1
1996 Annual Report
MANAGEMENT'S
DISCUSSION
AND ANALYSIS
RESULTS OF OPERATIONS
1996 Compared with 1995
CONSOLIDATED OPERATIONS: 1996 marked a year of continued growth and improved
earnings performance. Both Aerospace and Specialty Chemicals segments achieved
record sales and operating income in 1996, exceeding the record levels achieved
in 1995.
Consolidated sales increased 9 percent compared with 1995. Excluding
acquisitions and divestitures, sales increased 7 percent.
[graphic]
The BFGoodrich Company
Sales (In Millions)
94 $1,849.3
95 $2,049.3
96 $2,238.8
BFGoodrich continues to achieve solid sales growth in most markets.
Net income increased to $151.7 million, or $2.81 per share, in 1996 from $118
million, or $2.15 per share, in 1995.
[graphic]
The BFGoodrich Company
Net Income (In Millions)
94 $ 75.7
95 $118.0
96 $151.7
BFGoodrich demonstrates continued earnings growth.
Net income in 1996 includes $45.5 million of income from discontinued
operations. Income from discontinued operations includes $15.5 million of income
from the Sealants, Coatings and Adhesives ("SC&A") Group and a $30 million
non-cash adjustment to the gain calculation of a business previously divested
and reported as a discontinued operation in 1993. On February 3, 1997, the
Company completed the disposition of the SC&A Group. As a result of this
disposition, the results of operations of the SC&A Group have been reported as
discontinued operations for all periods presented. (See Discontinued Operations
on page 22.)
Net income in 1996 and 1995 includes various special items. The following
table summarizes the earnings per share effect of special items in 1996 and
1995.
- --------------------------------------------------------------------------------
Year Ended December 31 1996 1995
- --------------------------------------------------------------------------------
Net income $ 2.81 $ 2.15
Special items:
Non-cash adjustment to
gain of business
previously divested
and reported as a
discontinued operation in 1993 (.55) --
Gains on sale of businesses (.09) (.04)
Charges for voluntary early retirement programs .05 .04
Insurance recovery for past environmental claims -- (.25)
- --------------------------------------------------------------------------------
Net income, excluding special items $ 2.22 $ 1.90
================================================================================
Selling and administrative expenses remained at 21 percent of sales.
Corporate expenses decreased slightly in 1996, after excluding a $3.1 million
pretax charge for a voluntary early retirement program in 1995. (Corporate
includes general corporate administrative costs and Advanced Technology Group
research expenses.)
During 1996, the Company successfully accomplished its goal of fully funding
its qualified defined benefit pension plans, one year earlier than originally
planned.
Return on equity increased to 15.7 percent in 1996, up from 13.3 percent in
1995. Excluding the special items noted in the table above, return on equity was
12.4 percent and 11.8 percent in 1996 and 1995, respectively. Management's
objective is to achieve and maintain a return on equity in the mid-teens.
OUTLOOK: The Company expects ongoing growth in sales and earnings in 1997 and
1998, excluding special items. This growth will come from continuing expansion
of the Company's current businesses worldwide and from strategic acquisitions.
The Company has significant financial strength to pursue this growth. Cash flow
from operations is expected to continue to improve in 1997 and beyond.
18
2
The BFGoodrich Company and Subsidiaries
AEROSPACE: The Aerospace segment achieved record sales and operating income in
1996, exceeding the 1995 record levels. The sales growth resulted primarily from
the Company's growing maintenance, repair and overhaul services businesses, and
higher aftermarket demand for landing gear, wheels and brakes products and
aircraft sensors.
BFGoodrich Aerospace
- --------------------------------------------------------------------------------
Sales by Group
(in millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Landing Systems $ 414.8 $ 364.2 $ 355.3
Sensors & Integrated Systems 493.2 475.8 440.8
MRO 345.8 309.6 254.2
- --------------------------------------------------------------------------------
TOTAL $ 1,253.8 $ 1,149.6 $ 1,050.3
================================================================================
Operating Income $ 161.3 $ 146.6 $ 121.9
================================================================================
In the third quarter of 1996, the Aerospace segment was reconfigured from
four to three business groups. As a result, the Evacuation Systems Division is
now part of the Landing Systems Group, and the remaining divisions of the former
Safety Systems Group are now part of the Sensors and Integrated Systems Group.
In addition, the Test Systems Division, previously reported in the Maintenance,
Repair and Overhaul ("MRO") Group, is now reported in the Sensors and Integrated
Systems Group. Comparative segment data reflect these changes.
In the Landing Systems Group demand from airlines for several wheel and brake
programs increased, including the Boeing 747-400 and Airbus A320 and A330/340
programs. Strong commercial landing gear spares sales, particularly for the
Boeing 767 program, also contributed to the sales increase. Improving demand for
landing gear for new aircraft, principally for the Boeing 747-400 program, also
added to the group's sales growth. Strong aftermarket demand for evacuation
products and evacuation repair services more than offset lower sales of
evacuation products for new aircraft.
The Sensors and Integrated Systems Group sales increase resulted from strong
aftermarket demand for aircraft sensors. Demand increased for retrofit products,
particularly for Boeing 727 and 737 and Lockheed L1011 aircraft.
The MRO Group achieved significant sales growth compared to 1995 levels,
reflecting the continuing trend by airlines toward outsourcing of maintenance of
commercial airframes and components, principally landing gear and wheels and
brakes. The MRO Group also benefited from the full-year impact of contracts with
America West Airlines and Western Pacific Airlines.
Aerospace segment operating income increased 10 percent over 1995 on a 9
percent increase in sales. The improved operating margins reflect the favorable
impact of volume growth in aircraft component services and higher margin
aftermarket products. The margin improvement was achieved despite inefficiencies
and higher labor costs at the segment's airframe MRO facility in Everett,
Wash. The higher costs and inefficiencies resulted from significant labor
turnover during 1996 due to strong demand by Boeing for skilled technicians in
that region.
OUTLOOK: The worldwide civil aviation market, which currently accounts for
approximately 80 percent of BFGoodrich Aerospace's sales, is expected to
continue recovering from the downturn experienced during the early 1990s. Since
the age of a significant number of the commercial aircraft in service is over 20
years, strong demand should continue for new aircraft as older aircraft are
retired and replaced. Aircraft original-equipment manufacturers are forecasting
that production rates will increase by more than 40 percent in 1997. Much of
this demand is coming from the Asia-Pacific region. In the longer term, annual
traffic growth is expected to average 5 percent. BFGoodrich has multiple
products on most of the large commercial aircraft in production today and is in
a strong position to benefit from this growth.
In addition, airlines and cargo carriers have become much more focused on
managing their operations and capital costs more effectively. This is leading to
an increased outsourcing of routine airframe and component maintenance to
third-party MRO providers. BFGoodrich has been, and will continue to be, a
beneficiary of this outsourcing.
The regional aircraft sector of the market is expected to expand 7 percent
per year. BFGoodrich is a major supplier to the aircraft manufacturers of this
sector.
Requirements for new military aircraft are expected to continue to decline,
but at a slower rate than in recent years. Spare parts requirements and retrofit
and upgrade programs for older military aircraft, however, are expected to
remain strong. BFGoodrich's participation in selected new programs, coupled with
strong positioning on existing aircraft, should stabilize BFGoodrich's military
sector, which is currently about 18 percent of total Aerospace sales.
Cost-effectiveness and value emphasis within the industry will continue to
drive consolidation in the supplier base, and will give advantage to those
companies such as BFGoodrich that have strong positions on new aircraft. These
positions generally provide a revenue stream over the life of an aircraft
program, which can extend 40 years or more.
19
3
1996 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
SPECIALTY CHEMICALS: 1996 segment sales and operating income exceeded the
record levels achieved in 1995. Sales in 1996 increased 16 percent to $824.4
million. Excluding acquisitions in 1996 and a divestment in 1995, sales
increased 10 percent.
BFGoodrich Specialty Chemicals
- --------------------------------------------------------------------------------
Sales by Group
(in millions)
1996 1995 1994
- --------------------------------------------------------------------------------
Specialty Plastics $ 292.4 $ 250.4 $ 227.7
Specialty Additives 532.0 445.8 367.0
Water Systems and Services* - 14.6 44.0
- -------------------------------------------------------------------------------
TOTAL $ 824.4 $ 710.8 $ 638.7
===============================================================================
Operating Income $ 109.5 $ 74.4 $ 72.1
===============================================================================
<FN>
*Divested in May 1995
A 17 percent sales increase in 1996 by the Specialty Plastics Group resulted
from strong demand for high-heat-resistant plastics in North America, Europe and
the Middle East. In addition, higher volumes for thermoplastic polyurethane,
principally in Europe and in electrostatic dissipative markets in North America,
contributed to the group's overall growth. Sales also benefited from higher
prices in most major product lines.
The Specialty Additives Group sales increased 19 percent over the prior year.
Excluding four acquisitions made in 1996, sales increased 7 percent, reflecting
both volume gains and price increases across most major product lines. Sales of
resins and emulsions to the textile, electronics, adhesive, industrial coatings
and do-it-yourself markets were especially strong. Sales of synthetic thickeners
for industrial, personal-care, household and pharmaceutical applications also
generated strong volume gains over 1995.
Specialty Chemicals segment operating income increased 47 percent to $109.5
million. Adjusted for 1996 acquisitions and a divestment in 1995, operating
income increased 40 percent. Higher volumes accounted for most of the growth in
operating income, while lower raw material costs and higher selling prices also
contributed.
OUTLOOK: The divestiture of the SC&A Group early in 1997 leaves a smaller
segment, but one with higher overall margins. The segment is now more focused
in areas where BFGoodrich provides greater value to customers and is less
sensitive to commercial construction activity and cycles. As a result, seasonal
profitability swings should be diminished. Continued volume growth and the
benefit of a full year's results for 1996 acquisitions in the Specialty
Additives and Specialty Plastics Groups will partially mitigate the impact of
the divestiture of the SC&A Group. The growth in volume demand will be
stimulated by new product offerings and will be supported by both domestic and
European capacity expansions. Sales to international markets in 1997 and beyond
are expected to expand at a faster rate than domestic markets, while European
volume will be increasingly supplied from an acquired plant in Spain and new
plants being constructed or in operation in Belgium and The Netherlands.
