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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934

For the fiscal year ended December 31, 1998.

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition period from ________________ to _________________

Commission file number 1-892

THE B.F.GOODRICH COMPANY
(Exact name of registrant as specified in its charter)

New York 34-0252680
(State of incorporation) (I.R.S. Employer Identification No.)

4020 Kinross Lakes Parkway
Richfield, Ohio 44286-9368
(Address of principal executive offices) (Zip Code)

Registrant's telephone number, including area code: (330) 659-7600

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

NAME OF EACH EXCHANGE
ON WHICH REGISTERED
TITLE OF EACH CLASS ---------------------

Common Stock, $5 par value New York Stock Exchange
9 5/8% Notes, maturing in 2001
8.30% Cumulative Quarterly Income Preferred Securities,
Series A* New York Stock Exchange

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

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

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

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

The aggregate market value of the voting stock, consisting solely of common
stock, held by nonaffiliates of the registrant as of February 18, 1999 was
$2,436.2 million ($32.75 per share). On such date, 74,387,028 of such shares
were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the proxy statement dated March 4, 1999 are incorporated by
reference into Part III.
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PART I

ITEM 1. BUSINESS

Recent Development

On November 22, 1998, the Company and Coltec Industries Inc ("Coltec"), a
Pennsylvania company, entered into an Agreement and Plan of Merger ("Merger
Agreement"). Under the terms of the Merger Agreement, upon consummation of the
Merger each share of Coltec common stock issued and outstanding immediately
prior to the effective time of the Merger shall be converted into the right to
receive 0.56 of a share of BFGoodrich common stock.

The Merger, which will be accounted for as a pooling of interests, is
expected to close in early April of 1999. The Merger Agreement has been approved
by the Board of Directors of both companies. Consummation of the Merger is
subject to certain customary conditions, including, among others, approval of
the Merger Agreement by both companies' shareholders and the receipt of
regulatory approvals.

When the Company and Coltec entered into the Merger Agreement, both also
entered into Reciprocal Stock Option Agreements pursuant to which each granted
the other an option to purchase 19.9% of the outstanding shares of its common
stock upon the occurrence of certain specified events. The Reciprocal Stock
Option Agreements were entered into as a condition of the Merger Agreement and
serve as an inducement for each of the companies to consummate the Merger.

The headquarters of the new combined company will be located in Charlotte,
NC.

For additional information regarding the Merger, Merger Agreement and the
Reciprocal Stock Option Agreements, see the Joint Proxy Statement/Prospectus,
including Annex A, B and C.

General Development of Business

The Company manufactures and supplies a wide variety of systems and
component parts for the aerospace industry and provides maintenance, repair and
overhaul services on commercial, regional, business and general aviation
aircraft. The Company also manufactures specialty plastics and specialty
additives products for a variety of end-user applications.

A further description of the Company's business is provided below.

The Company, with 1998 sales of $4.0 billion, is organized into two
principal business segments: BFGoodrich Aerospace ("Aerospace") and BFGoodrich
Performance Materials ("Performance Materials"). The Company maintains patent
and technical assistance agreements, licenses and trademarks on its products,
process technologies and expertise in most of the countries in which it
operates. The Company conducts its business through numerous divisions and 98
wholly and majority-owned subsidiaries worldwide.

The principal executive offices of BFGoodrich are located at 4020 Kinross
Lakes Parkway, Richfield, Ohio 44286-9368 (telephone (330) 659-7600).

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

In March 1998, the Company acquired Freedom Chemical Company for
approximately $378.0 million in cash. Freedom Chemical is a leading global
manufacturer of specialty and fine chemicals that are sold to a variety of
customers who use them to enhance the performance of their finished products.
Freedom Chemical has leadership positions as a supplier of specialty chemical
additives used in personal care, food and beverage, pharmaceutical, textile,
graphic arts, paints, colorants and coatings applications and as chemical
intermediates. The Company also acquired a small manufacturer of textile
chemicals and a small manufacturer of energetic materials systems during 1998.

On December 22, 1997, the Company completed a merger with Rohr, Inc.
("Rohr") which was accounted for as a pooling of interests. Accordingly, all
prior period consolidated financial statements were restated to include the
results of operations, financial position and cash flows of Rohr as though Rohr
had always been a part of the Company.

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4

During 1997, the Company acquired five additional businesses (four of which
were acquired during the fourth quarter) for cash consideration of $133.4
million in the aggregate, which included $65.3 million of goodwill. One of the
acquired businesses is a manufacturer of data acquisition systems for satellites
and other aerospace applications. A second business manufactures diverse
aerospace products for commercial and military applications. A third business is
a manufacturer of dyes, chemical additives and durable press resins for the
textiles industry. A fourth business manufactures thermoplastic polyurethanes
and is located in the United Kingdom. The remaining acquisition is a small
specialty chemicals business.

On August 15, 1997, the Company sold its chlor-alkali and olefins ("CAO")
business to The Westlake Group for $92.7 million, resulting in an after-tax gain
of $14.5 million, or $.19 per diluted share. The disposition of the CAO business
represents the disposal of a segment of a business under APB Opinion No. 30
("APB 30"). Accordingly, the Consolidated Statement of Income reflects the CAO
business (previously reported as Other Operations) as a discontinued operation.

On February 3, 1997, the Company sold Tremco Incorporated to RPM, Inc. for
$230.7 million, resulting in an after-tax gain of $59.5 million, or $.80 per
diluted share. The sale of Tremco Incorporated completed the disposition of the
Company's Sealants, Coatings and Adhesives ("SC&A") Group, which also
represented a disposal of a segment of a business under APB 30. Accordingly, the
SC&A Group is also reflected as a discontinued operation in the Consolidated
Statement of Income.

Also during 1997, the Company completed the sale of its Engine Electrical
Systems Division, which was part of the Sensors and Integrated Systems Group in
the Aerospace Segment. The Company received cash proceeds of $72.5 million,
which resulted in a pretax gain of $26.4 million ($16.4 million after tax).

During 1996, the Company acquired five specialty chemicals businesses for
cash consideration of $107.9 million, which included $80.0 million of goodwill.
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 represented product lines
consisting of water-borne acrylic resins and coatings and additives used in the
graphic arts industry. The fourth acquisition consisted of water-based textile
coatings product lines. The remaining acquisition was a small supplier of
anti-static compounds.

Financial Information About Industry Segments

In 1998, 1997 and 1996, sales to Boeing, solely by the Aerospace Segment,
totaled 14 percent, 14 percent and 13 percent, respectively, of consolidated
sales.

For financial information concerning the Company's sales, operating income,
identifiable assets, property additions, depreciation and amortization and
geographic information, see Note N to Consolidated Financial Statements.

Narrative Description of Business

AEROSPACE

The Company's Aerospace Segment is conducted through four major business
groups.

Aerostructures Group (formerly Rohr) primarily designs, develops and
integrates aircraft engine nacelle and pylon systems for commercial and general
aviation customers.

Landing Systems Group manufactures aircraft landing gear; aircraft wheels
and brakes; high-temperature composites; and aircraft evacuation slides and
rafts for commercial, military, regional and business aviation customers and for
space programs.

Sensors and Integrated Systems Group manufactures sensors and sensor-based
systems; fuel measurement and management systems; electromechanical actuators;
aircraft windshield wiper systems; health and usage management systems;
electronic test equipment; ice protection systems; specialty heated products;
collision warning systems; weather detection systems; standby attitude
indicators; aircraft lighting components; and polymer and composite products for
commercial, military, regional, business and general aviation customers, and for
aircraft engine and space programs.

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5

Maintenance, Repair and Overhaul Group ("MRO") provides maintenance, repair
and overhaul of commercial airframes, components, wheels and brakes, landing
gear, instruments and avionics for commercial, regional, business and general
aviation customers.

The Company is among the largest suppliers of aircraft systems and
components and aircraft maintenance repair and overhaul services in the world.
It competes with other aerospace industry manufacturers to supply parts and
provide service on specific fleets of aircraft, frequently on a
program-by-program bid basis. Competition is primarily based on product
performance, service capability and price. Contracts to supply systems and
components and provide service are generally with aircraft manufacturers,
airlines and airfreight businesses worldwide. The Company also competes on U.S.
Government contracts, generally as a subcontractor. Competition is principally
based on product performance and price.

PERFORMANCE MATERIALS

The Company's Performance Materials Segment is conducted through three
major business groups.

Textile and Industrial Coatings Group manufactures acrylic textile coatings
and industrial formulations of Carbopol(R) polymers for textile printing;
durable press resins, dyes and softeners; and paper saturants and coatings in
wood, metal and other surface finishing products and in graphic arts
applications.

Consumer Specialties Group manufactures thickening, suspension and emulsion
polymers for personal care products, household and pharmaceutical applications.

Polymer Additives & Specialty Plastics Group manufactures thermoplastic
polyurethane and alloys; high-heat-resistant and low-combustibility plastics;
static-dissipating polymers; antioxidants for rubber, plastic and lubricants
applications; and reaction-injection molding resins. Products are marketed and
sold to manufacturers for film and sheet applications; wire and cable jacketing;
and magnetic media. Specialty plastics are also used in the manufacture of
automotive products; recreational vehicles and products; agricultural equipment;
industrial equipment; tire and rubber goods; plumbing and industrial pipe; fire
sprinkler systems and building material components.

The Company competes with other major chemical manufacturers. Products are
sold primarily based on product performance. Frequently, products are
manufactured or formulated to order for specific customer applications and often
involve considerable technical assistance from the Company.

Backlogs

At December 31, 1998, the Company had a backlog of approximately $2.8
billion, principally related to the Aerospace Segment, of which approximately 59
percent is expected to be filled during 1999. The amount of backlog at December
31, 1997 was approximately $2.4 billion. Backlogs in the Aerospace Segment are
subject to delivery delays or program cancellations, which are beyond the
Company's control.

Raw Materials

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

Availability of all major monomers and chemicals used in the Performance
Materials Segment is anticipated to be adequate for 1999. While chemical
feedstocks are currently in adequate supply, in past years, from time-to-time
for limited periods, various chemical feedstocks were in short supply. The
effect of any future shortages on the Company's operations will depend upon the
duration of any such shortages and possibly on future U.S. government policy,
which cannot be determined at this time.

Environmental

Federal, state and local statutes and regulations relating to the
protection of the environment and the health and safety of employees and other
individuals have resulted in higher operating costs and capital investments by
the industries in which the Company operates. Because of 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

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business. Although it cannot predict accurately how these developments will
affect future operations and earnings, the Company does not believe these costs
will vary significantly from those of its competitors.

For additional information concerning environmental matters, see Note V to
Consolidated Financial Statements.

Research and Development

The Company conducts research and development under Company-funded programs
for commercial products and under contracts with others. Total research and
development expense amounted to $182.7 million in 1998, which included $63.1
million related to amounts funded by customers. For additional information
concerning research and development expense, see Note A to Consolidated
Financial Statements.

Patents and Licenses

The Company has many patents of its own and has acquired licenses under
patents of others. While such patents in the aggregate are important to the
Company, neither the primary business of the Company nor any of its industry
segments is dependent on any single patent or group of related patents. The
Company uses a number of trademarks important either to its business as a whole
or to its industry segments considered separately. The Company believes that
these trademarks are adequately protected.

Human Resources

As of December 31, 1998, the Company had 17,175 employees in the United
States. An additional 1,239 people were employed overseas. Approximately 8,400
employees were hourly paid. The Company believes it has good relationships with
its employees.

The hourly employees who are unionized are covered by collective bargaining
agreements with a number of labor unions and with varying contract termination
dates ranging from March 1999 to August 2003. There were no material work
stoppages during 1998.

Foreign Operations

The Company is engaged in business in foreign markets. Manufacturing and
service facilities for Aerospace and Performance Materials are located in
Belgium, Canada, England, France, Germany, Japan, India, Australia, Hong Kong,
Korea, The Netherlands, Scotland, Singapore and Spain. The Company also markets
its products and services through sales subsidiaries and distributors in a
number of foreign countries. The Company also has technical fee, patent royalty
agreements and joint venture agreements with various foreign companies.

Outside North America, no single foreign geographic area is currently
significant, although the Company continues to expand its business in Europe.
Currency fluctuations, tariffs and similar import limitations, price controls
and labor regulations can affect the Company's foreign operations, including
foreign affiliates. Other potential limitations on the Company's foreign
operations include expropriation, nationalization, restrictions on foreign
investments or their transfers, and additional political and economic risks. In
addition, the transfer of funds from foreign operations could be impaired by the
unavailability of dollar exchange or other restrictive regulations that foreign
governments could enact. The Company does not believe that such restrictions or
regulations would have a materially adverse effect on its business, in the
aggregate.

For additional financial information about U.S. and foreign sales, see Note
N to Consolidated Financial Statements.

ITEM 2. PROPERTIES

The manufacturing and service operations of the Company are carried on at
facilities, all of which are owned, unless otherwise indicated, at the following
locations:

AEROSPACE

Albuquerque, New Mexico
Amelot, France*
Arkadelphia, Arkansas
Austin, Texas*
Bangalore, India
Basingstoke, England*
Bedford, Massachusetts
Burnsville, Minnesota
Cedar Knolls, New Jersey

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7

Chula Vista, California**
Cleveland, Ohio**
Columbus, Ohio
Dallas, Texas*
Dewsbury, England
East Brunswick, New Jersey*
Eagan, Minnesota
Everett, Washington**
Fairhope, Alabama*
Foley, Alabama*
Fort Lauderdale, Florida
Grand Rapids, Michigan
Green, Ohio **
Hagerstown, Maryland
Hamburg, Germany
Harrow, England*
Heber Springs, Arkansas
Irvine, California*
Jacksonville, Florida
Karnataka, India
Louisville, Kentucky*
Lynnwood, Washington*
Memphis, Tennessee
Miami, Florida*
Middletown, Connecticut*
New Century, Kansas**
Oldsmar, Florida
Ontario, California*
Paris, France
Phoenix, Arizona
Prestwick, Scotland**
Pueblo, Colorado
Riverside, California
San Marcos, Texas
Santa Fe Springs, California**
Sheridan, Arkansas*
Singapore*
Spencer, West Virginia
Taipo, Hong Kong*
Tempe, Arizona*
Tokyo, Japan
Toulouse, France**
Troy, Ohio
Tullahoma, Tennessee
Union, West Virginia
Villawood, Australia
Vergennes, Vermont
Wichita, Kansas

PERFORMANCE MATERIALS

Akron, Ohio
Antwerp, Belgium
Avon Lake, Ohio
Barcelona, Spain
Calvert City, Kentucky
Cartersville, Georgia
Chagrin Falls, Ohio
Charlotte, North Carolina
Chennai, India
Cincinnati, Ohio***
Cowpens, South Carolina
Delfzijl, The Netherlands
Dewsbury, England
Elyria, Ohio
Gastonia, North Carolina
Greenville, South Carolina
Henry, Illinois
Kalama, Washington
Kallo, Belgium
Lawrence, Massachusetts
Leominster, Massachusetts
Louisville, Kentucky
Madras, India***
Munich, Germany*
Oevel, Belgium
Pedricktown, New Jersey
Pohang, Korea
Raubling, Germany**
Shepton Mallet, England
Taylors, South Carolina
Twinsburg, Ohio
Vadodara, India
Williston, South Carolina

RESEARCH FACILITIES AND ADMINISTRATIVE OFFICES
OTHER THAN MANUFACTURING FACILITY OFFICES

Avon Lake, Ohio*
Brecksville, Ohio
Brussels, Belgium*
Chula Vista, California**
Cleveland, Ohio*
Hong Kong*
Hurricane Mesa, Utah
Manyunck, Pennsylvania
Montrose, Ohio
North Canton, Ohio*
Richfield, Ohio
Seattle Washington*
Tokyo, Japan
Uniontown, Ohio*
Washington, D.C.*
Waterloo, Ontario, Canada*

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* Leased

** Leased in Part

*** Land is Leased; Building is Owned

The Company considers that its properties are well maintained and in good
operating condition.

The Company and its subsidiaries are lessees under a number of cancelable
and non-cancelable leases for certain real properties, used primarily for
administrative, retail, maintenance, repair and overhaul of aircraft, aircraft
wheels and brakes and evacuation systems and warehouse operations, and for
certain equipment (see Note K to the Consolidated Financial Statements).

ITEM 3. LEGAL PROCEEDINGS

There are pending or threatened against BFGoodrich or its subsidiaries
various claims, lawsuits and administrative proceedings, all arising from the
ordinary course of business with respect to commercial, product liability and
environmental matters, which seek remedies or damages. The Company believes that
any liability

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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, environmental and other matters.
Gain contingencies, if any, are recognized when realized.

The Company 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 ("PRP") by
the U.S. Environmental Protection Agency ("EPA") in connection with
approximately 43 sites, most of which related to businesses previously
discontinued. The Company believes it may have continuing liability with respect
to not more than 19 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
PRP, review of remediation methods and negotiation with other PRPs and
governmental agencies.

At December 31, 1998, the Company has recorded in Accrued Expenses and in
Other Non-current Liabilities a total of $57.4 million to cover future
environmental expenditures, principally for remediation of the aforementioned
sites and other environmental matters.

The Company believes that it has adequately reserved for all of the above
sites based on currently available information. Management believes that it is
reasonably possible that additional costs may be incurred beyond the amounts
accrued as a result of new information. However, the amounts, if any, cannot be
estimated and management believes that they would not be material to the
Company's financial condition but could be material to the Company's results of
operations in a given period.

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

Not applicable.

PART II

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

The number of common shareholders of record at December 31, 1998, was
11,244. The discussions of the limitations and restrictions on the payment of
dividends on common stock are included in Notes J and T to the Consolidated
Financial Statements.

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.

1998 1997
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QUARTER HIGH LOW DIVIDEND QUARTER HIGH LOW DIVIDEND
- ------- ---- --- -------- ------- ---- --- --------

First.. 54 1/2 38 3/8 $.275 First 43 1/8 36 1/2 $.275
Second.. 56 44 11/16 .275 Second 48 1/4 35 1/8 .275
Third.. 50 1/4 26 1/2 .275 Third 47 1/4 41 5/8 .275
Fourth.. 40 1/2 28 13/16 .275 Fourth 46 40 3/4 .275

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ITEM 6. SELECTED FINANCIAL DATA

SELECTED FIVE-YEAR FINANCIAL DATA

1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

STATEMENT OF INCOME DATA:
Sales.................................... $3,950.8 $3,373.0 $2,845.8 $2,661.8 $2,601.4
Operating income......................... 476.8 250.1 310.3 247.4 217.0
Income from continuing operations........ 228.1 113.2 115.5 94.8 66.4
BALANCE SHEET DATA:
Total assets............................. $4,192.6 $3,493.9 $3,579.8 $3,387.5 $3,435.4
Non-current long-term debt and capital
lease obligations..................... 995.2 564.3 881.4 963.0 1,001.1
Mandatorily redeemable preferred
securities of Trust................... 123.6 123.1 122.6 122.2 --
Total shareholders' equity............... 1,599.6 1,422.6 1,225.8 975.9 979.2
OTHER FINANCIAL DATA:
Total segment operating income........... $ 532.2 $ 388.5 $ 363.1 $ 303.9 $ 270.0
EBITDA(1)................................ 634.6 484.4 420.9 346.7 319.8
Operating cash flow...................... 356.6 209.6 265.5 221.0 264.2
Capital expenditures..................... 208.5 159.9 197.1 155.8 136.1
Dividends (common and preferred)......... 75.7 59.5 58.8 61.6 64.6
Distributions on Trust preferred
securities............................ 10.5 10.5 10.5 5.1 --
PER SHARE OF COMMON STOCK:
Income from continuing operations,
diluted............................... $ 3.04 $ 1.53 $ 1.65 $ 1.34 $ .91
Dividends declared....................... 1.10 1.10 1.10 1.10 1.10
Book value............................... 21.51 19.56 17.66 14.97 13.54
RATIOS:
Operating income as a percent of sales
(%)................................... 12.1 7.4 10.9 9.3 8.3
Return on common shareholders' equity
(%)................................... 15.0 13.5 15.8 14.7 10.8
Debt-to-capitalization ratio (%)......... 39.8 33.0 44.3 49.3 53.8
Dividend payout-common stock (%)......... 33.4 33.4 33.9 40.6 55.9
OTHER DATA:
Common shareholders of record at end of
year.................................. 11,244 13,550 n/a n/a n/a
Common shares outstanding at end of year
(millions)............................ 74.4 72.7 69.4 65.2 64.2
Number of employees at end of year....... 18,414 16,838 17,960 17,275 18,292

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(1) "EBITDA" as used herein means income from continuing operations before
distributions on Trust preferred securities, income tax expense, net
interest expense, depreciation and amortization and special items.
Special items for 1998, 1997 and 1996 are described on page 9 of this
Form 10-K. Special items in 1995 included a net gain of $12.5 million
from an insurance settlement; a net gain of $2.2 million from the sale
of a business; and a charge of $1.9 million relating to a voluntary
early retirement program. Special items in 1994 included a charge of
$6.4 million attributable to unamortized pension prior service costs
related to a reduction in employment levels and a net gain of $1.6
million on the sale of a business.

