-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, UR8HYRWQUKk7SSoY7wZ0M5aaSh8wuEIy69Vw8q0DVDXv6f+iQMy1RChhzvQxYGiS 47m/oo6Cr/6Mq5OUjMo3lA== 0000950152-96-000620.txt : 19960227 0000950152-96-000620.hdr.sgml : 19960227 ACCESSION NUMBER: 0000950152-96-000620 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960223 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GOODRICH B F CO CENTRAL INDEX KEY: 0000042542 STANDARD INDUSTRIAL CLASSIFICATION: PLASTICS, MATERIALS, SYNTH RESINS & NONVULCAN ELASTOMERS [2821] IRS NUMBER: 340252680 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-00892 FILM NUMBER: 96524892 BUSINESS ADDRESS: STREET 1: 3925 EMBASSY PKWY CITY: AKRON STATE: OH ZIP: 44333 BUSINESS PHONE: 2163743985 MAIL ADDRESS: STREET 1: 3925 EMBASSY PKWY CITY: AKRON STATE: OH ZIP: 44333 10-K 1 BF GOODRICH 1 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 (FEE REQUIRED) For the fiscal year ended December 31, 1995. OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _________________ to ____________________ Commission file number 1-892 THE B.F.GOODRICH COMPANY (Exact name of registrant as specified in its charter) New York 34-0252680 (State of incorporation) (I.R.S. Employer Identification No.) 3925 Embassy Parkway Akron, Ohio 44333-1799 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (216) 374-2000 SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of Each Exchange on Title of Each Class Which Registered ------------------- ----------------------------- Common Stock, $5 par value New York Stock Exchange 9 5/8% Notes, maturing in 2001 7% Subordinated Debentures, maturing to 1997 New York Stock Exchange 8.30% Cumulative Quarterly Income Preferred Securities, Series A* New York Stock Exchange - ---------------
* Issued by BFGoodrich Capital and the payments of trust distributions and payments on liquidation or redemption are guaranteed under certain circumstances by The B.F.Goodrich Company. The B.F.Goodrich Company is the owner of 100% of the common securities issued by BFGoodrich Capital, a Delaware statutory business trust. SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes X No --------- --------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K. [ ] The aggregate market value of the voting stock, consisting solely of common stock, held by nonaffiliates of the registrant as of February 5, 1996 was $1,952.9 million ($74.125 per share). On such date, 26,345,956 of such shares were outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Report to Shareholders are incorporated by reference into Parts I, II and IV. Portions of the proxy statement dated February 29, 1996 are incorporated by reference into Part III. 2 PART I ------ ITEM 1. BUSINESS - ------------------ GENERAL DEVELOPMENT OF BUSINESS The B.F.Goodrich Company ("BFGoodrich" or the "Company") manufactures and supplies a wide variety of systems and component parts for the aerospace industry and provides maintenance, repair and overhaul services on commercial, regional and general aviation aircraft. The Company also manufactures specialty plastics, specialty additives and sealants, coatings and adhesives products for a variety of end-user applications. In addition, the Company produces chlor-alkali and olefins products. A further description of the Company's business is provided below. BFGoodrich, with 1995 sales of $2.4 billion, is organized into two principal business segments: BFGoodrich Aerospace ("Aerospace") and BFGoodrich Specialty Chemicals ("Specialty Chemicals"). The chlor-alkali and olefins operation, principally a commodities business, is reported as "Other Operations." The Company maintains patent and technical assistance agreements, licenses and trademarks on its products, process technologies and expertise in most of the countries in which it operates. The Company conducts its business through numerous business groups of BFGoodrich and over 63 wholly- and majority-owned subsidiaries worldwide. The principal executive offices of BFGoodrich are located in Bath Township, Summit County, Ohio with a mailing address at 3925 Embassy Parkway, Akron, Ohio 44333-1799 (telephone (216) 374-2000). The Company was incorporated under the laws of the State of New York on May 2, 1912 as the successor to a business founded in 1870. During 1995, the Company acquired four small aerospace businesses and two small specialty chemical businesses for an aggregate price of $15.4 million. Operations of these businesses are included in the Company's results from the dates of acquisition. In 1995, the Company sold Arrowhead Industrial Water, Inc., which represented substantially all of the Water Systems and Services Group. The adjusted selling price of $84.3 million resulted in a pretax gain of $3.6 million. During 1994, the Company acquired two small specialty chemical businesses which manufacture coatings and products for the textile industry. Operations of these businesses are included in the Specialty Chemicals business segment since the dates of acquisition. In 1993, the Company acquired certain assets and assumed certain liabilities of eight businesses and acquired the minority interest in a previously majority-owned subsidiary, for approximately - 2 - 3 $528.5 million. Acquisitions of Aerospace businesses amounted to approximately $504.8 million. These acquisitions included the Cleveland Pneumatic Company Division and Cleveland Pneumatic Product Service Division (collectively referred to as "Cleveland Pneumatic") for approximately $193.4 million from Pneumo Abex Corporation, a wholly-owned subsidiary of Abex Inc. and the aerospace business ("Rosemount Aerospace") of Rosemount Inc., a wholly-owned subsidiary of Emerson Electric Company for approximately $301.1 million. Cleveland Pneumatic designs, develops and manufactures landing gear for commercial and military aircraft and also provides overhaul service for commercial aircraft landing gear. Principal manufacturing facilities are located in Cleveland, Ohio and Tullahoma, Tennessee. Rosemount Aerospace designs and manufactures aerospace sensors and related equipment in facilities located in Burnsville and Eagan, Minnesota. The other Aerospace acquisitions, which were, in the aggregate, not significant, include a specialty heating and avionics power business and a manufacturer of automated test equipment for aircraft. The three Specialty Chemicals businesses acquired in 1993 included a water management business (which was subsequently included in and sold along with Arrowhead Industrial Water, Inc.), a manufacturer of urethane polymer resins and a small reaction-injection-molding business. These acquisitions in the aggregate were not significant. In December 1993, the Company disposed of its remaining investment in The Geon Company. The Geon Company ("Geon") was formed in early 1993 from the business (other than the chlor-alkali, ethylene and utilities operations primarily located at Calvert City, Kentucky) that was previously included in the former Geon Vinyl Division of BFGoodrich. The disposition of Geon through public offerings of stock generated net cash proceeds of $470.4 million and a financial gain of $110.9 million after tax. Prior to the sale of Geon, the Company received a special distribution of $160.0 million from Geon. Net assets of Geon, including equity in earnings of the business to the dates of disposition, were approximately $247.0 million. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS In 1995, 1994 and 1993 sales to U.S. government departments and agencies, principally in the Aerospace business segment, totaled approximately 8 percent, 10 percent and 10 percent, respectively, of consolidated sales. For financial information concerning the Company's sales, operating income, identifiable assets, property additions, depreciation and amortization and geographic information, see Note H of the Notes to Consolidated Financial Statements appearing beginning on page 34 of the Company's 1995 Annual Report to Shareholders, which is incorporated herein by reference. - 3 - 4 NARRATIVE DESCRIPTION OF BUSINESS Aerospace - --------- The Company's Aerospace business is conducted through four major business groups. Landing Systems Group manufactures aircraft landing gear; aircraft wheels and brakes; and high-temperature composites for commercial, military, regional and business aviation customers, and for aircraft engine and space programs. Sensors and Integrated Systems Group manufactures sensors and sensor-based systems; fuel measurement and management systems; engine electrical and ignition system components; electromechanical actuators; aircraft windshield wiper systems; health and usage management systems and electronic test equipment for commercial, military, regional and business aviation customers, and space programs. Safety Systems Group manufactures aircraft evacuation slides and rafts; ice protection systems; specialty heated products; collision warning systems; weather detection systems; standby attitude indicators; airport and aircraft lighting components; and polymer and composite products for commercial, military, regional, business and general aviation customers. Maintenance, Repair and Overhaul Group ("MRO") provides maintenance, repair and overhaul of commercial airframes, components, wheels and brakes, landing gear, instruments and avionics for commercial, regional, business and general aviation customers. The Company is among the largest suppliers of aircraft systems and components and aircraft maintenance repair and overhaul service businesses in the world. It competes with other aerospace industry manufacturers to supply parts and provide service on specific fleets of aircraft, frequently on a program-by-program bid basis. Competition is primarily based on product performance, service capability and price. Contracts to supply systems and components and provide service are generally with aircraft manufacturers, airlines and airfreight businesses worldwide. The Company also competes on U.S. government contracts, generally as a subcontractor. Competition is principally based on product performance and price. Specialty Chemicals - ------------------- The Company's Specialty Chemicals business is conducted through three major business groups. Specialty Plastics Group manufactures thermoplastic polyurethane and alloys; high-heat-resistant and low-combustibility plastics; static-dissipating polymers; and reaction-injection molding resins. Products are marketed and sold to manufacturers for film and sheet applications; wire and cable jacketing; and magnetic media. Specialty plastics are also used in the manufacture of automotive products; recreational vehicles and products; agricultural equipment; industrial equipment; plumbing and industrial pipe; fire sprinkler systems and building material components. Specialty Additives Group manufactures synthetic thickeners and emulsifiers; controlled release and suspension agents; polymer emulsions; rubber and lubricant additives and plastic and adhesive - 4 - 5 modifiers. These products are used by manufacturers of personal-care products; pharmaceuticals; liquid soaps and detergents; water treatment products; electronics; tires and petroleum products and molded plastics. Specialty additives are also used in textile printing manufacturing; non-woven manufacturing; paper coating and saturation; graphic arts; and paints and industrial coatings. Sealants, Coatings and Adhesives Group manufactures insulating glass sealants; construction sealants and water proofing coatings; commercial glazing products and roofing products. This Group also manufactures automotive sealants; adhesives and paint products; structural adhesives; laminating adhesives and rust paints and primers. Products are sold to manufacturers of windows; the construction and building maintenance industry and automotive and aircraft assembly industries. Other products are sold in the automotive repair and residential maintenance markets. The Company competes with other major chemical manufacturers. Products are sold primarily based on product performance. Frequently, products are manufactured or formulated to order for specific customer applications and often involve considerable technical assistance from the Company. Other Operations - ---------------- Other Operations consist of the chlor-alkali and olefins operations located at Calvert City, Kentucky. The chlor-alkali and olefins business participates in a highly cyclical chlorine, caustic soda, ethylene and olefin co-product commodity market. Sales and operating results are largely dependent on industry supply and demand. The Company believes it does not have a significant market share and, as a result, products produced by this business are sold at established market prices. BACKLOGS At December 31, 1995, the Company had a backlog of approximately $980 million, principally related to the Aerospace business segment, of which approximately 60 percent is expected to be filled during 1996. The amount of backlog at December 31, 1994 was approximately $850 million. Backlogs in the Aerospace business are subject to delivery delays or program cancellations, which are beyond the Company's control. RAW MATERIALS Raw materials used in the manufacture of Aerospace products, including steel and carbon, are available from a number of manufacturers and are generally in adequate supply. Availability of all major monomers and chemicals used in the Specialty Chemicals business is anticipated to be adequate for 1996. While chemical feedstocks are currently in adequate supply, in past years, from time-to-time for limited periods, various chemical feedstocks were in short supply. However, the effect of any future shortages on the Company's operations will depend upon the duration of any such shortages and possibly on future U.S. government policy, which cannot be determined at this time. - 5 - 6 ENVIRONMENTAL Federal, state and local statutes and regulations relating to the protection of the environment and the health and safety of employees and other individuals have resulted in higher operating costs and capital investments by the industries in which the Company operates. Because of the continuing trend toward greater environmental awareness and increasingly stringent environmental regulations, the Company believes that expenditures for compliance with environmental, health and safety regulations will continue to have a significant impact on the conduct of its business. Although it cannot predict accurately how these developments will affect future operations and earnings, the Company does not believe these costs will vary significantly from those of its competitors. For additional information concerning environmental matters, see Note P of the Notes to Consolidated Financial Statements appearing on page 40 of the Company's 1995 Annual Report to Shareholders, which is incorporated herein by reference. RESEARCH AND DEVELOPMENT The Company conducts research and development under Company-funded programs for commercial products and under contracts with others. Research and development expense amounted to $130.9 million in 1995, which includes amounts funded by customers. For additional information concerning research and development expense, see Note I of the Notes to Consolidated Financial Statements appearing on page 36 of the Company's 1995 Annual Report to Shareholders, which is incorporated herein by reference. PATENTS AND LICENSES The Company has many patents of its own and has acquired licenses under patents of others. While such patents in the aggregate are important to the Company, neither the primary business of the Company nor any of its industry segments is dependent on any single patent or group of related patents. The Company uses a number of trademarks important either to its business as a whole or to its industry segments considered separately. The Company believes that these trademarks are adequately protected. HUMAN RESOURCES As of December 31, 1995, the Company had 12,287 employees in the United States and Canada. An additional 988 people were employed overseas. Approximately 6,900 employees were hourly paid. The Company believes it has good relationships with its employees. The hourly employees who are unionized are covered by collective bargaining agreements with a number of labor unions and with varying contract termination dates ranging from May 1996 to September 1999. There were no material work stoppages during 1995. - 6 - 7 FOREIGN OPERATIONS The Company is engaged in business in foreign markets. Manufacturing and service facilities for Aerospace and Specialty Chemicals are located in Australia, Belgium, Canada, England, France, Hong Kong, The Netherlands, Singapore and Sweden. A plant in Korea manufactures specialty chemicals for BFGoodrich. The Company also markets its products and services through sales subsidiaries and distributors in a number of foreign countries. The Company also has technical fee and patent royalty agreements with various foreign companies. Outside North America, no single foreign geographic area is currently significant, although the Company is expanding its business in Europe. Currency fluctuations, tariffs and similar import limitations, price controls and labor regulations can affect the Company's foreign operations, including foreign affiliates. Other potential limitations on the Company's foreign operations include expropriation, nationalization, restrictions on foreign investments or their transfers, and additional political and economic risks. In addition, the transfer of funds from foreign operations could be impaired by the unavailability of dollar exchange or other restrictive regulations that foreign governments could enact. The Company does not believe that such restrictions or regulations have a materially adverse effect on its business, in the aggregate. For additional financial information about foreign and domestic operations and export sales, see Note H of the Notes to Consolidated Financial Statements appearing beginning on page 34 of the Company's 1995 Annual Report to Shareholders, which is incorporated herein by reference. - 7 - 8 ITEM 2. PROPERTIES - -------------------- The manufacturing and service operations of the Company are carried on at facilities, all of which are owned, unless otherwise indicated, at the following locations: Aerospace Specialty Chemicals - --------- ------------------- Amelot, France* Akron, Ohio Austin, Texas* Apeldoorn, The Netherlands Basingstoke, England* Ashland, Ohio Bedford, Massachusetts Avon Lake, Ohio Burnsville, Minnesota Barbourville, Kentucky Cedar Knolls, New Jersey Brighton, Michigan Cleveland, Ohio** Calvert City, Kentucky Columbus, Ohio Cleveland, Ohio Dallas, Texas* Columbus, Ohio* East Brunswick, New Jersey* Dijon, France Eagan, Minnesota Elyria, Ohio Everett, Washington** Gastonia, North Carolina Fort Lauderdale, Florida Gothenburg, Sweden Grand Rapids, Michigan Greenville, South Carolina Grantsville, West Virginia* Henry, Illinois Green, Ohio** Hindley, England Harrow, England* Leominster, Massachusetts Jacksonville, Florida Louisville, Kentucky Louisville, Kentucky* Montreal, Quebec, Canada Lynnwood, Washington* Oevel, Belgium Marlboro, Massachusetts* Pedricktown, New Jersey Miami, Florida* Somersby, Australia* Middletown, Connecticut* Toronto, Ontario, Canada New Century, Kansas** Vernon, California Norwich, New York Oldsmar, Florida Other Operations Ontario, California* ---------------- Phoenix, Arizona Calvert City, Kentucky Pueblo, Colorado Santa Fe Springs, California** Research Facilities and Singapore* Administrative Offices Other Than Spencer, West Virginia Manufacturing Facility Offices Taipo, Hong Kong* ------------------------------ Tempe, Arizona* Avon Lake, Ohio* Troy, Ohio Bath, Ohio* Tullahoma, Tennessee Beachwood, Ohio Union, West Virginia Brecksville, Ohio Vergennes, Vermont Brussels, Belgium* Wilmington, North Carolina Cleveland, Ohio* Wokingham, England Houston, Texas* Zevenaar, The Netherlands London, England* Milan, Italy Montrose, Ohio North Canton, Ohio* Paris, France Uniontown, Ohio* * Leased Washington, D.C.* **Leased in part Waterloo, Ontario, Canada* - 8 - 9 The Company considers that its properties are well maintained and in good operating condition. The Company and its subsidiaries are lessees under a number of cancelable and non-cancelable leases for certain real properties, used primarily for administrative, retail, maintenance, repair and overhaul of aircraft, aircraft wheels and brakes and evacuation systems and warehouse operations, and for certain equipment. ITEM 3. LEGAL PROCEEDINGS - --------------------------- There are pending or threatened against BFGoodrich or its subsidiaries various claims, lawsuits and administrative proceedings, all arising from the ordinary course of business with respect to commercial, product liability and environmental matters, which seek remedies or damages. BFGoodrich believes that any liability that may finally be determined with respect to commercial and product liability claims, should not have a material effect on the Company's consolidated financial position or results of operations. The Company has been named a potentially responsible party by the U.S. Environmental Protection Agency in connection with 42 locations most of which relate to businesses that the Company has previously discontinued. The Company believes it may have continuing liability with respect to not more than 25 sites, most of which relate to previously discontinued businesses. Sites for which successor companies have assumed liability are not included. Based on information currently available, the Company has adequately accrued for future environmental expenditures. However, management believes that it is reasonably possible that additional environmental costs may be incurred beyond the amounts accrued as a result of new information. The amounts, if any, however, cannot be estimated and management believes that they would not be material to the Company's financial condition, but could be material to the Company's results of operations in a given period. One of the sites at which the Company has been designated as a potentially responsible party is at the Industrial Excess Landfill in Uniontown, Ohio. The Company, with certain other parties, has formed a coalition and has contributed towards the cost of a community water system. The coalition offered to perform certain additional remediation efforts at the site, but this offer was rejected and the EPA has commenced litigation in the Federal District Court for the Northern District of Ohio seeking past and future clean-up and oversight costs. The defendants have joined approximately 68 third party defendants from which they are seeking cost recovery and contribution. In December 1991, the State of Ohio filed a suit in the U.S. District Court for the Northern District of Ohio seeking to recover oversight costs as well as seeking civil penalties for contamination of waters of the state (groundwater) without a permit since 1971. The Company believes the action for penalties is without merit. The Company believes it has adequately accrued for liabilities arising from this matter. Another site, Beacon Heights landfill in Beacon Falls, Connecticut, has been the subject of a suit and consent decree in the Federal District Court for the District of Connecticut. Under the consent decree the Company and a coalition of others have substantially performed the EPA selected remedy. However, construction was not completed before winter weather set in in 1993 and the deadline for completion of construction was not met. Subsequently, the work has been substantially completed. The Government asserted stipulated penalties for failing to complete the remediation project on time, which penalties the generators disputed. Penalties of as much as - 9 - 10 $500,000 are anticipated. The Company's share of this liability is approximately 41%. The Company believes it has adequately accrued for liabilities arising from this matter. In 1991 the Company agreed to participate in the U.S. Environmental Protection Agency Compliance Audit Program ("CAP") under Section 8(e) of the Toxic Substances Control Act. That section requires reporting of information indicating a substantial risk of injury to health or the environment from a chemical substance or mixture. Under the CAP, the Company agreed to conduct an audit of its files and report any information that should have been reported previously. The total potential maximum liability of the Company and its subsidiaries under the CAP is $1 million. The first part of the CAP required reporting of substantial risk information concerning health effects. This part of the audit was completed and the Company anticipates it may be subject to civil penalties of approximately $175,000 that will be payable at the conclusion of the second phase. The remaining part of the CAP involves substantial risk information concerning the environment. The Company will perform its obligations under this portion of the CAP after the U.S. Environmental Protection Agency issues guidance concerning the kinds of environmental information that it believes are reportable. The Company believes that any civil penalties arising from this portion would not be substantially different than those incurred under the first portion of the CAP. The Company believes it has adequately accrued for liabilities arising from this matter. The Company, among others, has been sued by the State of Oklahoma Department of