Efforts will increase to expand the segment's infrastructure and market share
in the Far East. The segment will also continue to look for strategic
acquisitions to complement current strengths.
OTHER OPERATIONS: Other Operations represents the chlor-alkali and olefins
operations located at Calvert City, Ky. ("Facilities").
Sales of chlor-alkali and olefins products declined from 1995 levels,
principally as a result of lower selling prices and volumes for ethylene, and
lower prices for caustic soda. This is reflective of the cyclical nature of the
industry. Sales declined from $188.9 million in 1995 to $160.6 million in 1996.
Operating income in 1996 decreased 64 percent to $20.8 million, due to the
volume and price declines from 1995. Higher propane costs in 1996 contributed to
the margin reduction.
The Facilities were the subject of a lawsuit and subsequent arbitration that
Westlake Monomers Corporation ("Westlake") initiated in 1993, seeking up to $350
million in damages. In August 1996, Westlake exercised its right to terminate an
agreement to purchase the Facilities. All of Westlake's claims in the lawsuit
and arbitration were terminated as a result of Westlake's decision not to
purchase the Facilities.
OUTLOOK: As non-strategic businesses, the chlor-alkali and olefins operations
are being managed for cash flow. The Company does not have a significant market
share in either of these businesses. Consequently, earnings and cash flow are
determined by commodity market conditions.
20
4
The BFGoodrich Company and Subsidiaries
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 challenging
conditions in certain markets. Sales of $2,049.3 million in 1995 increased 11
percent compared with 1994. Adjusted for acquisitions and a divestment,
consolidated sales increased 10 percent. Net income of $118 million in 1995
included the special items previously presented.
Selling and administrative expenses were 21 percent of sales, down from 22
percent in 1994. This improvement reflected higher sales and continuing
successful efforts to reduce costs. Corporate expenses remained virtually
unchanged from 1994, after excluding a $3.1 million pretax charge for a
voluntary early retirement program in 1995.
AEROSPACE: The Aerospace segment achieved record sales and operating income
in 1995, despite continued weakness in original-equipment markets. The sales
growth resulted primarily from increased outsourcing of MRO services by airlines
and from higher aftermarket demand for ice protection, avionics and wheels and
brakes products.
The Landing Systems Group continued to benefit from increased airline demand
on several wheel and brake programs, including Boeing 737 and 747, Airbus A320
and A330/340 and out-of-production models. 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 both lower
commercial and military original-equipment landing gear sales, and reduced sales
of aircraft evacuation slides due to lower commercial aircraft build rates.
Strong demand for pneumatic and propeller de-icing products and collision
warning systems accounted for the higher Sensors and Integrated Systems Group
sales. These gains were partially offset by reduced military aircraft production
and lower sales of fuel measurement systems caused by reduced production rates
for Boeing and Airbus.
The MRO Group achieved significant sales growth over 1994 levels. Increased
demand for MRO services for commercial airframes and components, principally
landing gear and wheels and brakes, accounted for most of the sales growth.
This growth reflected the continuing trend toward maintenance outsourcing by
airlines and package carriers. 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 reflected 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 Sensors and Integrated Systems Groups.
SPECIALTY CHEMICALS: Segment sales and operating income surpassed the record
levels achieved in 1994. Sales in 1995 increased to $710.8 million, an 11
percent increase over 1994. Excluding acquisitions and a divestment, sales
increased 8 percent.
Sales growth primarily reflected an increase in domestic sales, resulting
from higher volume and pricing in most U.S. markets. Volume growth came from
increased demand for existing products, continued expansion of product
applications and entries into new markets.
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 high-heat-resistant plastics. 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 electronics, textile and
do-it-yourself markets were especially strong. Sales of synthetic thickeners for
personal-care applications also grew significantly.
Specialty Chemicals segment operating income increased 3 percent to $74.4
million. Adjusted for 1994 acquisitions and a divestment in 1995, operating
income decreased 1 percent. Significant increases in raw material costs for many
specialty additives and specialty plastics products 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.
21
5
1996 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
OTHER OPERATIONS: 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.
RESTRUCTURING COSTS
In 1996, the Company recognized a $4 million pretax charge for a voluntary
early retirement program for eligible employees of the Specialty Plastics and
Specialty Additives Groups.
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.
The Company did not incur restructuring costs in 1994.
The Company continues to evaluate employment levels and facility cost
structures in relation to economic and competitive conditions.
INTEREST
Interest expense decreased to $40.4 million in 1996 from $44.5 million in 1995,
due principally to $4 million more interest being capitalized on qualifying
capital projects. In 1995, interest expense decreased $2.6 million from 1994 as
debt levels were reduced with the proceeds from a 1995 business sale. Interest
income in 1995 included $1 million of interest received from an insurance
settlement related to past environmental issues.
OTHER INCOME (EXPENSE)-NET
Other income (expense)-net for 1996 reflected expense of $21.8 million compared
with income of $.5 million in 1995. The 1995 amount included $19.1 million of
income from the favorable 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 a business.
DISCONTINUED OPERATIONS
On October 21, 1996, the Company entered into a definitive agreement to sell
Tremco Incorporated ("Tremco"), its wholly owned subsidiary, to RPM, Inc. The
transaction was completed on February 3, 1997, for approximately $230 million,
resulting in an estimated pretax gain of approximately $85 million, subject to
post-closing adjustments. The proceeds were used, in part, to repay outstanding
short-term bank debt. Also during 1996, the Company disposed of Tremco Autobody
Technologies, Inc. and an adhesives business. The operations of Tremco, Tremco
Autobody Technologies, Inc. and the adhesives business represented the SC&A
Group of the Company. The disposition of the SC&A Group represents the disposal
of a segment of a business under APB Opinion No. 30. For further information,
see Note B to the Consolidated Financial Statements.
RETURN ON EQUITY
Management's objective is to achieve and maintain a return on equity in the
mid-teens. In 1996, the Company achieved a return on equity of 15.7 percent,
compared with 13.3 percent in 1995 and 8.5 percent in 1994. Adjusted for the
special items previously mentioned, return on equity was 12.4 percent and 11.8
percent in 1996 and 1995, respectively.
[graphic]
BFGoodrich Company
Return on Equity
94 8.5%
95 13.3%
96 15.7%
The Company's objective is to achieve and maintain a return
on equity in the mid-teens.
CAPITAL RESOURCES AND LIQUIDITY
Current assets less current liabilities decreased by approximately $68 million
at December 31, 1996, compared with December 31, 1995. The Company's current
ratio decreased to 1.4X at December 31, 1996, from 1.5X at December 31, 1995. In
addition, the quick ratio decreased to .67X at the end of 1996 from .77X at the
end of 1995. These decreases principally reflect higher levels of short-term
bank debt in 1996. The 1995 liquidity ratios above reflect the benefit of $80
million in proceeds from the sale of a business during that year, which were
used to reduce short-term bank debt temporarily in anticipation of acquisition
activity in 1996.
22
6
The BFGoodrich Company and Subsidiaries
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 $370 million of uncommitted domestic money market
facilities with various banks to meet its short-term borrowing requirements. As
of December 31, 1996, $262.5 million of these facilities were unused and
available. 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 million of committed domestic revolving
credit agreements with various banks, expiring in the year 2000. At December 31,
1996, and throughout the year, these facilities were not in use.
In addition, the Company has an effective shelf registration statement with
the Securities and Exchange Commission providing the ability to issue up to $281
million of public debt securities as of December 31, 1996 (referred to as the
MTN program). MTN notes outstanding at December 31, 1996, are fixed-rate
non-callable debt securities. During 1996, the Company issued $20 million of 7.5
percent MTN notes, due in 2026, and $20 million of 7.4 percent MTN notes, due in
2046. The proceeds were used to replace scheduled maturities of long-term debt,
which the Company intends to continue to refinance on a longer-term basis.
During 1996, the Company established a $75 million committed multi-currency
revolving credit facility with various international banks, expiring in the year
2003. The Company intends to use this facility for medium-term, local currency
financing to support the growth of its European operations. At December 31,
1996, the Company had borrowed approximately $29 million denominated in Spanish
pesetas at a floating rate that is tied to Spanish LIBOR.
The Company believes that its credit facilities are sufficient to meet
longer-term capital requirements, including normal maturities of long-term debt.
One of the Company's objectives is to achieve an "A" credit rating by the
leading rating organizations. This accomplishment would reduce the Company's
cost of debt capital and strengthen the Company's financial flexibility to
achieve its growth plans. In 1996, the Company achieved an important step in
attaining this goal by having its senior debt rating upgraded to A- from BBB+
by Duff & Phelps Credit Rating Co.
At December 31, 1996, the Company's debt-to-capitalization ratio was 32.6
percent. For purposes of this ratio, the QUIPS (see Note O to the Consolidated
Financial Statements) are treated as capital. The Company continues to manage
its debt-to-capitalization ratio consistent with its long-term target range of
35 to 40 percent.
[graphic]
The BFGoodrich Company
Debt to Capitalization
94 37.4%
95 33.9%
96 32.6%
The Company has significant financial strength to pursue its growth
objectives.
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 to provide common shareholders with
appropriate dividend payments. The Company's near-term objective is to achieve
increasing levels of positive cash flow after satisfying capital expenditures
and payment of dividends, but excluding the effects of acquisitions and
divestitures.