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

This Management's Discussion and Analysis contains forward-looking
statements. See the last section for certain risks and uncertainties.

Results of Operations

PENDING MERGER

On November 22, 1998, the Company and Coltec Industries, Inc. ("Coltec"), a
Pennsylvania company, entered into an Agreement and Plan of Merger ("Merger
Agreement"). Under the terms of the Merger Agreement, upon consummation of the
Merger, each share of Coltec common stock issued and outstanding immediately
prior to the effective time of the Merger shall be converted into the right to
receive 0.56 of a share of BFGoodrich common stock. The Merger, which will be
accounted for as a pooling of interests, is expected to close in early April of
1999. Upon consummation of the Merger, all prior period financial statements
will be restated to include the financial information of Coltec as if it had
always been a part of the Company. For more information regarding the Merger,
see Note C to the Consolidated Financial Statements.

TOTAL COMPANY

BFGoodrich achieved the fourth year of solid sales and earnings growth
since the new company effectively came into being on January 1, 1994, following
the sale of the Geon Vinyl Products Segment in 1993. In addition, the largest
business combination in its 128-year history was accomplished at the end of
1997.

Consolidated Operations The Company achieved strong double-digit sales and
income growth from continuing operations in 1998. Income from continuing
operations climbed 25 percent, excluding the impact of merger-related costs. The
Company experienced continued strong demand in many markets in both the
Aerospace and Performance Materials Segments.

1998 1997 1996
-------- -------- --------
(IN MILLIONS)

SALES
Aerospace........................................ $2,755.2 $2,468.3 $2,021.4
Performance Materials............................ 1,195.6 904.7 824.4
-------- -------- --------
Total....................................... $3,950.8 $3,373.0 $2,845.8
======== ======== ========
OPERATING INCOME
Aerospace........................................ $ 386.4 $ 260.3 $ 253.6
Performance Materials............................ 145.8 128.2 109.5
-------- -------- --------
Total Reportable Segments................... 532.2 388.5 363.1
Corporate........................................ (55.4) (138.4) (52.8)
-------- -------- --------
Total....................................... $ 476.8 $ 250.1 $ 310.3
======== ======== ========

Cost of sales was 72.2 percent in 1998 compared with 73.8 percent of sales
in 1997 and 71.8 percent of sales in 1996. Margin improvement in the Aerospace
Segment in 1998 was partially offset by a margin decline in the Performance
Materials Segment. Cost of sales in 1997 was also negatively impacted by the
MD-90 write-off as compared to 1998 and 1996 levels (see detailed group
discussions below).

Selling, general and administrative costs were 15.5 percent of sales in
1998, compared with 16.5 percent in 1997 and 16.9 percent in 1996. The decrease
in 1998 as compared to 1997 was a result of additional long-term incentive
compensation expense in 1997 that resulted from exceeding the three year goals
and achieving a maximum payout under the plan. The leverage that resulted from
the increase in sales at each of the segments also resulted in a reduction in
SG&A costs as a percentage of sales from 1996 to 1997. (See detailed group
discussions below).

Income from continuing operations included various charges or gains
(referred to as special items) which affected reported earnings. Excluding the
effects of special items, income from continuing operations in 1998 was $234.6
million, or $3.13 per diluted share, compared with $179.3 million, or $2.42 per
diluted share in 1997, and

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$127.7 million, or $1.83 per diluted share in 1996. The following table presents
the impact of special items on earnings per diluted share.

EARNINGS PER DILUTED SHARE 1998 1997 1996
-------------------------- ----- ----- -----

Income from continuing operations.......................... $3.04 $1.53 $1.65
Net (gain) loss on sold businesses....................... -- (.22) .03
Gain on issuance of subsidiary stock..................... -- (.10) --
MD-90 write-off.......................................... -- .28 --
Merger-related costs..................................... -- .93 --
Asset impairment and restructuring charges............... .09 -- .10
Exchange of convertible debt............................. -- -- .05
----- ----- -----
Income from continuing operations, excluding special
items................................................. $3.13 $2.42 $1.83
===== ===== =====

Income from continuing operations for the year ended December 31, 1998
includes $6.5 million ($0.09 per share) for costs associated with the
Aerostructures Group's closure of three facilities and the impairment of a
fourth facility.

Income from continuing operations for the year ended December 31, 1997
includes (i) merger costs of $69.3 million ($0.93 per share) in connection with
our merger with Rohr, Inc., (ii) a net gain of $8.0 million ($0.10 per share)
resulting from an initial public offering of common stock by BFGoodrich's
subsidiary, DTM Corporation, (iii) a net gain of $16.4 million ($0.22 per share)
from the sale of a business, and (iv) a charge of $21.0 million ($0.28 per
share) related to the Aerostructures Group's production contract with IAE
International Aero Engines AG to produce nacelles for McDonnell Douglas
Corporation's MD-90 aircraft.

Income from continuing operations for the year ended December 31, 1996
includes (i) a charge of $2.6 million ($0.04 per share) relating to a voluntary
early retirement program, (ii) a net gain of $1.0 million ($0.01 per share) from
the sale of a business, (iii) a loss of $3.1 million ($0.04 per share) on the
sale of a wholly-owned aircraft leasing subsidiary, (iv) a charge of $4.3
million ($0.06 per share) for an impairment write-down on a facility in
Arkadelphia, Arkansas, and (v) a charge of $3.2 million ($0.05 per share) for
the exchange of convertible notes.

The Company is continuing to evaluate realignment of its operations to
improve efficiencies and reduce costs.

ACQUISITIONS

On December 22, 1997, BFGoodrich completed a merger with Rohr, Inc. by
exchanging 18,588,004 shares of BFGoodrich common stock for all of the common
stock of Rohr (the term Company is used to refer to BFGoodrich including Rohr).
Each share of Rohr common stock was exchanged for .7 of one share of BFGoodrich
common stock. The merger was accounted for as a pooling of interests, and all
prior period financial statements were restated to include the financial
information of Rohr as though Rohr had always been a part of BFGoodrich.

Prior to the merger, Rohr's fiscal year ended on July 31. For purposes of
the combination, Rohr's financial results for its fiscal year ended July 31,
1997, were restated to the year ended December 31, 1997, to conform with
BFGoodrich's calendar year end. Financial results for Rohr's fiscal years ended
July 31, 1996 and earlier were not restated to conform to BFGoodrich's calendar
year end. For periods prior to 1997, Rohr's fiscal years ended July 31 have been
combined with BFGoodrich's calendar years ended December 31. As a result, Rohr's
results of operations for the period August 1, 1996 to December 31, 1996, do not
appear in the Consolidated Statement of Income and instead are recorded as a
direct adjustment to equity. Rohr's revenues, expenses and net loss for this
five-month period were $341.3 million, $359.3 million and $18.0 million,
respectively. Included in expenses during this period was a $49.3 million pretax
charge ($29.5 million after tax) relating to the McDonnell Douglas MD-90 program
(see discussion under Aerostructures Group).

The following acquisitions were recorded using the purchase method of
accounting. Their results of operations were included in the Company's results
since their respective dates of acquisition.

9
12

In March 1998, the Company acquired a global manufacturer of specialty and
fine chemicals that are sold to a variety of customers who use them to enhance
the performance of their finished products. The Company also acquired a small
manufacturer of textile chemicals used for fabric preparation and finishing and
a small manufacturer of energetic materials systems during 1998.

During 1997, the Company acquired five businesses for cash consideration of
$133.4 million in the aggregate, which included $65.3 million of goodwill. One
of the acquired businesses is a manufacturer of data acquisition systems for
satellites and other aerospace applications. A second business manufactures
diverse aerospace products for commercial and military applications. A third
business is a manufacturer of dyes, chemical additives and durable press resins
for the textiles industry. A fourth business manufactures thermoplastic
polyurethane and is located in the United Kingdom. The remaining acquisition is
a small specialty chemicals business.

1998 COMPARED WITH 1997

AEROSPACE

Market Overview The aerospace industry recorded another strong year in
1998, elevating BGoodrich Aerospace to its highest ever levels of sales and
operating income. Deliveries of large commercial aircraft increased 42 percent
over 1997, while deliveries of regional aircraft increased 23 percent in 1998.
Revenue passenger miles, a key indicator of market demand, also rose during the
year despite the softening of Asia-Pacific demand. World airline passenger
traffic increased an estimated 2.3 percent over the prior year, while U.S.
domestic revenue passenger miles increased by 3.9 percent. Military spending
remained relatively flat in 1998.

Segment Performance The Aerospace Segment's sales in 1998 were $2,755.2
million. Forty-two percent of sales were to commercial transport programs
(Boeing and Airbus). Sales to civil aviation customers were 89 percent in 1998,
an increase from 86 percent in 1997. Military sales comprised 9 percent of
Aerospace sales, the same level as last year.

The Aerospace Segment's operating income improved 48.4 percent during 1998.
In addition to the Group-specific results discussed below, the Segment as a
whole benefited principally from higher volume supplemented by the continued
implementation of productivity initiatives, including lean manufacturing and
procurement improvement efforts.

% OF SALES
-------------
1998 1997 % CHANGE 1998 1997
-------- -------- -------- ---- -----
(IN MILLIONS)

SALES
Aerostructures........................... $1,144.2 $1,039.7 10.1
Landing Systems.......................... 598.2 509.6 17.4
Sensors and Integrated Systems........... 574.6 550.7 4.3
MRO...................................... 438.2 368.3 19.0
-------- --------
Total Sales......................... $2,755.2 $2,468.3 11.6
======== ========
OPERATING INCOME
Aerostructures........................... $ 178.7 $ 102.6 74.3 15.6 9.9
Landing Systems.......................... 77.5 72.0 7.6 13.0 14.1
Sensors and Integrated Systems........... 111.6 89.0 25.4 19.4 16.2
MRO...................................... 18.6 (3.3) N/A 4.2 (0.9)
-------- --------
Total Operating Income.............. $ 386.4 $ 260.3 48.4 14.0 10.5
======== ========

Aerostructures Group Aerostructures Group sales for 1998 of $1,144.2
million were $104.5 million, or 10.1 percent, higher than in 1997. Contributing
to the increased sales were higher aftermarket spares sales and

10
13

accelerated deliveries on many commercial programs, including the V-2500
(A319/320/321 aircraft) and the start up of production deliveries on the 737-700
program. These increases were partially offset by reduced deliveries on the A340
program.

The Aerostructures Group's 1998 operating income of $178.7 million included
a $10.5 million pretax special charge for costs associated with the closure of
three facilities and the impairment of a fourth (see Note E to the Consolidated
Financial Statements). Operating income of $102.6 million in 1997 was adversely
impacted by a $35.2 million pretax charge on the MD-90 contract. Excluding these
special items, operating income increased in 1998 by $51.5 million, or 37
percent, primarily as a result of increased sales volume and by the
proportionately higher ratio of aftermarket spares sales to production sales.
Aftermarket spare sales generally carry a higher margin than production sales.

Landing Systems Group Sales in the Landing Systems Group of $598.2 million
were $88.6 million, or 17.4 percent, higher than in 1997. Sales growth reflected
higher original-equipment demand for landing gear and evacuation products, as
well as stronger than expected aftermarket demand for aircraft wheels and
brakes. Principal landing gear programs were the B767 and B737 (nose gear).
Landing gear sales volumes also reflected the establishment of a facility in
Seattle to provide fully dressed landing gears to Boeing on the B747-400
program. Commercial wheel and brake demand was strongest on the A320, B737, and
B747 programs. Evacuation product sales increased on the B747-400 and A330/A340
programs. The evacuation systems business also completed in October 1998 the
acquisition of Universal Propulsion Company ("UPCo") which is expected to
enhance the business's safety systems offerings through its direct thermal
inflation technology. UPCo manufactures energetic materials systems used to
activate ejection seats, airplane evacuation slides and related products.

Operating income in the Landing Systems Group increased 7.6 percent in
1998. Higher sales and favorable product mix benefited the Group's operating
income. Certain factors, however, constrained income growth. Those factors
included higher wheel and brake strategic sales incentives, principally for the
B777, B737, and Airbus programs; higher product development costs, offset in
part by cost reduction initiatives in operations; and increased landing gear
manufacturing costs associated with the increase in production to match
original-equipment manufacturers' build rates.

Sensors and Integrated Systems Group Sensors and Integrated Systems Group
sales of $574.6 million were $23.9 million, or 4.3 percent, higher than in 1997.
Sales of the Group were split nearly equally between the large commercial
transport customers (30 percent), regional, business and general aviation (25
percent), military (25 percent) and space (20 percent). All four markets
experienced increased sales for the year.

Demand for sensor and avionics products was particularly strong. Increased
sales of sensor products were driven by rate increases on major Boeing programs,
retrofit of competitors' products on Airbus programs and the application of
products to new regional and business programs such as Embraer 145, Gulfstream
V, and Bombardier Global Express. The higher sales of avionics products was
fueled by greater than anticipated acceptance of a new, low cost collision
avoidance product -- SkyWatch(R) -- and strong associated sales of our
StormScope(R) line of lightning detectors.

Expansion of our ice protection product line, including new specialty
heated products, also contributed to the results. The Group's sales performance
was further enhanced by higher demand for satellite products (acquired in the
March 1997 purchase of Gulton Data Systems) that was driven by expansion of our
capabilities and product offerings.

The Group's operating income improved 25.4 percent in 1998, to $111.6
million, compared with $89.0 million in 1997. The increase reflects the higher
sales volumes, the impact of productivity initiatives, a favorable sales mix,
and new products introduced during the year.

Maintenance, Repair and Overhaul (MRO) Group The MRO Group's sales of
$438.2 million were $69.9 million, or 19 percent, higher than in 1997. During
1998, the MRO Group achieved higher sales volumes compared with 1997,
successfully replacing the sales which were lost after the bankruptcy (in early
1998) of Western Pacific Airlines and the termination of an America West
Airlines maintenance contract. New business included long-term service contracts
with, in addition to others, Qantas, Continental, Northwest, United, and Virgin
Atlantic Airlines. Sales improved due to higher volumes in the airframe and
component services businesses. The performance of the component services
business reflects strong demand for wheels and brakes

11
14

and nacelles services. New business assisting Boeing in paint and other
component services also contributed to the improved results.

The MRO Group reported significantly higher operating income in 1998, even
after giving consideration to the $11.8 million bad debt charge recognized in
1997 due to the bankruptcy of Western Pacific Airlines. Increased operating
income in 1998 was attributable to improved operating efficiencies in the
component services business and the introduction of new higher-margin
specialized services. The Group also benefited from substantially reduced
turnover of the certified airframe and powerplant mechanics work force in the
airframe business, compared with the prior two years.

Although the Group's operating income margin increased during 1998 compared
with 1997 (4.2 percent versus 2.2 percent--excluding the 1997 bad debt charge),
several factors constrained the growth of operating income and margins in 1998.
First, the Group's landing gear services business in Miami completed the
construction of a new world-class service facility (also in the Miami area) in
mid 1998. Much of the second half of 1998 was spent transitioning operations
from the old facility to the new one, during which time duplicate facility costs
and production inefficiencies were incurred. This business also incurred
significant charges to resolve several customer billing disputes, largely from
the prior year. Management believes the impact of these items is nonrecurring.
Second, start-up costs were incurred by the Group's airframe business in
connection with a new major customer, resulting from servicing aircraft new to
the business. Finally, the airframe business commenced in 1998 the development
of a major new business system, the implementation of which is expected to be
completed by mid 1999. As a result, the business increased inventory valuation
reserves and expensed development-related costs. Excluding the impact of the
above charges, operating income margins in 1998 would have been slightly above 6
percent rather than 4.2 percent.

OUTLOOK

Despite well-founded concerns about Asian and Latin American economies, the
aerospace industry is expected to experience continued growth in 1999.
Deliveries of large commercial transport aircraft--a common barometer of the
health of the industry--are anticipated to increase by 13.5 percent over 1998's
record levels per the January/February 1999 edition of The Airline Monitor.
Airline traffic is also expected to remain strong since the general economy is
healthy and business and leisure travel have become more affordable.
Additionally, the demand for aftermarket replacement parts should remain steady
as airlines continue to retrofit older airplanes to meet FAA Stage III noise
regulations and to comply with stricter safety guidelines.

The regional market is expected to remain strong in 1999 with revenue
passenger miles anticipated to grow approximately 6 percent per the
January/February 1999 edition of The Airline Monitor. The average number of
seats in regional/commuter aircraft is expected to increase as longer-range
turbo-jet aircraft replace older turbo-props within regional airline fleets.
This trend is substantiated by the regional jet forecast, which reveals
declining turbo-prop production and increasing turbo-jet production in the long
term. BFGoodrich Aerospace had anticipated the shifting mix of regional aircraft
and currently participates on the latest regional jet programs such as the
Global Express, Dornier family, Embraer 145 and the Canadair RJ.

Unlike the regional market, production of business jets is expected to
remain flat in 1999. However, BFGoodrich Aerospace believes that its position on
such new platforms as the Cessna Citation X, the Canadair Challenger, and the
Gulfstream G-V bode well for success in the aftermarket.

BFGoodrich Aerospace expects to maintain its current level of participation
in the military aerospace market at approximately 10 percent of total Aerospace
sales. As in 1998, military spending is expected to decline slightly in real
terms in 1999. Although funding for additional programs is limited, the Segment
participates in many of the newest military programs, including the Joint Strike
Fighter and the V-22. Furthermore, an opportunity exists for the Segment to
increase sales of replacement products to defense customers. The Segment is well
positioned to capture a larger share of the military aftermarket with products
currently on the F-15, F-16, F/A-18, C-17, H-60, C-130J, and AH-64 programs.

The airline industry enjoyed a profitable year in 1998 and anticipates
another strong year in 1999. With their success has come continued outsourcing
of non-core functions, including maintenance, repair, and overhaul. BFGoodrich
Aerospace expects to sustain its role as a leader in the third party maintenance
industry by providing the highest quality, comprehensive nose-to-tail services.
The MRO Group expects to achieve greater efficiencies in 1999 after the
investment in 1998 in a new landing gear repair and overhaul facility in Miami.
In addition to process improvements, the new facility is expected to bring about
faster turn-around times and better service to our customers.

12
15

PERFORMANCE MATERIALS

Market Overview The markets for most of the Performance Materials Segment's
products softened throughout 1998. Market pressures included the Asian and other
emerging market financial crises as well as slowing demand in most of the other
markets served by the Segment.

Segment Performance As a result of the more competitive market conditions
noted above, the Segment's 32.2 percent increase in sales only resulted in a
13.7 percent increase in operating income. While the acquisition of Freedom
Chemical in March 1998 contributed significantly to the increase in sales during
the year, its concentrations in these areas of particular market weakness
resulted in a less-than-expected contribution to operating income in 1998. The
acquisition has, however, better positioned the segment for future growth by
expanding its global reach, adding to its product portfolio and extending its
market breadth. Excluding acquisitions, the Segment experienced a 1.0 percent
increase in sales and a 4.8 percent increase in operating income due to
favorable raw material costs and production efficiencies. The impact of foreign
exchange was not significant to 1998's results.

% OF SALES
COMPARABLE -------------
1998 1997 % CHANGE % CHANGE 1998 1997
-------- ------ -------- ---------- ---- -----
(IN MILLIONS)

SALES
Textile and Industrial
Coatings.................... $ 606.2 $401.2 51.1 (0.4)
Polymer Additives and Specialty
Plastics.................... 431.3 420.9 2.5 1.3
Consumer Specialties........... 158.1 82.6 91.4 6.2
-------- ------
Total.................. $1,195.6 $904.7 32.2 1.0
======== ======
OPERATING INCOME
Textile and Industrial
Coatings.................... $ 63.0 $ 48.6 29.6 8.0 10.4 12.1
Polymer Additives and Specialty
Plastics.................... 58.8 57.3 2.6 1.6 13.6 13.6
Consumer Specialties........... 24.0 22.3 7.6 5.8 15.2 27.0
-------- ------
Total.................. $ 145.8 $128.2 13.7 4.8 12.2 14.2
======== ======

The following discussion and analysis of fluctuations in sales and
operating income for the Performance Materials Segment excludes the impact of
acquisitions (see Comparable % Change column).