Environmental Quality in State District Court in Ottawa County, Oklahoma, concerning environmental conditions at the Company's former tire plant site in Miami, Oklahoma. Liability relating to further investigation of potential soil and groundwater contamination at the site have been assumed by The Uniroyal Goodrich Tire Company. Since the Company transferred title to the facility in 1993, demolition without complete abatement of asbestos has occurred at the site due to actions of the current owner or its demolition contractor. The Company does not believe it will have any material liability at this site. In August 1995, the U.S. Environmental Protection Agency Region 4 issued an administrative complaint and proposed a penalty of $137,000 for air emission violations under North Carolina law applicable to the Company's Wilmington plant. The Company believes that this matter will be dismissed due to inaccurate or incomplete facts upon which the complaint is based. On March 10, 1993, Westlake Monomers Corporation ("Westlake") brought an action in the District Court of Harris County, Texas alleging that pursuant to a Right of First Refusal Agreement dated March 1, 1990 and related to the Company's Calvert City ethylene and chlor-alkali facilities (the "Facilities"), it had a right to compel an appraisal and a right then to elect to purchase at the appraised value the common stock of The Geon Company ("Geon") that was the subject of an initial public offering. Westlake sought to enjoin the proposed offering and asked for specific performance of the Right of First Refusal Agreement, attorneys' fees and damages. The Right of First Refusal Agreement, among other things, provides Westlake with the right to acquire the Facilities at fair market value as determined by an appraisal under certain circumstances. - 10 - 11 The court denied Westlake's application for temporary injunction to enjoin the sale of the Geon common stock, it enjoined BFGoodrich and Geon from encumbering or transferring the Facilities to third parties, and it ordered BFGoodrich and Geon to maintain and operate the Facilities in accordance with industry standards until a final disposition of the lawsuit has been reached. BFGoodrich did not transfer the Facilities to Geon as originally expected and continues to operate the Facilities. BFGoodrich has agreed to indemnify and hold Geon harmless from and against any liabilities and expenses arising directly from the lawsuit. The lawsuit has been stayed pending arbitration pursuant to the arbitration clause in the Master Conveyance Agreement by which the Company transferred the vinyl chloride monomer facilities at Calvert City to Westlake in 1990. Westlake also sought to arbitrate a claim that the Amended and Restated Assumption of Liabilities and Indemnification Agreement between the Company and Geon relating to certain liabilities at Calvert City was violative of the assignment clause of the Master Conveyance Agreement, but has abandoned that claim. On October 31, 1994, the arbitrator ruled that the Right of First Refusal was triggered, but the decision did not identify whether the trigger applied to assets or shares, and did not specify a remedy. On March 27, 1995, the arbitrator ruled that Westlake's Right of First Refusal did not involve shares of Geon common stock. Westlake then argued that it was entitled to buy the Facilities at the February 15, 1993 fair market value, which it asserted is as low as $40 million. Further, Westlake alleges that it is entitled to lost profits from the Facilities and lost profits and opportunity costs due to alleged inability to expand and modernize certain operations of up to approximately $325 million plus interest and attorney fees. Goodrich denies that Westlake is entitled to purchase the Facilities pursuant to the Right of First Refusal and further denies that Westlake is entitled to any recovery. Goodrich and Westlake agreed to an appraiser to value the Facilities as of February 15, 1993. The appraiser has determined that the fair market value of the Facilities as of February 15, 1993 was approximately $170 million, including working capital. As of December 31, 1995 the book value of the Facilities was approximately $60 million. While still maintaining that Westlake is not entitled to purchase the Facilities pursuant to the Right of First Refusal, Goodrich has tendered the Facilities to Westlake at the February 15, 1993 appraised value. Westlake has stated it intends to purchase the Facilities regardless of whether Westlake is awarded any recovery. Any acquisition is subject to the negotiation and execution of a definitive purchase agreement and governmental approval. The Right of First Refusal Agreement provides that any definitive agreement shall generally be consistent with the terms and provisions of the March 1, 1990 Master Conveyance Agreement by which Westlake acquired Goodrich's vinyl chloride monomer facility at Calvert City, Kentucky. There can be no assurance that a definitive agreement will be reached. Final oral arguments were held before the Arbitrator on January 22, 1996, and briefs have been filed. Although no specific date has been set, the Arbitrator is expected to issue his decision within the next few months. In 1991 the Company instituted suit in the United States District Court for the District of Delaware against Allied-Signal Incorporated and Aircraft Braking Systems Corporation, alleging infringement of two Company patents relating to extended disk life brakes and their application in carbon aircraft brakes. The defendants denied infringement and alleged the patents are invalid. The Company sought substantial damages. The trial court issued a decision in November 1994 - 11 - 12 that Allied-Signal did infringe the patents, but held the patents were invalid on two separate grounds. The court also determined that Aircraft Braking Systems did not infringe the patents. The court denied defendant's request for attorney fees. The Court of Appeals has affirmed the decision of the trial court in all respects. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - ------------------------------------------------------------- Not applicable. PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED - ----------------------------------------------------------- STOCKHOLDER MATTERS ------------------- Common stock prices and dividends are on page 41 of the Company's 1995 Annual Report to Shareholders. The number of common shareholders at December 31, 1995, is included in "Other Data: Common shareholders of record at end of year" on page 43 of the Company's 1995 Annual Report to Shareholders. The discussions of the limitations and restrictions on the payment of dividends on common stock are included in Note C on pages 30 and 31, and Note N on pages 38 and 39 of the Company's 1995 Annual Report to Shareholders. All of these sections are incorporated herein by reference. ITEM 6. SELECTED FINANCIAL DATA - --------------------------------- Sales from continuing operations, income from continuing operations before cumulative effect of change in method of accounting, total assets, non-current long-term debt and capital lease obligations, mandatorily redeemable preferred securities of Trust, redeemable preferred stock, income from continuing operations per share of common stock, and dividends per share of common stock as of and for each of the years in the five-year period ended December 31, 1995, on page 43 of the Company's 1995 Annual Report to Shareholders, are incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL - ----------------------------------------------------------- CONDITION AND RESULTS OF OPERATIONS - ------------------------------------ Management's Discussion and Analysis on pages 16-23 of the Company's 1995 Annual Report to Shareholders, is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA - ----------------------------------------------------- The consolidated financial statements and the related notes thereto, together with the report thereon of Ernst & Young LLP dated February 2, 1996, and supplementary data, appearing on pages 24-42 of the Company's 1995 Annual Report to Shareholders, are incorporated herein by reference. - 12 - 13 Subsequent Event -- Stock Split (Unaudited) - ------------------------------------------- On February 19, 1996, the Board of Directors authorized a stock split in the form of a stock dividend (the "Stock Split") of one share of the Company's common stock, $5.00 par value (the "Common Stock") for every share of Common Stock outstanding to holders of record on March 11, 1996. The Company intends to mail the certificates for the additional shares to shareholders on or about April 1, 1996. As of close of business on March 11, 1996, the Company will transfer $5 per share for each share of Common Stock to be issued pursuant to the Stock Split from its surplus capital in its Additional Capital account to its Common Stock account to effect the increase in its stated capital resulting from the Stock Split. By reason of the Stock Split, the number of shares of Common Stock reserved for issuance upon exercise of stock options or other stock-based awards granted or to be granted under the Company's employee benefit plans will be increased accordingly, effective March 11, 1996. The preferred stock purchase rights (the "Rights" or individually a "Right") associated with each share of Common Stock under the Rights Agreement, dated as of July 20, 1987, and as amended as of December 7, 1987, and August 1, 1989, between the Company and The Bank of New York, as Rights Agent, will be adjusted automatically, so that, effective March 11, 1996, each share of Common Stock will be accompanied by one-half of a Right instead of a full Right. The exercise and redemption prices of a full Right will remain unchanged. Pro forma primary earnings per share, giving retroactive effect to the two-for-one split, are presented below for each of the three years in the period ended December 31, 1995:
1995 1994 1993 - ------------------------------------------------------------------- Pro forma earnings per share: Continuing operations $2.15 $1.12 $ .14 Net income 2.15 1.31 2.34 - -------------------------------------------------------------------
Financial information contained elsewhere in this Form 10-K has not been adjusted to reflect the impact of the common stock split. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE -------------------- None. - 13 - 14 PART III -------- ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT - ------------------------------------------------------------- Biographical information concerning the Company's Directors appearing under the caption "Election of Directors" in the Company's proxy statement dated February 29, 1996 is incorporated herein by reference. Biographical information concerning the Company's Executive Officers is as follows: John D. Ong, Age 62, Chairman and Chief Executive Officer - --------------------------------------------------------- Mr. Ong joined the Company in 1961 as Assistant Counsel. Mr. Ong progressed through a number of business positions. He was elected Group Vice President of the Company in 1972, Executive Vice President and a Director in June 1973, Vice Chairman of the Board in April 1974, President in April 1975, President and Chief Operating Officer in 1977, and Chairman and Chief Executive Officer in July 1979. Mr. Ong has a B.A. and M.A. in history from Ohio State University and an LL.B. from Harvard Law School. David L. Burner, Age 56, President - ---------------------------------- Mr. Burner joined the Company in 1983 as Vice President, Finance, for the Company's Engineered Products Group. He served in several other management positions before being named Executive Vice President of BFGoodrich Aerospace in 1985. He was appointed President of BFGoodrich Aerospace in 1987. Mr. Burner was elected a Senior Vice President in 1990, an Executive Vice President in 1993, and President in December 1995. Before joining BFGoodrich he was Executive Vice President and Chief Financial Officer of ABS Industries in Willoughby, Ohio. Mr. Burner received a B.S.C. degree in accounting from Ohio University. Jon V. Heider, Age 61, Executive Vice President and General Counsel - ------------------------------------------------------------------- Mr. Heider joined the Company in June 1984 as Vice President and General Counsel. He was elected Senior Vice President in 1988 and Executive Vice President in 1994. Prior to coming with the Company, Mr. Heider was employed by Air Products and Chemicals Inc., Allentown, Pa., where he held several posts including that of General Counsel. His last assignment there was as Vice President of Corporate Development. His association with Air Products and Chemicals spanned 18 years. Mr. Heider has a B.A. from the University of Wisconsin and a J.D. from Harvard Law School. - 14 - 15 Marshall O. Larsen, Age 47, Executive Vice President and President and Chief - ---------------------------------------------------------------------------- Operating Officer, BFGoodrich Aerospace - --------------------------------------- Mr. Larsen joined the Company in 1977 as an Operations Analyst. He served in various management positions until 1986 when he became Assistant to the President of the Company. He later served as General Manager of several divisions of BFGoodrich Aerospace. In 1994, Mr. Larsen was elected a Vice President of the Company and named Group Vice President, Safety Systems, BFGoodrich Aerospace. In December 1995 he was elected Executive Vice President of the Company and named President and Chief Operating Officer of BFGoodrich Aerospace. Mr. Larsen has a B.S. in engineering from the U.S. Military Academy and an M.S. in industrial administration from the Krannert Graduate School of Management at Purdue University. Wayne O. Smith, Age 52, Executive Vice President and President and Chief - ------------------------------------------------------------------------ Operating Officer, BFGoodrich Specialty Chemicals - ------------------------------------------------- Mr. Smith joined the Company in April 1994 as Executive Vice President and President, BFGoodrich Specialty Chemicals. Prior to joining the Company, Mr. Smith was employed as Group Vice President-Gases Americas, The BOC Group, Ltd. from 1990 to 1993 and earlier in 1990, as President and Chief Operating Officer, Chemical Lime, Inc. Between 1974 and 1990 he held various assignments at Air Products and Chemicals, his last as General Manager of their Specialty Chemicals Division. He was formerly a Captain and fighter pilot serving eight years in the Air Force. Mr. Smith has a B.S. in Engineering Sciences from the United States Air Force Academy. D. Lee Tobler, Age 62, Executive Vice President and Chief Financial Officer - --------------------------------------------------------------------------- Mr. Tobler joined the Company in January 1985 as Executive Vice President and Chief Financial Officer and was elected a Director in April 1988. Prior to coming with the Company, Mr. Tobler had been Group Vice President and Chief Administrative and Financial Officer of Zapata Corporation from 1981 to 1984. Mr. Tobler has a B.A. from Brigham Young University and an M.B.A. from Northwestern University. Nicholas J. Calise, age 54, Vice President, Associate General Counsel and - ------------------------------------------------------------------------- Secretary - --------- Mr. Calise joined the Company in October 1984 as Secretary and was also appointed Staff Vice President and Assistant General Counsel. In January 1989 he was elected Vice President and Associate General Counsel. Prior to joining BFGoodrich, he was with the Richardson-Vicks Inc. Home Care Products Division, Memphis, Tennessee, where he was Division Counsel, Director - Planning and Business Development and Marketing Director. Mr. Calise has an A.B. from Middlebury College and an M.B.A. and LL.B. from Columbia University. Robert A. McMillan, Age 53, Vice President and Treasurer - -------------------------------------------------------- Mr. McMillan joined the Company in July 1974 as an Economist. He progressed through a number of positions and was elected Vice President and Treasurer in August 1986. Mr. McMillan has a B.A. from the University of California at Santa Barbara and a Ph.D. in economics from the University of California at Berkeley and was an Economist at the Federal Reserve Bank of Cleveland and the Bank of America before joining BFGoodrich. - 15 - 16 Steven G. Rolls, Age 41, Vice President and Controller - ------------------------------------------------------ Mr. Rolls joined the Company in September 1981 as a Financial Analyst. He subsequently served in various capacities in the Treasury department, becoming an Assistant Treasurer in 1985. In 1987 he joined BFGoodrich Canada as Vice President, Finance and Treasurer. In 1989 he was appointed Vice President - Finance for the Aerospace business. Mr. Rolls was elected Vice President and Controller in 1993. He has a B.S. in business administration from Miami University and an M.B.A. from Ohio State University. George K. Sherwood, Age 57, Vice President - Tax Administration - --------------------------------------------------------------- Mr. Sherwood joined the Company in July 1985 as Staff Vice President - Taxes and was elected Vice President - Tax Administration in April 1986. Prior to joining BFGoodrich, Mr. Sherwood was Vice President - Tax Administration for Zapata Corporation. Mr. Sherwood has a B.S. in business administration from Kansas State College and an M.B.A. in management from The University of Tulsa. ITEM 11. EXECUTIVE COMPENSATION - --------------------------------- Information concerning executive compensation appearing under the captions "Compensation Committee Report" and "Compensation of Directors" in the Company's proxy statement dated February 29, 1996, is incorporated herein by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT - ------------------------------------------------------------------------- Security ownership data appearing under the captions "Holdings of Company Equity Securities by Directors and Executive Officers" and "Beneficial Ownership of Securities" in the Company's proxy statement dated February 29, 1996, is incorporated herein by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS - --------------------------------------------------------- Information appearing under the caption "Transactions With Directors" in the Company's proxy statement dated February 29, 1996, is incorporated herein by reference. PART IV ------- ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON - ----------------------------------------------------------------- FORM 8-K - -------- (a) (1) and (2) - The response to this portion of Item 14 is submitted as a separate section of this Form 10-K on page F-1. (3) - Listing of Exhibits: A listing of exhibits is on pages II-1 to II-3 of this Form 10-K. (b) Reports on Form 8-K filed in the fourth quarter of 1995. None. - 16 - 17 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 19, 1996. The BFGoodrich Company (Registrant) By /S/ JOHN D. ONG ------------------------------- (John D. Ong, Chairman and and Chief Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on February 19, 1996 by the following persons (including a majority of the Board of Directors) on behalf of the registrant and in the capacities indicated. /S/ JOHN D. ONG /S/ THOMAS H. O'LEARY - --------------------------------------- ----------------------------- (John D. Ong) (Thomas H. O'Leary) Chairman and Chief Executive Director Officer and Director (Principal Executive Officer) ------------------------------ /S/ DAVID L. BURNER (Joseph A. Pichler) - --------------------------------------- Director (David L. Burner) President and Director /S/ ALFRED M. RANKIN, JR. ----------------------------- /S/ D. LEE TOBLER (Alfred M. Rankin, Jr.) - --------------------------------------- Director (D. Lee Tobler) Executive Vice President and Chief Financial Officer and Director /S/ IAN M. ROSS (Principal Financial Officer) ------------------------------ (Ian M. Ross) Director /S/ STEVEN G. ROLLS - --------------------------------------- (Steven G. Rolls) /S/ WILLIAM L. WALLACE Vice President and Controller --------------------------- (Principal Accounting Officer) (William L. Wallace) Director /S/ JEANETTE GRASSELLI BROWN /S/ JOHN L. WEINBERG - ---------------------------- ------------------------------ (Jeanette Grasselli Brown) (John L. Weinberg) Director Director /S/ GEORGE A. DAVIDSON, JR. /S/ A. THOMAS YOUNG - ---------------------------------- ------------------------------ (George A. Davidson, Jr.) (A. Thomas Young) Director Director /S/ JAMES J. GLASSER - --------------------------------------- (James J. Glasser) Director 17 18 THE B.F.GOODRICH COMPANY INDEX TO FINANCIAL INFORMATION Item 14(a)(1)-(2)
Reference -------------- 1995 Annual Report to Shareholders (page) -------------- Data incorporated by reference from the 1995 Annual Report to Shareholders of The BFGoodrich Company: Consolidated Statement of Income for the years ended December 31, 1995, 1994 and 1993 24 Consolidated Balance Sheet at December 31, 1995 and 1994 25 Consolidated Statement of Cash Flows for the years ended December 31, 1995, 1994 and 1993 26 Consolidated Statement of Shareholders' Equity for the years ended December 31, 1995, 1994 and 1993 27 Notes to Consolidated Financial Statements 28 - 40 Quarterly Financial Data (Unaudited) 41 Report of Independent Auditors 42
Schedules have been omitted since the required information is not present, or not present in amounts sufficient to require submission of the schedule, or because the information is included in the above listed financial statements or notes thereto. F-1 19 Item 14 (a)(3) Index to Exhibits
Table II Exhibit No. - ----------- 3(A) The Company's Restated Certificate of Incorporation, as amended through August 5, 1988. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-Q for the quarter ended September 30, 1988, and is incorporated herein by reference. (B) The Company's By-Laws, as amended, through February 18, 1991. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1990, and is incorporated herein by reference. 4 Information relating to the Company's long-term debt is set forth in Note C - "Financing Arrangements" on pages 30 and 31 of the Company's 1995 Annual Report to Shareholders, and is incorporated herein by reference. Instruments defining the rights of holders of such long-term debt are not filed herewith since no single debt item exceeds 10% of consolidated assets. Copies of such instruments will be furnished to the Commission upon request. 10(A) Key Employees' Stock Option Plan. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1991, and is incorporated herein by reference. 10(B)(4) Form of Disability Income Agreement. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1988, and is incorporated herein by reference. 10(B)(5) Form of Supplemental Executive Retirement Plan Agreement. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1989 and is incorporated herein by reference. 10(C) Performance Share Plan. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1991, and is incorporated herein by reference. 10(E) Management Incentive Program. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-Q for the quarter ended September 30, 1989, and is incorporated herein by reference.
II-1 20 Item 14 (a)(3) Index to Exhibits
Table II Exhibit No. - ----------- 10(F) Form of Management Continuity Agreement entered into by The B.F.Goodrich Company and certain of its employees. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1992, and is incorporated herein by reference. 10(G) Senior Executive Management Incentive Plan. This exhibit was filed as Appendix B to the Company's 1995 Proxy Statement dated March 2, 1995 and is incorporated herein by references. 10(H) Rights Agreement between The B.F.Goodrich Company and Morgan Shareholder Services Trust Company, as Rights Agent, dated as of July 20, 1987, and amended and restated as of December 7, 1987 which includes: as Exhibit A thereto, the form of Designation, Preferences and Rights of Cumulative Participating Preferred Stock, Series E; as Exhibit B thereto, the Form of Rights Certificate; as Exhibit C thereto, the Summary of Rights to Purchase Preferred Stock; and the Supplement to the Summary of Rights to Purchase Preferred Stock. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1987, and is incorporated herein by reference. Agreement dated as of August 1, 1989, substituting The Bank of New York as Rights Agent and Agreement dated as of August 1, 1989 with The Bank of New York amending the Rights Agreement. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1989 and is incorporated herein by reference. 10(I) Employee Protection Plan. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-Q for the quarter ended September 30, 1989, and is incorporated herein by reference. 10(J) Benefit Restoration Plan. This exhibit was filed with the same designation as an exhibit to the Company's Form 10-K Annual Report for the year ended December 31, 1992, and is incorporated herein by reference. 10(K) Long-Term Incentive Plan and form of award. 10(L) Amended and Restated Separation Agreement between the Company and The Geon Company, which was filed as exhibit 10.1 to Registration Statement No. 33-70998 on Form S-1 of The Geon Company, is incorporated herein by reference.