Net operating cash flow is summarized as follows:
(In millions)
- --------------------------------------------------------------------------------
Year Ended December 31 1996 1995 1994
- --------------------------------------------------------------------------------
Cash flows from (used for):
Operations $ 257.7 $ 193.5 $ 183.6
Capital expenditures - net (178.4) (146.4) (118.8)
- --------------------------------------------------------------------------------
79.3 47.1 64.8
Dividends and
QUIPS distributions (69.4) (66.7) (64.6)
- --------------------------------------------------------------------------------
9.9 (19.6) .2
Acquisitions and
divestitures - net (79.0) 66.9 (20.2)
- --------------------------------------------------------------------------------
Net operating cash flow $ (69.1) $ 47.3 $ (20.0)
================================================================================
23
7
1996 Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS (continued)
Cash flow from operations increased significantly in 1996, to $257.7 million
from $193.5 million in 1995. This improvement largely reflects less operating
working capital (defined as accounts receivable plus pre-LIFO inventory less
accounts payable) usage in 1996 compared with 1995. Average operating working
capital as a percent of sales decreased to 25 percent in 1996 from 26 percent in
1995. The Company has a continued emphasis to minimize its investment in working
capital. Cash flow from operations has been more than adequate to finance
capital expenditures in each of the past three years. The Company expects to
have sufficient cash flow from operations to finance planned capital spending
for 1997.
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 a focus 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 and
non-hazardous wastes, the treatment, storage, trans portation 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 ("EPA") in connection with approximately 32
sites, most of which related to businesses previously discontinued. The Company
believes it may have continuing liability with respect to not more than 15
sites.
The Company initiates corrective and/or preventive 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.
At December 31, 1996, the Company had recorded as Accrued expenses and as
Other Non-current Liabilities a total of $22.4 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 five sites 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. Of the five sites,
two sites are in the operation and maintenance phase for which costs are
reasonably fixed; a third site is in the construction phase, which is expected
to be completed soon, which the Company will "buy out" of for a percentage of
the total cost without any further liability exposure; a fourth site will be
constructed in 1997 for which reasonable estimates of the ultimate completion
cost can be made; however, 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
fifth site, uncertainty exists as to the total cost of remediation and the
amount of past EPA costs to be reimbursed.
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.
24
8
The BFGoodrich Company and Subsidiaries
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 assurance that accounting records are reliable for the preparation of
financial statements and for safeguarding assets. The Company's system of
internal controls includes: written policies, guidelines and procedures;
organizational structures, staffed through the careful selection of people that
provide an appropriate division of responsibility and accountability; and an
internal audit program.
Ernst & Young LLP, independent auditors, were engaged to audit and to render
an opinion on the consolidated financial statements of 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.
D. L. Burner
President 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, 1996 and 1995, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the three years in the period ended December 31, 1996. 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, 1996 and 1995, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles.
Cleveland, Ohio
February 4, 1997 Ernst & Young LLP
25
9
1996 Annual Report
CONSOLIDATED STATEMENT OF INCOME
(Dollars in millions, except per share amounts)
Year Ended December 31 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
SALES $ 2,238.8 $ 2,049.3 $ 1,849.3
Operating costs and expenses:
Cost of sales 1,528.1 1,401.6 1,285.2
Selling and administrative expenses 467.9 422.6 399.0
Restructuring costs 4.0 3.1 -
- -----------------------------------------------------------------------------------------------------------------------------------
2,000.0 1,827.3 1,684.2
- -----------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 238.8 222.0 165.1
Interest expense (40.4) (44.5) (47.1)
Interest income 1.5 2.5 1.0
Other income (expense)--net (21.8) .5 (25.1)
- -----------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
before income taxes and Trust distributions 178.1 180.5 93.9
Income tax expense (61.4) (65.1) (35.7)
Distributions on Trust preferred securities (10.5) (5.1) -
- -----------------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 106.2 110.3 58.2
Income from discontinued operations--net 45.5 7.7 17.5
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME 151.7 118.0 75.7
Dividends and call premium on preferred stocks - (5.6) (8.0)
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK $ 151.7 $ 112.4 $ 67.7
===================================================================================================================================
EARNINGS PER SHARE
Continuing operations $ 1.97 $ 2.00 $ .97
Discontinued operations .84 .15 .34
- -----------------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 2.81 $ 2.15 $ 1.31
===================================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
26
10
The BFGoodrich Company and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in millions,
except per share amounts)
December 31 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
CURRENT ASSETS
Cash and cash equivalents $ 48.7 $ 60.3
Accounts and notes receivable 398.0 399.0
Inventories 367.1 355.3
Deferred income taxes 68.0 67.9
Prepaid expenses and other assets 30.5 32.7
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 912.3 915.2
- ------------------------------------------------------------------------------------------------------------------------------------
DEFERRED INCOME TAXES 3.3 28.3
PROPERTY 946.0 859.2
GOODWILL 544.3 481.4
IDENTIFIABLE INTANGIBLE
ASSETS 47.6 51.5
INTANGIBLE PENSION ASSET - 42.6
OTHER ASSETS 209.6 111.4
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 2,663.1 $ 2,489.6
====================================================================================================================================
CURRENT LIABILITIES
Short-term bank debt $ 130.8 $ 11.3
Accounts payable 243.1 235.9
Accrued expenses 241.5 237.0
Income taxes payable 11.1 33.3
Current maturities of long-term debt
and capital lease obligations 36.0 80.3
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 662.5 597.8
- ------------------------------------------------------------------------------------------------------------------------------------
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATIONS 400.0 422.3
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS 348.5 351.9
OTHER NON-CURRENT LIABILITIES 79.3 116.8
MANDATORILY REDEEMABLE PREFERRED SECURITIES OF TRUST 122.6 122.2
SHAREHOLDERS' EQUITY
Common stock--$5 par value
Authorized, 100,000,000 shares;
issued, 54,899,308 shares in 1996 and
53,578,520 shares in 1995 274.5 133.9
Additional capital 357.3 447.5
Income retained in the business 453.7 360.9
Cumulative unrealized translation adjustments 5.9 9.6
Amount related to recording minimum pension liability - (28.8)
Unearned portion of restricted stock awards (9.0) (16.2)
Common stock held in treasury, at cost
(1,135,985 shares in 1996 and 1,045,136 shares in 1995) (32.2) (28.3)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 1,050.2 878.6
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,663.1 $ 2,489.6
====================================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
27
11
1996 Annual Report
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 151.7 $ 118.0 $ 75.7
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 118.4 113.9 112.1
Deferred income taxes 17.9 29.5 21.2
Gains on sale of businesses (9.7) (3.6) -
Change in assets and liabilities, net of
effects of acquisitions and dispositions
of businesses:
Receivables 13.8 (15.4) (60.4)
Inventories (9.4) (22.8) 11.8
Other current assets 2.0 (.1) (4.7)
Accounts payable (2.8) 2.2 57.6
Accrued expenses 3.0 (8.0) 9.5
Income taxes payable (19.5) 9.1 (5.6)
Other non-current assets and liabilities (7.7) (29.3) (33.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 257.7 193.5 183.6
INVESTING ACTIVITIES
Purchases of property (184.1) (147.7) (129.3)
Proceeds from sale of property 5.7 3.2 10.5
Payments made in connection with acquisitions,
net of cash acquired (107.9) (15.4) (20.2)
Proceeds from sale of businesses 28.9 82.3 -
Other transactions - (1.9) -
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (257.4) (79.5) (139.0)
FINANCING ACTIVITIES
Changes in short-term debt 118.9 (59.2) 46.7
Proceeds from issuance of long-term debt 70.0 80.8 -
Repayment of long-term debt and capital lease
obligations (141.8) (62.0) (20.5)
Proceeds from issuance of capital stock 11.2 16.6 1.4
Proceeds from issuance of Trust preferred securities,
net of issuance costs - 122.1 -
Purchases of treasury stock (.1) (33.4) (1.1)
Dividends (58.9) (61.6) (64.6)
Distributions on Trust preferred securities (10.5) (5.1) -
Retirements of preferred stock - (88.3) (4.9)
- ------------------------------------------------------------------------------------------------------------------------------------
Net cash used by financing activities (11.2) (90.1) (43.0)
EFFECT OF EXCHANGE RATE
CHANGES ON CASH AND CASH EQUIVALENTS (.7) .6 .8
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (11.6) 24.5 2.4
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 60.3 35.8 33.4
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 48.7 $ 60.3 $ 35.8
====================================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
28
12
The BFGoodrich Company and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions, except per share amounts)
Year Ended December 31 1996 1995 1994
- ------------------------------------------------------------------------------------------------------------------------------------
$3.50 CUMULATIVE CONVERTIBLE PREFERRED STOCK, SERIES D $ - $ - $ 110.0
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK--$5 PAR VALUE
Balance at beginning of year 133.9 129.8 128.8
Common stock issued for:
Two-for-one common stock split 134.7 - -
Contribution to pension plans 3.8 - -
Acquisitions - - .7
Conversion of Series D Preferred Stock - 2.0 -
Employee award programs 2.1 2.1 .3
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 274.5 133.9 129.8
- ------------------------------------------------------------------------------------------------------------------------------------
ADDITIONAL CAPITAL
Balance at beginning of year 447.5 401.7 393.8
Two-for-one common stock split (134.7) - -
Contribution to pension plans 26.2 - -
Acquisitions - - 5.6
Conversion of Series D Preferred Stock - 20.8 -
Employee award programs 15.6 23.6 2.3
Other capital share transactions 2.7 1.4 -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 357.3 447.5 401.7
- ------------------------------------------------------------------------------------------------------------------------------------
INCOME RETAINED IN THE BUSINESS
Balance at beginning of year 360.9 305.7 294.6
Net income 151.7 118.0 75.7
Premium on redemption of Series D Preferred Stock - (1.2) -
Dividends:
Preferred Stock:
Series A, $7.85 a share - - (.3)
Series D, $3.50 a share - (4.4) (7.7)
Common stock--$1.10 per share in each year (58.9) (57.2) (56.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Total dividends (58.9) (61.6) (64.6)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 453.7 360.9 305.7
- ------------------------------------------------------------------------------------------------------------------------------------
CUMULATIVE UNREALIZED TRANSLATION ADJUSTMENTS
Balance at beginning of year 9.6 4.9 (.3)
Aggregate adjustments for the year (3.7) 4.7 5.2
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at end of year 5.9 9.6 4.9
- ------------------------------------------------------------------------------------------------------------------------------------
AMOUNT RELATED TO RECORDING MINIMUM PENSION LIABILITY - (28.8) (18.6)
- ------------------------------------------------------------------------------------------------------------------------------------
UNEARNED PORTION OF RESTRICTED STOCK AWARDS (9.0) (16.2) (3.9)
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK HELD IN TREASURY, AT COST (32.2) (28.3) (7.0)
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 1,050.2 $ 878.6 $ 922.6
====================================================================================================================================
<FN>
See Notes to Consolidated Financial Statements.