Textile and Industrial Coatings Group Sales in the Textile and Industrial
Coatings group decreased 0.4 percent from the prior year. The decrease resulted
from volume shortfalls in the Company's textile markets offset by increased
volumes in the Group's industrial specialty products and increased sales prices
in the Group's coatings products. Domestic textile mills demand has been lower
due to an increase in imports and a general slowdown in the apparel markets. In
addition, the export of fabrics to Asian and European countries slowed in 1998.
The Russian currency crisis and the European Union furniture fabric tariffs all
had negative revenue effects on this Group.

Operating income for the Textile and Industrial Coatings Group increased by
$3.9 million, or 8 percent, in 1998 despite the slight reduction in sales due to
reduced raw material pricing and other manufacturing cost efficiencies.

Polymer Additives and Specialty Plastics Group Sales in the Polymer
Additives and Specialty Plastics Group increased $5.5 million, or 1.3 percent,
over the prior year. Sales volumes increased in the Group's Estane(R)
thermoplastic polyurethanes (TPU) driven by strength in static control polymers
and European TPU demand and Telene(R) DCPD monomer markets but decreased in the
Group's TempRite(R) high heat resistant plastics due to weakness in middle east
markets as well as increased competition from other materials. Sales prices
remained relatively stable with the exception of some Polymer Additives'
products used for the rubber and polymer industries and Estane(R) TPU, where two
competitors commissioned new U.S. production facilities in 1998.

Operating income increased slightly over the prior year mostly as a result
of increased volume and favorable raw material pricing.

13
16

Consumer Specialties Group The $5.1 million, or 6.2 percent, increase in
sales in the Consumer Specialties Group was driven by increased volumes in the
Group's pharmaceutical and personal care products. Sales prices generally
increased in all of the Group's product lines.

The 5.8 percent increase in operating income was mainly attributable to a
favorable sales mix and higher volumes.

OUTLOOK

The Performance Materials Segment will face challenges in 1999. The Asian
economic downturn, other emerging market financial crises as well as adverse
competitive pressures all combined to pose a challenging operating environment.
However, the segment expects demand to strengthen during the second half of 1999
and is optimistic about continued cost reduction benefits from acquisition
integration and its process improvement and productivity programs.

In order to strengthen its customer and market focus, simplify its business
structure and enhance productivity, the Performance Materials Segment announced
in February 1999 a realignment of business processes. The realignment is
expected to result in the elimination of approximately 160 positions and is
expected to result in annual cost savings of $10-$12 million. The Segment
expects to obtain six months of these cost savings during 1999.

The Segment's Textile and Industrial Coatings Group enters 1999 with 1998
total domestic textile sales 7 percent below 1997 levels, and United States
textile exports approximately 25 percent lower than 1997 levels. The Group
expects to benefit from the continued integration of the Segment's recent
acquisitions during 1999.

The Polymer Additives and Specialty Plastics Group foresees moderate
revenue increases in 1999. Sales volumes in the Group's Estane(R) thermoplastic
polyurethanes and Telene(R) DCPD monomer markets are expected to grow in 1999.
The Group's TempRite(R) high heat resistant plastic and Polymer Additives
revenue base is expected to remain stable with limited growth in 1999.
Productivity improvements are expected to benefit operating income levels as
well during 1999.

The Consumer Specialties Group expects to continue to benefit from strong
growth in North America and foresees limited growth in Asia, Latin America and
Eastern Europe over the short-term. The Group also expects to benefit from
acquisition integration synergies in 1999.

1997 COMPARED TO 1996

AEROSPACE

Aerospace achieved sales growth of 22 percent over 1996. Sixty percent of
Aerospace's 1997 sales were to original-equipment manufacturers, up from 51
percent in 1996. The increase in original-equipment sales was due to stronger
demand for new commercial aircraft in the marketplace. Sales to civil aviation
customers were 86 percent of total Aerospace sales in 1997, compared with 87
percent in 1996. Military sales decreased to 9 percent of Aerospace sales, from
12 percent a year earlier. Aerospace achieved a 3 percent increase in operating
income, despite a $35.2 million charge related to the MD-90 program, a large
increase in strategic sales incentives related to wheels and brakes, and an
$11.8 million bad debt write-off due to a customer's bankruptcy and productivity
problems in the MRO Group.

SALES BY GROUP 1997 1996
-------------- -------- --------
(IN MILLIONS)

Aerostructures.............................................. $1,039.7 $ 744.4
Landing Systems............................................. 509.6 414.8
Sensors and Integrated Systems.............................. 550.7 493.2
MRO......................................................... 368.3 369.0
-------- --------
Total............................................. $2,468.3 $2,021.4
======== ========

Aerostructures Group (Rohr) The group's sales were $1,039.7 million in
1997, a $295.3 million, or 40 percent, increase from 1996. Contributing to
increased sales were accelerated delivery rates on most commercial programs,
reflecting increased production rates of commercial aircraft and increased
deliveries of spare parts. The

14
17

CFM56-5 and V2500 programs (which power the A320 family), A340, RR535-E4
(primarily for the Boeing 757), and MD-90 programs all reflected significant
volume increases.

The Aerostructures Group 1997 operating income of $102.6 million included a
$35.2 million pretax charge on the MD-90 contract. Operating income increased in
1997 primarily as a result of increased sales. Operating income of $89.8 million
in 1996 was adversely impacted by a $7.2 million pretax impairment charge on the
group's Arkadelphia, Arkansas, facility. Operating income in 1996 benefited from
the recognition of profit on the MD-90 program (1996 MD-90 sales were $68.8
million). In 1997, however, no profit was recognized on MD-90 sales (totaling
$109.9 million), adversely affecting margins, in addition to the $35.2 million
pretax charge recognized on that program in 1997, as discussed below.

In 1990, the Company entered into a contract with International Aero
Engines to produce nacelles for The Boeing Company's (formerly the McDonnell
Douglas Corporation's) MD-90 aircraft. Under the terms of the contract, the
Company agreed to recover its preproduction costs, and the higher-than-average
production costs associated with early production shipments, over a specified
number of deliveries. In light of the wide market acceptance of the MD-80
series, which was the predecessor aircraft, the Company believed sufficient
MD-90 aircraft would be sold to allow it to recover its costs.

Starting in 1996, a series of developments created market uncertainties
regarding future sales of the MD-90 aircraft. The most significant of these
developments included: McDonnell Douglas' termination of the MD-XX program and
the doubts this action raised regarding McDonnell Douglas' continued presence in
the commercial aircraft industry; the decision of several large airlines that
had traditionally operated McDonnell Douglas aircraft to order aircraft that
compete with the MD-90; the announced (and subsequently completed) acquisition
of McDonnell Douglas by Boeing, which produces a family of competing aircraft;
the announcement by Delta Air Lines (launch customer for the MD-90) of its
intent to replace its existing fleet of MD-90s and to seek a business resolution
with McDonnell Douglas with respect to its remaining orders for the aircraft;
and the lack of significant new MD-90 orders.

In recognition of these developments, the Company reduced its estimates of
future MD-90 aircraft deliveries in December 1996 to include only deliveries
which were supported by firm orders, options and letters of intent for the
aircraft. Based on its reduced estimate of future aircraft deliveries, the
Company believed that future MD-90 sales would not be sufficient to recover its
contract investment plus the costs it would be required to spend in the future
to complete the contract. As a result, the Company recorded a $49.3 million
pretax charge ($29.5 million after tax) in December of 1996 (this charge did not
impact the income statement; rather, it was recognized as a direct adjustment to
equity as a result of aligning Rohr's fiscal year with BFGoodrich's). In July
1997, the Company further reduced its market estimate of future MD-90 sales to
existing firm aircraft orders (excluding firm orders from Delta Air Lines) and
recorded an additional $35.2 million pretax charge ($21.0 million after tax, or
$.28 per diluted share).

OPERATING INCOME (LOSS) BY GROUP 1997 1996
-------------------------------- ------ ------
(IN MILLIONS)

Aerostructures.............................................. $102.6 $ 89.8
Landing Systems............................................. 72.0 61.2
Sensors and Integrated Systems.............................. 89.0 72.6
MRO......................................................... (3.3) 30.0
------ ------
Total............................................. $260.3 $253.6
====== ======

Landing Systems Group The Group's sales were $509.6 million, an increase of
$94.8 million, or 23 percent, from 1996. The continued sales growth in 1997
primarily reflected higher original-equipment volumes of landing gear and
evacuation products and higher wheel and brake replacement sales. Landing gear
programs providing the largest increased volume contribution included the B737
(nose gear), B767 and MD-11. Key evacuation systems programs included the
B747-400 and the A330/340. Aftermarket demand for commercial wheels and brakes
was also strong, primarily for the B777, B737, B747-400 and A330/340 programs.
In addition, demand for regional, business, and military wheels and brakes
significantly improved during the year, particularly for the F-16 retrofit
program.

15
18

The Landing Systems Group achieved significantly higher operating income
during the year, due primarily to greater sales of landing gear and evacuation
slides to the original-equipment market and more aftermarket sales of wheels and
brakes. This result was achieved by the group despite a three-week strike at the
landing gear business in the second quarter and substantially higher strategic
sales incentive costs in the wheel and brake business. Operating margins
(operating income as a percent of sales) declined modestly, reflecting the lower
margins associated with original-equipment sales relative to aftermarket sales
and significantly higher strategic sales incentive costs.

Sensors and Integrated Systems Group The Group's sales were $550.7 million
in 1997, an increase of $57.5 million, or 11.7 percent, from 1996. The increased
sales volumes of the Sensors and Integrated Systems Group reflected increased
demand from commercial original-equipment manufacturers for aircraft sensors,
principally on the B777 and B747 commercial transport programs and the Embraer
and Gulfstream GV regional and business jet programs. Stronger demand for
aftermarket spares also boosted sales, particularly for aircraft sensors and
aircraft fuel systems. In addition, the group benefited from the March
completion of the Gulton Data Systems acquisition, a transaction which offset
lost sales resulting from the engine electrical systems business divestiture in
June 1997. Gulton Data Systems sells products primarily to the space industry.

Operating income for the group increased 23 percent over 1996 results due
to increased volumes of higher-margin aftermarket spares that were sold to the
commercial markets. Operating income improvement also reflects productivity
initiatives, including business and plant consolidations. In addition, the
income contribution of Gulton Data Systems more than offset the lost income from
the divested engine electrical systems business.

OPERATING MARGIN BY GROUP 1997 1996
------------------------- ---- ----

Aerostructures.............................................. 9.9% 12.1%
Landing Systems............................................. 14.1% 14.8%
Sensors and Integrated Systems.............................. 16.2% 14.7%
MRO......................................................... (0.9)% 8.1%
Total Segment........................................ 10.5% 12.5%

Maintenance, Repair and Overhaul (MRO) Group The Group's sales were $368.3
million in 1997, a decrease of $0.7 million from 1996. Sales declined modestly
compared with 1996, largely reflecting decreased sales volume in the component
services business due to reduced demand from a major customer and, to a lesser
extent, the bankruptcy of two customers early in 1997. The group's airframe
business, however, posted higher sales during the year. Despite the negative
effects of the UPS strike during the summer of 1997 and productivity issues
throughout the year, the airframe business achieved a 5 percent sales growth.
This growth was due to increased demand for services from airline customers
throughout the year and the addition of two new customers -- United and
Northwest Airlines.

The MRO Group, however, recorded an operating loss in 1997. The group
recognized an $11.8 million bad debt charge related to all amounts receivable
from Western Pacific Airlines. Western Pacific filed for Chapter 11 protection
under the Bankruptcy Code last October. On February 4, 1998, Western Pacific
abruptly ceased its operations, resulting in the bankruptcy court ordering
liquidation of the airline. In addition to the Western Pacific matter, the
airframe business continued to face challenges in retaining skilled technical
workers, as competition for skilled workers significantly increased due to
hiring at Boeing and the airlines. This resulted in higher costs for training
new workers, lower productivity and higher wage and benefit rates for retained
skilled workers. Although turnover of the labor force declined progressively
during 1997, turnover levels at year end were still higher than historical
levels. In addition, lower customer demand and higher operating costs in the
component services business contributed to the operating income decline.
Finally, the group's 1996 sales included approximately $7.0 million of
high-margin product sales by the component services business which are not
normally made by the service businesses.

PERFORMANCE MATERIALS

Sales increased 10 percent in 1997, to $904.7 million. Excluding
acquisitions, sales increased 7 percent. Segment operating income increased 17
percent, largely reflecting strong volume growth. Adverse foreign exchange
effects tempered the segment's income growth, which would have been 21 percent
excluding the impact

16
19

of the stronger U.S. dollar. The 1996 information has been reclassified from the
two groups previously reported into the current three group structure of the
Segment.

SALES BY GROUP 1997 1996
-------------- ------ ------
(IN MILLIONS)

Textile and Industrial Coatings............................. $401.2 $362.6
Polymer Additives and Specialty Plastics.................... 420.9 386.0
Consumer Specialties........................................ 82.6 75.8
------ ------
$904.7 $824.4
====== ======

Textile and Industrial Coatings Sales for the Group increased by $38.6
million, or 10.6 percent, from $362.6 million in 1996 to $401.2 million in 1997.
Excluding the negative impact of a stronger dollar during 1997, sales increased
11.5 percent. The increase in sales was attributable to increased volumes and
prices across all product lines, especially in the coatings and industrial
markets served by the Group. Excluding acquisitions, sales increased by 3
percent.

Operating income increased 24 percent during 1997 as compared to 1996. The
increase in operating income was due to increases in volume and price as well as
the impact of acquisitions. These increases were partially offset by the
negative impact of a stronger U.S. dollar. Excluding acquisitions and the impact
of foreign exchange, operating income increased by 19.4 percent.

OPERATING INCOME 1997 1996
---------------- ------ ------
(IN MILLIONS)

Textile and Industrial Coatings............................. $ 48.6 $ 39.2
Polymer Additives and Specialty Plastics.................... 57.3 55.4
Consumer Specialties........................................ 22.3 14.9
------ ------
$128.2 $109.5
====== ======

Polymer Additives and Specialty Plastics Group Sales in 1997 rose 9
percent, from $386.0 million in 1996 to $420.9 million in 1997, despite the
stronger U.S. dollar effects during the year. Adjusted for exchange rate
changes, principally against European currencies, sales increased 13 percent
over 1996. Solid volume gains in the group's TempRite(R) high-heat-resistant
plastics were achieved, most of which were in North America, while significantly
higher volumes for Estane(R) thermoplastic polyurethanes occurred in both North
America and Europe. Static-control polymer sales growth was achieved in North
America and Asia.

1997 was a transitional year for Specialty Plastics from an operating
income perspective. Operating income growth of 3.4 percent relating mostly to
volume increases was offset principally by start-up costs in connection with
investments in domestic and global expansions in all divisions. Also, the
negative foreign exchange impact of the stronger U.S. dollar and higher raw
material costs reduced operating income. The group's operating income increased
11.0 percent over 1996 without the foreign exchange impact. Operating income
growth was achieved by the thermoplastic polyurethane business. Significant
operating margin erosion occurred, however, in the high-heat-resistant plastics
business, principally caused by the significant start-up costs associated with
the construction of two new European plants.

OPERATING MARGIN BY GROUP 1997 1996
------------------------- ---- ----

Textile and Industrial Coatings............................. 12.1% 10.8%
Polymer Additives and Specialty Plastics.................... 13.6% 14.4%
Consumer Specialties........................................ 27.0% 19.7%

Consumer Specialties Group Sales for the Group increased by $6.8 million,
or 9 percent, from $75.8 million in 1996 to $82.6 million in 1997. Excluding the
impact of a stronger dollar during 1997, sales increased 14.1 percent. Synthetic
thickener sales for personal-care, household and pharmaceutical applications in
Europe and Asia were particularly strong. Selling prices were also generally
higher across all product lines.

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Operating income increased $7.4 million, or 49.7 percent, from $14.9
million in 1996 to $22.3 million in 1997 driven by increased volumes and prices,
as well as an improved sales mix. These increases were partially offset by the
negative impact of a stronger U.S. dollar. Excluding the impact of foreign
exchange, operating income increased 66.4 percent.

IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES The Company has recorded impairment,
restructuring and other charges during each of the last three years. See
additional discussion in Note E to the Consolidated Financial Statements.

NET INTEREST EXPENSE Net interest expense increased by $12.8 million in 1998.
The increase in interest expense-net is due to increased indebtedness resulting
from the acquisition of CH Patrick at the end of 1997 and Freedom Chemical in
March of 1998, offset by savings that resulted from the refinancing of Rohr's
higher cost debt in late 1997.

ISSUANCE OF SUBSIDIARY STOCK In May 1997, the Company's subsidiary, DTM
Corporation, issued 2,852,191 shares of its authorized but previously unissued
common stock in an initial public offering ("IPO"). The Company recognized a
pretax gain of $13.7 million ($8.0 million after tax, or $.10 per diluted share,
including provision for deferred income taxes) in accordance with the Securities
and Exchange Commission's ("SEC") Staff Accounting Bulletin 84.

In February 1999, the Company sold its remaining interest in DTM for
approximately $3.5 million. The Company's net investment in DTM approximated
$0.5 million at December 31, 1998. The gain will be recorded within Other Income
(Expense) during the first quarter of 1999.

OTHER INCOME (EXPENSE) -- NET Excluding the impact of a one-time pre-tax gain of
$26.4 million in 1997 related to the sale of a business, other expenses
increased by $6.7 million in 1998. The increase related primarily to costs
associated with executive life insurance.

DISCONTINUED OPERATIONS During the 1998 first quarter, the company recognized a
$1.6 million after-tax charge related to a business previously divested and
reported as a discontinued operation. Discontinued operations during 1997
reflect the gain on the sale of Tremco Incorporated in February 1997 and the
results of operations and gain on the sale of the chlor-alkali and olefins
business in August 1997. For additional information see Note B to the
Consolidated Financial Statements.

EXTRAORDINARY ITEMS During 1997, the Company incurred a charge of $19.3 million
(net of a $13.1 million income tax benefit), or $.25 per diluted share, to
extinguish certain debt of Rohr. For additional information see Note F to the
Consolidated Financial Statements.

RETURN ON EQUITY The Company's objective is to achieve and maintain a return on
equity of 15 percent. In 1998, the Company achieved a return on equity of 15.0
percent, compared with 13.5 percent in 1997 and 15.8 percent in 1996. Adjusted
for the special items previously mentioned, return on equity for 1998, 1997 and
1996 was 15.5 percent, 13.5 percent and 11.6 percent, respectively.

CAPITAL RESOURCES AND LIQUIDITY Current assets less current liabilities were
$623.7 million at December 31, 1998, compared with $466.4 million a year
earlier -- an increase of $157.3 million. The Company's current ratio was 1.63X
at December 31, 1998, compared with 1.50X a year ago. In addition, the quick
ratio was 0.67X at the end of 1998, compared with 0.62X at the end of 1997.
These increases/decreases principally reflect the impact of the Company's
refinancing activities. The Company's total debt less cash and cash equivalents
was $1,110.4 million at December 31, 1998, compared with $713.3 million at
December 31, 1997.

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.

SHORT-TERM DEBT

The Company maintains $300.0 million of committed domestic revolving credit
agreements with various banks, expiring in the year 2000. At December 31, 1998,
and throughout the year, these facilities were not in use.

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21

In addition, the Company had available formal foreign lines of credit and
overdraft facilities, including the committed European revolver, of $100.2
million at December 31, 1998, of which $32.5 million was available.

The Company's $75.0 million committed multi-currency revolving credit
facility with various international banks, expires in the year 2003. The Company
intends to use this facility for short- and long-term local currency financing
to support European operations growth. At December 31, 1998, the Company had
borrowed $64.0 million ($37.2 million on a short-term basis and $26.8 million on
a long-term basis) denominated in various European currencies at floating rates.
The Company has effectively converted the $26.8 million long-term debt portion
into fixed-rate debt with an interest rate swap.

The Company also maintains $380 million of uncommitted domestic money
market facilities with various banks to meet its short-term borrowing
requirements. As of December 31, 1998, $277 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.

