................               10.5               23.4               11.7
Aeronautical Systems ..............................................               14.2                 --                 --
Corporate .........................................................                6.8                9.5               13.9
                                                                             ---------          ---------          ---------
   TOTAL CAPITAL EXPENDITURES .....................................          $   107.3          $   190.5          $   133.8
                                                                             =========          =========          =========
DEPRECIATION AND AMORTIZATION EXPENSE
Aerostructures and Aviation Technical Services ....................          $    51.4          $    46.8          $    43.9
Landing Systems ...................................................               55.9               53.9               64.8
Engine and Safety Systems .........................................               26.8               29.2               24.5
Electronic Systems ................................................               30.3               41.7               31.5
Aeronautical Systems ..............................................               16.2                 --                 --
Corporate .........................................................                2.9                2.2                0.7
                                                                             ---------          ---------          ---------
TOTAL DEPRECIATION AND AMORTIZATION ...............................          $   183.5          $   173.8          $   165.4
                                                                             =========          =========          =========
GEOGRAPHIC AREAS
NET SALES
United States .....................................................          $ 2,473.2          $ 2,693.5          $ 1,872.7
Canada ............................................................              157.3              177.4              166.5
Europe(1) .........................................................              914.4              938.5            1,043.9
Other Foreign .....................................................              365.3              375.1              617.4
                                                                             ---------          ---------          ---------
   TOTAL ..........................................................          $ 3,910.2          $ 4,184.5          $ 3,700.5
                                                                             =========          =========          =========
PROPERTY
United States .....................................................          $   839.3          $   839.5          $   818.4
Canada ............................................................               63.0               65.9               53.0
Europe ............................................................              317.1               42.6               20.3
Other Foreign .....................................................               20.9                7.5                5.3
                                                                             ---------          ---------          ---------
   TOTAL ..........................................................          $ 1,240.3          $   955.5          $   897.0
                                                                             =========          =========          =========


(1)      In 2002, sales to customers in Great Britain and France represented 38
         percent and 33 percent, respectively, of sales to customers in Europe.
         Sales were allocated to geographic areas based on the country to which
         the product was shipped.

In 2002, 2001 and 2000, direct and indirect sales to Boeing totaled 20 percent,
23 percent and 23 percent, respectively, of consolidated sales. In 2002, 2001
and 2000, direct and indirect sales to Airbus totaled 13 percent of consolidated
sales. In 2002, 2001 and 2000, direct and indirect sales to the U.S. government
totaled 20 percent, 16 percent and 9 percent, respectively, of consolidated
sales.

Effective January 1, 2003, the Company reorganized into three business segments:
Airframe Systems, Engine Systems and Electronic Systems. The Company will begin
reporting financial results under the new segment structure beginning with the
first quarter of 2003, and will reclassify all periods based on its revised
segment reporting.


                                       66


NOTE N. SUPPLEMENTAL BALANCE SHEET INFORMATION



                                                                         CHARGED
                                                         BALANCE        TO COSTS                        WRITE-OFF      BALANCE
                                                        BEGINNING          AND                         OF DOUBTFUL      AT END
(IN MILLIONS)                                            OF YEAR         EXPENSE        OTHER            ACCOUNTS      OF YEAR
- -------------                                           ---------       --------       -------         ------------    -------
                                                                                                        
RECEIVABLE ALLOWANCE
Year ended December 31, 2002.........................    $  56.6         $  15.0       $  (5.4)(1)       $  (14.5)     $  51.7
Year ended December 31, 2001.........................       28.6            23.6           8.4 (2)           (4.0)        56.6
Year ended December 31, 2000.........................       20.1            15.6            --               (7.1)        28.6


(1)      Allowance related to Aeronautical Systems acquisition and reversal of
         allowance related to Performance Materials working capital dispute.

(2)      Allowance related to acquisitions and Performance Materials working
         capital adjustment dispute (see Note U).



(IN MILLIONS)                                                           2002                  2001
- -------------                                                       -----------             ----------
                                                                                      
PROPERTY
Land......................................................          $      89.4             $     44.1
Buildings and improvements................................                664.9                  585.0
Machinery and equipment...................................              1,412.5                1,142.5
Construction in progress..................................                 81.1                  151.6
                                                                    -----------             ----------
                                                                        2,247.9                1,923.2
Less allowances for depreciation..........................             (1,007.6)                (967.7)
                                                                    -----------             ----------
TOTAL ....................................................          $   1,240.3             $    955.5
                                                                    ===========             ==========


Property includes assets acquired under capital leases, principally buildings
and machinery and equipment, of $22.2 million and $17.4 million at December 31,
2002 and 2001, respectively. Related allowances for depreciation are $7.1
million and $6.5 million, respectively. Interest costs capitalized from
continuing operations were $0.4 million in 2002, $1.4 million in 2001 and $1.0
million in 2000.



(IN MILLIONS)                                                                        2002            2001
- -------------                                                                      --------        --------
                                                                                             
ACCRUED EXPENSES
Wages, vacations, pensions and other employment costs.........................     $  171.9        $  188.6
Postretirement benefits other than pensions...................................         36.0            35.0
Taxes other than federal and foreign income taxes.............................         21.6            23.3
Accrued environmental liabilities.............................................         16.8             9.5
Accrued interest..............................................................         37.0            31.8
Restructuring and consolidation...............................................         23.4            45.2
Other.........................................................................        270.6           173.0
                                                                                   --------        --------
TOTAL.........................................................................     $  577.3        $  506.4
                                                                                   ========        ========




(IN MILLIONS)                                                                         2002             2001
- -------------                                                                      ---------         ---------
                                                                                               
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized foreign currency translation......................................      $   (8.0)         $   (57.4)
Minimum pension liability....................................................        (380.5)             (52.7)
Accumulated gain on cash flow hedges.........................................          19.4                 --
                                                                                   ---------         ---------
TOTAL........................................................................      $  (369.1)        $  (110.1)
                                                                                   =========         =========


The minimum pension liability amounts above are net of deferred taxes of $204.9
million and $26.8 million in 2002 and 2001, respectively. The accumulated gain
on cash flow hedges above is net of deferred taxes of $9.6 million in 2002.


                                       67


FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's accounting policies with
respect to financial instruments are described in Note A.

The carrying amounts of the Company's significant balance sheet financial
instruments approximate their respective fair values at December 31, 2002 and
2001, and are presented below.



                                                                          2002                                2001
                                                             -----------------------------       ----------------------------
                                                               CARRYING            FAIR           CARRYING            FAIR
(IN MILLIONS)                                                    VALUE            VALUE             VALUE            VALUE
- -------------                                                ----------         ----------       ----------        ----------
                                                                                                       
Long-term debt...........................................    $  2,132.8         $  2,228.0       $  1,313.1        $  1,211.7
QUIPS (see Note S).......................................    $    125.4         $    125.7       $    125.0        $    128.3
PIK Notes................................................    $    141.7         $    140.2       $    168.4        $    167.0


Derivative financial instruments at December 31, 2002 and 2001 were as follows:



                                                                                 2002                           2001
                                                                        -----------------------       -----------------------
                                                                        CONTRACT/                     CONTRACT/
                                                                        NOTIONAL          FAIR         NOTIONAL          FAIR
(IN MILLIONS)                                                            AMOUNT          VALUE          AMOUNT          VALUE
- -------------                                                           --------        -------       ---------        -------
                                                                                                           
Interest rate swaps..............................................       $     --        $    --        $  200.0        $  7.3
Foreign currency forward contracts...............................          751.2           29.0        $     --            --


The Company has an outstanding contingent liability for guaranteed debt and
lease payments of $4.5 million, and for letters of credit and bank guarantees of
$43.1 million. It was not practical to obtain independent estimates of the fair
values for the contingent liability for guaranteed debt and lease payments and
for letters of credit. In the opinion of management, non-performance by the
other parties to the contingent liabilities will not have a material effect on
the Company's results of operations or financial condition.