29
13
1996 Annual Report
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
majority-owned subsidiaries. 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 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. Depreciation and amortization is
computed principally using the straight-line method over the following estimated
useful lives: buildings and improvements, 15 to 40 years; machinery and
equipment, 5 to 15 years. 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 20 to 40 years.
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
5 to 25 years.
Impairment of long-lived assets and related goodwill 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 discounted future cash flows resultinG from the use and ultimate
disposition of the asset.
REVENUE RECOGNITION: The Company recognizes revenues from the sale of products
at the point of passage of title, which is at the time of shipment. Revenues
earned from providing maintenance service are recognized when the service is
complete.
FINANCIAL INSTRUMENTS: The Company's financial instruments recorded on
the balance sheet include cash and cash equivalents, accounts and notes
receivable, accounts payable and debt. Because of their short maturity, the
carrying amount of cash and cash equivalents, accounts and notes receivable,
accounts payable and short-term bank debt approximates fair value. Fair value of
long-term debt is based on rates available to the Company for debt with similar
terms and maturities.
Off balance sheet derivative financial instruments at December 31, 1996,
include an interest rate swap agreement, foreign currency forward contracts and
foreign currency swap agreements.
Interest rate swap agreements are used by the Company, from time to time, 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. Interest rate
swap agreements are generally entered into at the time the related floating rate
debt is issued in order to convert the floating rate debt to fixed rates. Fair
value of these instruments is based on estimated current settlement cost.
The Company enters into foreign currency forward contracts (principally
against the British pound, Italian lira, Spanish peseta, French franc, Dutch
gilder and U.S. dollar) to hedge the net receivable/payable position arising
from trade sales and purchases and intercompany transactions by its European
businesses. Foreign currency forward contracts reduce the Company's exposure to
the risk that the eventual net cash inflows and outflows resulting from the sale
of products and purchases from suppliers denominated in a currency other than
the functional currency of the respective businesses will be adversely affected
by changes in exchange rates. Foreign currency gains and losses under the above
arrangements are not deferred. Foreign currency forward contracts are entered
into with major commercial European banks that have high credit ratings. From
time to time, the Company uses foreign currency forward contracts to hedge
purchases of capital equipment. Foreign currency gains and losses for such
purchases are deferred as part of the basis of the asset.
30
14
The BFGoodrich Company and Subsidiaries
The Company also enters into foreign currency swap agreements (principally
for the Belgian franc, French franc and Dutch gilder) to eliminate foreign
exchange risk on intercompany loans between European businesses.
The fair value of foreign currency forward contracts and foreign currency
swap agreements is based on quoted market prices.
STOCK-BASED COMPENSATION: The Company accounts for stock-based employee
compensation in accordance with the provisions of APB Opinion No. 25,
"Accounting for Stock Issued to Employees" and related Interpretations.
EARNINGS PER SHARE: 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 53,979,757
for 1996, 52,339,140 for 1995 and 51,532,752 for 1994. Fully diluted earnings
per share are not presented, since dilution is less than 3 percent.
USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECLASSIFICATIONS: Certain amounts presented in prior years' financial
statements and the notes thereto have been reclassified to conform with the 1996
presentation.
NOTE B
DISCONTINUED OPERATIONS
On October 21, 1996, the Company entered into a definitive agreement to sell
Tremco Incorporated ("Tremco"), its wholly owned subsidiary, to RPM, Inc. The
transaction was completed on February 3, 1997, for approximately $230 million
resulting in an estimated pretax gain of approximately $85 million, subject to
post-closing adjustments. Also during 1996, the Company disposed of Tremco
Autobody Technologies, Inc. and an adhesives business. The operations of Tremco,
Tremco Autobody Technologies, Inc. and the adhesives business represented the
Sealants, Coatings and Adhesives ("SC&A") Group of the Company. The disposition
of the SC&A Group represents the disposal of a segment of a business under APB
Opinion No. 30. Accordingly, the Consolidated Statement of Income has been
restated to reflect the SC&A Group as a discontinued operation. Following is a
summary of the operations of the SC&A Group, which in 1996 excludes sales and
net losses during the phase-out period. Discontinued operations in 1996 also
include a $30 million, or $.55 per share, non-cash adjustment to the gain
calculation of a business previously divested and reported as a discontinued
operation in 1993.
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Sales $ 316.8 $ 359.5 $ 349.5
- -------------------------------------------------------------------------------
Pretax income from operations $ 20.6 $ 17.8 $ 14.7
Gain on sale of business 6.4 - -
Income tax expense (11.5) (10.1) (7.2)
- -------------------------------------------------------------------------------
Net income from operations 15.5 7.7 7.5
Adjustments to gain of
1993 discontinued operation 30.0 - 10.0
- -------------------------------------------------------------------------------
Income from discontinued
operations $ 45.5 $ 7.7 $ 17.5
================================================================================
Included in the December 31, 1996 Consolidated Balance Sheet are assets of
$220.7 million and liabilities of $102.7 million related to discontinued
operations.
In 1994, the Company recognized a $10 million tax benefit as a result of
realizing the benefit of utilizing excess foreign tax credits resulting from a
business previously divested and reported as a discontinued operation in 1993.
ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS
ACQUISITIONS: During 1996, the Company's Specialty Chemicals segment acquired
five businesses for cash consideration of approximately $108 million. The
aggregate purchase price includes approximately $80 million of goodwill. The
purchase price allocations have been based on preliminary estimates, which may
be revised at a later date.
Four of the acquisitions are part of the Specialty Additives Group. One of
the businesses acquired is a European-based supplier of emulsions and polymers
for use in paint and coatings for textiles, paper, graphic arts and industrial
applications. Two of the acquisitions represent product lines consisting of
water-borne acrylic resins and coatings and additives used in the graphic arts
industry. The fourth acquisition consists of water-based textile coatings
product lines. The Specialty Plastics Group made the remaining acquisition, a
small supplier of anti-static compounds.
31
15
1996 Annual Report
NOTE C: ACQUISITIONS, DISPOSITIONS AND RESTRUCTURINGS (continued)
Goodwill is being amortized using the straight-line method over periods up to
20 years for the five Specialty Chemicals 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 cash paid
and stock issued for these businesses was $26.5 million in the aggregate.
These acquisitions were recorded using the purchase method of accounting.
Their results of operations have been included in the consolidated financial
statements since their respective dates of acquisition.
DISPOSITIONS: In May 1995, the Company sold its wholly owned subsidiary,
Arrowhead Industrial Water, Inc., for $84.3 million, resulting in a pretax gain
of $3.6 million, which is included in Other income (expense)-net.
RESTRUCTURINGS: In 1996, the Company recognized a $4 million pretax charge for a
voluntary early retirement program for eligible employees of the Specialty
Plastics and Specialty Additives Groups.
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. The
Company did not incur restructuring costs in 1994.
NOTE D
FINANCING ARRANGEMENTS
SHORT-TERM BANK DEBT: At December 31, 1996, the Company had separate revolving
credit agreements with certain banks providing for domestic lines of credit
aggregating $300 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 million committed
line. At December 31, 1996, no amounts were outstanding pursuant to these
agreements.
In addition, the Company had available formal foreign lines of credit and
overdraft facilities of $57.4 million at December 31, 1996, of which $23.3
million was used.
The Company also maintains uncommitted domestic money market facilities with
various banks aggregating $370 million, of which $262.5 million of these lines
were unused and available at December 31, 1996. Weighted average interest rates
on outstanding short-term borrowings were 6.6 percent and 7.1 percent at
December 31, 1996 and 1995, respectively. Weighted average interest rates on
short-term borrowings were 5.9 percent, 6.5 percent and 4.9 percent in 1996,
1995 and 1994, respectively.
LONG-TERM DEBT: At December 31, 1996 and 1995, long-term debt and capital lease
obligations payable after one year consisted of:
(In millions) 1996 1995
- -------------------------------------------------------------------------------
Short-term debt expected
to be refinanced $ - $ 50.0
9.625% Notes, maturing in 2001 175.0 175.0
MTN notes payable 119.0 79.0
European revolver 29.2 -
IDRBs, maturing in 2023, 6.0% 60.0 60.0
Notes payable to banks - 32.4
Other debt, maturing to 2015
(interest rates from 7.4% to 13.0%) 14.0 22.5
- -------------------------------------------------------------------------------
397.2 418.9
Capital lease obligations (Note E) 2.8 3.4
- -------------------------------------------------------------------------------
Total $ 400.0 $ 422.3
================================================================================
MTN NOTES PAYABLE: The Company has an effective shelf registration filed with
the Securities and Exchange Commission which, as of December 31, 1996, enables
the Company to issue up to $281 million of long-term debt securities in the
public markets (referred to as the MTN program). MTN notes outstanding at
December 31, 1996, are fixed-rate non-callable debt securities. During 1996, the
Company issued $20 million of 7.5 percent MTN notes, due in 2026, and $20
million of 7.4 percent MTN notes, due in 2046. During 1995, the Company issued
$79 million of MTN notes, due in 2025 at interest rates ranging from 7.3 percent
to 8.7 percent.
