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
<FN>
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
<FN>
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%
<FN>
* Continuing Operations
The Company is on target to achieve a mid-teens return on equity by 1997.
6
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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%
<FN>
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
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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
- --------------------------------------------------------------------------------------------------------------------------------