LONG-TERM DEBT

In 1998, the Company issued $100.0 million of 6.45 percent notes due in
2008, $130.0 million of 6.9 percent notes due in 2018 and $200.0 million of 7.0
percent notes due in 2038, primarily for the financing of the Freedom Chemical
acquisition (see Note D to the Consolidated Financial Statements).

The Company believes that its credit facilities are sufficient to meet
longer-term capital requirements, including normal maturities of long-term debt.

The Company's senior debt is currently rated A- by Standard and Poor's
Ratings Group, A- by Duff & Phelps Credit Rating Co. and Baa1 by Moody's
Investors Service.

At December 31, 1998, the Company's debt-to-capitalization ratio was 39.8
percent. For purposes of this ratio, the QUIPS (see Note T to the Consolidated
Financial Statements) are treated as capital.

EBITDA

EBITDA is income from continuing operations before distributions on Trust
preferred securities, income tax expense, net interest expense, depreciation and
amortization and special items. EBITDA for the Company is summarized as follows:

1998 1997 1996
------ ------ ------

Income from continuing operations before taxes and trust
distributions......................................... $384.9 $217.8 $194.4
Add:
Net interest expense.................................. 73.8 61.0 85.1
Depreciation and amortization......................... 165.4 133.5 121.3
Special items......................................... 10.5 72.1 20.1
------ ------ ------
EBITDA.................................................. $634.6 $484.4 $420.9
====== ====== ======

OPERATING CASH FLOWS

Operating cash flows of $356.6 million in 1998 were $147.0 million higher
than in 1997. Excluding net gains on the sale of businesses in 1997, net income
increased by $187.1 million in 1998. Changes in assets and liabilities, however,
resulted in approximately $48 million of additional cash outflows in 1998.

INVESTING CASH FLOWS

The Company used $631.5 million of cash in 1998 related to investing
activities, primarily in the acquisition of various businesses. In 1997,
investing activities provided the Company with $119.1 million of cash, primarily
from the sale of various businesses. The Company expects to acquire additional
businesses as circumstances warrant and as opportunities arise and also expects
to continue to evaluate its portfolio of businesses that are not considered
strategic in the future.

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22

FINANCING CASH FLOWS

Financing activities provided the Company with $259.0 million in cash in
1998, as compared to using cash of $382.9 million in 1997. The Company increased
its borrowings in 1998 to finance the acquisitions discussed above. Likewise,
the Company used the proceeds from the sale of various businesses in 1997 to
repay certain higher cost debt. The Company also spent approximately $40 million
to terminate a receivables sales program in 1998.

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
1999.

Environmental Matters

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, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party ("PRP") by
the U.S. Environmental Protection Agency ("EPA") in connection with
approximately 43 sites, most of which related to businesses previously
discontinued. The Company believes it may have continuing liability with respect
to not more than 19 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
PRP, review of remediation methods and negotiation with other PRPs and
governmental agencies.

The Company believes that its environmental matters are adequately reserved
based on currently available information. Management believes that it is
reasonably possible that additional costs may be incurred beyond the amounts
accrued as a result of new information. However, the amounts, if any, cannot be
estimated and management believes that they would not be material to the
Company's financial condition, but could be material to the Company's results of
operations in a given period.

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.

Certain Aerospace Contracts

The Company's Aerostructures Group has a contract with Boeing on the
717-200 program and a contract with Pratt & Whitney on the PW4000 program that
are subject to certain risks and uncertainties. The Company has pre-production
inventory of $83.0 million related to design and development costs on the
717-200 program
20
23

through December 31, 1998. In addition, the Company has excess-over-average
inventory of $30.3 million related to costs associated with the production of
the flight test inventory and the first production units. The Company expects to
spend approximately $4.0 million more for preproduction costs through mid-1999,
the aircraft's scheduled Federal Aviation Administration ("FAA") certification
date. If the contract is cancelled prior to FAA certification, the Company
expects substantial recovery of these costs. If the aircraft is certified and
actively marketed, the amount of these costs and initial production start-up
costs recovered by the Company will depend upon the number of aircraft
delivered.

In 1993, the Company revised its contract with Pratt & Whitney on the
PW4000 for A300/A310 and MD-11 programs. The revised contract provides that if
Pratt & Whitney accepts delivery of less than 500 units from 1993 through 2003,
an "equitable adjustment" will be made. Recent market projections on the PW4000
contract indicate that less than 500 units will be delivered. The Company has
submitted a "request of equitable adjustment" to the customer and believes it
will achieve a recovery such that there should not be a material adverse effect
on the financial position, liquidity or results of operations of the Company. If
the Company does not receive the equitable adjustment it believes it is entitled
to, it is possible that there may be a material adverse effect on earnings in a
given period. At December 31, 1998, the Company had $49.2 million of contract
costs ($44.7 million of in-process and $4.5 million of finished products) in
inventory for the PW4000 program.

Year 2000 Computer Costs

General The Year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. The
Company's computer equipment and software and devices with embedded technology
that are date-sensitive may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in a system failure or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to process transactions, send invoices, or engage in similar normal
business activities. The Company has assessed how it may be impacted by the Year
2000 issue and has formulated and commenced implementation of a comprehensive
plan to address all known aspects of the issue.

The Plan The Company's plan encompasses its information systems, production
and facilities equipment that utilize date/time oriented software or computer
chips, products, vendors and customers and is being carried out in four phases:
1) assessment and development of a plan; 2) remediation; 3) testing; and 4)
implementation. The Company's plan includes purchasing new information systems
where circumstances warrant.

The Company's plan also includes contracting with independent experts as
considered necessary. To date, the Company has engaged independent experts to
evaluate its Year 2000 plan, including its identification, assessment,
remediation and testing efforts at certain locations.

With regard to information systems, production and facilities equipment and
products, the Company is substantially complete with the assessment and plan
development phase and is approximately 70 percent, 60 percent and 90 percent
complete, respectively with its total planned efforts including remediation,
testing and implementation. The Company expects that its remediation efforts in
these areas will be substantially completed by September 30, 1999.

The Company is also reviewing the efforts of its vendors and customers to
become Year 2000 compliant. Letters and questionnaires have been sent to all
critical entities with which the Company does business to assess their Year 2000
readiness. The Company anticipates that its activities will be on-going for all
of 1999 and will include follow-up telephone interviews and on-site meetings as
considered necessary in the circumstances. The Company believes the Year 2000
Information and Readiness Disclosure Act of 1998 will facilitate the exchange of
Year 2000 information between it and its suppliers in 1999. Although this review
is continuing, the Company is not currently aware of any vendor or customer
circumstances that may have a material adverse impact on the Company. The
Company will be looking for alternative suppliers where circumstances warrant.
The Company can provide no assurance that Year 2000 compliance plans will be
successfully completed by suppliers and customers in a timely manner.

Cost The Company's preliminary estimate of the total cost for Year 2000
compliance is approximately $55 million, of which approximately $38 million has
been incurred through December 31, 1998. The Company's estimate of total costs
to be spent has increased by approximately $10 million from the third quarter
due to the inclusion of estimated internal labor costs. The Company capitalized
approximately $26 million and expensed approximately $12 million of the $38
million spent to date. The Company's cost estimates include the amount
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24

specifically related to remedying Year 2000 issues as well as costs for improved
systems which are Year 2000 compliant and would have been acquired in the
ordinary course but whose acquisition has been accelerated to ensure compliance
by the Year 2000.

Incremental spending has not been, and is not expected to be, material
because most Year 2000 compliance costs include items that are part of the
standard procurement and maintenance of the Company's information systems and
production and facilities equipment. Other non-Year 2000 efforts have not been
materially delayed or impacted by the Company's Year 2000 initiatives.

Risks The Company believes that the Year 2000 issue will not pose
significant operational problems for the Company. However, if all Year 2000
issues are not properly identified, or assessment, remediation and testing are
not effected in a timely manner with respect to problems that are identified,
there can be no assurance that the Year 2000 issue will not have a material
adverse impact on the Company's results of operations or adversely affect the
Company's relationships with customers, vendors, or others. Additionally, there
can be no assurance that the Year 2000 issues of other entities will not have a
material adverse impact on the Company's systems or results of operations.

Contingency Plan The Company has begun, but not yet completed, a
comprehensive analysis of the operational problems and costs (including loss of
revenues) that would be reasonably likely to result from the failure by the
Company and certain third parties to complete efforts necessary to achieve Year
2000 compliance on a timely basis. A contingency plan has not been developed for
dealing with the most reasonably likely worst case scenario as such scenario has
not yet been clearly identified. The Company currently plans to complete such
analysis and contingency planning by March 31, 1999.

(The foregoing analysis contains forward-looking information. See
cautionary statement at the end of the Management's Discussion and Analysis
section.)

Transition To The Euro

Although the Euro was successfully introduced on January 1, 1999, the
legacy currencies of those countries participating will continue to be used as
legal tender through January 1, 2002. Thereafter, the legacy currencies will be
canceled and Euro bills and coins will be used in the eleven participating
countries.

Transition to the Euro creates a number of issues for the Company. Business
issues that must be addressed include product pricing policies and ensuring the
continuity of business and financial contracts. Finance and accounting issues
include the conversion of accounting systems, statutory records, tax books and
payroll systems to the Euro, as well as conversion of bank accounts and other
treasury and cash management activities.

The Company continues to address these transition issues and does not
expect the transition to the Euro to have a material effect on the results of
operations or financial condition of the Company. Actions taken to date include
the ability to quote its prices; invoice when requested by the customer; and
issue pay checks to its employees on a dual currency basis. The Company has not
yet set conversion dates for its accounting systems, statutory reporting and tax
books, but will do so in 1999 in conjunction with its efforts to be Year 2000
compliant. The financial institutions in which the Company has relationships
have transitioned to the Euro successfully as well and are issuing statements in
dual currencies.

New Accounting Standards

In June 1998, the Financial Accounting Standards Board issued Statement No.
133, Accounting for Derivative Instruments and Hedging Activities, which is
required to be adopted in years beginning after June 15, 1999. The Statement
permits early adoption as of the beginning of any fiscal quarter after its
issuance. The Statement will require the Company to recognize all derivatives on
the balance sheet at fair value. Derivatives that are not hedges must be
adjusted to fair value through income. If the derivative is a hedge, depending
on the nature of the hedge, changes in the fair value of the derivative will
either be offset against the change in fair value of the hedged assets,
liabilities, or firm commitments through earnings or recognized in other
comprehensive income until the hedged item is recognized in earnings. The
ineffective portion of a derivative's change in fair value will be immediately
recognized in earnings.

22
25

The Company has not yet determined what the effect of Statement No. 133
will be on its earnings and financial position and has not yet determined the
timing or method of adoption. However, the Statement could increase volatility
in earnings and comprehensive income.

On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5 -- Reporting on the Costs of Start-Up
Activities (the SOP). The SOP is effective for the Company in 1999 and would
require the write-off of any amounts deferred within the balance sheet related
to start-up activities, as defined within the SOP. The Company has reviewed the
provisions of this SOP and does not believe its adoption will have a material
adverse impact on earnings or on its financial condition.

Forward-Looking Information Is Subject To Risk And Uncertainty

This document includes certain forward-looking statements, as defined in
the Private Securities Litigation Reform Act of 1995, that involve risk and
uncertainty.

With respect to Aerospace, the continuing recovery of the worldwide civil
aviation market could be adversely affected if customers cancel or delay current
orders or original-equipment manufacturers reduce the rate they build or expect
to build products for such customers. Such cancellations, delays or reductions
may occur if there is a substantial change in the health of the airline industry
or in the general economy, or if a customer were to experience financial or
operational difficulties. There have been weak new aircraft orders and actual
cancellation of orders from Asian carriers due to the Asian financial crisis.
There are financial difficulties in Russia and Latin America as well. If these
developments should continue or accelerate, it could have an adverse effect upon
the Company. Even if orders remain strong, original-equipment manufacturers
could reduce the rate at which they build aircraft due to inability to obtain
adequate parts from suppliers and/or because of productivity problems relating
to a recent rapid build-up of the labor force to increase the build rate of new
aircraft. Boeing announced a temporary cessation of production in the fall of
1997 for these reasons. A change in levels of defense spending could curtail or
enhance prospects in the Company's military business. If the trend towards
increased outsourcing or reduced number of suppliers in the airline industry
changes, it could affect the Company's business. If the Boeing 717 program is
not as successful as anticipated, or the Company cannot work out an equitable
adjustment on the PW4000 program, it could adversely affect the Company's
business. (See Note I to the Consolidated Financial Statements for additional
information.) If the Company is unable to continue to acquire and develop new
systems and improvements, it could affect future growth rates. There has been a
higher-than-normal historical turnover rate of technicians in the MRO business
due to hiring by Boeing and the airlines, although recently the turnover rate
has been returning closer to historical levels. If this trend were again to
reverse, it could have an adverse effect on the Company. Such events could be
exacerbated if there is a substantial change in the health of the airline
industry, or in the general economy, or if a customer were to experience major
financial difficulties. If the development and sale of direct thermal inflation
technology devices does not proceed as contemplated, future growth could be
adversely impacted. If the operating efficiencies anticipated for the new Miami,
Florida landing gear overhaul facility do not materialize, margins in this
business could be adversely affected. Various industry estimates of future
growth of revenue passenger miles, new original equipment deliveries and
estimates of future deliveries of regional, business, general aviation and
military orders may prove optimistic, which could have an adverse affect on
operations.

With respect to Performance Materials, if the expected growth in volume
demand does not materialize, results could be adversely impacted. Expected sales
increases in the Far East and Latin America could be adversely impacted by
recent turmoil in financial markets in those regions. If demand does not
increase during the second half of 1999 as anticipated or cost reduction
benefits do not materialize, the results of the Performance Materials Segment
could be adversely affected. If cost benefits from continued integration of
recent acquisitions and realignment activities do not occur as expected, results
could be adversely impacted. Revenue growth in various businesses may not
materialize as expected.

With respect to the entire Company, if customers or outside vendors are
unable to make their computer systems Year 2000 compliant in time, or if the
magnitude of the Year 2000 issue is greater than presently anticipated, it could
have a material adverse impact on the Company. If there are unexpected
developments with respect to environmental matters involving the Company, it
could have an adverse effect upon the Company. The Company's financial template
sets forth goals, but they are not forecasts.

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ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Derivative Financial Instruments The Company does not hold or issue
derivative financial instruments for trading purposes. The Company uses
derivative financial instruments to manage its exposure to fluctuations in
interest rates and foreign exchange rates. The aggregate value of derivative
financial instruments held or issued by the Company is not material to the
Company nor is the market risk posed. For additional discussion of the Company's
use of such instruments see Notes A and P to Consolidated Financial Statements.

Interest Rate Exposure Based on the Company's overall interest rate
exposure as of and during the year ended December 31, 1998, a near-term change
in interest rates, within a 95% confidence level based on historical interest
rate movements, would not materially affect the Company's consolidated financial
position, results of operations or cash flows.

Foreign Currency Exposure The Company's international operations expose it
to translation risk when the local currency financial statements are translated
to U.S. dollars. As currency exchange rates fluctuate, translation of the
statements of income of international businesses into U.S. dollars will affect
comparability of revenues and expenses between years. None of the components of
the Company's consolidated statements of income was materially affected by
exchange rate fluctuations in 1998, 1997, or 1996. The Company hedges a
significant portion of its net investments in international subsidiaries by
financing the purchase and cash flow requirements through local currency
borrowings.

See Notes A and P to the Consolidated Financial Statements for a discussion
of the Company's exposure to foreign currency transaction risk. At December 31,
1998, a hypothetical 10 percent movement in foreign exchange rates applied to
the hedging agreements and underlying exposures would not have a material effect
on earnings.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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.

The Company maintains a system of internal controls designed to provide
reasonable assurance that accounting records are reliable for the preparation of
financial statements and for safeguarding assets. The Company's system of
internal controls includes: written policies, guidelines and procedures;
organizational structures, staffed through the careful selection of people that
provide an appropriate division of responsibility and accountability; and an
internal audit program. Ernst & Young LLP, independent auditors, were engaged to
audit and to render an opinion on the Consolidated Financial Statements of 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 the Company. 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.

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

/s/ L.C. Vinney
L. C. Vinney
Senior Vice President and Chief Financial Officer

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

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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, 1998 and 1997, and the
related Consolidated Statements of Income, Shareholders' Equity and Cash Flows
for each of the three years in the period ended December 31, 1998. 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 did not audit the financial statements as of and for the year
ended July 31, 1996 of Rohr, Inc., which statements reflect total sales
constituting 27 percent of total consolidated sales for 1996. Those financial
statements were audited by other auditors whose report has been furnished to us,
and our opinion, insofar as it relates to data included for Rohr, Inc. for 1996,
is based solely on the report of the other auditors.

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 and the report of other auditors provide a reasonable
basis for our opinion.

In our opinion, based on our audits and, for 1996, the report of other
auditors, 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, 1998 and 1997, and the consolidated results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1998, in conformity with generally accepted accounting
principles.

/s/ ERNST & YOUNG LLP
Cleveland, Ohio
February 5, 1999

26
29

CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED DECEMBER 31
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)

SALES....................................................... $3,950.8 $3,373.0 $2,845.8
Operating costs and expenses:
Cost of sales............................................. 2,853.1 2,454.7 2,042.5
Charge for MD-90 contract................................. -- 35.2 --
Selling and administrative costs.......................... 610.4 556.0 481.8
Restructuring costs and asset impairment.................. 10.5 -- 11.2
Merger-related costs...................................... -- 77.0 --
-------- -------- --------
3,474.0 3,122.9 2,535.5
-------- -------- --------
OPERATING INCOME............................................ 476.8 250.1 310.3
Interest expense............................................ (79.0) (73.0) (89.3)
Interest income............................................. 5.2 12.0 4.2
Gain on issuance of subsidiary stock........................ -- 13.7 --
Other income (expense)--net................................. (18.1) 15.0 (30.8)
-------- -------- --------
Income from continuing operations before income taxes and
Trust distributions....................................... 384.9 217.8 194.4
Income tax expense.......................................... (146.3) (94.1) (68.4)
Distributions on Trust preferred securities................. (10.5) (10.5) (10.5)
-------- -------- --------
INCOME FROM CONTINUING OPERATIONS........................... 228.1 113.2 115.5
Income (loss) from discontinued operations -- net of
taxes..................................................... (1.6) 84.3 58.4
-------- -------- --------
INCOME BEFORE EXTRAORDINARY ITEMS........................... 226.5 197.5 173.9
Extraordinary losses on debt extinguishment -- net of
taxes..................................................... -- (19.3) --
-------- -------- --------
NET INCOME.................................................. $ 226.5 $ 178.2 $ 173.9
======== ======== ========
BASIC EARNINGS PER SHARE:
Continuing operations..................................... $ 3.09 $ 1.59 $ 1.74
Discontinued operations................................... (.02) 1.19 .87
Extraordinary losses...................................... -- (.27) --
-------- -------- --------
Net income................................................ $ 3.07 $ 2.51 $ 2.61
======== ======== ========
DILUTED EARNINGS PER SHARE:
Continuing operations..................................... $ 3.04 $ 1.53 $ 1.65
Discontinued operations................................... (.02) 1.13 .83
Extraordinary losses...................................... -- (.25) --
-------- -------- --------
Net income................................................ $ 3.02 $ 2.41 $ 2.48
======== ======== ========

See Notes to Consolidated Financial Statements.
27
30

CONSOLIDATED BALANCE SHEET

DECEMBER 31
----------------------
1998 1997
--------- ---------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE
AMOUNTS)