32
16
The BFGoodrich Company and Subsidiaries
EUROPEAN REVOLVER: During 1996, the Company established a $75 million committed
multi-currency revolving credit facility with various international banks,
expiring in the year 2003. The Company intends to use this facility for
medium-term, local currency financing to support the growth of its European
operations. At December 31, 1996, the Company had borrowed $29.2 million
denominated in Spanish pesetas at a floating rate that is tied to Spanish LIBOR
(7.24 percent at December 31, 1996).
IDRBs: The industrial development revenue bonds were issued to finance the
construction of a hangar facility in 1993. Property acquired through the
issuance of these bonds secures the repayment of the bonds.
Aggregate maturities of long-term debt, exclusive of capital lease
obligations, during the five years subsequent to December 31, 1996, are as
follows (in millions): 1997 - $34.7; 1998 - $4.6; 1999 - $.7; 2000 - $.3 and
2001 - $204.5.
The Company's debt agreements contain various restrictive covenants that,
among other things, place limitations on the payment of cash dividends and the
repurchase of the Company's capital stock. Under the most restrictive of these
agreements, income retained in the business was free from such limitations at
December 31, 1996.
NOTE E
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 from continuing operations, by year and in the aggregate, under
capital leases and under noncancelable operating leases with initial or
remaining noncancelable lease terms in excess of one year, consisted of the
following at December 31, 1996:
Capital Noncancelable
(In millions) Leases Operating Leases
- -------------------------------------------------------------------------------
1997 $ 1.7 $ 13.2
1998 1.1 9.9
1999 .9 6.6
2000 .6 4.8
2001 .5 2.7
Thereafter .3 17.2
- -------------------------------------------------------------------------------
Total minimum payments 5.1 $ 54.4
Less amounts representing interest 1.0 ================
- ----------------------------------------------------
Present value of net minimum
lease payments 4.1
Less current portion of capital
lease obligations 1.3
- ----------------------------------------------------
Total $ 2.8
====================================================
Net rent expense from continuing operations consisted of the following:
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Minimum rentals $ 23.0 $ 20.3 $ 19.4
Contingent rentals 2.9 2.4 2.4
Sublease rentals (.1) (.1) (.1)
- -------------------------------------------------------------------------------
Total $ 25.8 $ 22.6 $ 21.7
================================================================================
NOTE F
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.
The Company's general funding policy for pension plans is to contribute
amounts at least sufficient to satisfy regulatory funding standards. The
Company's qualified pension plans were fully funded on an accumulated benefit
obligation basis at December 31, 1996, reflecting the attainment of the
Company's goal to fund these plans fully by 1997. Assets for these plans consist
principally of corporate and government obligations and commingled funds
invested in equities, debt and real estate. At December 31, 1996, the pension
plans held 754,717 shares of the Company's common stock with a fair value of
$30.6 million.
33
17
1996 Annual Report
Note F: Pensions
(continued)
(In millions) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Plans with Plans with Plans with
Assets Exceeding Assets Exceeding Accumulated Benefit
Accumulated Accumulated Obligation
Benefit Obligation Benefit Obligation Exceeding Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Actuarial present value of
accumulated benefit obligation:
Vested $ 568.8 $ 11.2 $ 546.9
Non-vested 26.6 .6 32.7
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation 595.4 11.8 579.6
Plan assets at fair value 646.5 17.8 545.7
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of
(less than) accumulated
benefit obligation $ 51.1 $ 6.0 $ (33.9)
====================================================================================================================================
Projected benefit obligation $ 645.0 $ 14.3 $ 620.0
Plan assets at fair value 646.5 17.8 545.7
- -----------------------------------------------------------------------------------------------------------------------------------
Plan assets in excess of
(less than) projected benefit
obligation $ 1.5 $ 3.5 $ (74.3)
====================================================================================================================================
Consisting of:
Unrecognized transition asset(liability) $ (20.2) $ .7 $ (24.6)
Unrecognized prior service cost (19.0) (.5) (18.0)
Unrecognized net gain(loss) (63.6) 2.2 (84.8)
Adjustment required to
recognize minimum liability - - 87.0
Prepaid(accrued) pension cost
recognized in the balance sheet 104.3 1.1 (33.9)
- -----------------------------------------------------------------------------------------------------------------------------------
Total $ 1.5 $ 3.5 $ (74.3)
====================================================================================================================================
The components of net periodic pension cost are as follows:
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Service cost for benefits earned $ 16.5 $ 11.3 $ 11.1
Interest cost on projected benefit
obligation 46.6 47.3 44.0
Actual return on plan assets (64.5) (101.5) (16.3)
Net amortization and deferral 22.9 62.1 (18.9)
- --------------------------------------------------------------------------------
Net pension cost $ 21.5 $ 19.2 $ 19.9
================================================================================
Amortization of unrecognized transition assets and liabilities, prior service
cost and gains and losses (if applicable) are recorded using the straight-line
method over the average remaining service period of active employees, or
approximately 12 years.
The table above sets forth the status of the Company's funded defined benefit
pension plans as of December 31, 1996 and 1995, 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 $11 million in
1996 and $7.9 million in 1995, and the related projected benefit obligations of
$18 million in 1996 and $11 million in 1995.
Major assumptions used in accounting for BFGoodrich's defined benefit pension
plans are as follows:
1996 1995 1994
- --------------------------------------------------------------------------------
Discount rate for
obligations 7.75% 7.25% 8.75%
Rate of increase in
compensation levels 4.0% 3.5% 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 invested in BFGoodrich common stock, and 50 cents for
each dollar of eligible employee contributions invested in other available
investment options
34
18
The BFGoodrich Company and Subsidiaries
(up to 6 percent of earnings). For 1996, 1995 and 1994, Company contributions
amounted to $15.9 million, $14.6 million and $12.2 million, respectively.
In addition, the Company contributed $8.9 million, $10 million and $8.5
million in 1996, 1995 and 1994, respectively, under other defined contribution
plans for 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 G
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, 1996 and 1995:
(In millions) 1996 1995
- -------------------------------------------------------------------------------
Accumulated postretirement benefit
obligation (APBO):
Retirees $ 254.4 $ 282.2
Fully eligible active plan
participants 23.2 23.3
Other active plan participants 29.7 31.0
Unrecognized gain 66.6 40.9
- -------------------------------------------------------------------------------
Accrued postretirement cost $ 373.9 $ 377.4
===============================================================================
Net periodic postretirement benefit expense included the following
components:
(In millions) 1996 1995 1994
- -------------------------------------------------------------------------------
Service cost for benefits earned $ 2.3 $ 1.7 $ 2.9
Interest cost on APBO 22.3 25.3 27.0
Net amortization and deferral (2.3) (2.9) -
- -------------------------------------------------------------------------------
Net periodic postretirement cost $ 22.3 $ 24.1 $ 29.9
===============================================================================
For measurement purposes, the annual rate of increase in the per capita cost
of covered health-care benefits of 8.0 percent was assumed for 1997, decreasing
gradually to 5.25 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, 1996, by $21 million and the aggregate of
the service and interest cost components of net periodic postretirement benefit
cost for 1996 by $1.6 million. The weighted average discount rates used in
determining the APBO were 7.75 percent, 7.25 percent and 8.75 percent as of
December 31, 1996, 1995 and 1994, respectively.
NOTE H
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) 1996 1995 1994
- --------------------------------------------------------------------------------
Domestic $ 153.4 $159.7 $ 82.0
Foreign 24.7 20.8 11.9
- --------------------------------------------------------------------------------
Total $ 178.1 $180.5 $ 93.9
- --------------------------------------------------------------------------------
A summary of income tax (expense) benefit from continuing operations in the
Consolidated Statement of Income is as follows:
(In millions) 1996 1995 1994
- --------------------------------------------------------------------------------
Current:
Federal $ (29.6) $ (26.7) $ (10.2)
Foreign (8.6) (4.6) (2.0)
State (5.7) (6.9) (4.7)
- --------------------------------------------------------------------------------
(43.9) (38.2) (16.9)
- --------------------------------------------------------------------------------
Deferred:
Federal (18.3) (27.0) (18.4)
Foreign .8 .1 (.4)
- --------------------------------------------------------------------------------
(17.5) (26.9) (18.8)
- --------------------------------------------------------------------------------
Total $ (61.4) $ (65.1) $ (35.7)
================================================================================
35
19
1996 Annual Report
NOTE H: INCOME TAXES
(continued)
Significant components of deferred income tax assets and liabilities at
December 31, 1996 and 1995, are as follows:
(In millions) 1996 1995
- -------------------------------------------------------------
Deferred income tax assets:
Accrual for postretirement benefits
other than pensions $ 129.6 $ 130.9
Other nondeductible accruals 62.7 60.7
Tax credit and net operating
loss carryovers 19.1 28.5
Other 20.9 35.8
- -------------------------------------------------------------
Total deferred income tax assets 232.3 255.9
============================================================
Deferred income tax liabilities:
Tax over book depreciation (90.0) (83.6)
Tax over book intangible amortization (13.4) (9.3)
Pensions (31.2) (25.1)
Other (33.8) (41.7)
- -------------------------------------------------------------
Total deferred income tax liabilities (168.4) (159.7)
- -------------------------------------------------------------
Net deferred income taxes $ 63.9 $ 96.2
============================================================
Management has determined, based on the Company's history of prior earnings
and its expectations for the future, that 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 $14.6 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 varied from the
statutory federal income tax rate as follows:
Percent of Pretax Income 1996 1995 1994
- -------------------------------------------------------------
Statutory federal income tax rate 35.0% 35.0% 35.0%
Corporate-owned life insurance
investments (.9) (1.3) (2.2)
Amortization of nondeductible
goodwill 1.0 1.0 1.9
Difference in rates on
consolidated foreign subsidiaries (.5) (1.5) (1.8)
State and local taxes,
net of federal benefit 2.1 2.5 3.5
QUIPS distributions (2.1) (1.0) -
Other items (.1) 1.4 1.7
- -------------------------------------------------------------
Effective income tax rate 34.5% 36.1% 38.1%
=============================================================
BFGoodrich has not provided for U.S. federal and foreign withholding taxes on
$115.1 million of foreign subsidiaries' undistributed earnings (excluding the
SC&A Group) as of December 31, 1996, 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 $5.6 million.