GUARANTEES

The Company extends financial and product performance guarantees to third
parties. As of December 31, 2002 the following were outstanding:



                                                                                        MAXIMUM             CARRYING
                                                                                       POTENTIAL           AMOUNT OF
         (IN MILLIONS)                                                                  PAYMENT            LIABILITY
                                                                                       ---------           ---------
                                                                                                     
         Environmental remediation indemnification (Note V)                             No limit            $  20.8
         Financial Guarantees:
           TIDES                                                                        $  150.0            $    --
           Debt and lease payments                                                      $    4.5            $    --
           Executive loans to purchase Company stock                                    $    9.3            $    --


The Company accrues for costs associated with guarantees when it is probable
that a liability has been incurred and the amount can be reasonably estimated.
The most likely cost to be incurred is accrued based on an evaluation of
currently available facts, and where no amount within a range of estimates is
more likely, the minimum is accrued.

The Company provides service and warranty policies on its products. Liability
under service and warranty policies is based upon a review of historical
warranty and service claim experience. Adjustments are made to accruals as claim
data and historical experience warrant. In addition, the Company incurs
discretionary costs to service its products in connection with product
performance issues.


                                       68


The changes in the carrying amount of service and product warranties for the
year ended December 31, 2002, are as follows:



         (IN MILLIONS)
                                                                                                 
         Balance at December 31, 2001                                                               $   57.6
           Service and product warranty provision                                                       23.0
           Aeronautical Systems opening balance sheet provision                                          8.1
           Payments                                                                                    (19.3)
                                                                                                    --------
         Balance at December 31, 2002                                                               $   69.4
                                                                                                    ========


NOTE O.  DERIVATIVES AND HEDGING ACTIVITIES

CASH FLOW HEDGES

One of the Company's subsidiaries conducts a substantial portion of its business
in Euros but has significant sales contracts that are denominated in U.S.
dollars. In March 2002, we entered into 21 individual forward contracts that
mature on a monthly basis from April 2002 to December 2003 to exchange U.S.
dollars for Euros.

The Aeronautical Systems businesses conduct a substantial portion of their
business in Great Britain Pounds and Euros but have significant sales contracts
that are denominated in U.S. dollars. In October 2002, the Company entered into
forward contracts that mature on a monthly basis from October 2002 to April
2007, with an aggregate notional amount of $706.8 million to buy Great Britain
Pounds and an aggregate notional amount of $89.4 million to buy Euros.

The forward contracts described above are used to mitigate the potential
volatility to cash flow arising from changes in currency exchange rates. The
hedges are being accounted for as cash flow hedges. As of December 31, 2002,
forward contracts with an aggregate notional amount of $656.0 million to buy
Great Britain Pounds and an aggregate notional amount of $95.2 million to buy
Euros were still outstanding. The derivatives are recorded at fair value with
the offset reflected in accumulated other comprehensive income, net of deferred
taxes. The fair value of the hedges at December 31, 2002 was an asset of $29.0
million, of which $10.0 million is recorded in Prepaid Expenses and Other Assets
and $19.0 million is recorded in Other Assets.

The $29.0 million gross gain (before deferred taxes of $9.6 million) recorded in
accumulated other comprehensive income will be reflected in income as the
individual contracts mature, and the hedged item impacts earnings. As of
December 31, 2002, the portion of the $29.0 million gain that would be
reclassified into earnings as an increase in sales in the next 12 months is a
gain of $10.0 million.

FAIR VALUE HEDGE

In September 2002, the Company terminated its interest rate swap agreement,
prior to its maturity in 2009, on its $200.0 million, 6.6 percent senior notes
due in 2009. At termination, the Company received $29.4 million in cash,
comprised of a $2.6 million receivable representing the amount owed on the
interest rate swap from the previous settlement date and $26.8 million
representing the fair value of the interest rate swap at the time of
termination. The carrying amount of the notes was increased by $26.8 million
representing the fair value of the debt due to changes in interest rates for the
period hedged. This amount is being amortized as a reduction to interest expense
over the remaining term of the debt.


                                       69


NOTE P. SUPPLEMENTAL CASH FLOW INFORMATION

The following table sets forth non-cash financing and investing activities and
other cash flow information. Acquisitions accounted for under the purchase
method are summarized as follows:



(IN MILLIONS)                                                               2002                2001                 2000
- -------------                                                           -----------          ----------          -----------
                                                                                                        
Estimated fair value of tangible assets acquired..................      $   1,002.7          $     5.5           $     200.1
Goodwill and identifiable intangible assets acquired .............            830.1              142.1                 109.0
Cash paid.........................................................         (1,472.6)            (119.2)               (246.8)
                                                                        -----------          ----------          -----------
Liabilities assumed or created....................................      $     360.2          $    28.4           $      62.3
                                                                        ===========          =========           ===========

Interest paid (net of amount capitalized).........................      $      87.2          $   138.9           $     165.1
Income taxes paid (refunds received), net.........................      $     (46.7)         $   122.4           $     204.8


Interest and income taxes paid include amounts related to discontinued
operations.

NOTE Q. PREFERRED STOCK

There are 10,000,000 authorized shares of Series Preferred Stock -- $1 par
value. Shares of Series Preferred Stock that have been redeemed are deemed
retired and extinguished and may not be reissued. As of December 31, 2002,
2,401,673 shares of Series Preferred Stock have been redeemed, and no shares of
Series Preferred Stock were outstanding. The Board of Directors establishes and
designates the series and fixes the number of shares and the relative rights,
preferences and limitations of the respective series of the Series Preferred
Stock.

CUMULATIVE PARTICIPATING PREFERRED STOCK -- SERIES F The Company has 200,000
shares of Junior Participating Preferred Stock -- Series F -- $1 par value
authorized at December 31, 2002. Series F shares have preferential voting,
dividend and liquidation rights over the Company's common stock. At December 31,
2002, no Series F shares were issued or outstanding and 134,028 shares were
reserved for issuance.

On August 2, 1997, the Company made a dividend distribution of one Preferred
Share Purchase Right (Right) on each share of the Company's common stock. These
Rights replace previous shareholder rights which expired on August 2, 1997. Each
Right, when exercisable, entitles the registered holder thereof to purchase from
the Company one one-thousandth of a share of Series F Stock at a price of $200
per one one-thousandth of a share (subject to adjustment). The one
one-thousandth of a share is intended to be the functional equivalent of one
share of the Company's common stock.

The Rights are not exercisable or transferable apart from the common stock until
an Acquiring Person, as defined in the Rights Agreement, without the prior
consent of the Company's Board of Directors, acquires 20 percent or more of the
voting power of the Company's common stock or announces a tender offer that
would result in 20 percent ownership. The Company is entitled to redeem the
Rights at 1 cent per Right any time before a 20 percent position has been
acquired or in connection with certain transactions thereafter announced. Under
certain circumstances, including the acquisition of 20 percent of the Company's
common stock, each Right not owned by a potential Acquiring Person will entitle
its holder to purchase, at the Right's then-current exercise price, shares of
Series F Stock having a market value of twice the Right's exercise price.

Holders of the Right are entitled to buy stock of an Acquiring Person at a
similar discount if, after the acquisition of 20 percent or more of the
Company's voting power, the Company is involved in a merger or other business
combination transaction with another person in which its common shares are
changed or converted, or the Company sells 50 percent or more of its assets or
earnings power to another person. The Rights expire on August 2, 2007.


                                       70


NOTE R. COMMON STOCK

During 2002, the Company sold 14.950 million shares of common stock in a public
offering for net proceeds of $216.2 million.

During 2002, 2001 and 2000, 0.474 million; 1.850 million and 1.230 million
shares, respectively, of authorized but unissued shares of common stock were
issued under the Stock Option Plan and other employee stock-based compensation
plans.

The Company acquired 0.060 million, 2.482 million and 9.330 million shares of
treasury stock in 2002, 2001 and 2000, respectively, and reissued 0.198 million
in 2000, in connection with the Stock Option Plan and other employee stock-based
compensation plans.

As of December 31, 2002, there were 16.967 million shares of common stock
reserved for future issuance under the Stock Option Plan and other employee
stock-based compensation plans.