II-2 21 Item 14 (a)(3) Index to Exhibits
Table II Exhibit No. - ----------- 10(M) Amended and Restated General Assignment and Bill of Sale between the Company and The Geon Company, which was filed as exhibit 10.2 to Registration Statement No. 33-70998 on Form S-1 of The Geon Company, is incorporated herein by reference. 10(N) Amended and Restated Assumption of Liabilities and Indemnification Agreement between the Company and The Geon Company, which was filed as exhibit 10.3 to Registration Statement No. 33-70998 on Form S-1 of The Geon Company, is incorporated herein by reference. 10(O) Outside Directors' Phantom Share Plan 11 Statement re Computation of per share earnings 13 Annual Report to Shareholders. The Company's 1995 Annual Report to Shareholders (only those portions incorporated by reference in the Form 10-K). 21 Subsidiaries 23 Consent of Independent Auditors 27 Financial Data Schedule
The Company will supply copies of the foregoing exhibits to any shareholder upon receipt of a written request addressed to the Secretary of The B.F.Goodrich Company, 3925 Embassy Parkway, Akron, Ohio 44333-1799, and the payment of $.50 per page (except for the Annual Report to Shareholders which is complimentary) to help defray the costs of handling, copying and postage. II-3 EX-10.K 2 EXHIBIT 10(K) 1 EXHIBIT 10(K) 1995 - 1997 BFGOODRICH LONG-TERM INCENTIVE PLAN ----------------------------------- This is a summary of the benefits to which you are entitled under the BFGoodrich Long-Term Incentive Plan. The complete details of the Plan are contained in the text of the Key Employees' Stock Option Plan, the Performance Share Plan and the Long-Term Incentive Plan. This summary is qualified by the terms and conditions contained in those plan documents. THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. PURPOSE - ------- The Long-Term Incentive Plan is designed to provide a long-term incentive to key executives who are in positions to influence the performance of the Company and its individual business units, and thereby enhance shareholder value over time. The Plan provides a significant additional financial opportunity and complements other parts of the Company's total compensation program for executives (base salary, Management Incentive Program, stock options and benefits). PLAN OVERVIEW - ------------- The Long-Term Incentive Plan rewards financial performance over three-year cycles, which do not overlap. At the beginning of each three-year cycle, two types of awards of BFGoodrich common stock may be granted to you -- Restricted Shares and Performance Shares. However, you will not obtain full ownership privileges to any of the shares awarded to you until the end of the three-year cycle. At that time, if you are still employed by the Company, you will become entitled to receive the Restricted Shares awarded to you. Additionally, you will be entitled to receive the Performance Shares awarded to you at the end of the cycle, if you meet certain financial performance targets established for you at the beginning of the three-year cycle. If actual financial performance differs from your financial performance target, the number of Performance Shares that you actually receive, if any, will differ from the number awarded to you at the beginning of the three-year cycle. Your participation, the number of shares granted to you, your financial performance targets, and all other aspects of the Long-Term Incentive Plan will be determined by the Compensation Committee of the Board of Directors of the Company, which has full authority to administer the Plan. 2 BFGOODRICH COMMON STOCK AWARDS - ------------------------------ The Long-Term Incentive Plan provides additional compensation to key executives through the granting of shares of BFGoodrich common stock. The common stock granted shall be in two forms -- Restricted Shares and Performance Shares. Each is described below. * RESTRICTED SHARES. At the beginning of each three-year cycle, you may be awarded a specified number of shares of BFGoodrich common stock which shall be classified as Restricted Shares. You will not become the owner of these Restricted Shares when they are awarded to you. During the three-year cycle, they will be held by the Secretary of the Company. You will receive dividends each quarter and have voting rights based on the number of shares granted at the beginning of the three-year performance period, but you will not have any ability to sell, pledge, or otherwise transfer them. On January 2, immediately following the end of the three-year cycle, you will become the owner of these shares, as long as you are actively employed by the Company through the last day of the Plan cycle. If you are not then employed by the Company, you or your beneficiary may still be entitled to receive your shares, if the reason you are not employed is because of your death, or permanent and total disability. If you retire before the end of the three-year cycle, the Compensation Committee, in its' sole discretion, will determine whether to grant ownership to you of some or all of the shares. There are restrictions on your ability to sell or transfer these shares even after you become the owner of them. You may not sell or transfer the Restricted Shares you receive (net of withholding taxes) for two years after completion of the three-year cycle. * PERFORMANCE SHARES. At the beginning of each three-year cycle, you may also be awarded a number of shares of BFGoodrich common stock which shall be classified as Performance Shares. During the three-year cycle, they will be held by the Secretary of the Company. You will receive dividends each quarter and have voting rights based on the number of shares granted at the beginning of the three-year performance period, but you will not have any ability to sell, pledge, or otherwise transfer them. At the end of the three-year cycle, if you are still employed by the Company, you will become the owner of these shares after the Compensation Committee determines the final payout based upon specific financial performance targets established for you. Your financial performance targets will be disclosed to you at the beginning of the three-year cycle. If actual financial performance differs from the financial performance target set for you, the number of shares of common stock which you will receive, if any, will differ from the number awarded to you at the beginning of the cycle. If the financial performance is less than the target, you will receive fewer shares; if the financial performance is better than target, you will receive more shares. If actual financial performance fails to meet a threshold financial target, then no Performance Shares will be conveyed to you. The information given to you by letter at the beginning of the cycle will describe these variations to you. -2- 3 Unlike the Restricted Shares, all of the Performance Shares that you receive at the end of the three-year cycle will be free of all restrictions and you may do with them as you wish. If you die, retire, or become permanently and totally disabled during the cycle, such that you are not an active employee of the Company at the end of the cycle, you or your beneficiary will receive a prorated portion of the shares awarded to you, based upon the time portion of the cycle during which you were employed. The actual payout will not occur until after the end of the three-year cycle, at which time the financial performance for the entire three-year cycle will be used to determine the size of your award in that event. If you terminate for other reasons prior to the end of the three-year cycle, you will forfeit all the Performance Shares. The performance target used to determine the number of Performance Shares you will receive at the end of the Plan cycle will be based upon the following: * FOR OPERATING SEGMENTS: Three-year average segment operating income return on net capital employed (OIRONCE). * FOR CORPORATE STAFF PARTICIPANTS: Three-year average total Company return on equity (ROE). * FOR OPERATING SEGMENT PRESIDENTS: One-half of original Performance Share grant related to the president's own segment performance (OIRONCE); one-half of original Performance Share grant related to total Company performance (ROE). Your performance target can be adjusted by the Compensation Committee of the Board of Directors, in its' sole discretion, at any time during the three-year cycle, if doing so is warranted by extraordinary events such as an acquisition, divestiture, restructuring, change in accounting practice, or any other unusual or extraordinary financial or operational event. Generally, you will not receive full ownership of any shares granted to you under the Plan until the end of the three-year cycle. An exception will occur, however, if there is a Change in Control of the Company. A Change in Control is defined in the Key Employees' Stock Option Plan. If one occurs, you shall immediately receive all Restricted Shares awarded to you at the beginning of the cycle. The effect of a Change in Control on your ability to receive Performance Shares is described in the Performance Share Plan. Generally, that plan provides that, as of the date of the Change in Control, you will become entitled to a prorated portion of the shares originally awarded to you, based upon financial performance for the portion of the cycle which ends on the date of the Change in Control. Your entitlement to additional shares will be based upon financial performance for the portion of the three-year cycle which occurs after the Change in Control. - 3 - 4 If you transfer to another position in the Company during the three-year cycle, you will be entitled to the following: * RESTRICTED SHARES. The transfer will have no effect whatsoever on the Restricted Shares awarded to you. You will receive these shares at the end of the three-year period, provided you are still employed by the Company. * PERFORMANCE SHARES. The performance target for a particular position will apply to you if you are employed in that position during any portion of the three-year cycle. The total number of shares that you will be entitled to receive at the end of the cycle will be based upon the following formula: Percent of Percentage Payout Number of Original Three-Year Cycle Relative to Shares Earned Performance X Cycle Spent X Performance Target = Based On Share Award In Particular for Particular Particular Position Position Position
The total shares earned based on each position you hold during the three-year cycle will be summed to arrive at the total number of shares you are entitled to receive at the end of the cycle. When you transfer to a new position, the Compensation Committee reserves the right to adjust the award of Performance Shares to you upward or downward, as appropriate to reflect the duties and responsibilities of the new position. For new hires and employees promoted into positions that make them eligible to participate in the program, the Compensation Committee of the Board of Directors, upon recommendation from management, may grant an award on a prorated basis. The amount of the award will be based on the time remaining in the three-year performance cycle, but the performance targets will be the same as for other participants. TAX INFORMATION - --------------- Restricted Shares and Performance Shares are taxed similarly under current tax law. However, you may make a special election regarding the taxation of your Restricted Shares. Generally, you are not taxed on either Restricted Shares or Performance Shares until the date on which any restrictions of ownership lapse or the date on which you become entitled to your Performance Shares. Under current tax law, on the date you become entitled to receive the shares following completion of the three-year performance cycle, the market value of the shares at that time is considered to be ordinary income and you will be taxed on that amount. If you hold the shares and later sell them, any appreciation over the market value of the shares when you received them at the end of the three-year cycle will be taxed at capital gains rates. - 4 - 5 There is one difference in the taxation of Restricted Shares. You may make a special "Section 83(b)" election under Section 83(b) of the Internal Revenue Code. Such an election will permit you to elect to be taxed on the market value of the shares as of the date on which they are first awarded to you. The tax would then become payable for the year in which shares are originally granted. Any appreciation after that date will be taxed at capital gains rates. If, however, you later forfeit your Restricted Shares before the end of the three-year cycle (e.g., by leaving the Company), none of the tax that you already have paid may be recovered or used as a tax deduction. The election must be made within 30 days after the Compensation Committee makes the award. If you want to make this election, you should contact Richard N. Jacobson in the Law Department at (216) 374-2874. Dividends paid on both Restricted Shares and Performance Shares are income to you. These dividends will be paid each quarter by your payroll department. Under the Internal Revenue Code, these payments are considered compensation and not dividends and will be included on your W-2 statement. Normal payroll withholding taxes will be deducted from these payments. Any income you derive from either Restricted Shares or Performance Shares will not be considered eligible earnings for Company or subsidiary pension plans, savings plans or profit sharing plans. WITHHOLDING TAX INFORMATION - --------------------------- At the end of the three-year performance period, the number of Restricted Shares and Performance Shares you will receive will be net of an amount of shares sufficient to satisfy any federal, state and local withholding tax requirements with which the Company must comply. You should consult your tax advisor for a complete explanation of the tax impact of your participation in the Long-Term Incentive Plan. January 4, 1996 - 5 - 6 1995 - 1997 BFGOODRICH LONG-TERM INCENTIVE PLAN ----------------------------------- THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS COVERING SECURITIES THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. Name: Corporate Staff Participant You have been granted the following Long-Term Incentive Plan shares for the three-year performance period 1995 through 1997: Restricted Shares: X,XXX shares of BFG common stock Performance Shares: X,XXX shares of BFG common stock RESTRICTED STOCK - ---------------- On January 2, 1998, you will receive the X,XXX Restricted Shares (less the number of shares sufficient to satisfy any federal, state and local withholding tax requirements), provided you are actively employed by the Company through December 31, 1997. You may not sell or transfer these shares until January 1, 2000. PERFORMANCE SHARES - ------------------ The number of Performance Shares you receive will depend on the three-year performance of the total Company, as measured against specific Return on Equity (ROE) targets. At the end of the three-year performance period, you will receive Performance Shares based on the following schedule. This schedule only applies to your Performance Shares.
Total Company Percent Payout Three-Year Performance Average ROE Share Grant ------------------ ---------------- Below X.X% 0% (Threshold) Y.Y% 50% (Target) Z.Z% 100% (Maximum) A.A% and above 150%
(Note: If performance for the three-year period is between the percentage attainment levels listed on this chart, your Performance Share award will be prorated accordingly. For example, an average ROE of XX.X% will pay out Performance Shares equal to XXX.X% of the grant amount.) - 6 - 7 OTHER IMPORTANT INFORMATION - --------------------------- * You will not receive any Performance Shares if the Company's average ROE during the 1995-1997 period is below X.X%. You nevertheless will receive the Restricted Shares, provided you still are actively employed by the Company at the end of 1997. * New share grants and performance targets are expected to be established for another three-year Plan period beginning in 1998. * You will receive quarterly cash dividends throughout the three-year Plan period on your initial award for both Restricted Shares and Performance Shares. These dividends will be paid by your payroll department until December 31, 1997. Under the Internal Revenue Code, these payments are considered compensation and not dividends and will be included on your W-2. Normal payroll withholding taxes will be deducted from these payments. In the event performance does not meet the threshold required for payout of the Performance Shares, the dividends you already received are yours to keep. * You will have voting rights during the three-year Plan period on both Restricted Shares and Performance Shares. * Any income you derive from either Restricted Shares or Performance Shares will not be considered eligible earnings for Company or subsidiary pension plans, savings plans or profit sharing plans. FOR MORE INFORMATION - -------------------- If you have questions about the Long-Term Incentive Plan or need additional information, contact Gary Habegger at (216) 374-2155. February 23, 1995 - 7 - EX-10.O 3 EXHIBIT 10(O) 1 Exhibit 10(O) DIRECTORS' PHANTOM SHARE PLAN ----------------------------- ADOPTED BY THE BOARD OF DIRECTORS ON SEPTEMBER 18, 1995 WHEREAS, the Board of Directors has previously established a retirement income program for certain Directors of the Company by resolution adopted on February 17, 1982 ("1982 Directors' Retirement Plan"); and WHEREAS, the Board of Directors wishes to replace the 1982 Directors' Retirement Plan with a phantom share plan and establish certain transitional provisions; NOW THEREFORE, BE IT RESOLVED, that the following plan, to be known as the Directors' Phantom Share Plan is hereby established with the following terms and conditions: Directors who are not and have not been executive officers of the Company ("Outside Directors") shall receive annual grants of phantom shares ("Phantom Shares") (each Phantom Share to equal the fair market value of one share of Company common stock) equal in value to one times the then current annual cash retainer for Outside Directors on each Board service anniversary date (as hereinafter defined) through the tenth Board service anniversary date. No further awards of Phantom Shares shall be made following the tenth Board service anniversary date. With respect to the current Outside Directors: * Outside Directors with ten or more years of Board service as of the date hereof shall receive no grant of Phantom Shares but shall continue to be eligible to receive benefits under the 1982 Directors' Retirement Plan. * Outside Directors with at least five years but less than ten years of Board service as of the date hereof shall receive an annual grant of Phantom Shares equal in value to one times the then current annual cash retainer for Outside Directors on each Board service anniversary date commencing on their next Board service anniversary date through their tenth Board service anniversary date. Such Directors shall continue to be eligible to receive benefits under the 1982 Directors' Retirement Plan to the extent such benefits are accrued for benefit computation purposes as of the date hereof (rounded to completed years of Board service). 2 * Outside Directors with less than five years of Board service as of the date hereof shall receive an initial grant of Phantom Shares equal to the current annual cash retainer for Outside Directors times the number of years (rounded to completed years) of Board service. Such Directors shall thereafter receive an annual grant of Phantom Shares equal to one times the then current annual cash retainer for Outside Directors on each Board service anniversary date commencing on their next Board service anniversary date through their tenth Board service anniversary date. Such Directors shall not be eligible for any benefits under the 1982 Directors' Retirement Plan. Dividend equivalents will be accrued on all Phantom Shares granted 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 Outside Directors' 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 Outside Directors' account were actual shares of the Company's common stock. All Phantom Shares become fully vested at the earlier of: (i) five years from the date of grant; (ii) upon the Director's termination of service on the Board on or after age 55; or (iii) a "Change in Control" as defined in the Company's Key Employees' Stock Option Plan. Upon termination of Board service (the "termination date") the fair market value of all vested Phantom Shares shall be paid to each Outside Director in cash, subject to applicable withholding taxes, as follows: The value of each Outside Directors' account shall be paid in 12 installments commencing on the first day of the month coincident with or next following the Directors termination date, and on the first day of the next 11 months thereafter (each an "installment date"). Each installment shall equal a fractional amount of each Outside Directors' account, the numerator of which is one and the denominator of which is equal to the number of months remaining between the installment date and 12 months after the first installment date. 3 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. The first Board service anniversary date for each Outside Director shall mean the date of the first Annual Meeting of Shareholders following election as a Director. Each Board service anniversary thereafter shall be the date of the next Annual Meeting of Shareholders. Any person who is entitled to benefits under the 1982 Director's Retirement Plan as of the date hereof shall be fully vested in the right to receive such benefits. No additional accrual of years of service for benefit calculation purposes shall be made under the 1982 Directors' Retirement Plan. Other than as expressly provided in these Directors' Phantom Share Plan resolutions, the resolutions of February 17, 1982 are hereby rescind and are of no further force and effect. No award of Phantom Shares shall be assignable or transferable by the Outside Directors, except by will or by the laws of descent and distribution. The number of Phantom Shares credited to an Outside Directors' 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 Outside Director. FURTHER RESOLVED, 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. EX-11 4 EXHIBIT 11 1 THE B.F.GOODRICH COMPANY AND SUBSIDIARIES EXHIBIT 11 - STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
Year Ended ------------------------------------------- 1995 1994 1993 ------------- ------------- ------------- (Dollars in millions, except per share amounts) PRIMARY Number of Shares: ---------------- Average number of shares outstanding (including common stock equivalent shares outstanding) 26,169,570 25,766,376 25,687,816 Income: ------- Income from continuing operations $ 118.0 $ 65.7 $ 15.3 Dividends on Preferred Stocks (4.4) (8.0) (8.2) Premium on Preferred Stocks redeeemed (1.2) - - Income (loss) from discontinued operations - 10.0 113.0 ------------- ------------- ------------- Net income (loss) applicable to Common Stock $ 112.4 $ 67.7 $ 120.1 ============= ============= ============= Per Share Amounts: ------------------ Continuing operations $ 4.30 $ 2.24 $ 0.28 Discontinued operations - 0.39 4.40 ------------- ------------- ------------- Net income (loss) $ 4.30 $ 2.63 $ 4.68 ============= ============= ============= FULLY DILUTED Number of Shares: ----------------- Average number of common shares outstanding 25,999,724 25,738,110 25,643,172 Effect of dilutive stock options - based on the treasury method using last day's market price, if higher than average market price 310,398 28,758 44,713 Average number of shares of Common Stock issuable if Convertible Preferred Stock was converted - (A) - (A) 1,999,800 ------------- ------------- ------------- Total average number of common and common equivalent shares outstanding 26,310,122 25,766,868 27,687,685 ============= ============= ============= Income: ------- Income from continuing operations $ 118.0 $ 65.7 $ 15.3 Dividends on Preferred Stocks (4.4) (8.0) (8.2) Restore dividend on Convertible Preferred Stock - (A) - (A) 7.7 Premium on Preferred Stocks redeemed (1.2) - - Restore premium on Preferred Stocks redeemed - (A) - - Income (loss) from discontinued operations - 10.0 113.0 ------------- ------------- ------------- Net income (loss) applicable to Common Stock $ 112.4 $ 67.7 $ 127.8 ============= ============= ============= Per Share Amounts: ------------------ Continuing operations $ 4.27 $ 2.24 $ 0.53 Discontinued operations - 0.39 4.09 ------------- ------------- ------------- Net income (loss) $ 4.27 $ 2.63 $ 4.62 ============= ============= =============
(A) Anti-Dilutive EX-13 5 EXHIBIT 13 1 EXHIBIT 13 16 MANAGEMENT'S DISCUSSION AND ANALYSIS RESULTS OF OPERATIONS 1995 Compared with 1994 CONSOLIDATED OPERATIONS: Record sales and operating income in 1995 for each of the Company's segments culminated a year of solid growth, despite continuing challenging conditions in certain markets. Sales of $2,408.6 million in 1995 increased 10 percent compared with 1994. Adjusted for acquisitions and a divestment, consolidated sales increased 9 percent. Total segment operating income increased by 27 percent to $296.3 million. Adjusted for acquisitions and a divestment, total segment operating income increased 26 percent. The gross profit ratio improved to 32 percent from 31 percent in 1994. Net income of $118.0 million in 1995 included an after-tax gain of $12.5 million from the settlement of certain insurance issues relating to past environmental claims, a $2.2 million after-tax gain on the sale of a business, and a $1.9 million after-tax charge for a voluntary early retirement program. Excluding these items, net income would have been $105.2 million, or $3.80 per share. Several factors contributed to these achievements. Despite continued weakness in original-equipment markets, BFGoodrich Aerospace successfully achieved sales increases in the aftermarket and service markets it serves. Growth was particularly strong for maintenance, repair and overhaul services as airlines increasingly outsourced various maintenance requirements. In addition, higher aftermarket demand for ice protection, avionics and wheels and brakes products contributed significantly to the sales growth. BFGoodrich Specialty Chemicals experienced volume growth in most U.S. markets, reflecting increased demand for existing products, expansion of product applications and entries into new markets. Strategic expansion in international regions, predominantly Europe and the Far East, complemented the domestic growth. Weak sales in construction-related markets in North America dampened the segment's revenue growth rate in 1995. The increase in consolidated sales was also aided by higher volumes and selling prices for chlor-alkali and olefins products. Selling and administrative expenses were 21 percent of sales, down from 23 percent in 1994. This improvement reflects continuing successful efforts to reduce costs. Corporate expenses remained virtually unchanged from 1994. This result excludes a $3.1 million pretax charge for a voluntary early retirement program in 1995. Management will continue its efforts to reduce Corporate expenses. Cash flow from operations improved, largely due to an increase of $42.3 million in net income. This favorable cash flow result is after a pension contribution of $38.5 million in 1995 ($32.5 million in 1994) which achieved a 94 percent funded status on an ABO basis for the Company's underfunded defined benefit pension plans, compared with 91 percent in 1994. The Company's goal is to fund these plans fully by 1997. Return on equity increased to 13.3 percent in 1995 (11.8 percent excluding the effect of the aforementioned special items) from 7.2 percent in 1994 on a continuing operations basis. Total debt to capitalization decreased to 33.9 percent in 1995 from 37.4 percent in 1994, due to lower levels of total debt and a greater equity base. Outlook: The Company expects continued growth in sales and earnings in 1996 and 1997, excluding special items. Management's objective is to achieve a return on equity in the mid-teens by 1997, with much less variability around that level in the future. The Company has the financial capability to continue to evaluate potential acquisitions in strategic markets. Divestiture of businesses that do not meet strategic or income return goals will also be under evaluation. Cash flow from operations is expected to continue to improve in 1996, with significant positive net cash flow anticipated by 1997. The Company will continue its cost-containment actions to reduce selling and administrative expenses as a percent of sales. The BFGoodrich Company SALES (In millions) 93 $ 1,818.3 94 $ 2,199.2 95 $ 2,408.6 Sales increased 10 percent, reflecting solid growth in most markets.