NOTE I
BUSINESS SEGMENT INFORMATION
The Company's operations are classified into two reportable business segments:
BFGoodrich Aerospace ("Aerospace") and BFGoodrich Specialty Chemicals
("Specialty Chemicals").
Aerospace consists of three business groups: Landing Systems; Sensors and
Integrated Systems; and Maintenance, Repair and Overhaul. They serve commercial,
military, regional, business and general aviation markets. Aerospace's major
products are aircraft landing gear and wheels and brakes; sensors and
sensor-based systems; fuel measurement and management systems; aircraft
evacuation slides and rafts; ice protection systems; and collision warning
systems. Aerospace also provides maintenance, repair and overhaul services on
commercial airframes and components.
Specialty Chemicals consists of two business groups: Specialty Additives and
Specialty Plastics. They serve various markets such as personal care,
pharmaceuticals, printing, textiles and automotive. Specialty Chemicals' major
products are thermoplastic polyurethane; high-heat-resistant plastics; synthetic
thickeners and emulsifiers; polymer emulsions, resins and additives; and textile
thickeners, binders, emulsions and compounds.
-36-
20
The BFGoodrich Company and Subsidiaries
Sales Operating Income
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Aerospace $ 1,253.8 $1,149.6 $1,050.3 $ 161.3 $ 146.6 $ 121.9
Specialty Chemicals(1) 824.4 710.8 638.7 109.5 74.4 72.1
- -------------------------------------------------------------------------------------------------------------------------------
Total Reportable Segments 2,078.2 1,860.4 1,689.0 270.8 221.0 194.0
Other Operations 160.6 188.9 160.3 20.8 57.5 24.1
Corporate(2) - - - (52.8) (56.5) (53.0)
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 2,238.8 $2,049.3 $1,849.3 $ 238.8 $ 222.0 $ 165.1
===============================================================================================================================
Property Depreciation and Identifiable
Additions Amortization Expense Assets
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Aerospace $ 51.6 $ 38.3 $ 36.8 $ 57.9 $ 56.9 $ 54.7 $1,341.4 $1,334.2 $1,287.0
Specialty Chemicals 97.5 86.4 63.1 39.0 35.3 33.2 784.6 602.7 583.5
- -------------------------------------------------------------------------------------------------------------------------------
Total Reportable Segments 149.1 124.7 99.9 96.9 92.2 87.9 2,126.0 1,936.9 1,870.5
Other Operations 6.5 5.6 4.9 7.1 7.1 7.1 91.8 113.1 120.1
Corporate(3) 28.5 17.4 25.5 14.4 14.6 17.1 445.3 439.6 478.3
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 184.1 $ 147.7 $ 130.3 $ 118.4 $ 113.9 $ 112.1 $2,663.1 $2,489.6 $2,468.9
===============================================================================================================================
Operating Income Identifiable
Sales (Loss) Assets
- -------------------------------------------------------------------------------------------------------------------------------
(In millions) 1996 1995 1994 1996 1995 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
Geographic Areas:
United States $ 2,002.4 $ 1,844.0 $1,671.4 $ 267.3 $ 257.7 $ 206.1 $1,975.2 $ 1,869.6 $ 1,846.3
Other North America 21.4 19.4 16.8 1.3 .8 .6 12.0 20.8 8.0
Europe 185.1 159.1 140.3 22.4 19.3 11.8 222.9 152.3 130.2
Other Foreign 29.9 26.8 20.8 .9 1.9 (.4) 12.5 11.6 9.3
Inter-area Eliminations - - - (.3) (1.2) - (4.8) (4.3) (3.2)
- -------------------------------------------------------------------------------------------------------------------------------
Total $ 2,238.8 $ 2,049.3 $1,849.3 $ 291.6 $ 278.5 $ 218.1 $2,217.8 $ 2,050.0 $ 1,990.6
===============================================================================================================================
<FN>
1 Operating income in 1996 includes a $4 million charge for a voluntary early
retirement program.
2 Corporate operating expenses include a $3.1 million charge for a voluntary
early retirement program in 1995.
3 Includes amounts relating to the SC&A Group, which was accounted for as a
discontinued operation in 1996.
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.
Other Operations currently represents the manufacture of chlor-alkali and
olefins. Corporate includes general corporate administrative costs and Advanced
Technology Group 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 10 percent, 10 percent and 11
percent of consolidated sales in 1996, 1995 and 1994, respectively, to various
United States government agencies and departments.
At December 31, 1996, approximately 14 percent of the Company's labor force
was covered by various collective bargaining agreements. Approximately 5 percent
of the labor force was covered by a collective bargaining agreement that will
expire during 1997.
Net assets of consolidated foreign subsidiaries, principally in Europe,
amounted to $186.6 million, $188.3 million and $174.5 million in 1996, 1995 and
1994, 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.
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 $84.9 million, $80.5
million and $74.9 mil-
-37-
21
1996 Annual Report
Note I: Business Segment Information (continued)
lion in 1996, 1995 and 1994, respectively. Export sales to unaffiliated foreign
customers amounted to $314.7 million, $293.8 million and $262.7 million in 1996,
1995 and 1994, respectively.
NOTE J
SUPPLEMENTAL STATEMENT OF INCOME INFORMATION
(In millions) 1996 1995 1994
- -------------------------------------------------------------
Other Income (Expense)--Net
Cost of health-care benefits
for retirees of previously
discontinued businesses $ (10.5) $ (12.1) $ (14.0)
Gains on sale of businesses 1.6 3.6 -
Gain on sale of
corporate assets - - 7.2
Equity in losses of
unconsolidated subsidiary (3.9) (4.4) (4.3)
Interest on Company-owned
life insurance (7.5) (10.0) (10.1)
Environmental recoveries
(costs) of previously
discontinued businesses 1.6 19.1 (7.2)
Other--net (3.1) 4.3 3.3
- -------------------------------------------------------------
Total $ (21.8) $ .5 $ (25.1)
=============================================================
The unconsolidated subsidiary had assets of $17.9 million and $10.8 million
and liabilities of $21.8 million and $14.8 million at December 31, 1996 and
1995, respectively, and revenues of $24.4 million, $13.9 million and $8.9
million in 1996, 1995 and 1994, 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 from continuing operations in 1996, 1995
and 1994 were $124.1 million, $119.4 million and $111.4 million, respectively.
Of these amounts, $23.6 million, $37.6 million and $30 million, respectively,
were funded by customers.
NOTE K
SUPPLEMENTAL BALANCE SHEET INFORMATION
(In millions) 1996 1995
- ---------------------------------------------------------------
Allowance for Doubtful Accounts $ 13.1 $ 11.8
===============================================================
Amounts charged to expense from continuing operations during 1996, 1995 and
1994 were $5.3 million, $2.7 million and $1.9 million, respectively.
(In millions) 1996 1995
- -------------------------------------------------------------
Inventories
FIFO or average cost (which
approximates current costs):
Finished products $ 157.7 $ 151.4
In process 122.0 114.0
Raw materials and supplies 152.1 154.3
- -------------------------------------------------------------
431.8 419.7
Reserve to reduce certain inventories
to LIFO basis (64.7) (64.4)
- -------------------------------------------------------------
Total $ 367.1 $ 355.3
=============================================================
At December 31, 1996 and 1995, approximately 47 percent and 50 percent,
respectively, of inventory was valued by the LIFO method.
(In millions) 1996 1995
- --------------------------------------------------------------
Property
Land $ 22.8 $ 18.6
Buildings and improvements 487.0 415.8
Machinery and equipment 1,041.9 962.8
Construction in progress 112.0 115.5
- --------------------------------------------------------------
1,663.7 1,512.7
Less allowances for depreciation
and amortization 717.7 653.5
- --------------------------------------------------------------
Total $ 946.0 $ 859.2
==============================================================
Property includes assets acquired under capital leases, principally buildings
and machinery and equipment, of $20.4 million and $21.3 million at December 31,
1996 and 1995, respectively. Related allowances for depreciation and
amortization are $10.9 million and $11.7 million, respectively. Interest costs
capitalized from continuing operations were $6.5 million in 1996, $2.5 million
in 1995 and $.6 million in 1994. Amounts charged to expense for depreciation and
amortization from continuing operations during 1996, 1995 and 1994 were $87
million, $83.7 million and $82.7 million, respectively.
-38-
22
The BFGoodrich Company and Subsidiaries
(In millions) 1996 1995
- --------------------------------------------------------------
Goodwill
Accumulated amortization $ 75.5 $ 58.9
==============================================================
(In millions) 1996 1995
- --------------------------------------------------------------
Identifiable Intangible
Assets
Accumulated amortization $ 30.9 $ 26.1
==============================================================
Amortization of goodwill and identifiable intangible assets from continuing
operations was $20.1 million, $18.3 million and $18.1 million in 1996, 1995 and
1994, respectively.