NOTE S. PREFERRED SECURITIES OF TRUST

On July 6, 1995, BFGoodrich Capital, a wholly owned Delaware statutory business
trust (Trust), which is consolidated by the Company, received $122.5 million,
net of the underwriting commission, from the issuance of 8.3 percent Cumulative
Quarterly Income Preferred Securities, Series A (QUIPS). The Trust invested the
proceeds in 8.3 percent Junior Subordinated Debentures, Series A, due 2025
(Junior Subordinated Debentures) issued by the Company, which represent
approximately 97 percent of the total assets of the Trust. The Company used the
proceeds from the Junior Subordinated Debentures primarily to redeem all of the
outstanding shares of the $3.50 Cumulative Convertible Preferred Stock, Series
D.

The QUIPS have a liquidation value of $25 per Preferred Security, mature in 2025
and are subject to mandatory redemption upon repayment of the Junior
Subordinated Debentures. The Company has the option at any time on or after July
6, 2000, to redeem, in whole or in part, the Junior Subordinated Debentures with
the proceeds from the issuance and sale of the Company's common stock within two
years preceding the date fixed for redemption.

The Company has unconditionally guaranteed all distributions required to be made
by the Trust, but only to the extent the Trust has funds legally available for
such distributions. The only source of funds for the Trust to make distributions
to preferred security holders is the payment by the Company of interest on the
Junior Subordinated Debentures. The Company has the right to defer such interest
payments for up to five years. If the Company defers any interest payments, the
Company may not, among other things, pay any dividends on its capital stock
until all interest in arrears is paid to the Trust.


                                       71


NOTE T. STOCK OPTION PLAN

The 2001 Stock Option Plan, which will expire on April 17, 2011, unless renewed,
provides for the awarding of or the granting of options to purchase 6,500,000
shares of common stock of the Company. Generally, options granted are
exercisable at the rate of 35 percent after one year, 70 percent after two years
and 100 percent after three years. Certain options are fully exercisable
immediately after grant. The term of each option cannot exceed 10 years from the
date of grant. All options granted under the Plan have been granted at not less
than 100 percent of fair market value on the date of grant.

The Company also has outstanding stock options under other employee stock-based
compensation plans, including the pre-merger plans of Coltec and Rohr. These
stock options are included in the disclosures below.

Pro forma information regarding net income and earnings per share is required by
FASB Statement No. 123, "Accounting for Stock-Based Compensation" (SFAS 123),
and has been determined as if the Company had accounted for its employee stock
options under the fair value method of that statement. The fair value for these
options was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions:



                                                                                     2002          2001            2000
                                                                                     ----          ----            ----
                                                                                                          
Risk-Free Interest Rate(%).............................................               3.7           5.0             5.0
Dividend Yield(%)......................................................               3.6           3.5             3.4
Volatility Factor(%)...................................................              47.4          44.2            37.5
Weighted-Average Expected Life of the Options (years)..................               7.0           7.0             7.0


The option valuation model requires the input of highly subjective assumptions,
primarily stock price volatility, changes in which can materially affect the
fair value estimate. The weighted-average fair values of stock options granted
during 2002, 2001 and 2000 were $9.50, $13.78 and $8.65, respectively.


                                       72


For purposes of the pro forma disclosures required by SFAS 123, the estimated
fair value of the options is amortized to expense over the options vesting
period. In addition, the grant-date fair value of performance shares is
amortized to expense over the three-year plan cycle without adjustments for
subsequent changes in the market price of the Company's common stock. The
Company's pro forma information is as follows:



(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                                         2002            2001             2000
- ---------------------------------------                                         ----            ----             ----
                                                                                                      
Net income:
  As reported............................................................     $  117.9        $  289.2         $  325.9
  Pro forma..............................................................        106.6           274.6            320.6
Earnings per share:
Basic:
  As reported............................................................     $   1.14        $   2.80         $   3.11
  Pro forma..............................................................         1.03            2.66             3.06
Diluted:
  As reported............................................................     $   1.14        $   2.76         $   3.04
  Pro forma..............................................................         1.03            2.62             3.00


The effects of applying SFAS 123 in this pro forma disclosure are not likely to
be representative of effects on reported net income for future years. Additional
awards in future years are anticipated.

A summary of the Company's stock option activity and related information
follows:



 (Options in Thousands)                                                                            WEIGHTED-AVERAGE
                                                                                     OPTIONS        EXERCISE PRICE
                                                                                    --------       ----------------
                                                                                             
Year Ended December 31, 2002
Outstanding at beginning of year ........................................            8,145.9           $ 33.60
  Granted - before EnPro spin-off .......................................            1,916.7             26.19
  Exercised - before EnPro spin-off .....................................             (157.7)            24.05
  Forfeited - before EnPro spin-off .....................................             (408.8)            31.44
  Adjustment to outstanding options due to EnPro spin-off(1) ............              420.5
  Exercised - after EnPro spin-off ......................................              (19.1)            26.09
  Forfeited - after EnPro spin-off ......................................             (437.0)            36.24
                                                                                    --------
Outstanding at end of year ..............................................            9,460.5             30.93
                                                                                    ========
Year Ended December 31, 2001
Outstanding at beginning of year ........................................            8,519.6           $ 31.41
  Granted ...............................................................            2,045.6             37.87
  Exercised .............................................................           (1,834.9)            28.25
  Forfeited .............................................................             (584.4)            32.55
                                                                                    --------
Outstanding at end of year ..............................................            8,145.9             33.60
                                                                                    ========
Year Ended December 31, 2000
Outstanding at beginning of year
  Granted ...............................................................            7,811.1           $ 30.10
  Exercised .............................................................            2,483.7             26.66
  Forfeited .............................................................           (1,401.6)            22.10
  Expired ...............................................................             (373.6)            32.62
                                                                                    --------
Outstanding at end of year ..............................................            8,519.6             31.41
                                                                                    ========


(1) - At the time of the EnPro spin-off, the number of options and the exercise
price per option were adjusted based on the ratio of the Company's stock price
before and after the spin-off.


                                       73


The following table summarizes information about the Company's stock options
outstanding at December 31, 2002:



                                                         OPTIONS OUTSTANDING                            OPTIONS EXERCISABLE
                                          ------------------------------------------------       ----------------------------------
                                            NUMBER                                WEIGHTED
                                          OUTSTANDING     WEIGHTED AVERAGE         AVERAGE           NUMBER             WEIGHTED
RANGE OF                                      (IN             REMAINING           EXERCISE         EXERCISABLE           AVERAGE
EXERCISE PRICES                           THOUSANDS)      CONTRACTUAL LIFE          PRICE        (IN THOUSANDS)      EXERCISE PRICE
- ---------------                           ----------      ----------------        --------       --------------      --------------
                                                                                                      
$18.40 -- $24.99......................        893.8           2.0 years           $  20.70              888.5            $  20.69
$25.10 -- $28.99......................      3,438.1           7.9 years              25.36            1,680.7               25.52
$30.12 -- $36.44......................      2,020.0           5.6 years              33.88            1,760.8               33.83
$37.01 -- $47.02......................      3,108.6           6.3 years              38.13            2,373.6               38.48
                                            -------                                                   -------
Total.................................      9,460.5                                                   6,703.6
                                            =======                                                   =======


During 2002, 2001 and 2000, restricted stock awards for 74,340, 8,150 and 12,300
shares, respectively, were made, including those made to employees of
discontinued operations. Restricted stock awards may be subject to conditions
established by the Board of Directors. Under the terms of the restricted stock
awards, the granted stock vests two years and ten months after the award date.
The cost of these awards, determined as the market value of the shares at the
date of grant, is being amortized over the vesting period. In 2002, 2001 and
2000, $0.8 million, $0.3 million and $0.3 million, respectively, was charged to
expense of continuing operations for restricted stock awards.

The 2001 Stock Option Plan also provides that shares of common stock may be
awarded as performance shares to certain key executives having a critical impact
on the long-term performance of the Company. The plan is a phantom performance
share plan. Dividends accrue on phantom shares and are reinvested in additional
phantom shares. Under this plan, compensation expense is recorded based on the
extent performance objectives are expected to be met. During 2002, 2001 and
2000, the Company issued 283,000, 318,800 and 856,800 phantom performance shares
including those made to employees of discontinued operations, respectively.
During 2002, 2001 and 2000, 10,100, 221,200 and 50,500 performance shares,
respectively, were forfeited. In 2002, 2001 and 2000, $1.9 million, $5.1 million
and $8.9 million, respectively, was charged to expense of continuing operations
for performance shares. If the provisions of SFAS 123 had been used to account
for awards of performance shares, the weighted-average grant-date fair value of
performance shares granted in 2002, 2001 and 2000 would have been $33.98, $38.62
and $23.12 per share, respectively.