The BFGoodrich Company INCOME FROM CONTINUING OPERATIONS (In millions) 93 $ 15.3 94 $ 65.7 95 $ 118.0 BFGoodrich continues to lengthen its earnings growth record.
2 17 The BFGoodrich Company and Subsidiaries BFGOODRICH AEROSPACE SALES BY GROUP
(In millions) 1995 1994 1993 - ------------------------------------------------------------------------- Landing Systems $ 311.2 $ 302.0 $260.7 Sensors and Integrated Systems 284.8 290.8 187.4 Safety Systems 221.5 188.6 191.9 MRO 332.1 268.9 215.4 - ------------------------------------------------------------------------- TOTAL $1,149.6 $1,050.3 $855.4 ========================================================================= OPERATING INCOME $ 146.6 $ 121.9 $ 91.3 =========================================================================
AEROSPACE: Record sales and operating income in 1995 for the Aerospace segment were achieved, despite continued weakness in original-equipment markets. The sales growth was primarily attributable to the continued outsourcing of maintenance, repair and overhaul services by airlines and to higher aftermarket demand for ice protection, avionics and wheels and brakes products. The Landing Systems Group continued to experience increased demand from airlines for several wheel and brake programs, including Boeing 737 and 747, Airbus A320 and A330/340 and out-of-production programs. Initial shipments for the Boeing 777 program and strong commercial and military landing gear spares sales also contributed to the sales increase. These gains more than offset lower landing gear sales for new commercial and military aircraft production. Reduced production rates by Boeing and Airbus, and reduced military aircraft production, were primarily responsible for the modest decline in sales of the Sensors and Integrated Systems Group. These shortfalls were partially offset by increased commercial retrofit business. Strong demand for pneumatic and propeller deicing products and collision avoidance systems accounted for the higher sales in the Safety Systems Group. This growth more than offset reduced sales of aircraft evacuation slides, resulting from lower commercial aircraft build rates. The Maintenance, Repair and Overhaul (MRO) Group experienced significant sales growth over 1994 levels. Increased demand for maintenance, repair and overhaul services for commercial airframes and components, landing gear and wheels and brakes accounted for most of the sales growth. This growth reflects the continuing trend toward outsourcing of maintenance by airlines. New contract awards with Continental Airlines, Alaska Airlines and Western Pacific Airlines contributed to the revenue growth. Aerospace segment operating income increased 20 percent over 1994 on a 9 percent increase in sales. The improved operating margins reflect the favorable impact of volume growth in aircraft services and aftermarket products. In addition, operating margins benefited from improved capacity utilization and the successful implementation of productivity and cost-containment initiatives, primarily in the Landing Systems and Safety Systems Groups. Production workers at The Boeing Company went on strike on October 6, 1995 over job security issues. Boeing and its workers reached an agreement on December 14, 1995. The impact of the strike to 1995 Aerospace segment operating income was minimal, since production and sales of landing gear, the largest individual component sold to Boeing by Aerospace, continued throughout the strike. Production of other components sold to Boeing experienced interruptions. The impact, however, on 1995 segment operating income was not material. The strike's impact on 1996 Aerospace segment operating income should not be material due to the resolution of the strike in December 1995 and Boeing's subsequent announcement that it will increase its build rates in 1996 in order to recover lost production. Outlook: BFGoodrich Aerospace's strong position in civil aircraft markets, and the balance that the Company has achieved in its businesses between original-equipment, service and aftermarket products and services, should provide for continued growth in 1996 and beyond. Most industry analysts are predicting annual long-term growth in worldwide commercial air traffic of approximately 5 percent. That level of growth, coupled with increasing retirement of older aircraft, should cause a rebound in the demand for new aircraft. While 1995 showed a significant increase in orders for new commercial aircraft, industry aircraft production rates are not expected to increase until late 1996. In the meantime, the demand for spare parts and for maintenance, repair and overhaul of aging aircraft should increase. In addition, BFGoodrich will benefit from continued airline outsourcing of airframe and component maintenance, repair and overhaul, driven by the airlines' focus on reducing cost and capital investment. The outlook for the regional aircraft market is also favorable, with expected growth rates approaching 10 percent. BFGoodrich supplies components for numerous aircraft models serving that market. With ongoing lower levels of defense spending anticipated, BFGoodrich Aerospace will continue to pursue retrofit and life-extension programs for older military aircraft and should benefit from the sale of spare parts for older aircraft, while targeting selected new military aircraft and missile programs. The Company will continue to pursue cost-reduction, productivity improvement and asset management programs. These internal initiatives provide the opportunity to leverage the Company's cost and asset position for continued sales and income growth as market conditions improve. 3 18 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) SPECIALTY CHEMICALS: Segment sales and operating income surpassed the record levels achieved in 1994. Sales in 1995 increased to $1,070.1 million, or 8 percent higher than last year. Excluding acquisitions and a divestment, sales increased 6 percent. Sales growth primarily reflected an 11 percent increase in domestic sales, resulting from higher volume and pricing in most U.S. markets. International sales were 3 percent higher as growth in the Far East and Europe was partially offset by lower sales in Canada. Volume growth reflected increased demand for existing products, continued expansion of product applications and entries into new markets. Sales were weak in construction-related markets, but strong for products supporting electronics, textile and automotive applications. Price increases were implemented in 1995 in response to a significant rise in raw material costs late in 1994 and during the first half of 1995. The Specialty Plastics Group sales increase reflected continued strong demand for thermoplastic polyurethane and price increases across major product lines. The price increases helped offset the significant rise in raw material costs experienced during the first half of 1995. Weakness in the Middle East and U.S. housing markets dampened sales growth of heat-resistant plastics. Demand for the relatively new reaction-injection-molded plastics continued to improve, and prospects for future growth are excellent. In 1995, the Group also benefited from a favorable foreign exchange effect on sales. The Specialty Additives Group sales increased 21 percent over the prior year. Excluding two acquisitions made in 1994, sales increased 6 percent, reflecting both volume gains and price increases across most major product lines. Polymer resin, emulsion and compound sales to the electronic, textile and do-it-yourself markets were especially strong. Sales of synthetic thickeners for personal-care applications also grew significantly. BFGOODRICH SPECIALTY CHEMICALS SALES BY GROUP
(In millions) 1995 1994 1993 - -------------------------------------------------------------- Specialty Plastics $ 250.2 $228.1 $178.5 Specialty Additives 445.8 367.0 288.3 Sealants, Coatings and Adhesives 359.5 349.5 324.4 Water Systems and Services 14.6 44.0 38.4 - -------------------------------------------------------------- TOTAL $1,070.1 $988.6 $829.6 ============================================================== OPERATING INCOME $ 92.2 $ 86.7 $ 45.0 ==============================================================
The increase in roofing sales was the primary contributor to the sales growth of the Sealants, Coatings and Adhesives Group. The roofing business in the U.S. increased significantly through improved sales coverage, expanded services and an expansion of the product line. European sealant sales also increased well over 1994 levels. Sealant sales in North America, however, declined as housing starts and commercial construction slowed, particularly in Canada. Market growth in the Asia Pacific region was accomplished through joint ventures in Singapore and Malaysia. Increased demand for adhesives in the aerospace and automotive markets contributed to the Group's sales growth. The Water Systems and Services Group (Arrowhead Industrial Water, Inc. [Arrowhead]) was divested on May 4, 1995. The $84.3 million adjusted sales price resulted in a pretax gain of $3.6 million. Arrowhead accounted for approximately 4 percent of the Specialty Chemicals segment's 1994 sales, but less than 2 percent of that segment's 1994 operating income. Specialty Chemicals segment operating income increased 6 percent to $92.2 million. Adjusted for 1994 acquisitions and the Arrowhead divestment in 1995, operating income increased 2 percent. Sales volume accounted for most of the growth in operating income. Significant increases in raw material costs for many specialty additives and specialty plastics negatively affected earnings, despite implementation of cost-control initiatives and price increases. The effect of higher raw material costs and increased spending to support volume growth dampened the income contribution of higher sales. Outlook: Growth in sales, largely reflecting higher volumes, is expected to continue in 1996 and beyond. Expanded product offerings are expected to establish a larger sales base and income opportunity globally. The fastest growth is expected from international markets. Added European production capacity coming on line in 1996 and 1998 for specialty additives and specialty plastics products will enhance competitiveness in that region. Geographic expansion within the Asia Pacific region, particularly in mainland China and India, will also be emphasized. A recovery in housing starts should benefit North American sales. OTHER OPERATIONS: Other Operations consists of the chlor-alkali, olefins and utility operations located at Calvert City, Kentucky. Sales of chlor-alkali and olefins products added to the year's gain in consolidated sales, as both volume and selling prices for all products increased significantly over the prior year. Sales in 1995 increased 18 percent to $188.9 million. Operating income in 1995 increased 139 percent to $57.5 million, reflecting the volume and price gains over 1994, stable raw material costs and favorable utility costs. 4 19 The BFGoodrich Company and Subsidiaries Outlook: Demand for chlor-alkali products is expected to remain at current levels during 1996, while demand for olefins products is expected to continue to soften during the first half of 1996. The Company does not have a significant market share, and selling prices are determined by market influences. Olefins product prices are expected to remain weak at least during the first half of 1996, and, as a result, operating income from Other Operations could be significantly less in 1996 compared with 1995. BFGoodrich has tendered the Calvert City chlor-alkali and olefins facilities (Facilities) to Westlake Monomers Corporation (Westlake) at the February 15, 1993 fair market value of approximately $170.0 million, as determined by an independent appraiser. Westlake has stated it intends to purchase the Facilities at the appraised value. Such an acquisition by Westlake is subject to the negotiation and execution of a definitive purchase agreement and governmental approval. There can be no assurance that a definitive agreement will be reached. See also Note P to the Consolidated Financial Statements for further discussion. 1994 Compared with 1993 CONSOLIDATED OPERATIONS: Sales in 1994 increased 21 percent over 1993 to $2,199.2 million. Adjusted for acquisitions made in 1993 and 1994, sales increased 10 percent. Total segment operating income increased 66 percent over 1993 to $232.7 million. Adjusted for acquisitions, total segment operating income increased 61 percent. The consolidated gross profit ratio increased to 31 percent in 1994 from 30 percent in 1993. Improved labor efficiencies at the Everett-based maintenance, repair and overhaul facility and other productivity improvements and cost-containment activities in the landing systems businesses helped to improve overall gross profit and more than offset softness in commercial aircraft manufacturing. This improvement was partially offset by increases in raw material prices for many specialty chemicals. Improved manufacturing efficiencies and the rationalization of a high-cost facility, however, helped to counter the effects of these rising raw material prices. Rising prices combined with stable raw material costs and favorable utility costs in the chlor-alkali and olefins business also contributed to the improvement in consolidated margins. Selling and administrative expenses remained essentially flat as a percentage of sales, reflecting management's control of overhead expenses. Acquisitions made in late 1993 and in 1994 increased total costs. Lower postretirement benefit costs and lower pension expense in 1994 reflected a reduced discount rate and higher levels of pension funding made during 1993. AEROSPACE: Sales increased 23 percent over 1993 to $1,050.3 million. Adjusted for the effect of the 1993 acquisitions of the Landing Gear Division, Landing Gear Services Division and Rosemount Aerospace, sales increased 4 percent. Continued softness in new aircraft manufacturing reduced the demand for landing systems and many safety systems products. Increased demand, however, for replacement wheels and brakes for the Boeing 737 and 747 programs and sales of wheels and brakes to regional and commuter aircraft manufacturers helped offset the negative impact of reduced original-equipment demand. During the fourth quarter of 1993, the opening of a new hangar at the Everett-based maintenance, repair and overhaul facility significantly increased the capacity to provide commercial airframe maintenance. This expansion coupled with higher demand for wheel and brake and landing gear repair and overhauls contributed to revenue growth in 1994. Overall, the Aerospace segment successfully improved operating margins. The favorable impact of volume growth, productivity improvements and cost-containment activities, primarily in the Maintenance, Repair and Overhaul and Landing Systems Groups, more than offset softness in commercial aircraft manufacturing and military markets. Excluding 1993 acquisitions and a $3.3 million restructuring charge recorded in 1993, Aerospace segment operating income increased 17 percent on a 4 percent increase in sales. SPECIALTY CHEMICALS: Sales increased to $988.6 million, or 19 percent over 1993. Excluding acquisitions made in 1994 and late 1993, sales increased 13 percent over 1993. Factors contributing to the increase include improved sales volume due to expanded product applications, particularly for specialty plastic and specialty additive products, and increased demand for insulating-glass sealants. International expansion of the Specialty Plastics and Specialty Additives businesses also occurred in 1994, contributing to the revenue growth. Led by strong European demand for specialty plastic and specialty additive products, sales outside North America increased 13 percent. Operating income for 1994 increased 93 percent to $86.7 million. Operating income in 1993 included an $8.0 million restructuring charge to mothball a high-cost manufacturing facility and consolidate European operations. Without the effect of this charge and the effect of acquisitions, operating income increased by 55 percent. Sales volume increases accounted for substantially all of this increase. Cost increases for several key raw materials dampened this improvement somewhat. Improved manufacturing efficiencies and the rationalization of a high-cost facility, however, helped to counter the effects of rising raw material costs. 5 20 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) OTHER OPERATIONS: Chlor-alkali and olefins sales in 1994 increased 20 percent to $160.3 million. This increase reflected higher ethylene and chlorine sales volumes and higher selling prices, particularly during the last six months of 1994. Operating income in 1994 increased to $24.1 million from $4.0 million in 1993. This increase was attributable to higher selling prices, stable raw material costs and favorable utility costs during the second half of 1994. RESTRUCTURING COSTS In 1995, the Company recorded a $3.1 million pretax charge to reflect the termination benefits paid under a voluntary early retirement program for eligible salaried employees at the Company's corporate headquarters, Advanced Technology Group research facilities and Aerospace segment headquarters. In January 1996, the Company offered a voluntary early retirement program to eligible employees of the Specialty Plastics and Specialty Additives Groups. Employees have until February 29, 1996 to decide whether or not to elect the program. A total of 82 employees are eligible for the program. The Company estimates it will recognize a pretax charge in the range of $3 million to $5 million in the first quarter of 1996. The Company did not incur restructuring costs in 1994. Restructuring costs in 1993 principally reflect expenses for work force reductions in Aerospace and Specialty Chemicals businesses and in the Advanced Technology Group. Restructuring costs in 1993 also included a provision for mothballing a plant and relocating equipment to other plants. Included in the 1993 charge was $11.8 million for work force reduction and plant mothballing costs and $1.5 million for a non-cash write-off of fixed assets. As of year-end 1995, $.6 million of the original restructuring liability remains. The remaining restructuring activities are expected to be completed during 1996, and no significant change to this liability is anticipated. The Company continues to evaluate employment levels and facility cost structures in relation to economic and competitive conditions. INTEREST Interest expense decreased to $45.1 million in 1995 from $47.7 million in 1994 due to lower levels of total debt, reflecting the proceeds from the sale of Arrowhead. Interest income in 1995 included $1.0 million of interest received from an insurance settlement related to past environmental issues. Interest expense in 1994 increased by $9.4 million over 1993. More than half of this increase was due to nearly $5.0 million more interest being capitalized on qualifying projects in 1993 than in 1994. New interest costs on the industrial development revenue bonds issued to fund the 1993 Aerospace hangar facility and generally higher short-term borrowing during 1994 accounted for the remaining increase. In May 1993, the Company received $222.7 million from the sale of the first tranche of The Geon Company stock. These proceeds, until applied to new acquisitions, along with a $160.0 million special dividend from Geon, helped to maintain lower average short-term borrowing during 1993. OTHER INCOME(EXPENSE)-NET Other income(expense)-net for 1995 reflected income of $.3 million compared to an expense of $25.2 million in 1994. The 1995 amount included $19.1 million of income from the settlement of certain insurance issues relating to past environmental claims, principally for previously discontinued businesses, and a $3.6 million gain from the sale of Arrowhead. The 1994 amount was $9.1 million lower than the 1993 expense of $34.3 million. This decrease resulted from lower health-care benefit costs for retirees of previously discontinued businesses and a $7.2 million gain recognized on the sale of certain Corporate assets during the fourth quarter of 1994. DISCONTINUED OPERATIONS In the third quarter of 1994, the Company realized a $10.0 million tax benefit as a result of utilizing excess foreign tax credits resulting from the 1993 sale of The Geon Company. This tax benefit was reported as an additional gain from the 1993 discontinued operation. See also Note B to the Consolidated Financial Statements. RETURN ON EQUITY Management's objective is to achieve a return on equity in the mid-teens by the end of 1997. In 1995, the Company achieved a return on equity on a continuing operations basis of 13.3 percent (11.8 percent excluding the effect of special items), compared with 7.2 percent in 1994 and 1.2 percent in 1993. THE BFGOODRICH COMPANY RETURN ON EQUITY* 93 1.2% 94 7.2% 95 13.3% * Continuing Operations The Company is on target to achieve a mid-teens return on equity by 1997.