CURRENT ASSETS
Cash and cash equivalents................................. $ 31.7 $ 47.0
Accounts and notes receivable............................. 629.0 532.6
Inventories............................................... 772.5 652.6
Deferred income taxes..................................... 142.1 132.4
Prepaid expenses and other assets......................... 39.2 36.7
-------- --------
Total Current Assets.............................. 1,614.5 1,401.3
Property.................................................... 1,255.9 1,065.1
Deferred Income Taxes....................................... 39.7 86.0
Prepaid Pension............................................. 148.0 148.3
Goodwill.................................................... 771.0 546.2
Identifiable Intangible Assets.............................. 112.4 51.1
Other Assets................................................ 251.1 195.9
-------- --------
Total Assets...................................... $4,192.6 $3,493.9
======== ========
CURRENT LIABILITIES
Short-term bank debt...................................... $ 144.1 $ 192.8
Accounts payable.......................................... 364.4 327.6
Accrued expenses.......................................... 420.1 411.3
Income taxes payable...................................... 59.4 --
Current maturities of long-term debt and capital lease
obligations............................................ 2.8 3.2
-------- --------
Total Current Liabilities......................... 990.8 934.9
Long-term Debt and Capital Lease Obligations................ 995.2 564.3
Pension Obligations......................................... 43.6 39.6
Postretirement Benefits Other Than Pensions................. 338.1 343.7
Other Non-current Liabilities............................... 101.7 65.7
Commitments and Contingent Liabilities...................... -- --
Mandatorily Redeemable Preferred Securities of Trust........ 123.6 123.1
SHAREHOLDERS' EQUITY
Common stock-$5 par value
Authorized, 200,000,000 shares; issued, 76,213,081
shares in 1998 and 73,946,160 shares in 1997.......... 381.1 369.7
Additional capital........................................ 543.7 500.7
Income retained in the business........................... 736.8 591.5
Accumulated other comprehensive income.................... 3.6 (3.5)
Unearned portion of restricted stock awards............... -- (.7)
Common stock held in treasury, at cost (1,846,894 shares
in 1998 and 1,204,022 shares in 1997).................. (65.6) (35.1)
-------- --------
Total Shareholders' Equity........................ 1,599.6 1,422.6
-------- --------
Total Liabilities and Shareholders' Equity........ $4,192.6 $3,493.9
======== ========

See Notes to Consolidated Financial Statements.
28
31

CONSOLIDATED STATEMENT OF CASH FLOWS

YEAR ENDED DECEMBER 31
--------------------------
1998 1997 1996
------ ------ ------
(DOLLARS IN MILLIONS)

OPERATING ACTIVITIES
Net income.................................................. $226.5 $178.2 $173.9
Adjustments to reconcile net income to net cash provided by
operating activities:
Extraordinary losses on debt extinguishment............ -- 19.3 --
Depreciation and amortization.......................... 165.4 138.8 139.8
Deferred income taxes.................................. 27.8 33.2 29.0
Net gains on sale of businesses........................ -- (138.8) (4.5)
Charge for exchange of 7.75% Convertible Notes......... -- -- 5.3
Asset impairment write-down............................ 6.5 -- 7.2
Change in assets and liabilities, net of effects of
acquisitions and dispositions of businesses:
Receivables....................................... (2.5) (41.7) (36.9)
Inventories....................................... (70.7) (53.3) (29.9)
Other current assets.............................. 1.0 1.1 2.0
Accounts payable.................................. -- 26.0 7.2
Accrued expenses.................................. (13.1) 86.2 6.2
Income taxes payable.............................. 61.9 (11.2) (19.5)
Other non-current assets and liabilities.......... (46.2) (28.2) (14.3)
------ ------ ------
Net cash provided by operating activities................... 356.6 209.6 265.5
------ ------ ------
INVESTING ACTIVITIES
Purchases of property....................................... (208.5) (159.9) (197.1)
Proceeds from sale of property.............................. 4.2 8.5 8.8
Proceeds from sale of businesses............................ -- 395.9 28.9
Sale of short-term investments.............................. -- 8.0 --
Payments made in connection with acquisitions, net of cash
acquired.................................................. (427.2) (133.4) (107.9)
------ ------ ------
Net cash provided (used) by investing activities............ (631.5) 119.1 (267.3)
------ ------ ------
FINANCING ACTIVITIES
Net (decrease) increase in short-term debt.................. (52.6) 68.9 122.5
Proceeds from issuance of long-term debt.................... 433.0 150.0 71.1
Repayment of long-term debt and capital lease obligations... (8.6) (543.0) (155.5)
Cash collateral for receivable sales program................ -- 5.0 13.5
Termination of receivable sales program..................... (40.0) -- --
Proceeds from issuance of capital stock..................... 26.7 14.8 11.2
Purchases of treasury stock................................. (13.3) (9.7) (.1)
Dividends................................................... (75.7) (59.5) (58.8)
Distributions on Trust preferred securities................. (10.5) (10.5) (10.5)
Other....................................................... -- 1.1 1.3
------ ------ ------
Net cash provided (used) by financing activities............ 259.0 (382.9) (5.3)
------ ------ ------
Effect of Exchange Rate Changes on Cash and Cash
Equivalents............................................... 0.6 (2.2) (.7)
------ ------ ------
Net Decrease in Cash and Cash Equivalents................... (15.3) (56.4) (7.8)
Cash and Cash Equivalents at Beginning of Year(1)........... 47.0 103.4 144.9
------ ------ ------
Cash and Cash Equivalents at End of Year.................... $ 31.7 $ 47.0 $137.1
====== ====== ======

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

(1) Cash and cash equivalents at the beginning of 1997 does not agree with the
amount at the end of 1996 due to the net cash transactions of Rohr from
August 1, 1996 to December 31, 1996, which are not reflected in the 1996
column above (see Note D).

See Notes to Consolidated Financial Statements.
29
32

CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

ACCUMULATED UNEARNED
COMMON STOCK INCOME OTHER PORTION OF
THREE YEARS ENDED --------------- ADDITIONAL RETAINED IN COMPREHENSIVE RESTRICTED TREASURY
DECEMBER 31, 1998 SHARES AMOUNT CAPITAL THE BUSINESS INCOME STOCK AWARDS STOCK TOTAL
----------------- ------ ------ ---------- ------------ ------------- ------------ -------- --------
(IN MILLIONS)

Balance December 31, 1995...... 33.113 $165.6 $536.8 $375.7 $(57.6) $(16.2) $(28.3) $ 976.0
Net income..................... 173.9 173.9
Other comprehensive income:
Unrealized translation
adjustments................ (3.7) (3.7)
Minimum pension liability
adjustment................. 40.8 40.8
--------
Total comprehensive income..... 211.0
Employee award programs........ 0.600 3.0 19.0 7.2 (1.8) 27.4
Two-for-one common stock
split........................ 33.256 166.3 (166.3)
Contribution to pension
plans........................ 0.755 3.8 26.2 30.0
Conversion of 7.75% Convertible
Subordinated Notes........... 2.806 14.0 28.3 42.3
Purchases of stock for
treasury..................... (2.1) (2.1)
Dividends (per
share -- $1.10).............. (58.8) (58.8)
------ ------ ------ ------ ------ ------ ------ --------
Balance December 31, 1996...... 70.530 352.7 444.0 490.8 (20.5) (9.0) (32.2) 1,225.8
Net income..................... 178.2 178.2
Other comprehensive income:
Unrealized translation
adjustments, net of
reclassification adjustment
for loss included in net
income of $2.3............. (7.6) (7.6)
Minimum pension liability
adjustment................. (1.8) (1.8)
--------
Total comprehensive income..... 168.8
Employee award programs........ 0.826 4.1 12.8 8.3 (0.7) 24.5
Adjustment to conform Rohr's
fiscal year.................. 2.071 10.3 39.6 (18.0) 26.4 58.3
Conversion of 7.75% Convertible
Subordinated
Notes........................ 0.099 0.5 1.0 1.5
Exercise of warrants........... 0.420 2.1 3.3 5.4
Purchases of stock for
treasury..................... (2.2) (2.2)
Dividends (per
share -- $1.10).............. (59.5) (59.5)
------ ------ ------ ------ ------ ------ ------ --------
Balance December 31, 1997...... 73.946 369.7 500.7 591.5 (3.5) (0.7) (35.1) 1,422.6
Net income..................... 226.5 226.5
Other comprehensive income:
Unrealized translation
adjustments................ 5.9 5.9
Minimum pension liability
adjustment................. 1.2 1.2
--------
Total comprehensive income..... 233.6
Employee award programs........ 1.032 5.2 30.9 0.7 (0.7) 36.1
Conversion of 7.75% Convertible
Subordinated Notes........... 1.235 6.2 12.1 18.3
Purchases of stock for
treasury..................... (29.8) (29.8)
Dividends (per
share -- $1.10).............. (81.2) (81.2)
------ ------ ------ ------ ------ ------ ------ --------
Balance December 31, 1998...... 76.213 $381.1 $543.7 $736.8 $ 3.6 $ -- $(65.6) $1,599.6
====== ====== ====== ====== ====== ====== ====== ========

See Notes to Consolidated Financial Statements.
30
33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation The Consolidated Financial Statements reflect
the accounts of The BFGoodrich Company and its majority-owned subsidiaries ("the
Company" or "BFGoodrich"). Investments in 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 (losses) from these
businesses is included in Other income (expense)-net. Intercompany accounts and
transactions are 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 other than inventoried costs relating to long-term
contracts are stated at the lower of cost or market. Certain domestic
inventories are valued by the last-in, first-out (LIFO) cost method. Inventories
not valued by the LIFO method are valued principally by the average cost method.

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

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

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

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

Goodwill represents the excess of the purchase price over the fair value of
the net assets of acquired businesses and is being amortized by the
straight-line method, in most cases over 20 to 40 years. The weighted average
number of years that goodwill is being amortized over is 28 years. Goodwill
amortization is recorded in cost of sales.

Identifiable intangible assets are recorded at cost, or when acquired as a
part of a business combination, at estimated fair value. These assets include
patents and other technology agreements, trademarks, licenses 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 and the Company's
estimate of undiscounted cash flows over the assets remaining estimated useful
life are less than the assets carrying value. Measurement of the amount of
impairment may be based on appraisal, market values of similar assets or
estimated discounted future cash flows resulting from the use and ultimate
disposition of the asset.

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

31
34
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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

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

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

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

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, 1998,
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 and maturity 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 to a fixed rate. The cost of interest rate swaps is recorded
as part of interest expense and accrued expenses. 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

32
35
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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 and are reported as part of cost of sales and accrued expenses.
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. Also, the Company has used forward contracts, on a limited
basis, to manage its exchange risk on a portion of its purchase commitments from
vendors of aircraft components denominated in foreign currencies and to manage
its exchange risk for sums paid to a French subsidiary for services. Forward
gains and losses associated with contracts accounted for under contract
accounting are deferred as contract costs.

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.

Issuance of Subsidiary Stock The Company recognizes gains and losses on
the issuance of stock by a subsidiary in accordance with the U.S. Securities and
Exchange Commission's ("SEC") Staff Accounting Bulletin 84.

Earnings Per Share Earnings per share is computed in accordance with SFAS
No. 128, "Earnings per Share."

Research and Development Expense The Company performs research and
development under Company-funded programs for commercial products, and under
contracts with others. Research and development under contracts with others is
performed by the Aerospace Segment for military and commercial products. Total
research and development expenditures from continuing operations in 1998, 1997
and 1996 were $182.7 million, $141.2 million and $137.5 million, respectively.
Of these amounts, $63.1 million, $39.4 million and $29.4 million, respectively,
were funded by customers.

Use of Estimates The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

New Accounting Standards In June 1998, the Financial Accounting Standards
Board issued Statement No. 133, Accounting for Derivative Instruments and
Hedging Activities, which is required to be adopted in years beginning after
June 15, 1999. The Statement permits early adoption as of the beginning of any
fiscal quarter after its issuance. The Statement will require the Company to
recognize all derivatives on the balance sheet at fair value. Derivatives that
are not hedges must be adjusted to fair value through income. If the derivative
is a hedge, depending on the nature of the hedge, changes in the fair value of
the derivative will either be offset against the change in fair value of the
hedged assets, liabilities, or firm commitments through earnings or recognized
in other comprehensive income until the hedged item is recognized in earnings.
The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings.

NOTE B DISCONTINUED OPERATIONS

On August 15, 1997, the Company completed the disposition of its
chlor-alkali and olefins ("CAO") business to The Westlake Group for $92.7
million, resulting in an after-tax gain of $14.5 million, or $.19 per diluted
share. The disposition of the CAO business represents the disposal of a segment
of a business under APB Opinion No. 30 ("APB 30"). Accordingly, the Consolidated
Statement of Income reflects the CAO business (previously reported as Other
Operations) as a discontinued operation, in addition to the following
discontinued operations.

On February 3, 1997, the Company completed the sale of Tremco Incorporated
to RPM, Inc. for $230.7 million, resulting in an after-tax gain of $59.5
million, or $.80 per diluted share. The sale of Tremco Incorporated completed
the disposition of the Company's Sealants, Coatings and Adhesives ("SC&A") Group
which also represented a disposal of a segment of a business under APB 30.

A summary of the results of discontinued operations is as follows:

1998 1997 1996
----- ----- ------
(IN MILLIONS)

Sales:
CAO..................................................... $ -- $98.0 $160.6
SC&A.................................................... -- -- 316.8
----- ----- ------
$ -- $98.0 $477.4
Pretax income from operations:
CAO..................................................... $ -- $16.1 $ 21.0
SC&A(1)................................................. -- -- 27.0
----- ----- ------
-- 16.1 48.0
Income tax expense........................................ -- (5.8) (19.6)
----- ----- ------
Net income from operations................................ -- 10.3 28.4
Gains on sale of discontinued operations:
CAO(2).................................................. -- 14.5 --
SC&A(3)................................................. -- 59.5 --
Adjustment to gain of 1993 discontinued operation......... -- -- 30.0
Adjustment to 1997 gain on the sale of SC&A............... (1.6) -- --
----- ----- ------
Income (loss) from discontinued operations................ $(1.6) $84.3 $ 58.4
===== ===== ======

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

(1) Includes $6.4 million gain on the sale of a business in 1996.

(2) Net of $7.8 million of income taxes.

(3) Net of $22.8 million of income taxes; includes provision of $7.9 million for
operating losses during the phase-out period.

NOTE C PENDING MERGER (UNAUDITED)

34
37
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

immediately prior to the effective time of the Merger shall be converted into
the right to receive 0.56 of a share of BFGoodrich common stock. The Merger will
be accounted for as a pooling of interests, and as such, future consolidated
financial statements will include Coltec's financial data as if Coltec had
always been a part of BFGoodrich. The Merger is expected to close in early April
of 1999.

The unaudited pro forma combined financial data is presented for
informational purposes only. They are not necessarily indicative of the results
of operations or of the financial position which would have occurred had the
Merger been completed during the periods or as of the date for which the pro
forma data are presented. They are also not necessarily indicative of the
Company's future results of operations or financial position. In particular, the
Company expects to realize significant operating cost savings as a result of the
Merger. No adjustment has been included in the pro forma combined financial data
for these anticipated operating cost savings nor for the one-time merger and
consolidation costs expected to be incurred upon consummation of the Merger.

Pro forma per share amounts for the combined company are based on the
Exchange Ratio of 0.56 of a share of BFGoodrich common stock for each share of
Coltec common stock.

UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA

YEAR ENDED DECEMBER 31,
--------------------------------
1998 1997 1996
-------- -------- --------
(DOLLARS IN MILLIONS,
EXCEPT PER SHARE AMOUNTS)

Pro Forma Combined Statement of Income Data:
Sales............................................ $5,454.9 $4,687.9 $4,005.5
Income from continuing operations................ 350.4 208.1 170.1
Income from continuing operations per diluted
common share.................................. 3.08 1.86 1.57
Weighted average number of common shares and
assumed conversions (on a fully diluted basis)
(millions).................................... 113.9 112.1 109.8

DECEMBER 31,
1998
------------

Pro Forma Combined Balance Sheet Data:
Total assets.............................................. $5,293.5
Total shareholders' equity................................ 1,299.3
Book value per common share............................... 11.84

NOTE D OTHER ACQUISITIONS AND DISPOSITIONS

Acquisitions

The merger was accounted for as a pooling of interests. Accordingly, all
prior period Consolidated Financial Statements and notes thereto were restated
to include the results of operations, financial position and cash flows of Rohr
as though Rohr had always been a part of BFGoodrich.

results of operations for the period August 1, 1996 to December 31, 1996 do not
appear in the Consolidated Statement of Income and instead are recorded as a
direct adjustment to equity. Rohr's revenues, expenses and net loss for this
five-month period were $341.3 million, $359.3 million and $18.0 million,
respectively. Included in expenses during this period was a $49.3 million pretax
charge ($29.5 million after tax) relating to the McDonnell Douglas MD-90 program
(see Note E).

There were no transactions between BFGoodrich and Rohr prior to the
combination. Certain reclassifications were made to Rohr's financial statements
to conform to BFGoodrich's presentation.

The Company recognized pretax merger-related costs of $105.0 million ($86.0
million after tax, or $1.15 per diluted share). Merger-related costs consisted
primarily of costs of investment bankers, attorneys, accountants, financial
printing, debt extinguishment and payments due under contractual employee
arrangements. Of the $105.0 million, $28.0 million related to debt
extinguishment costs ($16.7 million after tax, or $.22 per diluted share) which
have been reported as an extraordinary item (see Note F). Of the $86.0 million
after-tax merger-related costs above, $7.9 million was recorded by BFGoodrich
and $78.1 million was recorded by Rohr.

The following acquisitions were recorded using the purchase method of
accounting. Their results of operations, which are not material, have been
included in the Consolidated Financial Statements since their respective dates
of acquisition.

In March 1998, the Company acquired Freedom Chemical Company for
approximately $378 million in cash. Freedom Chemical is a leading global
manufacturer of specialty and fine chemicals that are sold to a variety of
customers who use them to enhance the performance of their finished products.
Freedom Chemical has leadership positions as a supplier of specialty chemical
additives used in personal-care, food and beverage, pharmaceutical, textile,
graphic arts, paints, colorants and coatings applications and as chemical
intermediates. The Company also acquired a small textile manufacturer and a
small manufacturer of energetic materials systems during 1998.

During 1997, the Company acquired five businesses for cash consideration of
$133.4 million in the aggregate, which includes $65.3 million of goodwill. One
of the acquired businesses is a manufacturer of data acquisition systems for
satellites and other aerospace applications. A second business manufactures
diverse aerospace products for commercial and military applications. A third
business is a manufacturer of dyes, chemical additives and durable press resins
for the textiles industry. A fourth business manufactures thermoplastic
polyurethanes and is located in the United Kingdom. The remaining acquisition is
a small Performance Materials business.

Dispositions

During 1997, the Company completed the sale of its Engine Electrical
Systems Division, which was part of the Sensors and Integrated Systems Group in
the Aerospace Segment. The Company received cash proceeds of $72.5 million,
which resulted in a pretax gain of $26.4 million ($16.4 million after tax)
reported in Other income (expense) -- net.

NOTE E IMPAIRMENT, RESTRUCTURING AND OTHER CHARGES

The Aerostructures Group's fourth quarter special charge in 1998 of $10.5
million before tax ($6.5 million after tax, or $.09 per share), relates to costs
associated with the closure of three facilities and an asset impairment charge.
The charge includes $4.0 million for employee termination benefits; $1.8 million
related to writing down
36
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

the carrying value of the three facilities to their fair value less cost to sell
and $4.7 million for an asset impairment related to an assembly-service facility
in Hamburg, Germany.

The employee termination benefits primarily represents severance payments
that will be made to approximately 700 employees (approximately 600 wage and 100
salaried).

The shutdowns, expected to be completed by the fourth quarter of 1999, will
affect a composite bonding facility in Hagerstown, Maryland and two assembly
sites in Heber Springs and Sheridan, Arkansas. Production work performed at
these facilities will be absorbed by the Aerostructures Group's remaining
facilities.

The $1.8 million restructuring charge relates to the write-down of the
Hagerstown, Heber Springs and Sheridan facilities to their fair value less cost
to sell. The carrying amount of the assets related to these three facilities,
net of machinery and equipment that will be transferred to other Aerostructures
facilities, approximated $10.0 million at December 31, 1998. The effect of
suspending depreciation on these assets will approximate $0.9 million annually.

The $4.7 million impairment charge resulted from management's review of the
business for possible disposition. The entire asset impairment charge related to
tangible assets and was based on independent third party appraisals of the
facility's fair value. The charge has been recorded in the restructuring costs
and asset impairment line item within operating income.

In 1997, the Company recognized a $35.2 million pretax charge ($21.0
million after tax, or $.28 per diluted share) to write off that portion of its
contract investment in the McDonnell Douglas MD-90 aircraft program, including
the costs it will be required to spend in the future to complete the contract,
that the Company determined would not be recoverable from future MD-90 sales
represented by firm aircraft orders. In addition, the Company recognized a $49.3
million pretax charge ($29.5 million after tax) in December 1996, related to the
MD-90 program. This charge did not impact the income statement; rather, it was
recognized as a direct adjustment to equity as a result of aligning Rohr's
fiscal year with BFGoodrich's.