In 2000, a final pro rata payout (approximately 127,000 shares) of the 1998 and
1999 awards was made in connection with the Company's adoption of new
performance measures (approximately 10,000 of these shares were not issued as
they were deferred by recipients).


                                       74


NOTE U. DISCONTINUED OPERATIONS - The disposition of the Performance Materials
and Engineered Industrial Products segments represent the disposal of segments
under APB Opinion No. 30 (APB 30). Accordingly, the revenues, costs and
expenses, assets and liabilities, and cash flows of Performance Materials and
Engineered Industrial Products have been segregated in the Consolidated
Statement of Income, Consolidated Balance Sheet and Consolidated Statement of
Cash Flows.

The following summarizes the results of discontinued operations:



         (IN MILLIONS)                                                 2002           2001               2000
                                                                     --------       --------          ----------
                                                                                             
         Sales:
           Performance Materials                                     $     --       $  187.0          $  1,167.7
           Engineered Industrial Products                               289.5          641.9               663.3
                                                                     --------       --------          ----------
                                                                     $  289.5       $  828.9          $  1,831.0
                                                                     ========       ========          ==========

         Pretax income (loss) from operations:
           Performance Materials                                     $     --       $   (3.6)         $     69.0
           Engineered Industrial Products                               (13.5)          46.1                94.4
                                                                     --------       --------          ----------
                                                                        (13.5)          42.5               163.4

         Income tax expense                                               4.9          (15.8)              (64.8)
         Distributions on trust preferred securities                     (3.3)          (7.9)               (7.9)
         Gain on sale of Performance Materials (net of
           income tax expense of $54.9 million)                            --           93.5                  --
                                                                     --------       --------          ----------
         Income from discontinued operations                         $  (11.9)      $  112.3          $     90.7
                                                                     ========       ========          ==========


PERFORMANCE MATERIALS

On February 28, 2001, the Company completed the sale of its Performance
Materials (PM) segment to an investor group led by AEA Investors, Inc. for
approximately $1.4 billion. Total net proceeds, after anticipated tax payments
and transaction costs, included approximately $1 billion in cash and $172
million in pay-in-kind (PIK) debt securities issued by the buyer, which is now
known as Noveon International Inc. (Noveon). The transaction resulted in an
after-tax gain of $93.5 million. During the second quarter 2002, a dispute over
the computation of a post-closing working capital adjustment was resolved. The
resolution of this matter did not have an effect on the previously reported
gain.

Pursuant to the terms of the transaction, the Company has retained certain
assets and liabilities, primarily pension, postretirement and environmental
liabilities, of Performance Materials. The Company has also agreed to indemnify
Noveon for liabilities arising from certain events as defined in the agreement.
Such indemnification is not expected to be material to the Company's financial
condition, but could be material to the Company's results of operations in a
given period.

SPIN-OFF OF ENGINEERED INDUSTRIAL PRODUCTS

On May 31, 2002, the Company completed the tax-free spin-off of its Engineered
Industrial Products (EIP) segment. The spin-off was made through a tax-free
distribution to the Company's shareholders of all of the capital stock of EnPro
Industries, Inc., a subsidiary that we formed in connection with the spin-off.
In the spin-off, the Company's shareholders received one share of EnPro common
stock for every five shares of the Company's common stock owned on May 28, 2002,
the record date.

At the time of the spin-off, EnPro's only material asset was all of the capital
stock and certain indebtedness of Coltec Industries Inc (Coltec). Coltec and its
subsidiaries owned substantially all of the assets and liabilities of the EIP
segment, including the associated asbestos liabilities and related insurance.

Prior to the spin-off, Coltec also owned and operated an aerospace business.
Before completing the spin-off, Coltec's aerospace business assumed all
intercompany balances outstanding between Coltec and the Company and Coltec then
transferred to the Company as a dividend all the assets, liabilities and
operations of its aerospace business, including these assumed balances.
Following this transfer and prior to the spin-off, all of the capital stock of
Coltec was contributed to EnPro, with the result that at the time of the
spin-off Coltec was a wholly-owned subsidiary of EnPro.


                                       75


In connection with the spin-off, the Company and EnPro entered into a
distribution agreement, a tax matters agreement, a transition services
agreement, an employee matters agreement and an indemnification agreement, which
govern the relationship between the Company and EnPro after the spin-off and
provide for the allocation of employee benefits, tax and other liabilities and
obligations attributable to periods prior to the spin-off.

The spin-off was recorded as a dividend and resulted in a reduction of the
Company's shareholders' equity of $409.1 million representing the recorded value
of the net assets of the business distributed, including cash of $47.0 million.
The distribution agreement provided for certain post-distribution adjustments
relating to the amount of cash to be included in the net assets distributed. At
December 31, 2002, the final adjustment had been calculated and is subject to a
dispute resolution process. The Company expects that the effect of the final
resolution of this process on the Consolidated Financial Statements will be
immaterial.

The $150 million of outstanding Coltec Capital Trust 5 1/4% convertible trust
preferred securities (TIDES) that were reflected in liabilities of discontinued
operations remained outstanding as part of the EnPro capital structure following
the spin-off. The TIDES are convertible into shares of both Goodrich and EnPro
common stock until April 15, 2028. The Company has guaranteed amounts owed by
Coltec Capital Trust with respect to the TIDES and have guaranteed Coltec's
performance of its obligations with respect to the TIDES and the underlying
Coltec convertible subordinated debentures. EnPro, Coltec and Coltec Capital
Trust have agreed to indemnify the Company from any costs and liabilities
arising under or related to the TIDES after the spin-off.

Prior to the spin-off, Coltec acquired certain call options on the Company's
common stock in order to partially hedge its exposure to fluctuations in the
market price of the Company's stock resulting from the TIDES. These call options
remained an asset of Coltec following the spin-off.

NOTE V:  CONTINGENCIES

GENERAL

There are pending or threatened against the Company 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. The Company believes that
any liability that may finally be determined with respect to commercial and
non-asbestos product liability claims should not have a material effect on its
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 is subject to various domestic and international environmental laws
and regulations which may require that it investigate and remediate the effects
of the release or disposal of materials at sites associated with past and
present operations, including sites at which the Company has been identified as
a potentially responsible party under the federal Superfund laws and comparable
state laws. The Company is currently involved in the investigation and
remediation of a number of sites under these laws.

The measurement of environmental liabilities by the Company is based on
currently available facts, present laws and regulations and current technology.
Such estimates take into consideration the Company's prior experience in site
investigation and remediation, the data concerning cleanup costs available from
other companies and regulatory authorities and the professional judgment of the
Company's environmental specialists in consultation with outside environmental
specialists, when necessary. Estimates of the Company's liability are further
subject to uncertainties regarding the nature and extent of site contamination,
the range of remediation alternatives available, evolving remediation standards,
imprecise engineering evaluations and estimates of appropriate cleanup
technology, methodology and cost, the extent of corrective actions that may be
required and the number and financial condition of other potentially responsible
parties, as well as the extent of their responsibility for the remediation.


                                       76


Accordingly, as investigation and remediation of these sites proceed, it is
likely that adjustments in the Company's accruals will be necessary to reflect
new information. The amounts of any such adjustments could have a material
adverse effect on the Company's results of operations in a given period, but the
amounts, and the possible range of loss in excess of the amounts accrued, are
not reasonably estimable. Based on currently available information, however, the
Company does not believe that future environmental costs in excess of those
accrued with respect to sites with which the Company has been identified as a
potentially responsible party are likely to have a material adverse effect on
the Company's financial condition. There can be no assurance, however, that
additional future developments, administrative actions or liabilities relating
to environmental matters will not have a material adverse effect on the
Company's results of operations or cash flows in a given period.