6 21 The BFGoodrich Company and Subsidiaries CAPITAL RESOURCES AND LIQUIDITY The Company's liquidity position improved significantly at December 31, 1995 compared with December 31, 1994. Current assets less current liabilities increased by approximately $109.0 million. This result reflects proceeds of $80.0 million received in connection with the sale of Arrowhead, with the remaining $4.3 million in proceeds received in 1996. The Company's current ratio improved to 1.6X at December 31, 1995 from 1.4X at December 31, 1994. In addition, the quick ratio improved to .76X from .66X in 1994. The Company intends to continue to finance short-term bank debt and currently maturing long-term debt on a longer-term basis. The Company has adequate cash flow from operations to satisfy its operating requirements and capital spending programs. In addition, the Company has the credit facilities described in the following paragraphs to finance growth opportunities as they arise. The Company maintains $310.0 million of uncommitted domestic money market facilities with various banks to meet its short-term borrowing requirements. As of December 31, 1995, $260.0 million of these facilities were unused and available. Over 90 percent of the Company's uncommitted credit facilities are provided by a small number of commercial banks that also provide the Company with all of its domestic committed lines of credit and the majority of its cash management, trust and investment management requirements. As a result of these established relationships, the Company believes that its uncommitted facilities are a highly reliable and cost-effective source of liquidity. The Company also maintains $300.0 million of committed domestic revolving credit agreements with various banks. At December 31, 1995 and throughout the year, these facilities were not in use. In July 1995, the Company renegotiated its revolving credit agreements, maintaining the same $300.0 million committed line, but extending the expiration date to mid-2000. In addition, the Company has an effective shelf registration statement with the Securities and Exchange Commission providing the ability to issue up to $171.0 million of public debt securities as of December 31, 1995 (referred to as the MTN program). During 1995, the Company made four issues of fixed-rate non-callable MTN notes under this shelf registration and received a total of $79.0 million in proceeds. The MTN notes are due in 2025 at interest rates ranging from 7.3 percent to 8.7 percent. The proceeds were used to replace scheduled maturities of long-term debt. On July 6, 1995, BFGoodrich Capital, a Delaware statutory business trust (the Trust) which is consolidated by the Company, received $122.5 million, net of the underwriting commission, from the issuance of 8.30 percent Cumulative Quarterly Income Preferred Securities, Series A (QUIPS). The Trust invested the proceeds in 8.30 percent Junior Subordinated Debentures, Series A, due 2025 (Junior Subordinated Debentures) issued by the Company. 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 on July 31, 1995, for $50.70 per share plus accrued dividends of approximately $0.30 per share. 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. Prior to the redemption of the Series D Preferred Stock, holders of some Series D Preferred Stock exercised their conversion privileges and received 415,806 shares of common stock. Shortly thereafter, the Company completed the repurchase of all of the common stock issued upon conversion of the Series D Preferred Stock. The Company's total cash cost to repurchase the shares issued upon conversion of the Series D Preferred Stock was approximately $.4 million less than what the total cash cost would have been to redeem the Series D Preferred Stock. The Company believes that its credit facilities are sufficient to meet longer-term capital requirements including normal maturities of long-term debt. The Company's objective is to achieve an "A" credit rating within the following two- to three-year period. This accomplishment would reduce the Company's cost of debt capital and strengthen the Company's financial flexibility to achieve its growth plans. The Company has continued to manage its debt-to-capitalization ratio within the long-term target range of 35 to 40 percent. For purposes of this ratio the QUIPS are treated as capital. THE BFGOODRICH COMPANY DEBT TO CAPITALIZATION (DECEMBER 31) 93 36.9% 94 37.4% 95 33.9% BFGoodrich has the financial resources to achieve its growth plans.
7 22 MANAGEMENT'S DISCUSSION AND ANALYSIS (continued) CASH FLOWS "Net operating cash flow" is cash from operations remaining after satisfying capital expenditures, dividend payments and the effects of acquisitions and divestitures. The Company's longer-term strategy is to maximize cash flow through profitable business growth and to reinvest in opportunities that will build shareholder value as well as return to shareholders a portion of that value through dividend payments. The Company's short-term objective is to achieve cash neutrality after satisfying capital expenditures and payment of dividends, but excluding the effects of acquisitions and divestitures. In 1995, operating working capital (defined as accounts receivable plus pre-LIFO inventory less accounts payable) increased to $617.6 million from $565.3 million at the end of 1994. Average operating working capital as a percent of sales was 26 percent in 1995, compared to a ratio of 25 percent in 1994. Higher raw material costs, predominantly for specialty plastics and specialty additives, contributed to the increase in operating working capital. In 1996, the Company will be pursuing initiatives to reduce the investment in operating working capital. Net operating cash flow is summarized as follows:
(In millions) - ----------------------------------------------------------------- Year Ended December 31 1995 1994 1993 - ----------------------------------------------------------------- Cash flows from (used for): Operations $ 193.5 $ 183.6 $ (17.4) Capital expenditures - net (146.4) (118.8) (126.2) - ----------------------------------------------------------------- 47.1 64.8 (143.6) Dividends and QUIPS distributions (66.7) (64.6) (64.6) - ----------------------------------------------------------------- (19.6) .2 (208.2) Acquisitions and divestitures - net 66.9 (20.2) 39.6 ================================================================= Net operating cash flow $ 47.3 $ (20.0) $(168.6) =================================================================
Cash flow from operations in 1995 improved as net income increased $42.3 million. This cash flow was more than adequate to finance capital expenditures in 1995. Planned capital programs will require higher capital spending in 1996 as the Company continues its investment in international expansion, particularly in Europe by the Specialty Chemicals segment. The Company intends to finance these programs largely by cash flow from operations. ENVIRONMENTAL MATTERS Federal, state and local statutes and regulations relating to the protection of the environment and the health and safety of employees and other individuals have resulted in higher operating costs and capital investments by the industries in which the Company operates. Because of the continuing trend toward greater environmental awareness and increasingly stringent environmental regulations, the Company believes that expenditures for compliance with environmental, health and safety regulations will continue to have a significant impact on the conduct of its business. Although it cannot predict accurately how these developments will affect future operations and earnings, the Company does not believe its costs will vary significantly from those of its competitors. The Company expects to incur capital expenditures and future costs for environmental, health and safety improvement programs. These expenditures are customary operational costs and are not expected to have a material adverse effect on the financial position, liquidity or results of operations of the Company. BFGoodrich and its subsidiaries are generators of both hazardous wastes and non-hazardous wastes, the treatment, storage, transportation and disposal of which are subject to various laws and governmental regulations. Although past operations were in substantial compliance with the then-applicable regulations, the Company has been designated as a potentially responsible party by the U.S. Environmental Protection Agency in connection with approximately 42 sites, most of which related to businesses previously discontinued. The Company believes it may have continuing liability with respect to not more than 25 sites. The Company initiates corrective and/or preventative environmental projects of its own to ensure safe and lawful activities at its current operations. The Company believes that compliance with current governmental regulations will not have a material adverse effect on its capital expenditures, earnings or competitive position. The Company's environmental engineers and consultants review and monitor past and existing operating sites. This process includes investigation of National Priority List sites, where the Company is considered a potentially responsible party, review of remediation methods and negotiation with other potentially responsible parties and governmental agencies. 8 23 The BFGoodrich Company and Subsidiaries At December 31, 1995, the Company had recorded as Accrued expenses and as Other Non-current Liabilities a total of $22.6 million to cover future environmental expenditures, principally for remediation of the aforementioned sites and other environmental matters. A significant portion of accrued environmental liabilities is in connection with six sites, five of which relate to businesses previously discontinued. Two of the most significant variables in determining the Company's ultimate liability are the remediation method finally adopted for the site and the Company's share of the total site remediation cost. With respect to the five previously discontinued sites, the Company's maximum percentage share of the ultimate remediation costs is fixed. Three of the five sites are in the design or construction phases and two sites are essentially in the maintenance and operation phase, and, as a result, the remediation plan is generally known. While reasonable estimates of the ultimate completion cost can be made, the final cost at completion can vary significantly as a result of changes made during the construction phase and changed regulatory agency requirements, all of which are difficult to predict. With respect to the sixth site, the investigation and determination of remedial alternatives is just beginning, and it is not currently possible to determine the total cost of remediation or the Company's share of those future costs. Management believes that it is reasonably possible that additional costs may be incurred beyond the amounts accrued as a result of new information. However, the amounts, if any, cannot be estimated and management believes that they would not be material to the Company's financial condition, but could be material to the Company's results of operations in a given period. NEW ACCOUNTING STANDARDS In 1995, the Financial Accounting Standards Board issued two new accounting standards that will be applicable to the Company, each being effective for 1996. SFAS No. 121 "Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of," establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The Company has determined the effect upon its adoption to be immaterial to results of operations. SFAS No.123 "Accounting for Stock-Based Compensation," establishes new accounting standards for the measurement and recognition of stock-based awards. SFAS No. 123 permits entities to continue to use the traditional accounting for stock-based awards prescribed by APB Opinion No. 25 "Accounting for Stock Issued to Employees." The Company intends to continue using the provisions of APB Opinion No. 25 in accounting for stock-based awards. Under this option, however, the Company will be required to disclose the pro forma effect of stock-based awards on net income and earnings per share as if SFAS No. 123 had been adopted. 9 24 CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share amounts) Year Ended December 31 1995 1994 1993 - ------------------------------------------------------------------------------- SALES $2,408.6 $2,199.2 $1,818.3 Operating costs and expenses: Cost of sales 1,649.7 1,523.3 1,278.3 Selling and administrative expenses 516.0 496.2 444.0 Restructuring costs (Note B) 3.1 -- 13.3 - ------------------------------------------------------------------------------- 2,168.8 2,019.5 1,735.6 - ------------------------------------------------------------------------------- OPERATING INCOME 239.8 179.7 82.7 Interest expense (45.1) (47.7) (38.3) Interest income 3.3 1.8 5.2 Other income (expense)--net (Note I) .3 (25.2) (34.3) - ------------------------------------------------------------------------------- Income from continuing operations before income taxes and Trust distributions 198.3 108.6 15.3 Income tax expense (Note G) (75.2) (42.9) -- Distributions on Trust preferred securities (Note N) (5.1) -- -- - ------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS 118.0 65.7 15.3 Income from discontinued operations--net (Note B) -- 10.0 113.0 - ------------------------------------------------------------------------------- NET INCOME 118.0 75.7 128.3 Dividends and call premium on preferred stocks (5.6) (8.0) (8.2) - ------------------------------------------------------------------------------- NET INCOME APPLICABLE TO COMMON STOCK $ 112.4 $ 67.7 $ 120.1 =============================================================================== EARNINGS PER SHARE (Note A) Continuing operations $ 4.30 $ 2.24 $ .28 Discontinued operations -- .39 4.40 - ------------------------------------------------------------------------------- Net income $ 4.30 $ 2.63 $ 4.68 ===============================================================================
See Notes to Consolidated Financial Statements. 10 25 The BFGoodrich Company and Subsidiaries CONSOLIDATED BALANCE SHEET (Dollars in millions, except per share amounts)
December 31 1995 1994 - ---------------------------------------------------------------------------------------------- CURRENT ASSETS Cash and cash equivalents $ 60.3 $ 35.8 Accounts and notes receivable (Note J) 399.0 384.5 Inventories (Note J) 390.1 358.8 Deferred income tax assets (Note G) 67.9 64.9 Prepaid expenses and other assets 32.7 34.8 - ---------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 950.0 878.8 - ---------------------------------------------------------------------------------------------- DEFERRED INCOME TAX ASSETS (Note G) 28.3 57.0 PROPERTY (Note J) 859.2 873.3 GOODWILL (Notes B and J) 481.4 497.9 IDENTIFIABLE INTANGIBLE ASSETS (Note J) 51.5 51.6 INTANGIBLE PENSION ASSET (Note E) 44.2 49.5 OTHER ASSETS 75.0 60.8 - ---------------------------------------------------------------------------------------------- TOTAL ASSETS $ 2,489.6 $ 2,468.9 ============================================================================================== CURRENT LIABILITIES Short-term bank debt (Note C) $ 11.3 $ 70.4 Accounts payable 235.9 239.1 Accrued expenses (Note J) 239.9 246.9 Income taxes payable 33.3 26.4 Current maturities of long-term debt and capital lease obligations (Notes C and D) 80.3 55.2 - ---------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 600.7 638.0 - ---------------------------------------------------------------------------------------------- LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS (Notes C and D) 422.3 427.1 POSTRETIREMENT BENEFITS OTHER THAN PENSIONS (Note F) 351.9 353.6 OTHER NON-CURRENT LIABILITIES (Note J) 113.9 127.6 MANDATORILY REDEEMABLE PREFERRED SECURITIES OF TRUST (Note N) 122.2 -- SHAREHOLDERS' EQUITY $3.50 Cumulative Convertible Preferred Stock, Series D (stated at involuntary liquidation value of $50 per share) 2,200,000 shares issued and outstanding at December 31, 1994 -- 110.0 Common Stock--$5 par value Authorized, 100,000,000 shares; issued, 26,789,260 shares in 1995 and 25,950,722 shares in 1994 (Note M) 133.9 129.8 Additional capital 447.5 401.7 Income retained in the business (Note C) 360.9 305.7 Cumulative unrealized translation adjustments 9.6 4.9 Amount related to recording minimum pension liability (28.8) (18.6) Unearned portion of restricted stock awards (16.2) (3.9) Common stock held in treasury, at cost (522,568 shares in 1995 and 160,566 shares in 1994) (28.3) (7.0) - ---------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY 878.6 922.6 - ---------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,489.6 $ 2,468.9 ==============================================================================================
See Notes to Consolidated Financial Statements. 11 26 CONSOLIDATED STATEMENT OF CASH FLOWS (Dollars in millions)
Year Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 118.0 $ 75.7 $ 128.3 Adjustments to reconcile net income to net cash provided (used) by operating activities: Restructuring costs -- -- 13.3 Depreciation and amortization 113.9 112.1 109.2 Deferred income taxes 29.5 21.2 5.4 Gain on sales of businesses (3.6) -- (110.9) Change in assets and liabilities, net of effects of acquisitions and dispositions of businesses: Receivables (16.8) (62.8) (77.2) Inventories (27.9) (4.9) (13.2) Other current assets 1.3 (2.3) (20.3) Accounts payable 2.2 57.6 2.6 Accrued expenses (8.0) 9.5 (28.1) Income taxes payable 9.1 (5.6) (29.2) Other non-current assets and liabilities (24.2) (16.9) 2.7 - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by operating activities 193.5 183.6 (17.4) CASH FLOWS FROM INVESTING ACTIVITIES Purchases of property (147.7) (129.3) (146.2) Proceeds from sale of property 3.2 10.5 3.0 Payments made in connection with acquisitions, net of cash acquired (15.4) (20.2) (528.5) Proceeds and dividends from sales of businesses 82.3 -- 568.1 Other transactions (1.9) -- 17.0 - --------------------------------------------------------------------------------------------------------- Net cash used by investing activities (79.5) (139.0) (86.6) CASH FLOWS FROM FINANCING ACTIVITIES Change in short-term debt (59.2) 46.7 20.2 Proceeds from issuance of long-term debt 80.8 -- 111.5 Repayment of long-term debt and capital lease obligations (62.0) (20.5) (26.5) Proceeds from issuance of capital stock 16.6 1.4 4.3 Proceeds from issuance of Trust preferred securities, net of issuance costs 122.1 -- -- Purchases of treasury stock (33.4) (1.1) (.8) Dividends (61.6) (64.6) (64.6) Distributions on Trust preferred securities (5.1) -- -- Retirements of preferred stock (88.3) (4.9) (2.5) - --------------------------------------------------------------------------------------------------------- Net cash provided (used) by financing activities (90.1) (43.0) 41.6 EFFECT OF EXCHANGE RATE CHANGES ON CASH .6 .8 (1.6) - --------------------------------------------------------------------------------------------------------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 24.5 2.4 (64.0) - --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35.8 33.4 97.4 - --------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 60.3 $ 35.8 $ 33.4 =========================================================================================================
See Notes to Consolidated Financial Statements. 12 27 The BFGoodrich Company and Subsidiaries CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (Dollars in millions, except per share amounts)
Year Ended December 31 1995 1994 1993 - --------------------------------------------------------------------------------------------------------- $3.50 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES D (Note L) $ -- $ 110.0 $ 110.0 - --------------------------------------------------------------------------------------------------------- COMMON STOCK--$5 PAR VALUE (Note M) Balance at beginning of year 129.8 128.8 128.2 Common stock issued for: Acquisitions -- .7 -- Conversion of Series D Preferred Stock 2.0 -- -- Employee award programs 2.1 .3 .6 - --------------------------------------------------------------------------------------------------------- Balance at end of year 133.9 129.8 128.8 - --------------------------------------------------------------------------------------------------------- ADDITIONAL CAPITAL Balance at beginning of year 401.7 393.8 391.5 Acquisitions -- 5.6 -- Conversion of Series D Preferred Stock 20.8 -- -- Employee award programs 23.6 2.3 2.3 Other capital share transactions 1.4 -- -- - --------------------------------------------------------------------------------------------------------- Balance at end of year 447.5 401.7 393.8 - --------------------------------------------------------------------------------------------------------- INCOME RETAINED IN THE BUSINESS (Note C) Balance at beginning of year 305.7 294.6 230.9 Net income 118.0 75.7 128.3 Premium on redemption of Series D Preferred Stock (Note L) (1.2) -- -- Dividends: Preferred Stock: Series A, $7.85 a share -- (.3) (.5) Series D, $3.50 a share (4.4) (7.7) (7.7) Common stock--$2.20 a share in each year (57.2) (56.6) (56.4) - --------------------------------------------------------------------------------------------------------- Total dividends (61.6) (64.6) (64.6) - --------------------------------------------------------------------------------------------------------- Balance at end of year 360.9 305.7 294.6 - --------------------------------------------------------------------------------------------------------- CUMULATIVE UNREALIZED TRANSLATION ADJUSTMENTS Balance at beginning of year 4.9 (.3) (7.8) Effect of disposition of foreign operations -- -- 16.7 Aggregate adjustments for the year 4.7 5.2 (9.2) - --------------------------------------------------------------------------------------------------------- Balance at end of year 9.6 4.9 (.3) - --------------------------------------------------------------------------------------------------------- AMOUNT RELATED TO RECORDING MINIMUM PENSION LIABILITY (Note E) (28.8) (18.6) (21.7) - --------------------------------------------------------------------------------------------------------- UNEARNED PORTION OF RESTRICTED STOCK AWARDS (Note O) (16.2) (3.9) (4.8) - --------------------------------------------------------------------------------------------------------- COMMON STOCK HELD IN TREASURY, AT COST (Note M) (28.3) (7.0) (5.1) - --------------------------------------------------------------------------------------------------------- TOTAL SHAREHOLDERS' EQUITY $ 878.6 $ 922.6 $ 895.3 =========================================================================================================
See Notes to Consolidated Financial Statements. 13 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS NOTE A SIGNIFICANT ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: The consolidated financial statements reflect the accounts of The BFGoodrich Company (BFGoodrich or the Company) and its controlled affiliates. Investments of 20 to 50 percent owned affiliates and majority-owned companies in which investment is considered temporary are accounted for using the equity method. Equity in earnings from these businesses is included in Other income (expense)-net. Intercompany accounts and transactions have been eliminated. CASH AND CASH EQUIVALENTS: Cash equivalents consist of highly liquid investments with a maturity of three months or less at the time of purchase. INVENTORIES: Inventories 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. LONG-LIVED ASSETS: Property, plant and equipment, including amounts recorded under capital leases, are recorded at cost with depreciation and amortization principally computed by the straight-line method. Repairs and maintenance costs are expensed as incurred. Goodwill represents the excess of the purchase price over the fair value of the net assets of acquired businesses and is being amortized by the straight-line method, in most cases over forty years. The carrying amount of goodwill is reviewed if facts and circumstances suggest that it may be impaired. If this review indicates that goodwill will not be recoverable, as determined based on the estimated undiscounted cash flows of the entity acquired over the remaining amortization period, the carrying amount of the goodwill is reduced by the estimated short-fall of cash flows. 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, licenses and non-compete agreements. They are amortized using the straight-line method over estimated useful lives of five to twenty-five years. Impairment of long-lived assets is recognized when events or changes in circumstances indicate that the carrying amount of the asset, or related groups of assets, may not be recoverable. Measurement of the amount of impairment may be based on appraisal, market values of similar assets or estimated undiscounted future cash flows resulting from use and ultimate disposition of the asset. REVENUE RECOGNITION: The Company recognizes revenues from sale of products at the point of passage of title, which is generally at the time of shipment. Revenues earned from providing maintenance service are recognized when the service is complete. FINANCIAL INSTRUMENTS: The Company's financial instruments recorded on the balance sheet include cash and cash equivalents and debt. Because of their short maturity, the carrying amount of cash and cash equivalents and short-term bank debt approximates fair value. Fair value of long-term debt is based on rates available to the Company for debt with similar terms and maturities. Off balance sheet derivative financial instruments include interest rate swap agreements and foreign currency exchange agreements. Interest rate swap agreements are used by the Company to manage interest rate risk on its floating rate debt portfolio. Each interest rate swap is matched as a hedge against a specific debt instrument and has the same notional amount as the related debt instrument principal. These financial instruments were entered into at the time the related floating rate debt was issued in order to convert the floating rate debt to fixed rates. Fair value of these instruments is based on estimated current settlement cost. In the normal course of business, the Company sells chemical inventory manufactured in the United States to subsidiaries in Europe for resale to customers. In order to fix the intercompany transfer price, the Company, from time to time, purchases foreign currency exchange contracts. These agreements reduce the risk that unusual adverse foreign currency fluctuations will reduce profitability to unacceptably low margins on resale of the products. Foreign currency exchange agreements are purchased from banks, generally to hedge European currencies. Deferred gains and losses are included as part of the cost of inventory and are recognized in operating income when inventory is sold to third parties. EARNINGS PER SHARE: Primary earnings per share of common stock are computed after recognition of preferred stock dividend requirements and premiums associated with the redemption of preferred stock, based on the weighted average number of common stock and common stock equivalents outstanding of 26,169,570 for 1995, 25,766,376 for 1994 and 25,687,816 for 1993. Fully diluted earnings per share are not presented, since dilution is less than 3 percent. 