In 1996, the Company recognized a $7.2 million pretax impairment charge on
its Arkadelphia, Arkansas, facility. Also during 1996, the Company recognized a
$4.0 million pretax charge for a voluntary early retirement program for eligible
employees of the Performance Materials Segment.

NOTE F EXTRAORDINARY ITEMS

During 1997, the Company incurred an extraordinary charge of $19.3 million
(net of a $13.1 million income tax benefit), or $.25 per diluted share, to
extinguish certain indebtedness previously held by Rohr. Costs incurred include
debt premiums and other direct costs associated with the extinguishment of the
related debt. The Company used a combination of existing cash funds and proceeds
from new lower-cost long-term debt to extinguish the debt. Of the $19.3 million,
$2.6 million (net of a $1.8 million income tax benefit) was incurred during the
third quarter in connection with Rohr's 9.33 percent Senior Notes and 9.35
percent Senior Notes. The remaining $16.7 million (net of an $11.3 million
income tax benefit) relates to debt extinguishment costs incurred in connection
with the Rohr merger during the fourth quarter for refinancing Rohr's 11.625
percent Senior Notes, 9.25 percent Subordinated Debentures, 7.00 percent
Convertible Subordinated Debentures and 7.75 percent Convertible Subordinated
Notes.

37
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

NOTE G EARNINGS PER SHARE

The computation of basic and diluted earnings per share for income from
continuing operations is as follows:

1998 1997 1996
------ ------ ------
(IN MILLIONS, EXCEPT
PER SHARE AMOUNTS)

Numerator:
Numerator for basic earnings per share-income from
continuing operations.............................. $228.1 $113.2 $115.5
Effect of dilutive securities:
7.75% Convertible Notes............................... -- .9 1.9
------ ------ ------
Numerator for diluted earnings per share--income
from continuing operations available to common
stockholders after assumed conversions........... $228.1 $114.1 $117.4
====== ====== ======
Denominator:
Denominator for basic earnings per
share--weighted-average shares..................... 73.7 71.0 66.6
Effect of dilutive securities:
Stock options and warrants......................... .7 1.6 1.4
Contingent shares.................................. .1 .7 .5
7.75% Convertible Notes............................ .5 1.3 2.4
------ ------ ------
Dilutive potential common shares...................... 1.3 3.6 4.3
------ ------ ------
Denominator for diluted earnings per
share--adjusted weighted-average shares and
assumed conversions.............................. 75.0 74.6 70.9
====== ====== ======
Per share income from continuing operations:
Basic............................................ $ 3.09 $ 1.59 $ 1.74
====== ====== ======
Diluted.......................................... $ 3.04 $ 1.53 $ 1.65
====== ====== ======

NOTE H ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable consist of the following:

1998 1997
------ ------
(IN MILLIONS)

Amounts billed.............................................. $610.0 $490.6
Recoverable costs and accrued profit on units delivered but
not billed................................................ 7.9 10.0
Recoverable costs and accrued profit on progress completed
but not billed............................................ 0.5 --
Unrecovered costs and estimated profit subject to future
negotiations.............................................. 20.2 19.2
Notes and other receivables................................. 13.0 34.1
------ ------
$651.6 $553.9
Less allowance for doubtful accounts...................... (22.6) (21.3)
------ ------
Total.................................................. $629.0 $532.6
====== ======

"Recoverable costs and accrued profit on units delivered but not billed"
represents revenue recognized on contracts for amounts not billable to customers
at the balance sheet date. This amount principally represents delayed payment
terms along with escalation and repricing predicated upon deliveries and final
payment after acceptance.

38
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

"Recoverable costs and accrued profit on progress completed but not billed"
represents revenue recognized on contracts based on the percentage-of-completion
method of accounting and is anticipated to be billed and collected in accordance
with contract terms.

"Unrecovered costs and estimated profit subject to future negotiations"
consists of contract tasks completed for which a final price has not been
negotiated with the customer. Amounts in excess of agreed-upon contract prices
are recognized when it is probable that the claim will result in additional
contract revenue and the amounts can be reliably estimated. Included in this
amount are estimated recoveries on constructive change claims related to
government-imposed redefined acceptance criteria on the Grumman F-14 contract.
Management believes that amounts reflected in the financial statements are
reasonable estimates of the ultimate settlements.

NOTE I INVENTORIES

Inventories consist of the following:

1998 1997
------ ------
(IN MILLIONS)

FIFO or average cost (which approximates current costs):
Finished products......................................... $236.0 $173.4
In process................................................ 416.9 411.2
Raw materials and supplies................................ 189.8 161.4
------ ------
842.7 746.0
Reserve to reduce certain inventories to LIFO basis......... (54.1) (57.5)
Progress payments and advances.............................. (16.1) (35.9)
------ ------
Total.................................................. $772.5 $652.6
====== ======

At December 31, 1998 and 1997, approximately 28 percent and 27 percent,
respectively, of inventory was valued by the LIFO method.

In-process inventories as of December 31, 1998, which include significant
deferred costs for long-term contracts accounted for under contract accounting,
are summarized by contract as follows (in millions, except quantities which are
number of aircraft):

AIRCRAFT ORDER STATUS(1) COMPANY ORDER STATUS
---------------------------- ----------------------------------------------
DELIVERED UN- UN- (3)FIRM
TO FILLED FILLED (2)CONTRACT UN-FILLED (5)YEAR
CONTRACT AIRLINES ORDERS OPTIONS QUANTITY DELIVERED ORDERS COMPLETE
-------- --------- ------ ------- ----------- --------- --------- --------

PW4000 for the A300/A310
and MD-11(4) 287 10 9 325 303 19 2000
737-700................. 167 952 1,078 1,000 212 488 2002
717-200................. -- 115 100 300 1 54 2007
Others..................
In-process inventory
related to long-term
contracts.............
In-process inventory not
related to long-term
contracts.............
Balance at December 31,
1998..................

IN-PROCESS INVENTORY
------------------------------------
PRE- EXCESS
PRO- PRO- OVER-
CONTRACT DUCTION DUCTION AVERAGE TOTAL
-------- ------- ------- ------- ------

PW4000 for the A300/A310
and MD-11(4) $ 10.7 $ 8.0 $ 26.0 $ 44.7
737-700................. 8.5 -- 3.6 12.1
717-200................. 13.1 83.0 30.3 126.4
Others.................. 71.6 5.3 .8 77.7
------ ----- ------ ------
In-process inventory
related to long-term
contracts............. $103.9 $96.3 $ 60.7 260.9
====== ===== ======
In-process inventory not
related to long-term
contracts............. 156.0
------
Balance at December 31,
1998.................. $416.9
======

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

(1) Represents the aircraft order status as reported by Case and/or other
sources the Company believes to be reliable for the related aircraft and
engine option. The Company's orders frequently are less than the announced
orders shown above.

(2) Represents the number of aircraft used to obtain average unit cost.

(3) Represents the number of aircraft for which the Company has firm unfilled
orders.

(4) Contract quantity represents the lesser of those quantities assumed in
original contract pricing or those quantities which the Company now expects
to deliver in the periods assumed in original contract pricing.

(5) The year presented represents the year in which the final production units
included in the contract quantity are expected to be delivered. The contract
may continue in effect beyond this date.

39
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

In-process inventories include significant deferred costs related to
production, pre-production and excess-over-average costs for long-term
contracts. The company has pre-production inventory of $83.0 million related to
design and development costs on the 717-200 program through December 31, 1998.
In addition, the Company has excess-over-average inventory of $30.3 million
related to costs associated with the production of the flight test inventory and
the first production units. The Company expects to spend approximately $4.0
million more for preproduction costs through mid-1999, the aircraft's scheduled
Federal Aviation Administration ("FAA") certification date. If the contract is
cancelled prior to FAA certification, the Company expects substantial recovery
of these costs. If the aircraft is certified and actively marketed, the amount
of these costs and initial production start-up costs recovered by the Company
will depend upon the number of aircraft delivered.

NOTE J FINANCING ARRANGEMENTS

Short-Term Bank Debt At December 31, 1998, the Company had separate
committed revolving credit agreements with certain banks providing for domestic
lines of credit aggregating $300.0 million. Borrowings under these agreements
can be for any period of time until the expiration date and bear interest, at
the Company's option, at rates tied to the banks' certificate of deposit,
Eurodollar or prime rates. 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 facility fee of 12 basis points per annum on the total $300.0
million committed line. At December 31, 1998, no amounts were outstanding
pursuant to these agreements.

In addition, the Company had available formal foreign lines of credit and
overdraft facilities, including a committed European revolver, of $100.2 million
at December 31, 1998, of which $32.5 million was available.

The Company also maintains uncommitted domestic money market facilities
with various banks aggregating $380.0 million, of which $277.0 million of these
lines were unused and available at December 31, 1998. Weighted-average interest
rates on outstanding short-term borrowings were 5.2 percent and 6.4 percent at
December 31, 1998 and 1997, respectively. Weighted-average interest rates on
short-term borrowings were 5.6 percent, 5.0 percent and 5.9 percent during 1998,
1997 and 1996, respectively.

Long-Term Debt At December 31, 1998 and 1997, long-term debt and capital
lease obligations payable after one year consisted of:

1998 1997
------ ------
(IN MILLIONS)

9.625% Notes, maturing in 2001.............................. $175.0 $175.0
MTN notes payable........................................... 699.0 269.0
European revolver........................................... 26.8 25.5
IDRBs, maturing in 2023, 6.0%............................... 60.0 60.0
Other debt, maturing to 2015 (interest rates from 3.0% to
11.625%).................................................. 28.0 26.8
------ ------
988.8 556.3
Capital lease obligations (Note K).......................... 6.4 8.0
------ ------
Total............................................. $995.2 $564.3
====== ======

40
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

MTN Notes Payable The Company has periodically issued long-term debt
securities in the public markets through a medium term note program (referred to
as the MTN program), which commenced in 1995. MTN notes outstanding at December
31, 1998, consist entirely of fixed-rate non-callable debt securities. In 1998,
the Company issued $100.0 million of 6.45 percent MTN notes due in 2008, $130.0
million of 6.9 percent MTN notes due in 2018 and $200.0 million of 7.0 percent
notes due in 2038, primarily for the financing of the Freedom Chemical
acquisition (see Note D). During 1997, and in connection with the refinancing of
Rohr's debt, the Company issued $150.0 million of 7.2 percent MTN notes, due in
2027. All other MTN notes outstanding were issued during 1995 and 1996, with
interest rates ranging from 7.3 percent to 8.7 percent and maturity dates
ranging from 2025 to 2046.

European Revolver The Company has a $75.0 million committed multi-currency
revolving credit facility with various international banks, expiring in the year
2003. The Company uses this facility for short and long-term, local currency
financing to support the growth of its European operations. At December 31,
1998, the Company's long-term borrowings under this facility were $26.8 million
denominated in Spanish pesetas at a floating rate that is tied to Spanish LIBOR
(3.56 percent at December 31, 1998). The Company has effectively converted the
$26.8 million long-term borrowing into fixed rate debt with an interest rate
swap.

IDRBs The industrial development revenue bonds maturing in 2023 were issued
to finance the construction of a hangar facility in 1993. Property acquired
through the issuance of these bonds secures the repayment of the bonds.

Aggregate maturities of long-term debt, exclusive of capital lease
obligations, during the five years subsequent to December 31, 1998, are as
follows (in millions): 1999--$.8; 2000--$1.0; 2001--$202.6; 2002--$0.7 and
2003 -- $0.7.

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, $863.3 million of income retained in the business and additional
capital was free from such limitations at December 31, 1998.

NOTE K LEASE COMMITMENTS

The Company leases certain of its office and manufacturing facilities as
well as machinery and equipment under various leasing arrangements. The future
minimum lease payments from continuing operations, by year and in the aggregate,
under capital leases and under noncancelable operating leases with initial or
remaining noncancelable lease terms in excess of one year, consisted of the
following at December 31, 1998:

CAPITAL NONCANCELABLE
LEASES OPERATING LEASES
------- ----------------
(IN MILLIONS)

1999....................................................... $2.6 $ 32.7
2000....................................................... 2.1 28.7
2001....................................................... 1.8 23.2
2002....................................................... 1.5 17.6
2003....................................................... 1.0 12.8
Thereafter................................................. 1.4 20.6
---- ------
Total minimum payments..................................... 10.4 $135.6
======
Amounts representing interest.............................. (2.0)
----
Present value of net minimum lease payments................ 8.4
Current portion of capital lease obligations............... (2.0)
----
Total............................................ $6.4
====

41
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

Net rent expense from continuing operations consisted of the following:

1998 1997 1996
----- ----- -----
(IN MILLIONS)

Minimum rentals............................................ $36.8 $28.2 $26.0
Contingent rentals......................................... .3 3.9 2.9
Sublease rentals........................................... (.1) (.1) (.1)
----- ----- -----
Total............................................ $37.0 $32.0 $28.8
===== ===== =====

NOTE L PENSIONS AND POSTRETIREMENT BENEFITS

The Company has several 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 also sponsors several unfunded defined benefit postretirement
plans that provide certain health-care and life insurance benefits to eligible
employees. The health-care plans are contributory, with retiree contributions
adjusted periodically, and contain other cost-sharing features, such as
deductibles and coinsurance. The life insurance plans are generally
noncontributory.

The Company's general funding policy for 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, 1998 and 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, 1998, the pension
plans held 2.9 million shares of the Company's common stock with a fair value of
$99.8 million.

Amortization of unrecognized transition assets and liabilities, prior
service cost and gains and losses (if applicable) are recorded using the
straight-line method over the average remaining service period of active
employees, or approximately 12 years.

The following table sets forth the status of the Company's funded defined
benefit pension plans and unfunded defined benefit postretirement plans as of
December 31, 1998 and 1997, and the amounts recorded in the Consolidated Balance
Sheet at these dates. This table excludes accrued pension costs for unfunded,
non-qualified pension plans of $37.2 million in 1998 and $73.2 million in 1997,
and the related projected benefit obligations of $48.0 million in 1998 and $82.2
million in 1997.

42
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

PENSION BENEFITS OTHER BENEFITS
-------------------- ------------------
1998 1997 1998 1997
-------- -------- ------- -------
(IN MILLIONS)

CHANGE IN PROJECTED BENEFIT OBLIGATIONS
Projected benefit obligation at beginning of
year........................................ $1,251.9 $1,146.8 $ 326.9 $ 312.4
Service cost................................... 22.4 19.8 2.8 2.2
Interest cost.................................. 89.6 90.3 21.5 23.7
Amendments..................................... 2.1 (1.4) -- --
Actuarial (gains) losses....................... 36.9 98.4 (1.2) 15.9
Acquisitions................................... 4.6 -- 3.3 --
Benefits paid.................................. (97.5) (102.0) (28.9) (27.3)
-------- -------- ------- -------
Projected benefit obligation at end of year.... $1,310.0 $1,251.9 $ 324.4 $ 326.9
-------- -------- ------- -------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year $1,263.1 $1,121.8 $ -- $ --
Actual return on plan assets................... 168.1 178.9 -- --
Acquisitions................................... 4.6 -- -- --
Company contributions.......................... 25.4 64.4 28.9 27.3
Benefits paid.................................. (97.5) (102.0) (28.9) (27.3)
-------- -------- ------- -------
Fair value of plan assets at end of year....... $1,363.7 $1,263.1 $ -- $ --
-------- -------- ------- -------
FUNDED STATUS (UNDERFUNDED)
Funded status.................................. $ 53.7 $ 11.2 $(324.4) $(326.9)
Unrecognized net actuarial loss................ 67.5 101.6 (37.9) (36.6)
Unrecognized prior service cost................ 36.0 40.0 (5.8) (6.3)
Unrecognized net transition obligation......... 9.5 9.6 -- --
-------- -------- ------- -------
Prepaid (accrued) benefit cost................. $ 166.7 $ 162.4 $(368.1) $(369.8)
======== ======== ======= =======
AMOUNTS RECOGNIZED IN THE STATEMENT OF FINANCIAL
POSITION CONSIST OF:
Prepaid benefit cost........................... $ 166.7 $ 163.6 $ -- $ --
Accrued benefit liability...................... -- (1.2) (368.1) (369.8)
-------- -------- ------- -------
Net amount recognized.......................... $ 166.7 $ 162.4 $(368.1) $(369.8)
======== ======== ======= =======
WEIGHTED-AVERAGE ASSUMPTIONS AS OF DECEMBER 31
Discount rate.................................. 7.0% 7.25% 7.00% 7.25%
Expected return on plan assets................. 9.0% 9.0% -- --
Rate of compensation increase.................. 3.5% 3.5% -- --

For measurement purposes, a 6.5 percent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 1999. The rate was
assumed to decrease gradually to 4.75 percent for 2002 and remain at that level
thereafter.

43
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

PENSION BENEFITS OTHER BENEFITS
------------------------- -----------------------
1998 1997 1996 1998 1997 1996
------- ----- ----- ----- ----- -----
(IN MILLIONS)

COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost.......................... $ 22.4 $19.8 $23.8 $ 2.8 $ 2.2 $ 2.4
Interest cost......................... 89.6 90.3 82.9 21.5 23.7 22.7
Expected return on plan assets........ (102.6) (96.4) (85.6) -- -- --
Amortization of prior service cost.... 5.9 6.3 5.4 (0.5) (0.5) (0.6)
Amortization of transition
obligation......................... 0.1 0.1 0.5 -- -- --
Recognized net actuarial (gain)
loss............................... 5.4 5.1 5.7 (1.3) (1.0) (1.7)
------- ----- ----- ----- ----- -----
Benefit cost.......................... 20.8 25.2 32.7 22.5 24.4 22.8
Curtailment (gain)/loss............... -- 5.4 -- -- (2.5) --
------- ----- ----- ----- ----- -----
$ 20.8 $30.6 $32.7 $22.5 $21.9 $22.8
======= ===== ===== ===== ===== =====

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

1 PERCENTAGE POINT 1 PERCENTAGE POINT
INCREASE DECREASE
------------------ ------------------

Effect on total of service and interest cost
components in 1998......................... $ 1.5 million $ 1.3 million
Effect on postretirement benefit obligation
as of December 31, 1998.................... $18.2 million $15.9 million

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 generally matches 1 dollar for each 1 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 (up to 6 percent of eligible earnings). For 1998, 1997 and
1996, Company contributions amounted to $16.5 million, $15.3 million and $15.9
million, respectively.

In addition, the Company contributed $10.1 million, $8.9 million and $12.4
million in 1998, 1997 and 1996, 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 M INCOME TAXES

Income from continuing operations before income taxes and Trust
distributions as shown in the Consolidated Statement of Income consists of the
following:

1998 1997 1996
-------- ------ ------
(IN MILLIONS)

Domestic......................................... $ 361.3 $199.9 $167.1
Foreign.......................................... 23.6 17.9 27.3
-------- ------ ------
Total.................................. $ 384.9 $217.8 $194.4
======== ====== ======

44
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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

1998 1997 1996
------- ------ ------
(IN MILLIONS)

Current:
Federal......................................... $ (89.8) $(52.2) $(25.8)
Foreign......................................... (10.1) (5.8) (9.0)
State........................................... (18.6) (2.9) (4.6)
------- ------ ------
(118.5) (60.9) (39.4)
------- ------ ------
Deferred:
Federal......................................... (27.4) (31.3) (27.6)
Foreign......................................... (1.0) (1.3) .8
State........................................... .6 (.6) (2.2)
------- ------ ------
(27.8) (33.2) (29.0)
------- ------ ------
Total................................... $(146.3) $(94.1) $(68.4)
======= ====== ======

Significant components of deferred income tax assets and liabilities at
December 31, 1998 and 1997, are as follows:

1998 1997
------ ------
(IN MILLIONS)

Deferred income tax assets:
Accrual for postretirement benefits other than
pensions.............................................. $128.8 $127.8
Inventories.............................................. 30.7 64.2
Other nondeductible accruals............................. 62.7 59.3
Tax credit and net operating loss carryovers............. 91.8 95.6
Other.................................................... 51.8 44.4
------ ------
Total deferred income tax assets................. 365.8 391.3
------ ------
Deferred income tax liabilities:
Tax over book depreciation............................... (90.8) (72.3)
Tax over book intangible amortization.................... (40.3) (17.2)
Pensions................................................. (41.0) (47.7)
Other.................................................... (11.9) (35.7)
------ ------
Total deferred income tax liabilities............ (184.0) (172.9)
------ ------
Net deferred income taxes................................ $181.8 $218.4
====== ======

Management has determined, based on the Company's history of prior earnings
and its expectations for the future, that taxable income of the Company will
more likely than not be sufficient to recognize fully these net deferred tax
assets. In addition, management's analysis indicates that the turnaround periods
for certain of these assets are for long periods of time or are indefinite. In
particular, the turnaround of the largest deferred tax asset related to
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. The tax credit and net operating loss
carryovers, principally relating to Rohr, are primarily comprised of federal net
operating loss carryovers of $220.0 million which expire in the years 2005
through 2013, and investment tax credit and other credits of $15.1 million which
expire in the years 2003 through 2014. The remaining deferred tax assets and
liabilities approximately match each other in terms of timing and amounts and
should be realizable in the future, given the Company's operating history.