Environmental liabilities are recorded when the Company's liability is probable
and the costs are reasonably estimable, which generally is not later than at
completion of a feasibility study or when the Company has recommended a remedy
or have committed to an appropriate plan of action. The liabilities are reviewed
periodically and, as investigations and remediation proceed, adjustments are
made as necessary. Liabilities for losses from environmental remediation
obligations do not consider the effects of inflation, and anticipated
expenditures are not discounted to their present value. The liabilities are not
reduced by possible recoveries from insurance carriers or other third parties,
but do reflect anticipated allocations among potentially responsible parties at
federal Superfund sites or similar state-managed sites and an assessment of the
likelihood that such parties will fulfill their obligations at such sites.

At December 31, 2002, the Company's liabilities for environmental remediation
obligations totaled $92.7 million, of which $19.0 million was included in
current liabilities as Accrued Liabilities. Of the $92.7 million, $21.5 million
was associated with ongoing operations and $71.2 million was associated with
businesses previously disposed of or discontinued.

The timing of expenditures depends on a number of factors that vary by site,
including the nature and extent of contamination, the number of potentially
responsible parties, the timing of regulatory approvals, the complexity of the
investigation and remediation, and the standards for remediation. The Company
expects that it will expend present accruals over many years, and will complete
remediation of all sites with which it has been identified in up to 30 years.
This period includes operation and monitoring costs that are generally incurred
over 15 to 25 years.

TOLO LITIGATION

In May 2000, the Company and its subsidiary Rohr, Inc. were served with a
complaint in a lawsuit filed in the Superior Court of Orange County, California,
by former shareholders and certain former employees of Tolo, Inc. Tolo is a
subsidiary of Rohr that was acquired in 1997 pursuant to a stock purchase
agreement. The former shareholders alleged that the Company and Rohr breached
the stock purchase agreement by failing to pay $2.4 million under the terms of
the agreement. In September 2001, a jury found that the Company was liable to
the shareholders for the $2.4 million retained by Rohr under the stock purchase
agreement and the Company was also assessed punitive damages of $48 million. The
court subsequently reduced the punitive damage award to $24 million. The Company
and Rohr appealed the judgment.

In December 2002, the appellate court issued a ruling directing the trial court
to enter judgment in favor of the Company and Rohr on both the fraud claim and
the breach of contract claim. The plaintiffs' motion for rehearing of that
ruling was subsequently denied. On February 10, 2003, the plaintiffs filed a
petition for review with the California Supreme Court. The Company has until
March 2, 2003 to respond to the petition.


                                       77


ASBESTOS

The Company and certain of its subsidiaries have been named as defendants in
various actions by plaintiffs alleging injury or death as a result of exposure
to asbestos fibers in products, or which may have been present in the Company's
facilities. A number of these cases involve maritime claims, which have been and
are expected to continue to be administratively dismissed by the court. These
actions primarily relate to previously owned businesses. The Company believes
that it has substantial insurance coverage available to it related to any
remaining claims. As a result, the Company believes that these pending and
reasonably anticipated future actions are not likely to have a material adverse
effect on the Company's financial condition or results of operations.

DISCONTINUED OPERATIONS

At the time of the EIP spin-off, two subsidiaries of Coltec were defendants in a
significant number of personal injury claims relating to alleged
asbestos-containing products sold by those subsidiaries. It is possible that
asbestos-related claims might be asserted against the Company on the theory that
the Company has some responsibility for the asbestos-related liabilities of
EnPro, Coltec or its subsidiaries, even though the activities that led to those
claims occurred prior to the Company's ownership of any of those subsidiaries.
Also, it is possible that a claim might be asserted against the Company that
Coltec's dividend of its aerospace business to the Company prior to the spin-off
was made at a time when Coltec was insolvent or caused Coltec to become
insolvent. Such a claim could seek recovery from the Company on behalf of Coltec
of the fair market value of the dividend.

No such claims have been asserted against the Company to date. The Company
believes that it would have substantial legal defenses against any such claims.
In addition, the agreement between EnPro and the Company that was used to
effectuate the spin-off provides the Company with an indemnification from EnPro
covering, among other things, these liabilities. Any such asbestos-related
claims would likely require, as a practical matter, that Coltec's subsidiaries
were unable to satisfy their asbestos-related liabilities and that Coltec was
found to be responsible for these liabilities and was unable to meet its
financial obligations. The Company believes any such claims would be without
merit and that Coltec was solvent both before and after the dividend. If the
Company is ultimately found to be responsible for the asbestos-related
liabilities of Coltec's subsidiaries, the Company believes it would not have a
material adverse effect on its financial condition, but could have a material
adverse effect on its results of operations and cash flows in a particular
period. However, because of the uncertainty as to the number, timing and
payments related to future asbestos-related claims, there can be no assurance
that any such claims will not have a material adverse effect on the Company's
financial condition, results of operations and cash flows. If a claim related to
the dividend of Coltec's aerospace business were successful, it could have a
material adverse impact on the Company's financial condition, results of
operations and cash flows.

GUARANTEES

The Company has guaranteed amounts owed by Coltec Capital Trust with respect to
the $150 million of outstanding 5 1/4 percent convertible trust preferred
securities (TIDES) and has guaranteed Coltec's performance of its obligations
with respect to the TIDES and the underlying Coltec convertible subordinated
debentures. Following the spin-off of the EIP segment, the TIDES remained
outstanding as an obligation of Coltec Capital Trust and the Company's guarantee
with respect to the TIDES remains an obligation of the Company. EnPro, Coltec
and Coltec Capital Trust have agreed to indemnify the Company from any costs and
liabilities arising under or related to the TIDES after the spin-off.

In addition to the Company's guarantee of the TIDES, the Company has an
outstanding contingent liability for guaranteed debt and lease payments of $4.5
million and for letters of credit and bank guarantees of $43.1 million at
December 31, 2002.


                                       78


NOTE W:  SUBSEQUENT EVENT

On January 29, 2003, the Company announced that it had entered into a definitive
agreement to sell its Avionics business to L-3 Communications Corporation (L-3)
for $188 million. The transaction was approved by the boards of directors of the
Company and L-3. Subject to customary regulatory approvals, the sale is expected
to close late in the first quarter or early in the second quarter of 2003.
After-tax proceeds are expected to be approximately $134 million. Avionics
Systems will be reported as a discontinued operation beginning with the first
quarter 2003.

QUARTERLY FINANCIAL DATA (UNAUDITED)(1)



(DOLLARS IN MILLIONS,                                        2002 QUARTERS                                2001 QUARTERS
                                               --------------------------------------  -------------------------------------------
(EXCEPT PER SHARE AMOUNTS)                      FIRST     SECOND    THIRD    FOURTH      FIRST       SECOND     THIRD      FOURTH
- -------------------------                      -------   -------   -------  ---------  ---------    --------   --------  ---------
                                                                                                  