14 29 The BFGoodrich Company and Subsidiaries RECENTLY ISSUED ACCOUNTING STANDARDS: In March 1995, the Financial Accounting Standards Board (FASB) issued SFAS No. 121--"Accounting for the Impairment of Long-lived Assets and for Long-lived Assets to be Disposed Of." SFAS No. 121 establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used, and for long-lived assets and certain identifiable intangibles to be disposed of. The Company is required to adopt the provisions of SFAS No. 121 for 1996, and the Company has determined the effect upon its adoption to be immaterial to results of operations. In November 1995, the FASB also issued SFAS No. 123--"Accounting for Stock-Based Compensation," which establishes new accounting standards for the measurement and recognition of stock-based awards. SFAS No. 123 permits entities to continue to use the traditional accounting for stock-based awards prescribed by APB Opinion No. 25--"Accounting for Stock Issued to Employees"; however, under this option, the Company will be required to disclose the pro forma effect of stock-based awards on net income and earnings per share as if SFAS No. 123 had been adopted. SFAS No. 123 is effective for 1996. The Company intends to continue using the provisions of APB Opinion No. 25 in accounting for stock-based awards. Other recently issued standards of the FASB are not expected to affect the Company as conditions to which those standards apply are absent. 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 reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. RECLASSIFICATIONS: Certain amounts presented in prior years' financial statements have been reclassified to conform with the 1995 presentation. NOTE B ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS ACQUISITIONS: During 1995, BFGoodrich acquired four small aerospace businesses and two small specialty chemical businesses. The aggregate purchase price of these businesses was $15.4 million. During 1994, the Company acquired two small specialty chemical businesses which manufacture coatings and products for the textile industry. The aggregate purchase price of these businesses was $26.5 million. On June 10, 1993, BFGoodrich acquired certain assets and assumed certain liabilities of the now Landing Gear Division and Landing Gear Services Division for a cash purchase price of $193.4 million. The Landing Gear Division designs, develops and manufactures landing gear for commercial and military aircraft. On December 15, 1993, BFGoodrich acquired certain assets and assumed certain liabilities of Rosemount Aerospace for $301.1 million in cash. Rosemount Aerospace designs and manufactures aerospace sensors and related equipment. Also during 1993, BFGoodrich acquired the assets and assumed certain liabilities of six other businesses and the minority interest in a previously majority-owned subsidiary. The aggregate purchase price of these businesses was $34.0 million. These acquisitions were recorded using the purchase method of accounting. Their results of operations have been included in the consolidated financial statements since the dates of acquisition. DISPOSITIONS: On May 4, 1995, the Company sold its wholly-owned subsidiary, Arrowhead Industrial Water, Inc. (Arrowhead), for an adjusted price of $84.3 million, resulting in a pretax gain of $3.6 million, which is included in Other income (expense)-net. Arrowhead represented substantially all of the Specialty Chemicals' Water Systems and Services business group and accounted for approximately 4 percent of that business segment's 1994 sales, but less than 2 percent of the segment's 1994 operating income. On May 6, 1993, the Company received $222.7 million by selling 13.1 million shares of The Geon Company stock at $17 per share (net of commissions). This represented approximately 50.4 percent of its interest in The Geon Company. On December 1, 1993, the Company sold its remaining investment in The Geon Company (12.9 million shares) for $19.20 per share (net of commissions) and received $247.7 million. Prior to the sale of The Geon Company, the Company received a special distribution of $160.0 million from Geon. Of this amount, $50.0 million was received in cash prior to the initial public offering. Subsequently, the Company received $110.0 million in cash. The Geon Company represented the Company's only polyvinyl chloride manufacturing business. 15 30 NOTE B: ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS (continued) As a result of these transactions, The Geon Company results of operations and related gain on the sales of securities have been reported as discontinued operations in the Consolidated Statement of Income. The results of discontinued operations include:
(In millions) 1995 1994 1993 - ----------------------------------------------------------- Sales $ - $ - $ - - ----------------------------------------------------------- Income from operations $ - $ - $ .1 Equity in earnings (from May 6, 1993) - - 3.2 Income tax expense - - (1.2) - ----------------------------------------------------------- Net income from operations - - 2.1 Gain on disposal of The Geon Company (net of tax of $104.3 in 1993) - 10.0 110.9 - ----------------------------------------------------------- Income from discontinued operations $ - $10.0 $113.0 ===========================================================
The gain on disposal in 1993 includes $16.7 million and $3.1 million of foreign currency translation losses and minimum pension liability, respectively, recognized at the dates of sale. In 1994, the Company recognized a $10.0 million tax benefit as a result of realizing the benefit of utilizing excess foreign tax credits resulting from the 1993 sale. This tax benefit is reported as a discontinued operation in 1994. RESTRUCTURINGS: In 1995, the Company recorded a $3.1 million pretax charge to reflect the termination benefits paid under a voluntary early retirement program for eligible salaried employees at the Company's corporate headquarters, Advanced Technology Group research facilities and Aerospace segment headquarters. In January 1996, the Company offered a voluntary early retirement program to eligible employees of the Specialty Plastics and Specialty Additives Groups. Employees have until February 29, 1996 to decide whether or not to elect the program. A total of 82 employees are eligible for the program. The Company estimates it will recognize a pretax charge in the range of $3 million to $5 million in the first quarter of 1996. The Company did not incur restructuring costs in 1994. During 1993, the Company announced several restructuring programs, the aggregate cost of which was $13.3 million. This amount includes $8.0 million for severance, mothballing and moving costs associated with streamlining certain Specialty Chemicals businesses; $3.3 million of severance costs relating to cost-reduction programs in certain Aerospace businesses; and $2.0 million of severance costs relating to realignment of the Advanced Technology Group. At December 31, 1995, $.6 million of the original restructuring liability remains. The remaining restructuring activities are expected to be completed during 1996, and no significant change to this liability is anticipated. NOTE C FINANCING ARRANGEMENTS SHORT-TERM BANK DEBT: At December 31, 1995, the Company had separate revolving credit agreements with certain banks providing for domestic lines of credit aggregating $300.0 million. Borrowings under these agreements can be for any period of time until the expiration date and bear interest, at the Company's option, at rates tied to the banks' certificate of deposit, Eurodollar or prime rate. The lines expire on June 30, 2000, unless extended by the banks at the request of the Company. Under the agreements, the Company is required to pay a commitment fee of 12 basis points per annum on the total $300.0 million committed line. At December 31, 1995, no amounts were outstanding pursuant to these agreements. In addition, the Company had available formal foreign lines of credit and overdraft facilities of $42.0 million at December 31, 1995, of which $11.3 million was used. The Company also maintains uncommitted domestic money market facilities with various banks aggregating $310.0 million of which $260.0 million of these lines were unused and available at December 31, 1995. Weighted average interest rates on outstanding short-term borrowings were 7.1 percent and 6.6 percent at December 31, 1995 and 1994, respectively. Average interest rates on short-term borrowings were 6.5 percent, 4.9 percent and 7.6 percent in 1995, 1994 and 1993, respectively. In connection with $50.0 million of the floating rate borrowings, the Company has designated as a hedge an interest rate swap agreement, effectively fixing the interest rate at 9.8 percent. This borrowing has been classified as long-term debt, as it is the Company's intent to refinance the obligation on a long-term basis under the Company's existing financing arrangements. The swap is scheduled to expire in April 1996. 16 31 The BFGoodrich Company and Subsidiaries At December 31, 1995 and 1994, long-term debt and capital lease obligations payable after one year consisted of:
(In millions) 1995 1994 - ---------------------------------------------------------------- Short-term debt expected to be refinanced $ 50.0 $ 50.0 9.625% Notes, maturing in 2001 175.0 175.0 9.04% Notes, maturing in 1996 -- 50.0 MTN notes payable, maturing in 2025 79.0 -- Notes payable to banks 32.4 59.8 7.00% Subordinated Debentures (effective interest rate of 7.85%), maturing to 1997 9.0 9.1 Other debt, maturing to 2023 (interest rates from 6.0% to 14.5%) 73.6 78.8 Unamortized debt discounts (.1) (.2) - ---------------------------------------------------------------- 418.9 422.5 Capital lease obligations (Note D) 3.4 4.6 - ---------------------------------------------------------------- Total $ 422.3 $ 427.1 ================================================================
MTN NOTES PAYABLE: The Company has an effective shelf registration filed with the Securities and Exchange Commission which enables the Company to issue up to $250.0 million of long-term debt securities in the public markets (referred to as the MTN program). During 1995, the Company made four issues of fixed-rate non-callable MTN notes under this shelf registration and received a total of $79.0 million in proceeds. The MTN notes are due in 2025 at interest rates ranging from 7.3 percent to 8.7 percent. The proceeds are being used to replace scheduled maturities of long-term debt. NOTES PAYABLE TO BANKS: Notes payable to banks include both fixed and floating rate instruments which have principal maturing in 1997. One of the floating rate instruments has been fixed as a result of entering into an interest rate swap agreement. Fixed interest rates on all notes payable to banks range from 6.45 percent to 8.10 percent. OTHER DEBT: Other debt principally includes industrial development revenue bonds, the most significant of which is $60.0 million of 6.0 percent bonds due in 2023. Aggregate maturities of long-term debt, exclusive of capital lease obligations, during the five years subsequent to December 31, 1995, are as follows (in millions): 1996 - $79.2; 1997 - $42.9; 1998 - $2.4; 1999 - $.3 and 2000 - $.3. 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, income retained in the business in the amount of $330.7 million was free from such limitations at December 31, 1995. NOTE D LEASING ARRANGEMENTS 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, 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, 1995:
Capital Noncancelable (In millions) Leases Operating Leases - ----------------------------------------------------------------------------- 1996 $ 1.4 $ 14.5 1997 1.0 10.0 1998 .9 6.5 1999 .8 4.5 2000 .5 3.9 Thereafter .9 18.0 - ----------------------------------------------------------------------------- Total minimum payments 5.5 $ 57.4 ======== Less amounts representing interest 1.0 - ------------------------------------------------ Present value of net minimum lease payments 4.5 Less current portion of capital lease obligations 1.1 - ------------------------------------------------ Total $ 3.4 ================================================
Net rent expense consisted of the following:
(In millions) 1995 1994 1993 - ------------------------------------------------------------------------ Minimum rentals $ 24.2 $ 24.6 $ 22.7 Contingent rentals 3.5 2.4 1.1 Sublease rentals (.2) (.1) (.1) - ---------------------------------------------------------------------- Total $ 27.5 $ 26.9 $ 23.7 ======================================================================
NOTE E PENSIONS BFGoodrich and its subsidiaries have several contributory and noncontributory defined benefit pension plans covering substantially all 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. 17 32 NOTE E: PENSIONS (continued) The Company's general funding policy for pension plans is to contribute amounts at least sufficient to satisfy regulatory funding standards. For underfunded plans, plan assets were approximately 94 percent of the accumulated benefit obligation at December 31, 1995. The Company's intention is to fully fund these plans by 1997. Assets for these plans consist principally of corporate and government obligations and commingled funds invested in equities, debt and real estate. The components of net periodic pension cost are as follows:
(In millions) 1995 1994 1993 - --------------------------------------------------------------------------- Service cost for benefits earned $ 11.3 $ 11.1 $ 11.7 Interest cost on projected benefit obligation 47.3 44.0 44.3 Actual return on plan assets (101.5) (16.3) (41.5) Net amortization and deferral 62.1 (18.9) 8.9 - -------------------------------------------------------------------------- Net pension cost $ 19.2 $ 19.9 $ 23.4 ==========================================================================
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 twelve years. The table that follows sets forth the status of the Company's funded defined benefit pension plans as of December 31, 1995 and 1994, and the amounts recognized in the Consolidated Balance Sheet at those dates. This table excludes accrued pension costs for unfunded, non-qualified pension plans of $7.9 million in 1995 and $7.0 million in 1994, and the related projected benefit obligations of $11.0 million in 1995 and $6.5 million in 1994.
(In millions) 1995 1994 - -------------------------------------------------------------------------------------------------------------------------------- Plans with Plans with Plans with Plans with Assets Exceeding Accumulated Benefit Assets Exceeding Accumulated Benefit Accumulated Obligation Accumulated Obligation Benefit Obligation Exceeding Assets Benefit Obligation Exceeding Assets - -------------------------------------------------------------------------------------------------------------------------------- Actuarial present value of accumulated benefit obligation: Vested $ 11.2 $ 546.9 $ 8.1 $ 467.5 Non-vested .6 32.7 .4 25.1 - -------------------------------------------------------------------------------------------------------------------------------- Accumulated benefit obligation 11.8 579.6 8.5 492.6 Plan assets at fair value 17.8 545.7 15.7 448.7 - -------------------------------------------------------------------------------------------------------------------------------- Plan assets in excess of (less than) accumulated benefit obligation $ 6.0 $ (33.9) $ 7.2 $ (43.9) ================================================================================================================================ Projected benefit obligation $ 14.3 $ 620.0 $ 10.9 $ 531.1 Plan assets at fair value 17.8 545.7 15.7 448.7 - -------------------------------------------------------------------------------------------------------------------------------- Plan assets in excess of (less than) projected benefit obligation $ 3.5 $ (74.3) $ 4.8 $ (82.4) ================================================================================================================================ Consisting of: Unrecognized transition asset (liability) $ .7 $ (24.6) $ .8 $ (28.3) Unrecognized prior service cost (.5) (18.0) (.6) (20.0) Unrecognized net gain (loss) 2.2 (84.8) 3.8 (67.1) Adjustment required to recognize minimum liability -- 87.0 -- 76.9 Prepaid (accrued) pension cost recognized in the balance sheet 1.1 (33.9) .8 (43.9) - -------------------------------------------------------------------------------------------------------------------------------- Total $ 3.5 $ (74.3) $ 4.8 $ (82.4) ================================================================================================================================
18 33 The BFGoodrich Company and Subsidiaries Major assumptions used in accounting for BFGoodrich's defined benefit pension plans are as follows:
1995 1994 1993 - -------------------------------------------------------------------- Discount rate for obligations 7.25% 8.75% 7.4% Rate of increase in compensation levels 5.0% 5.0% 4.5% Expected long-term rate of return on plan assets 9.0% 9.0% 9.0% ====================================================================
The Company also maintains voluntary retirement savings plans for U.S. 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. The Company matches one dollar for each one dollar of employee contributions (up to 6 percent of earnings) invested in BFGoodrich common stock, or 50 cents for each dollar of eligible employee contributions invested in other available investment options. For 1995, 1994 and 1993, Company contributions amounted to $14.6 million, $12.2 million and $11.1 million, respectively. In addition, the Company contributed $10.0 million, $8.5 million and $4.2 million in 1995, 1994 and 1993, respectively, under other defined contribution plans covering employees not covered under the aforementioned defined benefit pension and voluntary retirement savings plans. Contributions are determined based on various percentages of eligible earnings and a profit sharing formula. NOTE F POSTRETIREMENT BENEFITS OTHER THAN PENSIONS The Company 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 following table sets forth the combined status of the plans as recognized in the Consolidated Balance Sheet at December 31, 1995 and 1994:
(In millions) 1995 1994 - ------------------------------------------------------------- Accumulated postretirement benefit obligation (APBO): Retirees $ 282.2 $ 281.7 Fully eligible active plan participants 23.3 24.7 Other active plan participants 31.0 38.3 Unrecognized gain 40.9 34.4 - ------------------------------------------------------------- Accrued postretirement cost $ 377.4 $ 379.1 =============================================================
Net periodic postretirement benefit expense included the following components:
(In millions) 1995 1994 1993 - ---------------------------------------------------------------------- Service cost for benefits earned $ 1.7 $ 2.9 $ 2.4 Interest cost on APBO 25.3 27.0 30.4 Net amortization and deferral (2.9) -- (.1) - ---------------------------------------------------------------------- Net periodic postretirement cost $24.1 $29.9 $32.7 ======================================================================
For measurement purposes, the annual rate of increase in the per capita cost of covered health-care benefits of 9.0 percent was assumed for 1996, decreasing gradually to 5.0 percent through the year 2002 and remaining at that level thereafter. The health-care cost trend rate assumption has a significant effect on the amount of the obligation and periodic cost reported. An increase in the assumed health-care cost trend rate by 1 percentage point in each year would increase the APBO as of December 31, 1995, by $18.6 million and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for 1995 by $2.8 million. The weighted average discount rates used in determining the APBO were 7.25 percent, 8.75 percent and 7.40 percent as of December 31, 1995, 1994 and 1993, respectively. NOTE G 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) 1995 1994 1993 - ---------------------------------------------------------------------- Domestic $173.0 $ 88.9 $ 10.3 Foreign 25.3 19.7 5.0 - ---------------------------------------------------------------------- Total $198.3 $108.6 $ 15.3 ======================================================================
19 34 NOTE G: INCOME TAXES (continued) A summary of income tax (expense) benefit in the Consolidated Statement of Income is as follows:
(In millions) 1995 1994 1993 - ----------------------------------------------------------------------- CONTINUING OPERATIONS Current: Federal $(28.9) $(10.3) $ 2.5 Foreign (9.9) (6.4) (1.9) State (6.9) (5.0) 4.8 - ---------------------------------------------------------------------- (45.7) (21.7) 5.4 - ---------------------------------------------------------------------- Deferred: Federal (29.6) (20.7) (7.0) Effect of enacted change in tax rates -- -- 1.5 Foreign .1 (.5) .1 - ---------------------------------------------------------------------- (29.5) (21.2) (5.4) - ---------------------------------------------------------------------- Total (75.2) (42.9) -- - ---------------------------------------------------------------------- DISCONTINUED OPERATIONS -- 10.0 (105.5) - ---------------------------------------------------------------------- Total $(75.2) $(32.9) $(105.5) ======================================================================
Significant components of deferred income tax assets and liabilities at December 31, 1995 and 1994, are as follows:
(In millions) 1995 1994 - ---------------------------------------------------------------------- Deferred income tax assets: Accrual for postretirement benefits other than pensions $ 130.9 $ 131.6 Other nondeductible accruals 60.7 65.1 Tax credit and net operating loss carryovers 28.5 36.0 Other 35.8 31.4 - ---------------------------------------------------------------------- Total deferred income tax assets 255.9 264.1 - ---------------------------------------------------------------------- Deferred income tax liabilities: Tax over book depreciation (83.6) (88.3) Other (76.1) (53.9) - ---------------------------------------------------------------------- Total deferred income tax liabilities (159.7) (142.2) - ---------------------------------------------------------------------- Net deferred income taxes $ 96.2 $ 121.9 ======================================================================
Management has determined, based on the Company's history of prior operating earnings and its expectations for the future, that operating 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 accounting for postretirement benefits other than pensions will occur over an extended period of time and as a result will be realized for tax purposes over those future periods and beyond. In addition, the tax credit carryovers are comprised of alternative minimum tax credits of $25.3 million which have indefinite carryover periods. 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 for the years ended December 31, 1995, 1994 and 1993, varied from the statutory federal income tax rate as set forth in the following table:
PERCENT OF PRETAX INCOME 1995 1994 1993 - ------------------------------------------------------------------------ Statutory federal income tax rate 35.0% 35.0% 35.0% Corporate-owned life insurance investments (1.2) (1.9) (11.6) Amortization of nondeductible goodwill 1.0 1.8 10.8 Difference in rates on consolidated foreign subsidiaries (.1) (.5) (3.0) State and local taxes, net of federal benefit 2.3 3.0 5.0 Foreign withholding taxes .3 .4 5.6 Adjustment of prior years' estimated liabilities -- -- (48.2) Other items .6 1.7 6.4 - ---------------------------------------------------------------------- Effective income tax rate 37.9% 39.5% -- ======================================================================
BFGoodrich has not provided for U.S. federal and foreign withholding taxes on $120.3 million of foreign subsidiaries' undistributed earnings as of December 31, 1995, 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 $5.9 million. NOTE H BUSINESS SEGMENT INFORMATION The Company's operations are classified into two reportable business segments. BFGoodrich Aerospace (Aerospace) includes: Landing Systems; Sensors and Integrated Systems; Safety Systems; and Maintenance, Repair and Overhaul (MRO) business groups. They serve commercial, military, regional, business and general aviation markets. BFGoodrich Specialty Chemicals (Specialty Chemicals) includes: Specialty Additives; 20 35 The BFGoodrich Company and Subsidiaries Specialty Plastics; and Sealants, Coatings and Adhesives business groups. They serve various markets such as pharmaceuticals, printing, textiles, automotive, building maintenance and construction. A fourth group, the Water Systems and Services business group, ceased to exist upon the disposition of Arrowhead on May 4, 1995. Other Operations currently includes the manufacture of chlor-alkali and olefins. Corporate includes general corporate administrative costs and research expenses. Segment operating income is total segment revenue reduced by operating expenses directly identifiable with that business segment. Intersegment eliminations are included in Corporate and are not significant in any year. Sales are generally not concentrated in any one customer. Sales, principally in the Aerospace business segment, represented 8 percent, 10 percent and 10 percent of consolidated sales in 1995, 1994 and 1993, respectively, to various United States government agencies and departments. Operating income includes restructuring costs as follows:
(In millions) 1995 1994 1993 - ------------------------------------------------------------------------ Aerospace $ - $ - $ 3.3 Specialty Chemicals - - 8.0 Other Operations - - - Corporate 3.1 - 2.0 - ------------------------------------------------------------------------ Total $ 3.1 $ - $ 13.3 ========================================================================
The Company's business is conducted on a global basis with manufacturing, service and sales undertaken in various locations throughout the world. Aerospace's products and services and Specialty Chemicals' products are principally sold to customers in North America and Europe. Aerospace and Specialty Chemicals accounted for 48 percent and 44 percent, respectively, of 1995 consolidated sales. Net assets of consolidated foreign subsidiaries amounted to $188.3 million, $174.5 million and $159.7 million in 1995, 1994 and 1993, respectively. The Company does not believe that business risks in countries in which it operates, including currency restrictions, would have a significant adverse effect on cash flow, liquidity or capital resources.