(In millions) 1996 1995
- --------------------------------------------------------------
Accrued Expenses
Wages, vacations, pensions and
other employment costs $ 94.9 $ 82.0
Postretirement benefits other
than pensions 25.4 25.5
Taxes, other than federal
and foreign taxes on income 39.2 37.0
Accrued environmental liabilities 13.0 12.9
Other 69.0 79.6
- --------------------------------------------------------------
Total $ 241.5 $ 237.0
==============================================================
(In millions) 1996 1995
- --------------------------------------------------------------
Other Non-current Liabilities
Accrued pension liability $ 14.6 $ 62.5
Accrued environmental
liabilities 9.4 9.7
Other 55.3 44.6
- --------------------------------------------------------------
Total $ 79.3 $ 116.8
==============================================================
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, 1996 and 1995, are as follows:
1996 (In millions) Carrying Amount Fair Values
- ---------------------------------------------------------------
Cash and cash equivalents $ 48.7 $ 48.7
Accounts and notes receivable 398.0 398.0
Accounts payable 243.1 243.1
Short-term bank debt 130.8 130.8
Long-term debt (including
current portion) 431.9 452.0
1995 (In millions) Carrying Amount Fair Values
- ---------------------------------------------------------------
Cash and cash equivalents $ 60.3 $ 60.3
Accounts and notes receivable 399.0 399.0
Accounts payable 235.9 235.9
Short-term bank debt 11.3 11.3
Long-term debt (including
current portion) 498.1 530.0
Off balance sheet derivative financial instruments at December 31, 1996 and
1995, held for purposes other than trading, were as follows:
1996 1995
Contract/ Contract/
Notional Fair Notional Fair
(In millions) Amount Value Amount Value
- ---------------------------------------------------------------
Interest rate swaps $ 15.0 $ (.1) $ 65.0 $ (1.2)
Foreign currency
forward contracts $ 12.3 $ (.3) $ 12.1 $ (.2)
Foreign currency
swap agreements $ 17.1 $ - $ 15.9 $ .1
At December 31, 1996, the Company had one interest rate swap agreement,
wherein the Company pays a fixed rate of interest and receives a LIBOR-based
floating rate. This contract is scheduled to mature in 1997.
Foreign currency forward contracts mature over the next four months
coincident with the anticipated settlement of accounts receivable and accounts
payable in Europe. No additional cash requirements are necessary with respect to
outstanding agreements.
The counterparties to each of these agreements are major commercial banks.
Management believes that losses related to credit risk are remote.
-39
23
1996 Annual Report
NOTE L
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) 1996 1995 1994
- -------------------------------------------------------------
Estimated fair value of tangible
assets acquired $ 46.4 $ 3.6 $ 23.1
Goodwill and identifiable
intangible assets 81.7 12.7 4.5
Cash paid/stock issued (107.9) (15.4) (26.5)
- -------------------------------------------------------------
Liabilities assumed or created $ 20.2 $ .9 $ 1.1
=============================================================
Liabilities disposed in
connection with sales of
businesses $ 1.5 $ 9.2 $ -
Interest paid (net of amount
capitalized) 40.2 43.3 44.7
Income taxes paid 34.4 32.2 12.8
Conversion of Series D
Convertible Preferred Stock
into common stock - 22.9 -
Contribution of common stock
to pension trust 30.0 - -
NOTE M
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, 1996,
2,401,673 shares of Series Preferred Stock have been redeemed, and no shares of
Series Preferred Stock were outstanding. The Board of Directors establishes and
designates the series and fixes the number of shares and the relative rights,
preferences and limitations of the respective series of the Series Preferred
Stock.
Cumulative Participating Preferred Stock - Series 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, 1996, no Series E shares were
issued or outstanding and 338,724 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 two shares 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.
-40-
24
The BFGoodrich Company and Subsidiaries
NOTE N
COMMON STOCK
On February 19, 1996, the Company's Board of Directors approved a
two-for-one common stock split to be distributed in the form of a stock
dividend. As a result of this action, 26,932,191 shares were issued to
shareholders of record on March 11, 1996, of which 531,205 shares represented
treasury stock of the Company. Par value remains at $5 per share as a result of
transferring $134.7 million to common stock from additional capital,
representing the aggregate par value of the shares issued under the stock split.
All references throughout this annual report to number of shares, per share
amounts, stock option data and market prices of the Company's common stock have
been restated.
During 1996, 754,717 shares ($30 million) of authorized but previously
unissued shares of common stock were issued and contributed to the Company's
defined benefit wage and salary pension plans.
The Company acquired 52,949, 1,365,654 and 51,692 shares of treasury stock
in 1996, 1995 and 1994, respectively, and reissued 22,500, 775,900 and 20,000
shares, respectively, in connection with the Stock Option Plan and other
employee stock ownership plans. In 1996, 1995 and 1994, 60,400, 134,250 and
59,700 shares, respectively, of common stock previously awarded to employees
were forfeited and restored to treasury stock.
During 1996, 1995 and 1994, 566,071, 843,562 and 105,452 shares,
respectively, of authorized but unissued shares were issued under the Stock
Option Plan and other employee stock ownership plans.
Shares reserved for future issuance at December 31, 1996, were as follows:
- ------------------------------------------------------------
Stock options under
Stock Option Plan 5,723,395
Various Company stock ownership plans 7,122,138
- ------------------------------------------------------------
Total 12,845,533
============================================================
NOTE O
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 8.3 percent
Cumulative Quarterly Income Preferred Securities, Series A ("QUIPS"). The Trust
invested the proceeds in 8.3 percent Junior Subordinated Debentures, Series A,
Due 2025 ("Junior Subordinated Debentures") issued by the Company, which
represent approximately 97 percent of the total assets of the Trust. The Company
used the proceeds from the Junior Subordinated Debentures primarily to redeem
all of the outstanding shares of the $3.50 Cumulative Convertible Preferred
Stock, Series D. The QUIPS have a liquidation value of $25 per Preferred
Security, mature in 2025 and are subject to mandatory redemption upon repayment
of the Junior Subordinated Debentures. The Company has the option at any time on
or after July 6, 2000, to redeem, in whole or in part, the Junior Subordinated
Debentures with the proceeds from the issuance and sale of the Company's common
stock within two years preceding the date fixed for redemption. The Company has
unconditionally guaranteed all distributions required to be made by the Trust,
but only to the extent the Trust has funds legally available for such
distributions. The only source of funds for the Trust to make distributions to
preferred security holders is the payment by the Company of interest on the
Junior Subordinated Debentures. The Company has the right to defer such interest
payments for up to five years. If the Company defers any interest payments, the
Company may not, among other things, pay any dividends on its capital stock
until all interest in arrears is paid to the Trust.
-41-
25
1996 Annual Report
NOTE P
STOCK OPTION PLAN
The Stock Option Plan, which will expire on April 5, 2001, unless renewed,
provides for the awarding of or the granting of options to purchase 3,200,000
shares of common stock of the Company. Generally, options granted are
exercisable at the rate of 35 percent after one year, 70 percent after two years
and 100 percent after three years. Certain options are fully exercisable
immediately after grant. The term of each option cannot exceed 10 years from the
date of grant. All options granted under the Plan have been granted at not less
than 100 percent of market value (as defined) on the date of grant.
The Company has elected to follow APB Opinion No. 25, "Accounting for Stock
Issued to Employees" ("APB 25"), and related Interpretations in accounting for
its employee stock options because, as discussed below, the alternative fair
value accounting provided for under FASB Statement No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), requires use of option valuation models
that were not developed for use in valuing employee stock options. Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized.
Pro forma information regarding net income and earnings per share is required
by SFAS 123 and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions for 1996
and 1995, respectively: risk-free interest rates of 5.39 percent and 7.83
percent; dividend yield of 2.5 percent; volatility factor of the expected market
price of the Company's common stock of 19 percent; and a weighted-average
expected life of the option of 5 years and 4.9 years.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. In addition,
the grant-date fair value of performance shares (discussed below) is amortized
to expense over the three-year plan cycle without adjustments for subsequent
changes in the market price of the Company's common stock. The Company's pro
forma information follows:
(In millions, except earnings per share
information) 1996 1995
- ------------------------------------------------------------
Pro forma net income $ 151.8 $ 118.2
Pro forma earnings per share 2.83 2.16
============================================================
The pro forma effect on net income for 1996 and 1995 is not representative of
the pro forma effect on net income in future years because it does not take into
consideration pro forma compensation expense related to grants made prior to
1995.
A summary of the Company's stock option activity and related information
follows:
Year ended December 31, 1996
(Options in thousands)
- ---------------------------------------------------------------
Weighted-Average
Options Exercise Price
- ---------------------------------------------------------------
Outstanding at beginning
of year 2,347.4 $ 22.39
Granted 825.4 34.40
Exercised (566.1) 23.49
Forfeited (63.0) 26.36
- ---------------------------------------------------------------
Outstanding at end of year 2,543.7 $ 25.94
- ---------------------------------------------------------------
Year ended December 31, 1995
(Options in thousands)
- ---------------------------------------------------------------
Weighted-Average
Options Exercise Price
- ---------------------------------------------------------------
Outstanding at beginning
of year 2,446.2 $ 22.51
Granted 825.9 21.80
Exercised (852.2) 22.14
Forfeited (72.5) 22.56
- ---------------------------------------------------------------
Outstanding at end of year 2,347.4 $ 22.39
===============================================================
The weighted-average fair values of stock options granted during 1996 and
1995 were $6.87 and $5.31, respectively.
The following table summarizes information about the Company's stock options
outstanding at December 31, 1996:
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26
The BFGoodrich Company
and Subsidiaries
(Options in thousands)
- ------------------------------------------------------------------------------------------------------------------------------
Grant Weighted-Average Weighted-Average
Date Options Outstanding Options Exercisable Exercise Price Remaining Contractual Life (Years)
- ------------------------------------------------------------------------------------------------------------------------------
1/2/96 792.4 274.2 $ 34.40 9
1/3/95 673.8 342.9 21.80 8
1/3/94 298.2 225.7 20.00 7
1/4/93 211.6 211.6 24.44 6
All other 567.7 567.7 22.75 3.2
- ------------------------------------------------------------------------------------------------------------------------------
Total 2,543.7 1,622.1
==============================================================================================================================
<FN>
Stock options in the "All other" category were outstanding at prices ranging
from $19.09 to $28.16
During 1996, 1995 and 1994, restricted stock awards for 7,850, 209,700 and
20,000 shares, respectively, were made under this plan. During 1996, 1995 and
1994, stock awards for 25,400, 1,200 and 3,200 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 1996, 1995 and 1994, $1.5 million, $1.7 million and $1.2 million,
respectively, were charged to expense for restricted stock awards.