45
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The effective income tax rate from continuing operations varied from the
statutory federal income tax rate as follows:

PERCENT OF PRETAX INCOME
--------------------------
1998 1997 1996
------ ------ ------

Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
Corporate-owned life insurance investments.................. (.2) -- (1.0)
Amortization of nondeductible goodwill...................... 1.3 .9 1.0
Difference in rates on consolidated foreign subsidiaries.... .7 (.1) (.4)
State and local taxes, net of federal benefit............... 3.0 1.3 2.5
Tax exempt income from foreign sales corporation............ (1.6) (3.3) (.1)
QUIPS distributions......................................... (.8) (1.7) (1.9)
Nondeductible merger-related costs.......................... -- 9.2 --
Other items................................................. .6 1.9 .1
---- ---- ----
Effective income tax rate................................... 38.0% 43.2% 35.2%
==== ==== ====

The Company has not provided for U.S. federal and foreign withholding taxes
on $133.7 million of foreign subsidiaries' undistributed earnings as of December
31, 1998, 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 $6.4 million.

NOTE N BUSINESS SEGMENT INFORMATION

The Company's operations are classified into two reportable business
segments: BFGoodrich Aerospace ("Aerospace") and BFGoodrich Performance
Materials ("Performance Materials"). The Company's two reportable business
segments are managed separately based on fundamental differences in their
operations.

Aerospace consists of four business groups: Aerostructures; 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 engine nacelle and pylon
systems; 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.

Performance Materials consists of three business groups: Textile and
Industrial Coatings, Polymer Additives and Specialty Plastics, and Consumer
Specialties. They serve various markets such as personal-care, pharmaceuticals,
printing, textiles, industrial, construction and automotive. Performance
Materials' 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.

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 Performance Materials' products are
principally sold to customers in North America and Europe.

Segment operating income is total segment revenue reduced by operating
expenses identifiable with that business segment. Corporate includes general
corporate administrative costs and Advanced Technology Group research expenses.

46
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The Company evaluates performance and allocates resources based on
operating income. The accounting policies of the reportable segments are the
same as those described in the summary of significant accounting policies. There
are no intersegment sales.

1998 1997 1996
-------- -------- --------
(IN MILLIONS)

SALES
Aerospace.......................................... $2,755.2 $2,468.3 $2,021.4
Performance Materials.............................. 1,195.6 904.7 824.4
-------- -------- --------
Total Sales................................ $3,950.8 $3,373.0 $2,845.8
======== ======== ========
OPERATING INCOME
Aerospace.......................................... $ 386.4 $ 260.3 $ 253.6
Performance Materials.............................. 145.8 128.2 109.5
-------- -------- --------
532.2 388.5 363.1
Corporate General and Administrative Expenses(2)... (55.4) (138.4) (52.8)
-------- -------- --------
Total Operating Income..................... $ 476.8 $ 250.1 $ 310.3
======== ======== ========
ASSETS
Aerospace.......................................... $2,372.5 $2,347.0 $2,169.2
Performance Materials.............................. 1,369.5 877.3 784.6
Corporate.......................................... 450.6 269.6 626.0
-------- -------- --------
Total Assets............................... $4,192.6 $3,493.9 $3,579.8
======== ======== ========
CAPITAL EXPENDITURES
Aerospace.......................................... $ 134.1 $ 81.9 $ 64.6
Performance Materials.............................. 70.6 73.2 97.5
Corporate.......................................... 3.8 4.8 35.0
-------- -------- --------
Total Capital Expenditures................. $ 208.5 $ 159.9 $ 197.1
======== ======== ========
DEPRECIATION AND AMORTIZATION EXPENSE
Aerospace.......................................... $ 87.3 $ 82.6 $ 79.3
Performance Materials.............................. 75.3 48.2 39.0
Corporate.......................................... 2.8 8.0 21.5
-------- -------- --------
Total Depreciation and Amortization........ $ 165.4 $ 138.8 $ 139.8
======== ======== ========
GEOGRAPHIC AREAS
NET SALES
United States................................... $2,631.7 $2,307.8 $1,989.7
Europe(1)....................................... 843.8 723.7 525.2
Other Foreign................................... 475.3 341.5 330.9
-------- -------- --------
Total...................................... $3,950.8 $3,373.0 $2,845.8
======== ======== ========
PROPERTY
United States................................... $1,104.8 $ 947.3 $1,015.1
Europe.......................................... 148.3 116.5 108.3
Other Foreign................................... 2.8 1.3 18.6
-------- -------- --------
Total...................................... $1,255.9 $1,065.1 $1,142.0
======== ======== ========

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

(1) European sales in 1998, 1997 and 1996 included $262.3 million, $418.9
million and $248.5 million, respectively, of sales to customers in France.
Sales were allocated to geographic areas based on where the product was
shipped to.
(2) Corporate general and administrative expenses in 1997 include merger costs
of $77.0 million.

47
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

In 1998, 1997 and 1996, sales to Boeing, solely by the Aerospace Segment,
totaled 14 percent, 14 percent and 13 percent, respectively, of consolidated
sales. Sales to Boeing include sales to McDonnell Douglas which merged with
Boeing in 1997.

NOTE O PUBLIC OFFERING OF SUBSIDIARY STOCK

In May 1997, the Company's subsidiary, DTM Corporation ("DTM"), issued
2,852,191 shares of its authorized but previously unissued common stock in an
initial public offering ("IPO"). As a result of the IPO, the Company's interest
declined from approximately 92 percent to approximately 50 percent (the Company
did not sell any of its interest in the IPO). The Company recognized a pretax
gain of $13.7 million ($8.0 million after tax) in accordance with the SEC's
Staff Accounting Bulletin 84.

NOTE P SUPPLEMENTAL BALANCE SHEET INFORMATION

BALANCE CHARGED BALANCE
BEGINNING TO COSTS AT END
OF YEAR AND EXPENSE OTHER DEDUCTIONS (1) OF YEAR
--------- ----------- ----- -------------- --------
ACCOUNTS RECEIVABLE ALLOWANCE (DOLLARS IN MILLIONS)

Year ended December 31, 1998............... $21.3 $ 5.8 $ .9(2) $ (5.4) $22.6

Year ended December 31, 1997............... 26.2 15.6 .7(2)
(2.1)(3) (19.1) 21.3

Year ended December 31, 1996............... 24.7 6.0 2.9(2) (7.4) 26.2

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

(1) Write-off of doubtful accounts, net of recoveries

(2) Allowance related to acquisitions

(3) Allowance related to operations that were sold

1998 1997
--------- ---------
(IN MILLIONS)

PROPERTY
Land........................................................ $ 50.2 $ 41.8
Buildings and improvements.................................. 666.0 632.9
Machinery and equipment..................................... 1,417.2 1,215.7
Construction in progress.................................... 164.7 125.0
--------- ---------
$ 2,298.1 $ 2,015.4
Less allowances for depreciation and amortization........... (1,042.2) (950.3)
--------- ---------
Total............................................. $ 1,255.9 $ 1,065.1
========= =========

Property includes assets acquired under capital leases, principally
buildings and machinery and equipment, of $17.0 million and $33.4 million at
December 31, 1998 and 1997, respectively. Related allowances for depreciation
and amortization are $5.4 million and $15.5 million, respectively. Interest
costs capitalized from continuing operations were $3.5 million in 1998, $5.3
million in 1997 and $6.3 million in 1996. Amounts charged to expense for
depreciation and amortization from continuing operations during 1998, 1997 and
1996 were $128.0 million, $111.3 million and $101.2 million, respectively.

48
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

1998 1997
------ ------
(IN MILLIONS)

GOODWILL
Accumulated amortization.................................... $100.2 $ 71.4
====== ======
IDENTIFIABLE INTANGIBLE ASSETS
Accumulated amortization.................................... $ 29.3 $ 26.0
====== ======

Amortization of goodwill and identifiable intangible assets from continuing
operations was $37.4 million, $22.2 million and $20.1 million in 1998, 1997 and
1996, respectively.

1998 1997
------ ------
(IN MILLIONS)

ACCRUED EXPENSES
Wages, vacations, pensions and other employment costs....... $149.4 $164.9
Postretirement benefits other than pensions................. 30.0 26.1
Taxes, other than federal and foreign taxes on income....... 53.7 42.3
Accrued environmental liabilities........................... 18.8 18.0
Accrued interest............................................ 34.9 27.0
Other....................................................... 133.3 133.0
------ ------
Total............................................. $420.1 $411.3
====== ======

FAIR VALUES OF FINANCIAL INSTRUMENTS The Company's accounting policies with
respect to financial instruments are described in Note A.

The carrying amounts of the Company's significant on balance sheet
financial instruments approximate their respective fair values at December 31,
1998 and 1997, except for the Company's long-term debt.

1998 1997
-------- ------
(IN MILLIONS)

Long-term debt (including current portion)
Carrying Amount........................................... $ 998.0 $567.5
Fair Value................................................ $1,183.5 $605.6

Off balance sheet derivative financial instruments at December 31, 1998 and
1997, held for purposes other than trading, were as follows:

1998 1997
------------------------ ------------------------
CONTRACT/ FAIR CONTRACT/ FAIR
NOTIONAL AMOUNT VALUE NOTIONAL AMOUNT VALUE
--------------- ----- --------------- -----
(IN MILLIONS)

Interest rate swaps.................. $26.8 $(2.1) $25.5 $(1.3)
Foreign currency forward contracts... 4.2 -- 12.2 (.1)
Foreign currency swap agreements..... -- -- .7 --

At December 31, 1998, the Company had one interest rate swap agreement,
wherein the Company pays a fixed rate of interest and receives a LIBOR-based
floating rate.

Foreign currency forward contracts mature over the next two 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.

49
52
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

1998 1997 1996
------ ------ ------
(IN MILLIONS)

ACCUMULATED OTHER COMPREHENSIVE INCOME
Unrealized foreign currency translation................... $ 4.2 $ (1.7) $ 5.9
Minimum pension liability................................. (0.6) (1.8) (26.4)
------ ------ ------
Total........................................... $ 3.6 $ (3.5) $(20.5)
====== ====== ======

NOTE Q 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:

1998 1997 1996
------- ------- -------
(IN MILLIONS)

Estimated fair value of tangible assets acquired....... $ 232.0 $ 70.1 $ 46.4
Goodwill and identifiable intangible assets acquired... 315.4 75.8 81.7
Cash paid.............................................. (427.2) (133.4) (107.9)
------- ------- -------
Liabilities assumed or created......................... $ 120.2 $ 12.5 $ 20.2
======= ======= =======
Liabilities disposed of in connection with sales of
businesses........................................... $ -- $ 44.2 $ 1.5
Assets acquired in connection with sale of business.... -- -- 27.6
Interest paid (net of amount capitalized).............. 68.0 81.5 88.6
Income taxes paid...................................... 27.6 145.9 34.8
Contribution of common stock to pension trust.......... -- -- 30.0
Exchange of 7.75% Convertible Notes.................... -- (1.3) (37.8)
Change in equity due to exchange of 7.75% Convertible
Notes................................................ -- 1.5 43.1

NOTE R 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, 1998,
2,401,673 shares of Series Preferred Stock have been redeemed, and no shares of
Series Preferred Stock were outstanding. The Board of Directors establishes and
designates the series and fixes the number of shares and the relative rights,
preferences and limitations of the respective series of the Series Preferred
Stock.

Cumulative Participating Preferred Stock -- Series F The Company has
200,000 shares of Junior Participating Preferred Stock-Series F -- $1 par value
authorized at December 31, 1998. Series F shares have preferential voting,
dividend and liquidation rights over the Company's common stock. At December 31,
1998, no Series F shares were issued or outstanding and 81,812 shares were
reserved for issuance.

On August 2, 1997, the Company made a dividend distribution of one
Preferred Share Purchase Right ("Right") on each share of the Company's common
stock. These Rights replace previous shareholder rights which expired on August
2, 1997. Each Right, when exercisable, entitles the registered holder thereof to
purchase from the Company one one-thousandth of a share of Series F Stock at a
price of $200 per one one-thousandth of a share (subject to adjustment). The one
one-thousandth of a share is intended to be the functional equivalent of one
share of the Company's common stock.

The Rights are not exercisable or transferable apart from the common stock
until an Acquiring Person, as defined in the Rights Agreement without the prior
consent of the Company's Board of Directors, acquires 20 percent or more of the
voting power of the Company's common stock or announces a tender offer that
would result in 20 percent ownership. The Company is entitled to redeem the
Rights at 1 cent per Right any time before
50
53
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

a 20 percent position has been acquired or in connection with certain
transactions thereafter announced. Under certain circumstances, including the
acquisition of 20 percent of the Company's common stock, each Right not owned by
a potential Acquiring Person will entitle its holder to purchase, at the Right's
then-current exercise price, shares of Series F Stock having a market value of
twice the Right's exercise price.

Holders of the Right are entitled to buy stock of an Acquiring Person at a
similar discount if, after the acquisition of 20 percent or more of the
Company's voting power, the Company is involved in a merger or other business
combination transaction with another person in which its common shares are
changed or converted, or the Company sells 50 percent or more of its assets or
earnings power to another person. The Rights expire on August 2, 2007.

NOTE S COMMON STOCK

During 1998, 1997 and 1996, 1,031,870; 826,388 and 600,057 shares,
respectively, of authorized but unissued shares of common stock were issued
under the Stock Option Plan and other employee stock ownership plans.

On December 22, 1997, 18,588,004 shares of common stock were issued in
connection with the merger with Rohr (see Note D). During 1998, 1,235,051 shares
of authorized but previously unissued shares of common stock were issued upon
conversion of Rohr debentures that were extinguished in late 1997.

During 1996, 754,717 shares ($30.0 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. In addition, 2,006,868 shares
($48.0 million) of common stock related to Rohr's pension plans were contributed
during the period between August 1 and December 31, 1996 and, as a result, are
included in equity as part of the adjustment to conform Rohr's fiscal year.

The Company acquired 627,539; 53,137 and 52,949 shares of treasury stock in
1998, 1997 and 1996, respectively, and reissued none in 1998; 5,000 in 1997 and
22,500 shares in 1996, in connection with the Stock Option Plan and other
employee stock ownership plans. In 1998, 1997 and 1996, 15,333; 19,900 and
60,400 shares, respectively, of common stock previously awarded to employees
were forfeited and restored to treasury stock.

As of December 31, 1998, there were 5,598,814 shares reserved for future
issuance under the Stock Option Plan.

NOTE T 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

51
54
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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.

NOTE U STOCK OPTION PLAN

At December 31, 1998, the Company had stock-based compensation plans
described below that include the pre-merger plans of Rohr. Effective with the
merger, outstanding Rohr options were assumed by the Company and converted to
fully-vested options to purchase BFGoodrich common stock at a ratio of .7 of one
share of BFGoodrich common stock for each Rohr option and at an appropriately
revised exercise price.

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.

Pro forma information regarding net income and earnings per share is
required by FASB Statement No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"), and has been determined as if the Company had accounted for its
employee stock options under the fair value method of that statement. The fair
value for these options was estimated at the date of grant using a Black-Scholes
option pricing model with the following weighted-average assumptions:

1998 1997 1996
------ ------ ------

Risk-Free Interest Rate (%)...................... 4.68 5.75 5.39
Dividend Yield (%)............................... 2.8 2.7 2.5
Volatility Factor (%)............................ 31.0 16.2 19.0
Weighted Average Expected Life of the Options
(years)........................................ 4.7 5.2 5.0

The assumptions used were comparable for BFGoodrich's and Rohr's stock
options, except that for the Rohr options, the dividend yield assumption was
zero and the volatility factor was 43.8 percent in 1997 and 43.1 percent in
1996. The option valuation model requires the input of highly subjective
assumptions, primarily stock price volatility, changes in which can materially
affect the fair value estimate. The weighted-average fair values of stock
options granted during 1998, 1997 and 1996 were $10.62, $7.59 and $7.28,
respectively.

For purposes of the pro forma disclosures required by SFAS 123, the
estimated fair value of the options is amortized to expense over the options'
vesting period. In addition, the grant-date fair value of performance shares
(discussed below) is amortized to expense over the three-year plan cycle without
adjustments for subsequent

52
55
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

changes in the market price of the Company's common stock. The Company's pro
forma information is as follows:

1998 1997 1996
----------- ----------- -----------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

Net income:
As reported................................... $226.5 $178.2 $173.9
Pro forma..................................... 221.3 170.6 172.8
Earnings per share:
Basic
As reported................................ $ 3.07 $ 2.51 $ 2.61
Pro forma.................................. 3.00 2.40 2.59
Diluted
As reported................................ $ 3.02 $ 2.41 $ 2.48
Pro forma.................................. 2.95 2.30 2.45

The pro forma effect on net income for 1996 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. In addition, the pro forma effect on net income in 1997 is not
representative of the pro forma effect on net income in future years because
1997 includes $4.5 million of after-tax compensation expense related to the Rohr
options which became fully vested upon the consummation of the merger with Rohr.

A summary of the Company's stock option activity and related information
follows:

YEAR ENDED DECEMBER 31, 1998 WEIGHTED-AVERAGE
(OPTIONS IN THOUSANDS) OPTIONS EXERCISE PRICE
---------------------------- ------- ----------------

Outstanding at beginning of year..................... 4,018.0 $29.25
Granted.............................................. 990.7 41.92
Exercised............................................ (871.6) 28.56
Forfeited............................................ (80.2) 35.46
Expired.............................................. (2.1) 38.04
-------
Outstanding at end of year........................... 4,054.8 32.27
=======

YEAR ENDED DECEMBER 31, 1997 WEIGHTED-AVERAGE
(OPTIONS IN THOUSANDS) OPTIONS EXERCISE PRICE
---------------------------- -------- ----------------

Outstanding at beginning of year.................... 4,943.8 $25.16
Granted............................................. 846.7 40.51
Exercised........................................... (1,661.1) 22.44
Forfeited........................................... (97.1) 33.96
Expired............................................. (14.3) 43.64
--------
Outstanding at end of year.......................... 4,018.0 29.25
========

YEAR ENDED DECEMBER 31, 1996 WEIGHTED-AVERAGE
(OPTIONS IN THOUSANDS) OPTIONS EXERCISE PRICE
---------------------------- ------- ----------------

Outstanding at beginning of year..................... 4,212.6 $22.96
Granted.............................................. 1,612.2 28.85
Exercised............................................ (842.4) 21.33
Forfeited............................................ (96.4) 26.64
Expired.............................................. (54.2) 39.24
-------
Outstanding at end of year........................... 4,831.8 24.96
=======

53
56
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

The number of options outstanding at the end of 1996 does not agree with
the beginning amount for 1997 due to option activity for Rohr during the
five-month period ended December 31, 1996, not reflected in the 1996 activity
above.

The following table summarizes information about the Company's stock
options outstanding at December 31, 1998:

WEIGHTED-
OPTIONS OPTIONS WEIGHTED- AVERAGE
OUTSTANDING EXERCISEABLE AVERAGE REMAINING
GRANT (IN (IN EXERCISE CONTRACTUAL
DATE THOUSANDS) THOUSANDS) PRICE LIFE (YEARS)
----- ----------- ------------ --------- ------------

1998............................... 943.3 217.6 $41.94 9.0
1997............................... 741.2 490.5 40.58 8.2
1996............................... 735.3 611.6 33.66 7.1
1995............................... 753.1 753.1 21.58 6.2
1994............................... 161.5 161.5 18.26 5.1
All other.......................... 720.4 720.5 23.95 2.5
------- -------
Total.................... 4,054.8 2,954.8
======= =======

Stock options in the "All other" category were outstanding at prices ranging
from $15.00 to $45.18.