Sales Operating Income - ------------------------------------------------------------------------------------------------------------------- (In millions) 1995 1994 1993 1995 1994 1993 - ------------------------------------------------------------------------------------------------------------------- Aerospace $ 1,149.6 $ 1,050.3 $ 855.4 $ 146.6 $ 121.9 $ 91.3 Specialty Chemicals 1,070.1 988.6 829.6 92.2 86.7 45.0 - ------------------------------------------------------------------------------------------------------------------- Total Reportable Segments 2,219.7 2,038.9 1,685.0 238.8 208.6 136.3 Other Operations 188.9 160.3 133.3 57.5 24.1 4.0 Corporate -- -- -- (56.5) (53.0) (57.6) - ------------------------------------------------------------------------------------------------------------------- Total $ 2,408.6 $ 2,199.2 $ 1,818.3 $ 239.8 $ 179.7 $ 82.7 ===================================================================================================================
Property Depreciation and Identifiable Additions Amortization Expense Assets - --------------------------------------------------------------------------------------------------------------------- (In millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Aerospace $ 38.3 $ 36.8 $ 74.2 $ 56.9 $ 54.7 $ 37.4 $1,334.2 $1,287.0 $1,292.5 Specialty Chemicals 99.3 78.4 51.8 47.2 44.5 39.6 809.3 788.5 687.0 - --------------------------------------------------------------------------------------------------------------------- Total Reportable Segments 137.6 115.2 126.0 104.1 99.2 77.0 2,143.5 2,075.5 1,979.5 Other Operations 5.6 4.9 4.1 7.1 7.1 6.9 113.1 120.1 100.9 Corporate 4.5 10.2 16.1 2.7 5.8 25.3 233.0 273.3 279.5 - --------------------------------------------------------------------------------------------------------------------- Total $ 147.7 $ 130.3 $ 146.2 $ 113.9 $ 112.1 $ 109.2 $2,489.6 $2,468.9 $2,359.9 =====================================================================================================================
Operating Income Identifiable Sales (Loss) Assets - --------------------------------------------------------------------------------------------------------------------- (In millions) 1995 1994 1993 1995 1994 1993 1995 1994 1993 - --------------------------------------------------------------------------------------------------------------------- Geographic Areas: North America $2,140.3 $1,961.6 $1,617.9 $ 277.0 $ 220.3 $ 138.0 $2,038.0 $2,002.3 $1,917.7 Europe 226.4 202.1 168.2 18.8 14.0 2.4 202.7 178.3 148.0 Other Foreign 41.9 35.5 32.2 1.4 (1.8) (.5) 19.8 18.0 17.9 Inter-area eliminations -- -- -- (.9) .2 .4 (3.9) (3.0) (3.2) - --------------------------------------------------------------------------------------------------------------------- Total $2,408.6 $2,199.2 $1,818.3 $ 296.3 $ 232.7 $ 140.3 $2,256.6 $2,195.6 $2,080.4 =====================================================================================================================
21 36 NOTE H: BUSINESS SEGMENT INFORMATION (continued) The Company also exports products manufactured in the United States to affiliated and unaffiliated companies worldwide. Intercompany transfers made at prevailing prices to foreign subsidiaries amounted to $86.7 million, $84.0 million and $69.4 million in 1995, 1994 and 1993, respectively. Sales to unaffiliated foreign customers amounted to $295.3 million, $264.1 million and $216.9 million in 1995, 1994 and 1993, respectively. NOTE I SUPPLEMENTAL STATEMENT OF INCOME INFORMATION
(In millions) 1995 1994 1993 - ----------------------------------------------------------------------- OTHER INCOME (EXPENSE)-NET Cost of health-care benefits for retirees of previously discontinued businesses $ (12.1) $ (14.0) $ (16.5) Gain on sale of business 3.6 -- -- Gain on sale of corporate assets -- 7.2 -- Equity in loss of unconsolidated subsidiary (4.4) (4.3) (6.9) Interest on Company-owned life insurance (10.0) (10.1) (10.3) Environmental recoveries (costs) of previously discontinued businesses 19.1 (7.2) (6.9) Other-net 4.1 3.2 6.3 - ----------------------------------------------------------------------- Total $ .3 $ (25.2) $ (34.3) =======================================================================
The unconsolidated subsidiary had assets of $10.8 million and $8.6 million and liabilities of $14.8 million and $8.2 million at December 31, 1995 and 1994, respectively, and revenues of $13.9 million, $8.9 million and $9.7 million in 1995, 1994 and 1993, respectively. In 1995, the Company recognized $19.1 million of income from the settlement of certain insurance issues relating to past environmental claims of previously discontinued businesses. RESEARCH AND DEVELOPMENT EXPENSE: The Company performs research and development under Company-funded programs for commercial products, and under contracts with others. Research and development under contracts with others is performed by the Aerospace segment for military and commercial products. Total research and development expenditures in 1995, 1994 and 1993 were $130.9 million, $123.3 million and $104.6 million, respectively. Of these amounts, $37.6 million, $30.0 million and $20.9 million, respectively, were funded by customers. Research and development expense for 1994 and 1993 has been restated primarily to reflect expenditures incurred under customer-funded programs. NOTE J SUPPLEMENTAL BALANCE SHEET INFORMATION
(In millions) 1995 1994 - ------------------------------------------------------------- Allowance for Doubtful Accounts $ 11.8 $ 10.4 =============================================================
Amounts charged to expense during 1995, 1994 and 1993 were $4.2 million, $4.3 million and $2.1 million, respectively.
(In millions) 1995 1994 - -------------------------------------------------------------- INVENTORIES FIFO or average cost (which approximates current costs): Finished products $ 186.2 $ 163.9 In process 114.0 114.9 Raw materials and supplies 154.3 141.1 - -------------------------------------------------------------- 454.5 419.9 Reserve to reduce certain inventories to LIFO basis (64.4) (61.1) - -------------------------------------------------------------- Total $ 390.1 $ 358.8 ==============================================================
At December 31, 1995 and 1994, approximately 46 percent of the pre-LIFO inventory amounts have been valued by the LIFO method.
(In millions) 1995 1994 - -------------------------------------------------------------- PROPERTY Land $ 18.6 $ 21.4 Buildings 415.8 405.7 Machinery and equipment 962.8 964.8 Construction in progress 115.5 72.2 - -------------------------------------------------------------- 1,512.7 1,464.1 Less allowances for depreciation and amortization 653.5 590.8 - -------------------------------------------------------------- Total $ 859.2 $ 873.3 ==============================================================
Property includes assets acquired under capital leases, principally buildings and machinery and equipment, of $21.3 million and $21.4 million at December 31, 1995 and 1994, respectively. Related allowances for depreciation and amortization are $11.7 million and $9.8 million, respectively. Interest costs capitalized were $2.7 million in 1995, $.6 million in 1994 and $5.0 million in 1993. Amounts charged to expense for depreciation and amortization during 1995, 1994 and 1993 were $93.5 million, $92.0 million and $99.5 million, respectively. 22 37 The BFGoodrich Company and Subsidiaries
(In millions) 1995 1994 - ----------------------------------------------------------------------------- GOODWILL Accumulated amortization $ 58.9 $ 46.1 ============================================================================= (In millions) 1995 1994 - ----------------------------------------------------------------------------- IDENTIFIABLE INTANGIBLE ASSETS Accumulated amortization $ 26.1 $ 25.3 =============================================================================
Amortization of goodwill and identifiable intangible assets was $20.4 million, $20.1 million and $9.7 million in 1995, 1994 and 1993, respectively.
(In millions) 1995 1994 - ----------------------------------------------------------------------------- ACCRUED EXPENSES Wages, vacations, pensions and other employment costs $ 82.0 $ 75.6 Postretirement benefits other than pensions 25.5 25.5 Taxes, other than federal and foreign taxes on income 37.0 30.2 Accrued environmental liabilities 12.9 15.7 Other 82.5 99.9 - ----------------------------------------------------------------------------- Total $239.9 $246.9 =============================================================================
(In millions) 1995 1994 - ----------------------------------------------------------------------------- OTHER NON-CURRENT LIABILITIES Accrued pension liability $ 62.5 $ 70.0 Accrued environmental liabilities 9.7 10.1 Other 41.7 47.5 - ----------------------------------------------------------------------------- Total $113.9 $127.6 =============================================================================
FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's accounting policies with respect to financial instruments are described in Note A. The carrying amounts and fair values of the Company's significant on balance sheet financial instruments at December 31, 1995 and 1994, are as follows:
1995 (In millions) Carrying Amount Fair Values - ----------------------------------------------------------------------------- Cash and cash equivalents $ 60.3 $ 60.3 Short-term bank debt 11.3 11.3 Long-term debt (including current portion) 498.1 530.0 1994 (In millions) Carrying Amount Fair Values - ----------------------------------------------------------------------------- Cash and cash equivalents $ 35.8 $ 35.8 Short-term bank debt 70.4 70.4 Long-term debt (including current portion) 476.0 478.9
Off balance sheet derivative financial instruments at December 31, 1995 and 1994, held for purposes other than trading, were as follows:
1995 1994 Contract/ Contract/ Notional Fair Notional Fair (In millions) Amount Value Amount Value - ----------------------------------------------------------------------------- Interest rate swaps $ 65.0 $ (1.2) $ 90.0 $ (.9) Foreign currency exchange agreements $ 28.0 $ (.1) $ 26.0 $ (.1)
With respect to interest rate swap agreements, the Company pays a fixed rate of interest and receives a LIBOR-based floating rate. These contracts mature on various dates through 1997. At December 31, 1995, the Company had no deferred gains or losses relating to terminated interest rate swap agreements. Foreign currency exchange agreements mature over the next four months coincident with intercompany transfers of products. No additional cash requirements are necessary with respect to outstanding agreements. Net gains included in inventory at December 31, 1995 and 1994, were not significant. The counterparties to each of these agreements are major commercial banks. Management believes that losses related to credit risk are remote. NOTE K SUPPLEMENTAL CASH FLOW INFORMATION The following tables set 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) 1995 1994 1993 - ----------------------------------------------------------------------------- Estimated fair value of assets acquired $ 3.6 $ 23.1 $241.1 Goodwill and identifiable intangible assets 12.7 4.5 359.4 Cash paid/stock issued (15.4) (26.5) (528.5) - ----------------------------------------------------------------------------- Liabilities assumed or created $ .9 $ 1.1 $ 72.0 ============================================================================= Liabilities disposed in connection with sales of businesses $ 9.2 $ -- $393.0 Interest paid (net of amount capitalized) 43.3 44.7 36.2 Income taxes paid 32.2 12.8 33.2 Conversion of Series D Convertible Preferred Stock into common stock 22.9 -- --
23 38 NOTE L 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, 1995, 2,401,673 shares of Series Preferred Stock have been redeemed. 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. CONVERTIBLE PREFERRED STOCK - SERIES D: In July 1995, the Company redeemed the remaining 1,742,499 shares of outstanding Series D Stock at a redemption price of $50.70 per share plus accrued dividends of approximately $0.30 per share. CUMULATIVE PARTICIPATING PREFERRED STOCK - SERIES E: The Company has authorized 350,000 shares of Cumulative Participating Preferred Stock-Series E, $1 par value. Series E shares have preferential voting, dividend and liquidation rights over the Company's common stock. At December 31, 1995, no Series E shares were issued or outstanding and 319,105 shares were reserved for issuance. Series E shares may be acquired only through the exercise of Rights attached to the Company's common stock. Each Right, when exercisable, entitles the registered holder thereof to purchase from BFGoodrich one one-hundredth of a share of Series E Stock at a price of $200 per one one-hundredth of a share (subject to adjustment). The one one-hundredth of a share is intended to be the functional equivalent of one share of the Company's common stock. The Rights will not be exercisable or transferable apart from the common stock until an Acquiring Person, as defined in the Rights Agreement, as amended, without the prior consent of BFGoodrich's Board of Directors, acquires 20 percent or more of the voting power of the Company's stock or announces a tender offer that would result in 20 percent ownership. BFGoodrich is entitled to redeem the Rights at five cents 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 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 E Stock having a market value of twice the Right's exercise price. Holders of the Right will be 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, BFGoodrich is involved in a merger or other business combination transaction with another person in which its common shares are changed or converted, or BFGoodrich sells 50 percent or more of its assets or earnings power to another person. The Rights expire on August 2, 1997. NOTE M COMMON STOCK BFGoodrich acquired 682,827, 25,846 and 20,776 shares of treasury stock in 1995, 1994 and 1993, respectively, and reissued 387,950, 10,000 and 5,000 shares, respectively, in connection with the Key Employees' Stock Option Plan, the Performance Share Plan and other employee stock ownership plans. In 1995, 1994 and 1993, 67,125, 29,850 and 71,317 shares, respectively, of common stock previously awarded to employees were forfeited and restored to treasury stock. During 1995, 1994 and 1993, 421,781, 52,726 and 111,667 shares, respectively, of authorized but unissued shares were issued under the Key Employees' Stock Option Plan and other employee stock ownership plans. In addition, in 1995, 415,806 shares of authorized but unissued shares were issued to holders of Series D Preferred Stock who exercised their conversion privileges. Shortly thereafter, the Company completed the repurchase of all of the common stock issued upon conversion of the Series D Preferred Stock. Shares reserved for future issuance at December 31, 1995 were as follows:
- ------------------------------------------------------------------------------- Stock options under Key Employees' Stock Option Plan 1,560,195 Various Company stock ownership plans 3,561,069 - ------------------------------------------------------------------------------- Total 5,121,264 ===============================================================================
NOTE N PREFERRED SECURITIES OF TRUST On July 6, 1995, BFGoodrich Capital, a wholly-owned Delaware statutory business trust (the Trust) which is consolidated by the Company, received $122.5 million, net of the underwriting commission, from the issuance of 8.30 percent Cumulative Quarterly Income Preferred Securities, Series A (QUIPS). The Trust invested the proceeds in 8.30 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 24 39 The BFGoodrich Company and Subsidiaries 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, the Company may not, among other things, pay any dividends on its capital stock until all interest in arrears is paid to the Trust. NOTE O STOCK OPTION AND STOCK INCENTIVE PLANS KEY EMPLOYEES' STOCK OPTION PLAN: The Key Employees' Stock Option Plan, which will expire on April 15, 1997, unless renewed, provides for the awarding of or the granting of options to purchase common stock of the Company. Generally, options granted become 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 ten years from the date of the grant. All options granted under the Plan have been granted at not less than 100 percent of market value (as defined) on the date of grant. During 1995, 1994 and 1993, restricted stock awards for 104,850, 10,000 and 5,000 shares, respectively, were made under this plan. During 1995, 1994 and 1993, stock awards for 600, 1,600 and 12,959 shares, respectively, were forfeited. Stock awards may be subject to conditions established by the Board of Directors. Under the terms of the restricted stock awards, the granted stock vests three years after the award date. The cost of these awards, determined as the market value of the shares at the date of grant, is being amortized over the three-year period. In 1995, 1994 and 1993, $1.7 million, $1.2 million and $1.2 million, respectively, were charged to expense for restricted stock awards. PERFORMANCE SHARE PLAN: The Performance Share Plan (PSP), a stock-based incentive program, 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. Under this plan, 87,625 shares were earned for the three-year cycle ending December 31, 1994. In 1995, the Compensation Committee of the Board of Directors awarded 283,100 shares and established performance objectives that are based on attainment of an average return on equity over the next plan cycle of three years. During 1995, 1994 and 1993, 66,525, 28,250 and 58,358 performance shares, respectively, were forfeited. The market value of shares awarded under the plan is recorded as unearned restricted stock. The unearned amount is charged to compensation expense based upon the extent performance objectives are expected to be met. In 1995 and 1993, $6.9 million and $1.4 million, respectively, were charged to expense for restricted performance shares. In 1994, $.5 million was credited to expense for restricted performance shares. The following tabulation summarizes certain information relative to stock options:
Year Ended December 31 1995 1994 - -------------------------------------------------------------------------------------------------------------------- Number of Option Price Number of Option Price Shares Range Per Share Shares Range Per Share - -------------------------------------------------------------------------------------------------------------------- Outstanding at beginning of year 1,223,078 $ 29.50 to $ 56.3125 1,065,391 $ 29.50 to $ 56.3125 Granted 412,950 43.5625 to 49.5625 226,150 40.00 to 42.625 Exercised (420,778) 29.50 to 56.3125 (37,278) 29.50 to 42.9375 Surrendered (5,300) 29.50 to 42.9325 (3,000) 32.875 Terminated (36,248) 40.00 to 56.3125 (28,185) 38.1875 to 56.3125 - -------------------------------------------------------------------------------------------------------------------- Outstanding at end of year 1,173,702 $ 38.1875 to $ 56.3125 1,223,078 $ 29.50 to $ 56.3125 ==================================================================================================================== Exercisable at end of year 777,716 $ 38.1875 to $ 56.3125 960,842 $ 29.50 to $ 56.3125 ====================================================================================================================