BUSINESS SEGMENT SALES:
   Aerostructures and Aviation
        Technical Services..................   $ 307.2   $ 313.1   $ 269.4  $   287.2   $  353.8    $  400.2   $  369.0   $  370.6
   Landing Systems..........................     262.8     253.9     255.7      265.8      289.6       280.1      293.1      286.3
   Engine and Safety Systems................     162.0     165.3     158.8      152.7      183.9       202.3      190.0      186.4
   Electronic Systems.......................     189.2     193.2     198.2      211.3      180.4       189.5      199.8      209.5
   Aeronautical Systems.....................        --        --        --      264.4         --          --         --         --
                                               -------   -------   -------  ---------   --------    --------   --------   --------
        TOTAL SALES.........................   $ 921.2   $ 925.5   $ 882.1  $ 1,181.4   $1,007.7    $1,072.1   $1,051.9   $1,052.8
                                               =======   =======   =======  =========   ========    ========   ========   ========
GROSS PROFIT(2).............................   $ 234.0   $ 237.1   $ 222.9  $   270.6   $  273.4    $  283.8   $  278.4   $  145.8
                                               =======   =======   =======  =========   ========    ========   ========   ========
OPERATING INCOME (LOSS):
   Aerostructures and Aviation
        Technical Services..................   $  49.3   $  48.4   $  22.4  $    49.8   $   52.5    $   63.9   $   61.5   $   48.1
   Landing Systems..........................      32.4      19.9      38.9       48.9       40.8        33.5       40.9       37.9
   Engine and Safety Systems................      16.7      24.0      20.8       17.7       29.9        39.1       35.3       27.6
   Electronic Systems.......................      28.1      32.2      35.9       39.1       31.5        32.4       29.2       40.0
   Aeronautical Systems.....................        --        --        --        8.4         --          --         --         --
   Corporate................................     (14.7)    (15.3)    (10.1)     (18.9)     (13.6)      (15.3)     (12.3)     (16.5)
   Restructuring and consolidation costs....      (7.5)    (14.6)     (7.2)     (12.0)      (5.8)       (7.6)      (1.5)     (92.4)
   In-process research and development......        --        --        --      (12.5)        --          --         --         --
   Aeronautical Systems inventory step-up...        --        --        --      (58.8)        --          --         --         --
   Unusual inventory adjustments............        --        --        --         --         --          --         --      (94.5)
                                               -------   -------   -------  ---------   --------    --------   --------   --------
TOTAL OPERATING INCOME (LOSS)...............   $ 104.3   $  94.6   $ 100.7  $    61.7   $  135.3    $  146.0   $  153.1   $  (49.8)
                                               =======   =======   =======  =========   ========    ========   ========   ========
INCOME (LOSS) FROM:
   Continuing Operations....................   $  49.6   $  58.6   $  46.0  $    11.7   $   70.2    $   75.9   $   81.9   $  (51.1)
   Discontinued Operations..................       0.8     (12.7)       --         --      102.1         7.4        6.1       (3.3)
    Cumulative Effect of Change
         in Accounting......................     (36.1)       --        --         --         --          --         --         --
                                               -------   -------   -------  ---------   --------    --------   --------   --------
NET INCOME (LOSS)...........................   $  14.3   $  45.9   $  46.0  $    11.7   $  172.3    $   83.3   $   88.0   $  (54.4)
                                               =======   =======   =======  =========   ========    ========   ========   ========
Basic Earnings (Loss) Per Share:
   Continuing Operations....................   $  0.48   $  0.57   $  0.45  $    0.11   $   0.68        0.73   $   0.79   $  (0.50)
   Discontinued Operations..................      0.01     (0.12)       --         --       1.00        0.07       0.06      (0.03)
   Cumulative Effect of Change
          in Accounting.....................     (0.35)       --        --         --        --           --         --         --
                                               -------   -------   -------  ---------   --------    --------   --------   --------
   Net income...............................   $  0.14   $  0.45   $  0.45  $    0.11   $   1.68    $   0.80   $   0.85   $  (0.53)
                                               =======   =======   =======  =========   ========    ========   ========   ========
Diluted Earnings (Loss) Per Share:
   Continuing  Operations...................   $  0.47   $  0.56   $  0.45  $    0.11   $   0.66    $   0.70   $   0.76   $  (0.50)
   Discontinued Operations..................      0.02     (0.11)       --         --       0.96        0.08       0.07      (0.03)
   Cumulative Effect of Change
          in Accounting.....................     (0.34)       --        --         --        --           --         --         --
                                               -------   -------   -------  ---------   --------    --------   --------   --------
   Net income...............................   $  0.15   $  0.45   $  0.45  $    0.11   $   1.62    $   0.78   $   0.83   $  (0.53)
                                               =======   =======   =======  =========   ========    ========   ========   ========


         (1)      The historical amounts presented above have been restated to
                  present the Company's Performance Materials and Engineered
                  Industrial Products businesses as discontinued operations.

         (2)      Gross profit represents sales less cost of sales.


                                       79


The first quarter of 2002 includes a $7.5 million pre-tax charge for
restructuring and consolidation costs.

The second quarter of 2002 includes a $14.6 million pre-tax charge for
restructuring and consolidation costs. The second quarter also includes a $2.4
million pre-tax gain in other income (expense) from the sale of a portion of the
Company's interest in a business.

The third quarter of 2002 includes a $7.2 million pre-tax charge for
restructuring and consolidation costs.

The fourth quarter of 2002 includes a $12.0 million pre-tax charge for
restructuring and consolidation costs. The fourth quarter of 2002 also includes
a $12.5 million pre-tax charge for the write-off of in-process research and
development acquired in the acquisition of Aeronautical Systems and a $58.8
million pre-tax charge related to the Aeronautical Systems inventory step-up
adjustment.

The first quarter of 2001 includes a $5.8 million pre-tax charge for
restructuring and consolidation costs. The first quarter also includes a $7.2
million pre-tax gain in other income (expense) from the sale of a portion of the
Company's interest in a business.

The second quarter of 2001 includes a $7.6 million pre-tax charge for
restructuring and consolidation costs.

The third quarter of 2001 includes a $1.5 million pre-tax charge for
restructuring and consolidation costs.

The fourth quarter of 2001 includes a $92.4 million pre-tax charge for
restructuring and consolidation costs and a $94.5 million pre-tax charge
recorded in cost of sales for unusual inventory adjustments.


                                       80


SELECTED FINANCIAL DATA(1)



(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)                 2002         2001          2000           1999            1998
- -----------------------------------------------                 ----         ----          ----           ----            ----
                                                                                                         
STATEMENT OF INCOME DATA:
Sales  ..................................................    $ 3,910.2     $4,184.5      $3,700.5       $3,646.2        $3,510.3
Operating income.........................................        361.3        384.6         489.7          274.1           440.6
Income from continuing operations........................        165.9        176.9         235.2           85.9           213.3
Net Income...............................................        117.9        289.2         325.9          169.6           353.7
BALANCE SHEET DATA:
Total assets.............................................    $ 5,989.6     $5,200.4      $6,052.3       $5,468.4        $5,223.5
Total debt...............................................      2,512.1      1,426.4       2,236.2        1,741.9         1,704.2
Mandatorily redeemable preferred securities of trust.....        125.4        125.0         124.5          124.0           123.6
Total shareholders' equity...............................        932.9      1,361.4       1,228.5        1,295.6         1,238.9
OTHER FINANCIAL DATA:
Segment operating income.................................    $   420.6     $  444.8      $  562.5       $  529.5        $  495.0
Segment operating income(3)..............................        532.9        644.1         593.6          561.7           505.5
EBITDA(2),(3)............................................        632.3        734.7         668.7          631.6           557.7
Operating cash flow......................................        539.2        382.6         168.2          210.5           341.7
Investing cash flow......................................     (1,509.0)      (288.8)       (349.4)        (166.5)         (208.8)
Financing cash flow......................................      1,163.6       (936.3)         80.6          (72.2)          199.1
Capital expenditures.....................................        107.3        190.5         133.8          144.7           163.0
Depreciation.............................................        135.6        108.5         111.9           96.3            90.2
Dividends................................................         96.9        113.7         117.6           91.6            75.7
Distributions on trust preferred securities..............         10.5         10.5          10.5           10.5            10.5
PER SHARE OF COMMON STOCK:
Income from continuing operations, diluted...............    $    1.57     $   1.65      $   2.16       $   0.76        $   1.87
Diluted EPS, excluding special items(3)..................         2.31         2.87          2.43           2.23            1.93
Dividends declared.......................................         0.88         1.10          1.10           1.10            1.10
Book value...............................................         7.97        13.39         12.00          11.74           11.28
RATIOS:
Segment operating income as a percent of sales(%)(3).....         13.6         15.4          16.0           15.4            14.4
Debt-to-capitalization ratio(4)(%).......................         68.7         47.2          61.4           54.0            54.7
Effective income tax rate(%).............................         34.6         33.5          33.1           47.9            35.1
OTHER DATA:
Common shares outstanding at end of year (millions)......        117.1        101.7         102.3          110.2           109.7
Number of employees at end of year(5)....................       22,900       24,000        26,300         27,000          27,200


(1)      Except as otherwise indicated, the historical amounts presented above
         have been restated to present the Company's Performance Materials and
         Engineered Industrial Products businesses as discontinued operations.