During 1998, 1997 and 1996, restricted stock awards for 500; 9,761 and
26,103 shares, respectively, were made under the Stock Option Plan. During 1998,
1997 and 1996, stock awards for 4,977; 5,500 and 25,400 restricted shares,
respectively, were forfeited. Restricted stock awards may be subject to
conditions established by the Board of Directors. Under the terms of the
restricted stock awards, the granted stock vests 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 1998, 1997
and 1996, $0.1 million, $1.8 million and $1.9 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 attainment of an average return on equity over the
three-year plan cycle ending in 1997. Since the company exceeded all of the
performance objectives established in 1995, an additional 159,445 shares were
awarded to those key executives in 1998. In 1997 and 1996, 5,000 and 14,560
performance shares, respectively were granted to certain key executives that
commenced employment during those years. During 1998, 1997 and 1996, 10,356;
14,400 and 35,000 performance shares, respectively, were forfeited.

Prior to 1998, the market value of performance shares awarded under the
plan was recorded as unearned restricted stock. In 1998, the Company changed the
plan to a phantom performance share plan and issued 207,800 phantom performance
shares. Under this plan, compensation expense is recorded based on the extent
performance objectives are expected to be met. In 1998, 1997 and 1996, $1.7
million, $14.3 million and $8.3 million, respectively, were charged 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 1998, 1997 and 1996 would have been $45.47, $41.44
and $38.54 per share, respectively.

NOTE V COMMITMENTS AND CONTINGENCIES

The Company and its subsidiaries have numerous purchase commitments for
materials, supplies and energy incident to the ordinary course of business.

54
57
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED

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, 1998, 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
$35.1 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.

At December 31, 1998, approximately 19 percent of the Company's labor force
was covered by collective bargaining agreements. Approximately 4 percent of the
labor force is covered by collective bargaining agreements that will expire
during 1999.

55
58

QUARTERLY FINANCIAL DATA (UNAUDITED)

1998 QUARTERS 1997 QUARTERS
------------------------------------- ---------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
------ -------- ------ -------- ------ ------ ------ ------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)

BUSINESS SEGMENT SALES:
Aerospace.......................... $685.3 $ 670.1 $681.4 $ 718.4 $541.5 $618.1 $646.5 $662.2
Performance Materials.............. 252.4 340.9 304.8 297.5 222.7 228.4 223.7 229.9
------ -------- ------ -------- ------ ------ ------ ------
Total Sales...................... $937.7 $1,011.0 $986.2 $1,015.9 $764.2 $846.5 $870.2 $892.1
====== ======== ====== ======== ====== ====== ====== ======
Gross Profit..................... $254.2 $ 278.0 $276.2 $ 289.3 $203.0 $228.5 $218.5 $233.1
====== ======== ====== ======== ====== ====== ====== ======
BUSINESS SEGMENT OPERATING INCOME:
Aerospace.......................... $ 87.9 $ 90.9 $101.1 $ 106.5 $ 55.0 $ 73.3 $ 63.5 $ 68.5
Performance Materials.............. 36.6 40.2 37.4 31.6 31.1 31.1 31.8 34.2
Corporate.......................... (13.8) (13.7) (12.9) (15.0) (14.8) (15.2) (16.3) (92.1)
------ -------- ------ -------- ------ ------ ------ ------
Total Operating Income........... $110.7 $ 117.4 $125.6 $ 123.1 $ 71.3 $ 89.2 $ 79.0 $ 10.6
====== ======== ====== ======== ====== ====== ====== ======
INCOME (LOSS) FROM:
Continuing Operations.............. $ 54.2 $ 55.9 $ 59.7 $ 58.3 $ 29.8 $ 64.5 $ 37.4 $(18.5)
Discontinued Operations............ (1.6) -- -- -- 64.1 3.4 16.8 --
Extraordinary Items................ -- -- -- -- -- -- (2.6) (16.7)
------ -------- ------ -------- ------ ------ ------ ------
Net Income (Loss)................ $ 52.6 $ 55.9 $ 59.7 $ 58.3 $ 93.9 $ 67.9 $ 51.6 $(35.2)
====== ======== ====== ======== ====== ====== ====== ======
Basic Earnings (Loss) Per Share:
Continuing operations.............. $ .74 $ .76 $ .80 $ .78 $ .42 $ .91 $ .53 $ (.26)
Net income (loss).................. $ .72 $ .76 $ .80 $ .78 $ 1.33 $ .96 $ .73 $ (.49)
Diluted Earnings (Loss) Per Share:
Continuing operations.............. $ .72 $ .74 $ .80 $ .78 $ .40 $ .87 $ .50 $ (.26)
Net income (loss).................. $ .70 $ .74 $ .80 $ .78 $ 1.27 $ .91 $ .69 $ (.49)

The fourth quarter of 1998 includes a $6.5 million after-tax loss from a
restructuring charge and a write-down of an impaired asset in the Aerospace
Segment.

The first quarter of 1997 includes a $59.5 million after-tax gain in
discontinued operations from the sale of the SC&A Group. The second quarter
includes a pretax gain of $26.4 million from the sale of the Company's engine
electrical business and a $13.7 million pretax gain on the issuance of a
subsidiary's stock. In the third quarter of 1997, the Company recognized a $35.2
million pretax loss to write off a portion of the MD-90 contract and recognized
a $2.6 million after-tax charge from the early extinguishment of certain Rohr
debt (reported as an extraordinary item). In the fourth quarter of 1997, the
Company recognized pretax charges of $77.0 million for merger costs and $10.9
million from the write-off of accounts receivable from a bankrupt customer. The
fourth quarter of 1997 also includes a $16.7 million after-tax charge for the
early extinguishment of certain Rohr debt refinanced in connection with the
merger, also reported as an extraordinary item.

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59

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

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Biographical information concerning the Company's Directors appearing under
the caption "Election of Directors" in the Company's proxy statement dated March
4, 1999 is incorporated herein by reference. Biographical information concerning
the Company's Executive Officers is as follows:

David L. Burner, Age 59, Chairman, President and Chief Executive Officer

Mr. Burner joined the Company in 1983 as Vice President, Finance, for the
Company's Engineered Products Group. He served in several other management
positions before being named Executive Vice President of BFGoodrich Aerospace in
1985. He was appointed President of BFGoodrich Aerospace in 1987. Mr. Burner was
elected a Senior Vice President in 1990, an Executive Vice President in 1993,
President in December 1995, assumed the additional title of Chief Executive
Officer in December 1996 and became Chairman in July 1997. Before joining
BFGoodrich he was Executive Vice President and Chief Financial Officer of ABS
Industries in Willoughby, Ohio. Mr. Burner received a B.S.C. degree in
accounting from Ohio University.

Marshall O. Larsen, Age 50, Executive Vice President and President and Chief
Operating Officer, BFGoodrich Aerospace

Mr. Larsen joined the Company in 1977 as an Operations Analyst. He served in
various management positions until 1986 when he became Assistant to the
President of the Company. He later served as General Manager of several
divisions of BFGoodrich Aerospace. In 1994, Mr. Larsen was elected a Vice
President of the Company and named Group Vice President, Safety Systems,
BFGoodrich Aerospace. In December 1995 he was elected Executive Vice President
of the Company and named President and Chief Operating Officer of BFGoodrich
Aerospace. Mr. Larsen has a B.S. in engineering from the U.S. Military Academy
and an M.S. in industrial administration from the Krannert Graduate School of
Management at Purdue University.

David B. Price, Jr., Age 53, Executive Vice President and President and Chief
Operating Officer, BFGoodrich Performance Materials

Mr. Price joined BFGoodrich in July 1997 in his present capacity. Prior to
joining BFGoodrich, he was President of Performance Materials of Monsanto
Company since 1995. Prior positions held by Mr. Price at Monsanto include Vice
President and General Manager of commercial operations for the Industrial
Products Group from 1993 to 1995, Vice President and General Manager of the
Performance Products Group from 1991 to 1993, and Vice President and General
Manager of Specialty Chemicals Division from 1987 to 1991. Mr. Price has a B.S.
in civil engineering from the University of Missouri and an M.B.A. from Harvard
University.

Laurence A. Chapman, Age 49, Senior Vice President -- Finance

Mr. Chapman was elected to his current position in February 1999. He had been
Senior Vice President and Chief Financial Officer of BFGoodrich
Aerospace -- Aerostructures Group, formerly Rohr, Inc. from December 1997 until
February 1999. Previously, Mr. Chapman was Senior Vice President and Chief
Financial Officer of Rohr, Inc. since 1994. From 1987 to 1994, Mr. Chapman held
various executive positions at Westinghouse Electric Company, most recently Vice
President and Treasurer and Chief Financial Officer of Westinghouse Financial
Services. Mr. Chapman received a BA in accounting from McGill University and an
MBA from Harvard Graduate School of Business.

Terrence G. Linnert, Age 52, Senior Vice President and General Counsel

Mr. Linnert joined BFGoodrich in November 1997. Prior to joining BFGoodrich, Mr.
Linnert was senior vice president of corporate administration, chief financial
officer and general counsel at Centerior Energy Corporation.

57
60

At BFGoodrich, Mr. Linnert has responsibilities for the Company's legal,
internal auditing, environmental and federal government relations organizations.
Mr. Linnert joined The Cleveland Electric Illuminating Company in 1968, holding
various engineering, procurement and legal positions until 1986, when CEI and
The Toledo Edison Company became affiliated as wholly owned subsidiaries of
Centerior Energy Corporation. Subsequently, Mr. Linnert had a variety of legal
responsibilities until he was named director of legal services in 1990. In 1992,
he was appointed a vice president, with responsibilities for legal, governmental
and regulatory affairs. Prior to joining the Company, his responsibilities at
Centerior included managing the legal, finance, human resources, regulatory and
governmental affairs, internal auditing and corporate secretary functions. Mr.
Linnert received a bachelor of science degree in electrical engineering from the
University of Notre Dame in 1968 and a juris doctor degree from the
Cleveland-Marshall School of Law at Cleveland State University in 1975.

Les C. Vinney, Age 50, Senior Vice President and Chief Financial Officer

Mr. Vinney joined the Company in 1991 as Vice President of Finance and Chief
Financial Officer, Specialty Polymers and Chemicals Division. In 1993, he was
named Senior Vice President, Finance and Administration, BFGoodrich Specialty
Chemicals. In 1994, he was named Group Vice President, Sealants, Coatings and
Adhesives Group, and President, Tremco Incorporated, and elected a Vice
President of the Company. In January 1997, Mr. Vinney was elected Vice President
and Treasurer of the Company. In April 1998, Mr. Vinney was elected Senior Vice
President and was named Chief Financial Officer in July 1998. Prior to joining
the Company, he was with Engelhard Corporation in a number of senior operating
and financial management positions, including Group Vice President of the
Engineered Materials Division. He also held various management positions with
Exxon Corporation. Mr. Vinney has a B.A. in economics and political science and
an M.B.A. from Cornell University.

Robert D. Koney, Jr., Age 42, Vice President and Controller

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

ITEM 11. EXECUTIVE COMPENSATION

Information concerning executive compensation appearing under the captions
"Compensation Committee Report" and "Compensation of Directors" in the Company's
proxy statement dated March 4, 1999 is incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Security ownership data appearing under the captions "Holdings of Company
Equity Securities by Directors and Executive Officers" and "Beneficial Ownership
of Securities" in the Company's proxy statement dated March 4, 1999 is
incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

58
61

PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

(a) Documents filed as part of this report:

(1) Consolidated Financial Statements of The BFGoodrich Company and its
subsidiaries

PAGE
-----

Management's Responsibility for Financial Statements........ 25
Report of Independent Auditors.............................. 26
Consolidated Statement of Income for the years ended
December 31, 1998, 1997, and 1996......................... 27
Consolidated Balance Sheet at December 31, 1998 and 1997.... 28
Consolidated Statement of Cash Flows for the years ended
December 31, 1998, 1997, and 1996......................... 29
Consolidated Statement of Shareholders' Equity for the years
ended December 31, 1998, 1997, and 1996................... 30
Notes to Consolidated Financial Statements.................. 31-55
Quarterly Financial Data (Unaudited)........................ 56

(2) Consolidated Financial Statement Schedules:

Schedules have been omitted because they are not applicable or the
required information is shown in the Consolidated Financial
Statements or the Notes to the Consolidated Financial Statements.

(3) Listing of Exhibits: A listing of exhibits is on pages II-1 to II-3
of this Form 10-K.

(b) Reports on Form 8-K filed in the fourth quarter of 1998:

Filed November 24, 1998, relating to the merger with Coltec Industries,
Inc.

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62

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON FEBRUARY 15, 1999.

THE BFGOODRICH COMPANY
(Registrant)

By /s/ DAVID L. BURNER

------------------------------------
(David L. Burner, Chairman and
Chief Executive Officer)

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW ON FEBRUARY 15, 1999 BY THE FOLLOWING PERSONS
(INCLUDING A MAJORITY OF THE BOARD OF DIRECTORS) ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED.

/s/ DAVID L. BURNER /s/ JODIE K. GLORE
- -------------------------------------------- --------------------------------------------
(David L. Burner) (Jodie K. Glore)
Chairman and Chief Executive Officer Director
and Director (Principal Executive Officer)

/s/ LES C. VINNEY /s/ DOUGLAS E. OLESEN
- -------------------------------------------- --------------------------------------------
(Les C. Vinney) (Douglas E. Olesen)
Senior Vice President and Chief Financial Director
Officer
(Principal Financial Officer)

/s/ ROBERT D. KONEY, JR. /s/ RICHARD DE J. OSBORNE
- -------------------------------------------- --------------------------------------------
(Robert D. Koney, Jr.) (Richard de J. Osborne)
Vice President and Controller Director
(Principal Accounting Officer)

/s/ JEANETTE GRASSELLI BROWN /s/ ALFRED M. RANKIN, JR.
- -------------------------------------------- --------------------------------------------
(Jeanette Grasselli Brown) (Alfred M. Rankin, Jr.)
Director Director

/s/ DIANE C. CREEL /s/ ROBERT H. RAU
- -------------------------------------------- --------------------------------------------
(Diane C. Creel) (Robert H. Rau)
Director Director

/s/ GEORGE A. DAVIDSON, JR. /s/ JAMES R. WILSON
- -------------------------------------------- --------------------------------------------
(George A. Davidson, Jr.) (James R. Wilson)
Director Director

/s/ JAMES J. GLASSER /s/ A. THOMAS YOUNG
- -------------------------------------------- --------------------------------------------
(James J. Glasser) (A. Thomas Young)
Director Director

60
63

ITEM 14(a)(3) INDEX TO EXHIBITS

TABLE II
EXHIBIT NO.
- -----------

3(A) The Company's Restated Certificate of Incorporation, with
amendments filed August 4, 1997 and May 6, 1998.
3(B) The Company's By-Laws, as amended, through April 20, 1998, which
was filed with the same designation as an exhibit to the
Company's 10-Q Report for the Quarter ended March 31, 1998, and
is incorporated herein by reference.
4 Information relating to the Company's long-term debt is set
forth in Note J -- "Financing Arrangements" on pages 40
and 41 of this Form 10-K. Instruments defining the rights of
holders of such long-term debt are not filed herewith since
no single debt item exceeds 10% of consolidated assets.
Copies of such instruments will be furnished to the
Commission upon request.
10(A) Stock Option Plan.
10(B) Form of Disability Income Agreement. This exhibit was filed
as Exhibit 10(B)(4) to the Company's Form 10-K Annual Report
for the year ended December 31, 1998, and is incorporated
herein by reference.
10(C) Form of Supplemental Executive Retirement Plan Agreement.
10(D) Management Incentive Program.
10(E) Form of Management Continuity Agreement entered into by The
B.F.Goodrich Company and certain of its employees.
10(F) Senior Executive Management Incentive Plan. This exhibit was
filed as Appendix B to the Company's 1995 Proxy Statement
dated March 2, 1995 and is incorporated herein by reference.
10(G) Rights Agreement, dated as of June 2, 1997, between The
B.F.Goodrich Company and The Bank of New York which includes
the form of Certificate of Amendment setting forth the terms
of the Junior Participating Preferred Stock, Series F, par
value $1 per share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to
Purchase Preferred Shares as Exhibit C which was filed as
Exhibit 1 to Form 8-A filed June 19, 1997 is incorporated
herein by reference.
10(H) Employee Protection Plan. This exhibit was filed as Exhibit
10(I) to the Company's Form 10-Q for the quarter ended June
30, 1997, and is incorporated herein by reference.
10(I) Benefit Restoration Plan. This exhibit was filed as Exhibit
10(J) to the Company's Form 10-K Annual Report for the year
ended December 31, 1992, and is incorporated herein by
reference.
10(J) The B.F.Goodrich Company Savings Benefit Restoration Plan
was filed as Exhibit 4(b) to the Company's Registration
Statement No. 333-19697 on Form S-8 and is incorporated
herein by reference.
10(K) Long-Term Incentive Plan Summary Plan Description and form
of award.
10(L) Amended and Restated Assumption of Liabilities and
Indemnification Agreement between the Company and The Geon
Company, which was filed as exhibit 10.3 to Registration
Statement No. 33-70998 on Form S-1 of The Geon Company, is
incorporated herein by reference.
10(M) Outside Directors' Phantom Share Plan. This exhibit was
filed with the same designation as an exhibit to the
Company's Form 10-K Annual Report for the year ended
December 31, 1997, and is incorporated herein by reference.
10(N) Directors Deferred Compensation Plan. This exhibit was filed
with the same designation as an exhibit to the Company's
Form 10-K Annual Report for the year ended December 31,
1997, and is incorporated herein by reference.
10(O) Rohr, Inc. Supplemental Retirement Plan (Restated 1997)
which was filed as an exhibit to Rohr, Inc.'s Form 10-Q for
the quarterly period ended May 4, 1997, is incorporated
herein by reference.

TABLE II
EXHIBIT NO.
- -----------

10(P) Rohr, Inc. 1991 Stock Compensation for Non-Employee
Directors which was filed as an exhibit to Rohr, Inc.'s Form
10-K for fiscal year ended July 31, 1992, is incorporated
herein by reference.
10(Q) Rohr Industries, Inc., Management Incentive Plan (Restated
1982), as amended through the Fifteenth Amendment, as set
forth in Rohr, Inc.'s Form 10-K for fiscal year ended July
31, 1994, is incorporated herein by reference.
10(R) Sixteenth Amendment to Rohr, Inc. Management Incentive Plan
(Restated 1982), dated June 7, 1996, which was filed as an
exhibit to Rohr, Inc.'s Form 10-K for the fiscal year ended
July 31, 1996, is incorporated herein by reference.
10(S) Seventeenth Amendment to Rohr Industries, Inc. Management
Incentive Plan (Restated 1982), dated September 13, 1996,
which was filed as an exhibit to Rohr, Inc.'s Form 10-K for
the fiscal year ended July 31, 1996, is incorporated herein
by reference.
10(T) Employment Agreement with Robert H. Rau, which was filed as
an exhibit to Rohr, Inc.'s Form 10-Q for the period ended
May 2, 1993, is incorporated herein by reference.
10(U) First Amendment to Employment Agreement with Robert H. Rau,
which was filed as an exhibit to Rohr, Inc.'s Form 10-K for
fiscal year ended July 31, 1996, is incorporated herein by
reference.
10(V) Rohr, Inc. 1989 Stock Option Plan filed as exhibit 10.18 to
the Rohr Industries, Inc. Form 10-K for the fiscal year
ended July 31, 1990, is incorporated herein by reference.
10(W) Rohr, Inc. 1995 Stock Incentive Plan filed as exhibit 4.1 to
Rohr, Inc. Registration Statement No. 33-65447 filed on
December 28, 1995, is incorporated herein by reference.
10(X) Employment Agreement with Robert H. Rau. This exhibit was
filed with the same designation as an exhibit to the
Company's Form 10-K Annual Report for the year ended
December 31, 1997, and is incorporated herein by reference.
10(Y) Consulting Agreement with Robert H. Rau.
21 Subsidiaries
23(a) Consent of Independent Auditors -- Ernst & Young LLP
23(b) Consent of Independent Auditors -- Deloitte & Touche LLP
27 Financial Data Schedule
99 Independent Auditors Report -- Deloitte & Touche LLP

The Company will supply copies of the foregoing exhibits to any shareholder
upon receipt of a written request addressed to the Secretary of The B.F.Goodrich
Company, 4020 Kinross Lakes Parkway, Richfield, Ohio 44286-9368, and the payment
of $.50 per page to help defray the costs of handling, copying and postage.