25 40 NOTE P COMMITMENTS AND CONTINGENCIES BFGoodrich and its subsidiaries have numerous purchase commitments for materials, supplies and energy incident to the ordinary course of business. There are pending or threatened against BFGoodrich or its subsidiaries various claims, lawsuits and administrative proceedings, all arising from the ordinary course of business with respect to commercial, product liability and environmental matters, which seek remedies or damages. BFGoodrich believes that any liability that may finally be determined with respect to commercial and product liability claims, should not have a material effect on the Company's consolidated financial position or results of operations. The Company is also involved in legal proceedings as a plaintiff involving contract, patent protection, environmental and other matters. Gain contingencies, if any, are recognized when they are realized. At December 31, 1995, the Company was a party to various obligations assumed or issued by others, including guarantees of debt and lease obligations, principally relating to businesses previously disposed. The aggregate contingent liability, should the various third parties fail to perform, is approximately $108.0 million. The Company has not previously been required to assume any responsibility for these financial obligations as a result of defaults and is not currently aware of any existing conditions which would cause a financial loss. As a result, the Company believes that risk of loss relative to these contingent obligations is remote. The Company and its subsidiaries are generators of both hazardous wastes and non-hazardous wastes, the treatment, storage, transportation and disposal of which are subject to various laws and governmental regulations. Although past operations were in substantial compliance with the then-applicable regulations, the Company has been designated as a potentially responsible party by the U.S. Environmental Protection Agency in connection with 42 sites, most of which related to previously discontinued businesses. The Company believes it may have continuing liability with respect to not more than 25 sites. At December 31, 1995, the Company had recorded as Accrued expenses and as Other Non-current Liabilities a total of $22.6 million to cover future environmental expenditures, principally for remediation of the aforementioned sites and other environmental matters. A significant portion of accrued environmental liabilities is in connection with six sites, five of which relate to businesses previously discontinued. Two of the most significant variables in determining the Company's ultimate liability are the remediation method finally adopted for the site and the Company's share of the total site remediation cost. With respect to the five previously discontinued sites, the Company's maximum percentage share of the ultimate remediation costs is fixed. Three of the five sites are in the design or construction phases and two sites are essentially in the maintenance and operation phase; and, as a result, the remediation plan is generally known. While reasonable estimates of the ultimate completion cost can be made, the final cost at completion can vary significantly as a result of changes made during the construction phase and changed regulatory agency requirements, all of which are difficult to predict. With respect to the sixth site, the investigation and determination of remedial alternatives is just beginning, and it is not currently possible to determine the total cost of remediation or the Company's share of those future costs. Management believes that it is reasonably possible that additional environmental costs may be incurred beyond the amounts accrued as a result of new information. However, the amounts, if any, cannot be estimated and management believes that they would not be material to the Company's financial condition, but could be material to the Company's results of operations in a given period. In addition, the Company expects to incur capital expenditures and future costs for environmental, health and safety improvement programs. These expenditures relate to anticipated projects to change process systems or to install new equipment to reduce ongoing emissions, improve efficiencies and promote greater worker health and safety. These expenditures are customary operational costs and are not expected to have a material adverse effect on the financial position, liquidity or results of operations of the Company. BFGoodrich has tendered the Calvert City chlor-alkali and olefins facilities (Facilities) to Westlake Monomers Corporation (Westlake) at the February 15, 1993 fair market value of approximately $170.0 million, as determined by an independent appraiser. Westlake has stated it intends to purchase the Facilities at the appraised value. Such an acquisition by Westlake is subject to the negotiation and execution of a definitive purchase agreement and governmental approval. There can be no assurance that a definitive agreement will be reached. As of December 31, 1995, the book value of the net assets of the Facilities was approximately $60.0 million. In addition, Westlake alleges that, pursuant to the Right of First Refusal, it is entitled to approximately $325.0 million for lost profits and opportunity costs due to alleged inability to integrate and expand its current operations fully, plus interest and attorney fees. BFGoodrich denies that Westlake is entitled to purchase the Facilities pursuant to the Right of First Refusal and further denies that Westlake is entitled to any recovery. The proceedings are currently in arbitration. Although no specified date has been set, the arbitrator is expected to issue his decision within the next few months. 26 41
The BFGoodrich Company and Subsidiaries QUARTERLY FINANCIAL DATA (UNAUDITED) 1995 Quarters 1994 Quarters - ---------------------------------------------------------------------------------------------------------------------------- (Dollars in millions, except per share amounts) First Second Third Fourth First Second Third Fourth - ---------------------------------------------------------------------------------------------------------------------------- BUSINESS SEGMENT SALES: Aerospace $ 276.6 $ 284.4 $ 286.7 $ 301.9 $ 255.8 $ 263.0 $ 247.7 $ 283.8 Specialty Chemicals 261.5 272.5 271.2 264.9 209.7 247.1 272.9 258.9 Other Operations 55.9 43.7 48.1 41.2 36.9 30.4 40.9 52.1 - ---------------------------------------------------------------------------------------------------------------------------- TOTAL SALES $ 594.0 $ 600.6 $ 606.0 $ 608.0 $ 502.4 $ 540.5 $ 561.5 $ 594.8 ============================================================================================================================ GROSS PROFIT $ 177.9 $ 191.4 $ 197.2 $ 192.4 $ 143.4 $ 171.3 $ 181.0 $ 180.2 ============================================================================================================================ BUSINESS SEGMENT OPERATING INCOME (LOSS): Aerospace $ 27.8 $ 37.4 $ 40.4 $ 41.0 $ 28.7 $ 31.0 $ 28.2 $ 34.0 Specialty Chemicals 12.0 26.3 32.2 21.7 10.1 29.1 31.6 15.9 Other Operations 19.4 14.6 13.7 9.8 (1.2) 1.6 9.1 14.6 Corporate (11.7) (14.7) (13.7) (16.4) (11.4) (13.6) (13.2) (14.8) - ---------------------------------------------------------------------------------------------------------------------------- TOTAL OPERATING INCOME $ 47.5 $ 63.6 $ 72.6 $ 56.1 $ 26.2 $ 48.1 $ 55.7 $ 49.7 ============================================================================================================================ INCOME FROM: CONTINUING OPERATIONS $ 17.6 $ 44.3 $ 32.9 $ 23.2 $ 4.9 $ 18.5 $ 23.3 $ 19.0 DISCONTINUED OPERATIONS -- -- -- -- -- -- 10.0 -- - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME $ 17.6 $ 44.3 $ 32.9 $ 23.2 $ 4.9 $ 18.5 $ 33.3 $ 19.0 ============================================================================================================================ INCOME PER SHARE: Continuing operations $ .61 $ 1.63 $ 1.19 $ .88 $ .11 $ .64 $ .82 $ .66 Net income .61 1.63 1.19 .88 .11 .64 1.21 .66 ============================================================================================================================
In the second quarter of 1995, operating income was affected by a $3.1 million charge for the termination benefits paid under a voluntary early retirement program. In addition, second quarter 1995 operating income benefited by $9.3 million from adjustments primarily due to the favorable decision related to a certain litigation matter, lower expense for pension and retiree health-care benefits resulting from updated actuarial calculations, improved product claims management and continued favorable product claims experience. Also, second quarter 1995 income from continuing operations included a pretax gain of $5.0 million from the sale of Arrowhead, prior to a fourth quarter adjustment, and a $20.1 million pretax benefit from the settlement of certain insurance issues relating to past environmental claims, principally for previously discontinued businesses. Income from continuing operations in the fourth quarter of 1994 was affected by a $7.2 million gain from the sale of certain corporate assets, offset by a $7.2 million charge for environmental costs relating to businesses previously discontinued. In the third quarter of 1994, the Company realized a $10.0 million tax benefit as a result of utilizing, in 1994, foreign tax credits resulting from the 1993 sale of The Geon Company. This tax benefit is reported in discontinued operations. COMMON STOCK PRICES AND DIVIDENDS: The table below lists dividends per share and quarterly price ranges for the common stock of The BFGoodrich Company based on New York Stock Exchange prices as reported on the consolidated tape.
1995 1994 - -------------------------------------------------------------------------------- Quarter High Low Dividend Quarter High Low Dividend - -------------------------------------------------------------------------------- First $45 5/8 $41 5/8 $.55 First $43 3/4 $39 1/8 $.55 Second 54 3/4 44 3/8 .55 Second 48 41 1/2 .55 Third 66 1/4 53 1/4 .55 Third 47 7/8 41 1/4 .55 Fourth 72 5/8 61 .55 Fourth 44 7/8 41 1/2 .55 ================================================================================
27 42 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS The consolidated financial statements and notes to consolidated financial statements of The BFGoodrich Company and subsidiaries have been prepared by management. These statements have been prepared in accordance with generally accepted accounting principles and, accordingly, include amounts based upon informed judgments and estimates. Management is responsible for the selection of appropriate accounting principles and the fairness and integrity of such statements. BFGoodrich maintains a system of internal controls designed to provide reasonable assurances that accounting records are reliable for the preparation of financial statements and for safeguarding assets. The Company's system of internal controls includes: written policies, guidelines and procedures; organizational structures, staffed through the careful selection of people that provide an appropriate division of responsibility and accountability; and an internal audit program. Ernst & Young LLP, independent auditors, were engaged to audit and to render an opinion on the consolidated financial statements of The BFGoodrich Company and subsidiaries. Their opinion is based on procedures believed by them to be sufficient to provide reasonable assurance that the consolidated financial statements are not materially misstated. The report of Ernst & Young LLP follows. The Board of Directors pursues its oversight responsibility for the financial statements through its Audit Committee, composed of Directors who are not employees of BFGoodrich. The Audit Committee meets regularly to review with management and Ernst & Young LLP the Company's accounting policies, internal and external audit plans and results of audits. To ensure complete independence, Ernst & Young LLP and the internal auditors have full access to the Audit Committee and meet with the Committee without the presence of management. J. D. Ong Chairman and Chief Executive Officer D. L. Tobler Executive Vice President and Chief Financial Officer S. G. Rolls Vice President and Controller REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of The BFGoodrich Company: We have audited the accompanying consolidated balance sheet of The BFGoodrich Company and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. 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 generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The BFGoodrich Company and subsidiaries at December 31, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. Cleveland, Ohio February 2, 1996 ERNST & YOUNG LLP 28 43
The BFGoodrich Company and Subsidiaries SELECTED FIVE-YEAR FINANCIAL DATA (Dollars in millions, except per share amounts) 1995 1994 1993 1992 1991 - -------------------------------------------------------------------------------------------------------------------------------- STATEMENT OF INCOME DATA: Sales from continuing operations $ 2,408.6 $ 2,199.2 $ 1,818.3 $ 1,647.9 $ 1,572.5 Cost of sales 1,649.7 1,523.3 1,278.3 1,133.1 1,098.4 Gross profit 758.9 675.9 540.0 514.8 474.1 Selling and administrative expenses 516.0 496.2 444.0 429.1 369.5 Total operating income 239.8 179.7 82.7 75.0 93.1 Interest expense 45.1 47.7 38.3 39.3 37.1 Interest income 3.3 1.8 5.2 3.9 10.7 Income tax expense 75.2 42.9 - 2.5 22.5 Income from continuing operations before cumulative effect of change in method of accounting 118.0 65.7 15.3 11.9 21.6 Income (loss) from discontinued operations - 10.0 113.0 (21.3) (102.2) Cumulative effect of change in method of accounting - - - (286.5) - Net income (loss) 118.0 75.7 128.3 (295.9) (80.6) - -------------------------------------------------------------------------------------------------------------------------------- BALANCE SHEET DATA: Current assets $ 950.0 $ 878.8 $ 793.8 $ 797.1 $ 775.9 Current liabilities 600.7 638.0 469.4 565.5 530.0 Working capital 349.3 240.8 324.4 231.6 245.9 Net property 859.2 873.3 836.0 1,215.8 1,171.0 Total assets 2,489.6 2,468.9 2,359.9 2,451.7 2,270.6 Non-current long-term debt and capital lease obligations 422.3 427.1 486.5 403.1 344.2 Mandatorily redeemable preferred securities of Trust 122.2 - - - - Redeemable preferred stock - - 3.8 6.3 7.5 Total shareholders' equity 878.6 922.6 895.3 828.8 1,214.0 - -------------------------------------------------------------------------------------------------------------------------------- OTHER FINANCIAL DATA: Total segment operating income $ 296.3 $ 232.7 $ 140.3 $ 138.6 $ 138.3 Capital expenditures 147.7 130.3 146.2 200.2 219.4 Dividends (common and preferred) 61.6 64.6 64.6 64.5 64.2 Distributions on Trust preferred securities 5.1 - - - - - -------------------------------------------------------------------------------------------------------------------------------- PER SHARE OF COMMON STOCK: Income from continuing operations $ 4.30 $ 2.24 $ .28 $ .14 $ .52 Net income (loss) 4.30 2.63 4.68 (11.90) (3.50) Dividends per share 2.20 2.20 2.20 2.20 2.20 Book value 33.45 31.51 30.62 28.06 43.47 - -------------------------------------------------------------------------------------------------------------------------------- RATIOS: As a percent of sales: Gross profit (%) 31.5 30.7 29.7 31.2 30.1 Selling and administrative expenses (%) 21.4 22.6 24.4 26.0 23.5 Return on common shareholders' equity (%) 13.3 8.5 16.0 (33.4) (7.6) Current ratio 1.6 1.4 1.7 1.4 1.5 Debt-to-capital ratio (%) 33.9 37.4 36.9 34.6 23.9 Earnings to fixed charges 3.7 2.6 1.2 1.2 1.8 Dividend payout--common stock (%) 51.2 83.7 47.0 N.A. N.A. - -------------------------------------------------------------------------------------------------------------------------------- OTHER DATA: Common shareholders of record at end of year 11,073 11,711 12,066 12,785 12,954 Common shares outstanding at end of year (millions) 26.3 25.8 25.6 25.6 25.4 Number of employees at end of year 13,275 13,392 13,416 13,375 14,415 - --------------------------------------------------------------------------------------------------------------------------------
EX-21 6 EXHIBIT 21 1 EXHIBIT 21 Page 1 of 2 THE B.F.GOODRICH COMPANY Parent And Subsidiaries Of Registrant - -------------------------------------
Percentage Of Place Of Voting Securities Consolidated Subsidiary Companies Incorporation Owned - --------------------------------- ------------- ------------------ The B.F.Goodrich Company (Registrant; there are no parents of the registrant) New York BFGoodrich Holding S.A. France 60.82 BFGoodrich Aerospace Asia-Pacific, Limited Hong Kong 51.00 BFGoodrich Aerospace Component Overhaul & Repair, Inc. Delaware 100.00 BFGoodrich Aerospace Pte. Ltd. Singapore 100.00 B.F.Goodrich Chemical (Far East) Limited Hong Kong 100.00 B.F.Goodrich Chemical Holding B.V. The Netherlands 100.00 B.F.Goodrich Realty Europe N.V. Belgium 100.00 B.F.Goodrich Chemical (Belgie) N.V. Belgium 100.00 B.F.Goodrich Europe Coordination Center N.V. Belgium 55.00 B.F.Goodrich Chemical Sales Company B.V. The Netherlands 100.00 B.F.Goodrich Europe Coordination Center N.V. Belgium 45.00 BFGoodrich Holding S.A. France 39.18 BFGoodrich Aerospace Services S.A. France 100.00 Rosemount Aerospace S.A.R.L. France 100.00 E.P.P.C. Polyplastic S.A. France 100.00 H&P Extrusions B.V. The Netherlands 100.00 H&P Mixing B.V. The Netherlands 100.00 JcAir, B.V. The Netherlands 100.00 Tremco AB Sweden 100.00 Tremco, B.V. The Netherlands 100.00 B.F.Goodrich Chemical Italia, S.R.L. Italy 100.00 The B.F.Goodrich Company of Japan, Ltd. Japan 100.00 First Charter Insurance Company Vermont 100.00 Godfrey Engineering, Inc. Florida 100.00 Goodrich Canada Inc. Canada 100.00 Goodrich Holding Corporation Delaware 100.00 Goodrich Holding UK Limited England 100.00 BFGoodrich Aerospace UK Limited England 100.00 B.F.Goodrich Chemical (U.K.) Limited England 100.00 BFGoodrich Component Services Limited England 100.00 Rosemount Aerospace Limited England 100.00 Rosemount Aerospace GmbH Germany 2.00 Simmonds Precision Limited England 100.00 Goodron Realty, Inc. Delaware 100.00 International BFGoodrich Technology Corporation Delaware 100.00 JcAir, Inc. Kansas 100.00 Jet Electronics and Technology, Incorporated Delaware 100.00 QSI, Inc. South Carolina 100.00 Rosemount Aerospace Inc. Delaware 100.00
2 EXHIBIT 21 Page 2 of 2 THE B.F.GOODRICH COMPANY Parent And Subsidiaries Of Registrant - -------------------------------------
Percentage Of Place Of Voting Securities Consolidated Subsidiary Companies Incorporation Owned - --------------------------------- ------------- ------------------ Rosemount Aerospace Canada Inc. Canada 100.00 Siltown Realty, Inc. Alabama 100.00 Simmonds Precision Products, Inc. New York 100.00 Simmonds Precision Engine Systems, Inc. New York 99.94 Simmonds Precision Motion Controls, Inc. New Jersey 100.00 TRAMCO, INC. Washington 100.00 Tremco Incorporated Ohio 100.00 Tremco Limited Canada 100.00 BFGoodrich Aerospace Component Overhaul & Repair Ltd. Canada 100.00 Tremco Ltd. (U.K.) England 100.00 Oy Tremco Ltd. Finland Finland 100.00 Tremco Asia Pacific Pty. Limited Australia 100.00 Pabco Products Pty. Ltd. Australia 100.00 Tremco Pty. Limited Australia 100.00 Tremco New Zealand Pty. Ltd. New Zealand 100.00 Tremco Autobody Technologies Inc. Ohio 100.00 Tremco Far East Limited Hong Kong 100.00 Tremco Far East (Malaysia) Malaysia 100.00 Tremco GmbH Germany 100.00 B.F.Goodrich Chemical (Deutschland) GmbH Germany 100.00 Kamia Chemical GmbH Germany 100.00 Rosemount Aerospace GmbH Germany 98.00 BFGoodrich de Mexico, S.A. de C.V. Mexico 100.00 Tremco Service Corporation Delaware 100.00 Tremco, S.A. (France) France 100.00 Tremco Italia S.R.L. Italy 100.00 BFGoodrich Capital Statutory trust 100.00 in Delaware
All of the above subsidiaries are included in the 1995 consolidated financial statements. The Registrant also owns 91.56 percent of DTM Corporation, incorporated in Texas; 50.00 percent of BFGoodrich - Messier, Inc., incorporated in Delaware; 50.00 percent of Messier - BFGoodrich S.A., incorporated in France; 50.00 percent of SIME Tremco Private Ltd., incorporated in Singapore; 49.00 percent of SIME Tremco Sdn. Bhd., incorporated in Malaysia; 50.00 percent of Telenor S.A., incorporated in France. DTM Corporation owns 100.00 percent of DTM GmbH, incorporated in Germany. SIME Tremco Sdn. Bhd. owns 100.00 percent of SIME Tremco Malaysia Sdn. Bhd. and MBP Sdn. Bhd., both of which are incorporated in Malaysia. These companies are accounted for on the equity method. EX-23 7 EXHIBIT 23 1 Exhibit 23 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of The BFGoodrich Company of our report dated February 2, 1996, included in the 1995 Annual Report to Shareholders of The BFGoodrich Company. We also consent to the incorporation by reference of our report dated February 2, 1996, 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 - ------------ ------------------------------------- ----------- 2-77756 The B.F.Goodrich Company Key Employees' May 20, 1982 Stock Option Plan - Form S-8 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 33-49054 The B.F.Goodrich Company Performance June 26, 1992 Share Plan - Form S-8 33-59580 The B.F.Goodrich Company Retirement March 15, 1993 Plus Savings Plan for Wage Employees - Form S-8 33-53289 Tramco, Inc. Profit-Funded Retirement April 26, 1994 Savings Plan - Form S-8 33-53217 Common Stock - Form S-3 May 4, 1994 33-65658 Debt Securities - Post-Effective Amendment August 17, 1994 No. 2 to Form S-3 33-59953 and BFGoodrich Capital 8.3% Cumulative Quarterly June 29, 1995 33-59953-01 Income Preferred Securities, Series A - Amendment No. 1 to Form S-3
ERNST & YOUNG LLP Cleveland, Ohio February 19, 1996 EX-27 8 EXHIBIT 27 FINANICAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS LISTED ON F-1 OF THIS FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 60,300 0 410,800 11,800 390,100 950,000 1,512,700 653,500 2,489,600 600,700 422,300 133,900 122,200 0 744,700 2,489,600 2,408,600 2,408,600 1,649,700 1,649,700 3,100 0 45,100 198,300 75,200 118,000 0 0 0 118,000 4.30 4.27
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