(2)      "EBITDA" as used herein means income from continuing operations before
         distributions on trust preferred securities, income tax expense, net
         interest expense, depreciation and amortization and special items. The
         Company believes EBITDA provides meaningful additional information on
         the Company's operating results and on the Company's ability to service
         its long-term debt and other fixed obligations and to fund its
         continued growth. EBITDA should not be construed as an alternative to
         operating income (loss) as determined in accordance with generally
         accepted accounting principles in the United States ("GAAP"), as an
         alternative to cash flow from operating activities (as determined in
         accordance with GAAP), or as a measure of liquidity. Because EBITDA is
         not calculated in the same manner by all companies, the Company's
         presentation may not be comparable to other similarly titled measures
         reported by other companies.


                                       81


(3)      Excludes special items, as follows (in millions, except per share
         amounts):



                                          2002               2001               2000                1999              1998
                                   -----------------   -----------------   ----------------   -----------------   ---------------
                                               PER                 PER                PER                 PER               PER
                                    AFTER    DILUTED    AFTER    DILUTED    AFTER   DILUTED    AFTER    DILUTED   AFTER   DILUTED
                                     TAX      SHARE      TAX      SHARE      TAX     SHARE      TAX      SHARE     TAX     SHARE
                                   -------   -------   -------   -------   ------   -------   -------   -------   -----   -------
                                                                                            
Restructuring and
  consolidation
  costs                            $(27.7)    $(0.26)   $(71.3)   $(0.67)  $(28.6)   $(0.26)  $(170.4)   $(1.49)  $(6.5)   $(0.06)
Gain from sale of
  interest in a business              1.6       0.02       4.7      0.04       --        --       2.4      0.02      --        --
In-process research and
  development                       (12.5)     (0.12)       --        --       --        --        --        --      --        --
Aeronautical Systems
  inventory step-up                 (39.5)     (0.38)       --        --       --        --        --        --      --        --
Unusual inventory adjustments          --         --     (62.8)    (0.59)      --        --        --        --      --        --
Impairment charge on
  business held for sale
                                       --         --        --        --     (1.7)    (0.01)       --        --      --        --
                                   -------    ------   -------    ------   ------    ------   -------    ------   -----    ------
                                   $(78.1)    $(0.74)  $(129.4)   $(1.22)  $(30.3)   $(0.27)  $(168.0)   $(1.47)  $(6.5)   $(0.06)
                                   =======    ======   =======    ======   ======    ======   =======    ======   =====    ======


         The Company believes excluding special items provides meaningful
         additional information on the Company's operating results. Amounts
         adjusted to exclude special items should not be construed as an
         alternative to amounts determined in accordance with GAAP. Because
         amounts adjusted to exclude special items are not calculated in the
         same manner by all companies, the Company's presentation may not be
         comparable to other similarly titled amounts reported by other
         companies.

(4)      Trust preferred securities are treated as capital in calculating the
         debt-to-capitalization ratio.

(5)      Includes employees of the Company's Performance Materials and
         Engineered Industrial Products segments, rounded to the nearest
         hundred.


                                       82

EX-21

                                                                      EXHIBIT 21



                                                                        Jurisdiction of             Percent owned
                                                                         Organization                by Goodrich
                                                                        ---------------             -------------
                                                                                              
Goodrich Corporation (Registrant;
  there are no parents of the registrant)                               New York
   Air-Science Engineering, Inc.                                        Arizona                        100.00
   Delfzijl Resin C.V.                                                  The Netherlands                 99.00
   First Charter Insurance Company                                      Vermont                        100.00
   FMQ Sales and Services Inc.                                          Delaware                       100.00
   Freedom Textile Chemical Company (South Carolina), Inc.              Delaware                       100.00
   GKS, Inc.                                                            Delaware                       100.00
     HEJ Holding, Inc.                                                  Delaware                        39.70
   Goodrich Aerospace Services Private Limited                          India                          100.00
   Goodrich Asia-Pacific, Limited                                       Hong Kong                       51.00
   Goodrich Aerospace Component
     Overhaul & Repair, Inc.                                            Delaware                       100.00
   Goodrich Aviation Technical Services, Inc.                           Washington                     100.00
   Goodrich Aerospace Pte. Ltd.                                         Singapore                      100.00
   Goodrich Aerospace Pty. Limited                                      Australia                      100.00
   Goodrich Avionics Systems, Inc.                                      Delaware                       100.00
   Goodrich Control Systems, Inc.                                       Delaware                       100.00
     Goodrich Controls Holding Limited                                  United Kingdom                 100.00
       Goodrich Actuation Systems Limited                               United Kingdom                 100.00
       Goodrich Control Systems Limited                                 United Kingdom                 100.00
       Goodrich Pension Trustees Limited                                United Kingdom                 100.00
   Goodrich Finance LLC                                                 Delaware                       100.00
   Goodrich FlightSystems, Inc.                                         Ohio                           100.00
   Goodrich Holding Corporation                                         Delaware                       100.00
   Goodrich Japan, Ltd.                                                 Japan                          100.00
   Goodrich Lighting Systems, Inc.                                      Florida                        100.00
   Goodrich Lighting Systems Europe, Inc.                               Delaware                       100.00
     Goodrich Lighting GmbH & Co. KG                                    Germany                        100.00
       Goodrich Hella Aero Lighting Systems Holding GmbH                Germany                         95.00
         Goodrich Hella Aero Lighting Systems GmbH                      Germany                        100.00
           Hella Aerospace Holding, Inc. (LLC)                          Delaware                       100.00
               Hella Aerospace, LLC                                     Delaware                        60.00
       Goodrich Liegenschaften GmbH                                     Germany                        100.00
     Goodrich Verwaltungs GmbH                                          Germany                        100.00
   Goodrich Performance Materials (Singapore) Pte Ltd                   Singapore                      100.00
   Goodrich Pump & Engine Control Systems, Inc.                         Delaware                       100.00
     AMI Industries, Inc.                                               Colorado                       100.00
        AMI Industries FSC, Inc.                                        Virgin Islands                 100.00
       Walbar Inc.                                                      Delaware                       100.00
     CII Holdings Inc                                                   Delaware                       100.00
        Goodrich Canada Inc                                             Delaware                       100.00
          Goodrich Aerospace Canada Ltd                                 Canada                         100.00
            Goodrich Krosno Ltd                                         Poland                         100.00
     Delavan Inc                                                        Delaware                       100.00
     Delavan Spray, LLC                                                 Delaware                       100.00



                                      -29-




                                                                                                   Percent owned
                                                                     State of Incorporation         by Goodrich
                                                                     ----------------------        -------------
                                                                                             
     Goodrich (Great Britain) Limited                                   United Kingdom                 100.00
        Delavan Limited                                                 United Kingdom                 100.00
           Delavan European Marketing Company Limited                   United Kingdom                 100.00
     Goodrich Holdings Inc                                              Delaware                       100.00
     Goodrich Landing Gear, LLC                                         Delaware                       100.00
     GPEC International Corporation                                     Barbados                       100.00
     Menasco Aerosystems, Inc.                                          Delaware                       100.00
   HEJ Holding, Inc.                                                    Delaware                        42.40
     Goodrich TMM Luxembourg B.V.                                       The Netherlands                100.00
        Goodrich XCH Luxembourg B.V.                                    The Netherlands                100.00
         Goodrich Luxembourg SARL                                       Luxembourg                     100.00
           Global Goodrich Control Systems Holding Limited              Mauritius                      100.00
              Goodrich Control Systems Pte. Ltd.                        Singapore                      100.00
              PT TRW Aeronautical Systems                               Indonesia                       51.00
              TRW TAECO Aeronautical Systems (Xiamen)                   China                           65.00
           Goodrich Control Systems Ltd.                                Canada                         100.00
           Goodrich Holding S.A.S.                                      France                         100.00
                Goodrich Actuation Systems S.A.S.                       France                         100.00
                Goodrich Aerospace Europe S.A.S.                        France                         100.00
                Goodrich Aerospace Services S.A.S.                      France                         100.00
                  Rosemount Aerospace S.A.R.L.                          France                         100.00
           Goodrich Capital                                             Gibraltar                      100.00
           Goodrich Control Systems Pty. Ltd.                           Australia                      100.00
           Goodrich Ltd.                                                United Kingdom                 100.00
                Goodrich Holding UK Limited                             United Kingdom                 100.00
                  A-Chem (U.K.) Limited                                 United Kingdom                 100.00
                  Goodrich Aerospace UK Limited                         United Kingdom                 100.00
                  Goodrich Landing Systems Services Limited             United Kingdom                 100.00
                  Rohr Aero Services Limited                            United Kingdom                 100.00
                  Rosemount Aerospace Limited                           United Kingdom                 100.00
                    Rosemount Aerospace Properties Limited              United Kingdom                 100.00
                  Simmonds Precision Limited                            United Kingdom                 100.00
           Goodrich Holding GmbH                                        Germany                        100.00
                Goodrich Control Systems GmbH                           Germany                        100.00
                Rosemount Aerospace GmbH                                Germany                        100.00
   Inrich Corporation                                                   New York                       100.00
   International Goodrich Technology Corporation                        Delaware                       100.00
       Goodrich FSC, Inc.                                               Barbados                       100.00
   Ithaco Space Systems Inc.                                            Delaware                       100.00
   JcAir, Inc.                                                          Kansas                         100.00
   JMSI Corporation                                                     Delaware                       100.00
     Delfzijl Resin C.V.                                                The Netherlands                  1.00
     ALA Corporation                                                    Delaware                       100.00
     CMK Corporation                                                    Delaware                       100.00
   Kalama Specialty Chemicals, Inc.                                     Washington                     100.00
   Kinsman Road Realty Corporation                                      Ohio                           100.00