The Stock Option Plan also provides that shares of common stock may be
awarded as performance shares to certain key executives having a critical impact
on the long-term performance of the Company. In 1995, the Compensation Committee
of the Board of Directors awarded 566,200 shares and established performance
objectives that are based on attain ment of an average return on equity over the
three-year plan cycle ending in 1997. In 1996, 14,650 performance shares were
granted to certain key executives that commenced employment during the year.
During 1996, 1995 and 1994, 35,000, 133,050 and 56,500 performance shares,
respectively, were forfeited.
The market value of performance 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 1996 and 1995, $8.3 million and $6.9 million, respectively, were charged to
expense for performance shares. In 1994, $.5 million was credited to expense
for performance shares.
If the provisions of SFAS 123 had been used to account for awards of
performance shares, the weighted-average grant-date fair value of
performance shares granted in 1996 and 1995 would have been $38.54 per share
and $22.37 per share, respectively.
NOTE Q:
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 realized.
At December 31, 1996, 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
$57.5 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.
BFGoodrich and its subsidiaries are generators of both hazardous 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 ("EPA") in connection with approximately 32
sites, most of which related to businesses previously discontinued. The Company
believes it may have continuing liability with respect to not more than 15
sites.
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27
1996 Annual Report
NOTE Q: COMMITMENTS AND CONTINGENCIES (continued)
The Company initiates corrective and/or preventive 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.
At December 31, 1996, the Company had recorded as Accrued expenses and as
Other Non-current Liabilities a total of $22.4 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 five sites 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. Of the five sites,
two sites are in the operation and maintenance phase for which costs are
reasonably fixed; a third site is in the construction phase, which is expected
to be completed soon, which the Company will "buy out" of for a percentage of
the total cost without any further liability exposure; a fourth site will be
constructed in 1997 for which reasonable estimates of the ultimate completion
cost can be made; however, 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
fifth site, uncertainty exists as to the total cost of remediation and the
amount of past EPA costs to be reimbursed.
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.
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.
The Company's chlor-alkali and olefins facilities ("Facilities") in Calvert
City, Ky., were the subject of a lawsuit and subsequent arbitration that
Westlake Monomers Corporation ("Westlake") initiated in 1993, seeking up to $350
million in damages. In August 1996, Westlake exercised its right to terminate an
agreement to purchase the Facilities. All of Westlake's claims in the lawsuit
and arbitration were terminated as a result of Westlake's decision not to
purchase the Facilities.
-44-
28
The BFGoodrich Company and Sudsidiaries
QUARTLY FINANCIAL DATA (UNAUDITED)
1996 Quarters 1995 Quarters
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in millions,
except per share amounts) First Second Third Fourth First Second Third Fourth
- -----------------------------------------------------------------------------------------------------------------------------
BUSINESS SEGMENT SALES:
Aerospace $ 307.0 $ 303.0 $ 310.7 $ 333.1 $ 276.6 $ 284.4 $ 286.7 $ 301.9
Specialty Chemicals 191.0 203.1 217.5 212.8 192.0 178.3 166.4 174.1
Other Operations 33.2 44.1 39.4 43.9 55.9 43.7 48.1 41.2
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL SALES $ 531.2 $ 550.2 $ 567.6 $ 589.8 $ 524.5 $ 506.4 $ 501.2 $ 517.2
=============================================================================================================================
GROSS PROFIT $ 172.5 $ 178.4 $ 176.2 $ 183.6 $ 161.0 $ 159.6 $ 158.9 $ 168.2
=============================================================================================================================
BUSINESS SEGMENT
OPERATING INCOME (LOSS):
Aerospace $ 39.2 $ 39.9 $ 38.0 $ 44.2 $ 27.8 $ 37.4 $ 40.4 $ 41.0
Specialty Chemicals 25.0 28.5 30.8 25.2 18.8 15.8 18.7 21.1
Other Operations 4.7 8.4 7.1 0.6 19.4 14.6 13.7 9.8
Corporate (12.6) (11.7) (14.9) (13.6) (11.7) (14.7) (13.7) (16.4)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL OPERATING INCOME $ 56.3 $ 65.1 $ 61.0 $ 56.4 $ 54.3 $ 53.1 $ 59.1 $ 55.5
=============================================================================================================================
INCOME FROM:
CONTINUING OPERATIONS $ 24.1 $ 30.1 $ 25.4 $ 26.6 $ 23.0 $ 37.5 $ 24.8 $ 25.0
DISCONTINUED OPERATIONS (4.2) 7.8 39.2 2.7 (5.4) 6.8 8.1 (1.8)
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 19.9 $ 37.9 $ 64.6 $ 29.3 $ 17.6 $ 44.3 $ 32.9 $ 23.2
- -----------------------------------------------------------------------------------------------------------------------------
INCOME PER SHARE:
Continuing operations $ 0.45 $ 0.56 $ 0.47 $ 0.49 $ 0.41 $ 0.68 $ 0.44 $ 0.47
Net income 0.37 0.70 1.19 0.54 0.30 0.81 0.59 0.44
=============================================================================================================================
In the first quarter of 1996, operating income included a $4 million charge
for a voluntary early retirement program in the Specialty Chemicals segment.
Income from discontinued operations in 1996 and 1995 includes the disposition of
the SC&A Group. In the second quarter of 1996, income from discontinued
operations includes a $6.4 million pretax gain on the sale of an SC&A business.
In the third quarter of 1996, income from discontinued operations includes a $30
million non-cash adjustment to the gain of a business previously accounted for
as a discontinued operation.
In the second quarter of 1995, operating income included 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 $5.9
million from adjustments primarily due to the favorable decision related to a
certain litigation matter and lower expense for pension and retiree health-care
benefits resulting from updated actuarial calculations. Also, second quarter
1995 income from continuing operations included a pretax gain of $5 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.
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.
1996 1995
- --------------------------------------------------------------------------
Quarter High Low Dividend Quarter High Low Dividend
- --------------------------------------------------------------------------
First $40 1/4 $33 15/16 $.275 First $22 13/16 $20 13/16 $.275
Second 41 7/8 35 3/8 .275 Second 27 3/8 22 3/16 .275
Third 45 1/8 33 3/8 .275 Third 33 1/8 26 5/8 .275
Fourth 45 7/8 38 1/8 .275 Fourth 36 5/16 30 1/2 .275
==========================================================================
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29
1996 Annual Report
SELECTED FIVE-YEAR FINANCIAL DATA
(Dollars in millions,
except per share amounts) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
STATEMENT OF INCOME DATA:
Sales $ 2,238.8 $ 2,049.3 $ 1,849.3 $ 1,492.9 $ 1,311.3
Cost of sales 1,528.1 1,401.6 1,285.2 1,046.9 937.6
Gross profit 710.7 647.7 564.1 446.0 373.7
Selling and administrative expenses 467.9 422.6 399.0 362.7 304.6
Operating income 238.8 222.0 165.1 78.0 58.4
Interest expense 40.4 44.5 47.1 37.7 38.3
Interest income 1.5 2.5 1.0 4.1 2.9
Income tax expense (benefit) 61.4 65.1 35.7 (3.4) (4.9)
Income from continuing operations before cumulative
effect of change in method of accounting 106.2 110.3 58.2 14.2 2.9
Income (loss) from discontinued operations 45.5 7.7 17.5 114.1 (12.3)
Cumulative effect of change in method of accounting - - - - (286.5)
Net income (loss) 151.7 118.0 75.7 128.3 (295.9)
- --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA:
Current assets $ 912.3 $ 915.2 $ 849.0 $ 793.8 $ 797.1
Current liabilities 662.5 597.8 638.0 469.4 565.5
Working capital 249.8 317.4 211.0 324.4 231.6
Net property 946.0 859.2 873.3 836.0 1,215.8
Total assets 2,663.1 2,489.6 2,468.9 2,359.9 2,451.7
Non-current long-term debt and capital lease obligations 400.0 422.3 427.1 486.5 403.1
Mandatorily redeemable preferred securities of Trust 122.6 122.2 - - -
Redeemable preferred stock - - - 3.8 6.3
Total shareholders' equity 1,050.2 878.6 922.6 895.3 828.8
- --------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL DATA:
Total segment operating income $ 291.6 $ 278.5 $ 218.1 $ 135.6 $ 122.0
Capital expenditures 184.1 147.7 130.3 146.2 200.2
Dividends (common and preferred) 58.9 61.6 64.6 64.6 64.5
Distributions on Trust preferred securities 10.5 5.1 - - -
- --------------------------------------------------------------------------------------------------------------------------------
PER SHARE OF COMMON STOCK:
Income (loss) from continuing operations $ 1.97 $ 2.00 $ 0.97 $ 0.12 $ (0.10)
Net income (loss) 2.81 2.15 1.31 2.34 (5.95)
Dividends per share 1.10 1.10 1.10 1.10 1.10
Book value per share 19.53 16.72 15.75 15.31 14.03
- --------------------------------------------------------------------------------------------------------------------------------
RATIOS:
As a percent of sales:
Gross profit (%) 31.7 31.6 30.5 29.9 28.5
Selling and administrative expenses (%) 20.9 20.6 21.6 24.3 23.2
Return on common shareholders' equity (%) 15.7 13.3 8.5 16.0 (33.4)
Current ratio 1.4 1.5 1.3 1.7 1.4
Debt-to-capital ratio (%) 32.6 33.9 37.4 36.9 34.6
Dividend payout--common stock (%) 39.1 51.2 84.0 47.0 N.A.
- --------------------------------------------------------------------------------------------------------------------------------
OTHER DATA:
Common shareholders of record at end of year 10,397 11,073 11,711 12,066 12,785
Common shares outstanding at end of year (millions) 53.8 52.5 51.6 51.3 51.2
Number of employees at end of year 14,160 13,275 13,392 13,416 13,375
- --------------------------------------------------------------------------------------------------------------------------------
<FN>
All Statement of Income Data and related ratios have been restated to exclude
results of the Sealants, Coatings and Adhesives Group, which is now accounted
for as a discontinued operation.
- 46 -