                                      -30-




                                                                                                   Percent owned
                                                                     State of Incorporation         by Goodrich
                                                                     ----------------------        -------------
                                                                                             
   Rohr, Inc.                                                           Delaware                       100.00
     Goodrich Aerospace Europe, Inc.                                    Delaware                       100.00
       Goodrich Aerospace Europe GmbH                                   Germany                        100.00
       HEJ Holding, Inc.                                                Delaware                        17.90
     RE Components Inc.                                                 Delaware                       100.00
     Rohr Aero Services-Asia Pte. Ltd.                                  Singapore                       60.00
     Rohr Finance Corporation                                           Delaware                       100.00
     Rohr Foreign Sales Corporation                                     Guam                           100.00
     Rohr, Inc.                                                         Maine                          100.00
     Rohr International Sales Corporation                               Delaware                       100.00
     Rohr International Service Corporation                             Delaware                       100.00
     Rohr Industries, Inc.                                              Kentucky                       100.00
     Rohr Southern Industries, Inc.                                     Delaware                       100.00
     Tolo Incorporated                                                  California                     100.00
   Rohr Aero Services, Inc.                                             Delaware                       100.00
       Rohr Aero Services Europe                                        France                          99.998
   Rosemount Aerospace Inc.                                             Delaware                       100.00
   Safeway Products Inc.                                                Connecticut                    100.00
   Siltown Realty, Inc.                                                 Alabama                        100.00
   Simmonds Precision Products, Inc.                                    New York                       100.00
     Simmonds Precision Engine Systems, Inc.                            New York                       100.00
     Simmonds Precision Motion Controls, Inc.                           New Jersey                     100.00
   TSA Holdings Inc.                                                    Delaware                       100.00
     TSA-rina Holding B.V.                                              The Netherlands                100.00
       Prosytec S.A.                                                    France                         100.00
         Prosytec Italia S.R.L.                                         Italy                          100.00
   Universal Propulsion Company, Inc.                                   Delaware                       100.00
     Advanced Egress Systems, Inc.                                      Delaware                       100.00
     AESI/ZVEZDA                                                        Delaware                       100.00
   BFGoodrich Capital                                                   Statutory trust in Delaware    100.00


The Registrant also owns 50% of Goodrich - Messier, Inc., incorporated in
Delaware; 50% of Messier - Goodrich S.A., organized under the laws of France;
50% of Telenor S.A., organized under the laws of France; 3.8% of Cordiem, Inc.,
incorporated in Delaware; and a 3.8% ownership interest in Cordiem, LLC,
organized under the laws of Delaware.

First Charter Insurance Company owns 4.35% of Tortuga Casualty Co., organized
under the laws of the Cayman Islands, and 5.56% of United Insurance Company,
organized under the laws of the Cayman Islands.


                                      -31-

EX-23.A

                                                                 Exhibit 23(A)

               CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS


We consent to the incorporation by reference in this Annual Report (Form
10-K) of Goodrich Corporation of our report dated February 4, 2003, included
in the 2002 Annual Report to Shareholders of Goodrich Corporation.

We also consent to the incorporation by reference of our report dated
February 4, 2003, with respect to the consolidated financial statements
incorporated herein by reference, in the following Registration Statements and
in the related Prospectuses:


Registration
  Number         Description of Registration Statement        Filing Date
- ------------     -------------------------------------        -----------

  33-20421       The B.F.Goodrich Company Key Employees'      March 1, 1988
                 Stock Option Plan - Form S-8

  2-88940        The B.F.Goodrich Company Retirement Plus     April 28, 1989
                 Savings Plan - Post-Effective Amendment
                 No. 2 to Form S-8

  33-49052       The B.F.Goodrich Company Key Employees'      June 26, 1992
                 Stock Option Plan - Form S-8

  33-59580       The B.F.Goodrich Company Retirement          March 15, 1993
                 Plus Savings Plan for Wage Employees
                 - Form S-8

  333-03293      The B.F.Goodrich Company Stock Option        May 8, 1996
                 Plan - Form S-8

  333-19697      The B.F.Goodrich Company Savings Benefit     January 13, 1997
                 Restoration Plan - Form S-8

  333-53877      Pretax Savings Plan for the Salaried         May 29, 1998
                 Employees of Rohr, Inc. (Restated 1994)
                 and Rohr, Inc. Savings Plan for Employees
                 Covered by Collective Bargaining Agreements
                 (Restated 1994) - Form S-8

  333-53879      Directors' Deferred Compensation Plan -      May 29, 1998
                 Form S-8

  333-53881      Rohr, Inc. 1982 Stock Option Plan,           May 29, 1998
                 Rohr, Inc. 1989 Stock Incentive Plan and
                 Rohr, Inc. 1995 Stock Incentive Plan -
                 Form S-8

  333-76297      Coltec Industries Inc. 1992 Stock Option     April 14, 1999
                 Plan
                 Coltec Industries Inc. 1994 Stock Option
                 Plan for Outside Directors - Form S-8

  333-77023      The B.F.Goodrich Company Stock Option        April 26, 1999
                 Plan - Form S-8

  333-60210      The B.F. Goodrich Company Stock Option       May 4, 2001
                 Plan - Form S-8

  333-60208      The B.F. Goodrich Company Employee Stock     May 4, 2001
                 Purchase Plan - Form S-8



  333-98165      Shelf Registration for Debt Securities,      August 15, 2002
                 Series Preferred Stock, Common Stock,
                 Stock Purchase Contracts and Stock
                 Purchase Units - Form S-3



                                                      /s/ Ernst & Young LLP



Charlotte, North Carolina
February 19, 2003

EX-99.A

                                                                   EXHIBIT 99(A)

                              GOODRICH CORPORATION
                              Four Coliseum Centre
                              2730 West Tyvola Road
                         Charlotte, North Carolina 28217

                                February 21, 2003

Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, N.W.
Washington, D.C.  20549

                  Re:      Certification Pursuant to Section 906 of the
                           Sarbanes-Oxley Act of 2002

Ladies and Gentlemen:

                  Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, in connection with the filing of
the Annual Report on Form 10-K of Goodrich Corporation (the "Company") for the
year ended December 31, 2002, as filed with the Securities and Exchange
Commission on the date hereof (the "Report"), each of the undersigned officers
of the Company certifies, that, to such officer's knowledge:

         (1)      The Report fully complies with the requirements of Section
                  13(a) or 15(d) of the Securities Exchange Act of 1934; and

         (2)      The information contained in the Report fairly presents, in
                  all material respects, the financial condition and results of
                  operations of the Company as of the dates and for the periods
                  expressed in the Report.


                                   /s/ DAVID L. BURNER
                                   --------------------------------------------
                                   Name:   David L. Burner
                                   Title:  Chairman and Chief Executive Officer



                                   /s/ ULRICH SCMIDT
                                   --------------------------------------------
                                   Name:   Ulrich Schmidt
                                   Title:  Executive Vice President and
                                           Chief Financial Officer


- -32-