1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001
COMMISSION FILE NUMBER 1-892
GOODRICH CORPORATION
(Exact Name of Registrant as Specified in its Charter)
NEW YORK 34-0252680
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Four Coliseum Centre, 2730 West Tyvola Road, Charlotte, N.C. 28217
------------------------------------------------------------- -------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 704-423-7000
------------
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
------ -----
As of June 30, 2001, there were 104,117,236 shares of common stock outstanding
(excluding 14,000,000 shares held by a wholly-owned subsidiary). There is only
one class of common stock.
2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GOODRICH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------- --------
2001 2000 2001 2000
---------- ---------- ---------- ----------
Sales $ 1,239.0 $ 1,082.4 $ 2,416.3 $ 2,153.0
Operating Costs and Expenses:
Cost of sales 885.5 772.1 1,718.4 1,538.2
Selling and administrative expenses 182.3 153.4 363.4 304.3
Merger-related and consolidation 8.3 15.4 14.1 20.8
---------- ---------- ---------- ----------
costs
1,076.1 940.9 2,095.9 1,863.3
---------- ---------- ---------- ----------
Operating income 162.9 141.5 320.4 289.7
Interest expense (29.6) (25.3) (60.7) (50.0)
Interest income 8.4 1.5 12.2 2.6
Other income (expense) - net (8.6) (3.6) (9.2) (8.1)
---------- ---------- ---------- ----------
Income before
income taxes and Trust distributions 133.1 114.1 262.7 234.2
Income tax expense (45.2) (40.4) (89.3) (82.9)
Distributions on Trust Preferred
Securities (4.6) (4.6) (9.2) (9.2)
---------- ---------- ---------- ----------
Income from Continuing Operations 83.3 69.1 164.2 142.1
Income from Discontinued Operations -- 12.6 91.4 25.7
---------- ---------- ---------- ----------
Net Income $ 83.3 $ 81.7 $ 255.6 $ 167.8
========== ========== ========== ==========
Basic Earnings per Share:
Continuing operations $ 0.80 $ 0.65 $ 1.59 $ 1.32
Discontinued operations -- 0.12 0.88 0.24
---------- ---------- ---------- ----------
Net Income $ 0.80 $ 0.77 $ 2.47 $ 1.56
========== ========== ========== ==========
Diluted Earnings per Share:
Continuing operations $ 0.78 $ 0.64 $ 1.55 $ 1.30
Discontinued operations -- 0.11 0.85 0.23
---------- ---------- ---------- ----------
Net Income $ 0.78 $ 0.75 $ 2.40 $ 1.53
========== ========== ========== ==========
Dividends declared per common share $ 0.275 $ 0.275 $ 0.55 $ 0.55
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
3
GOODRICH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN MILLIONS)
JUNE 30, DECEMBER 31,
2001 2000
-------- --------
ASSETS
Current Assets
Cash and cash equivalents $ 292.3 $ 77.5
Accounts and notes receivable, less allowances
for doubtful receivables (June 30, 2001:
$29.9; December 31, 2000: $27.9) 865.4 771.4
Inventories 935.0 865.3
Deferred income taxes 161.9 98.2
Prepaid expenses and other assets 35.3 79.0
Net assets of discontinued operations -- 1,049.7
-------- --------
Total Current Assets 2,289.9 2,941.1
-------- --------
Property, plant and equipment 1,055.9 1,022.0
Prepaid pension 249.6 246.9
Goodwill 761.3 761.6
Identifiable intangible assets 104.3 109.1
Payment-in-kind notes receivable, less discount
(June 30, 2001 $21.6) 157.9 --
Other Assets 679.6 636.8
-------- --------
$5,298.5 $5,717.5
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Short-term bank debt $ 0.1 $ 756.3
Accounts payable 360.6 403.7
Accrued expenses 702.4 746.3
Income taxes payable 224.9 59.3
Current maturities of long-term debt
and capital lease obligations 179.8 181.7
-------- --------
Total Current Liabilities 1,467.8 2,147.3
-------- --------
Long-term debt and capital lease obligations 1,310.7 1,316.2
Pension obligations 61.3 61.4
Postretirement benefits other than pensions 330.2 336.9
Deferred income taxes 6.0 2.3
Other non-current liabilities 365.6 353.0
Commitments and contingent liabilities -- --
Mandatorily redeemable preferred securities of trust 274.7 273.8
Shareholders' Equity
Common stock - $5 par value
Authorized 200,000,000 shares; issued 115,093,868 shares
at June 30, 2001, and 113,295,049 shares at
December 31, 2000 (excluding 14,000,000 shares
held by a wholly owned subsidiary at each date) 575.5 566.5
Additional capital 972.6 922.8
Income retained in the business 356.7 158.1
Accumulated other comprehensive income (61.0) (59.6)
Unearned portion of restricted stock awards (1.1) (1.2)
Common stock held in treasury, at cost (10,976,632 shares
at June 30, 2001, and 10,964,761 shares
at December 31, 2000) (360.5) (360.0)
-------- --------
Total Shareholders' Equity 1,482.2 1,226.6
-------- --------
$5,298.5 $5,717.5
======== ========
See notes to condensed consolidated financial statements.
4
GOODRICH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN MILLIONS)
SIX MONTHS ENDED
JUNE 30,
-------------------------
2001 2000
-------- --------
OPERATING ACTIVITIES
Income from continuing operations $ 164.2 $ 142.1
Adjustments to reconcile net income to net
cash provided (used) by operating activities:
Merger related and consolidation:
Expenses 14.1 20.8
Payments (17.0) (35.2)
Depreciation and amortization 97.9 92.8
Deferred income taxes 2.4 13.4
Net gains on sales of businesses (7.2) (2.0)
Payment-in-kind interest income (7.0) --
Payments for asbestos-related claims, net of recoveries (47.4) (22.7)
Change in assets and liabilities, net of effects of
acquisitions and dispositions of Businesses:
Receivables (120.2) (99.9)
Sale of receivables 7.5 --
Inventories (70.5) (44.5)
Other current assets 0.1 (2.9)
Accounts payable (47.6) 8.4
Accrued expenses 84.2 48.4
Income taxes payable 60.4 50.7
Tax benefit on non-qualified options (7.4) --
Other non-current assets and liabilities (83.0) (134.6)
-------- --------
Net cash provided by operating activities of
continuing operations 23.5 34.8
-------- --------
INVESTING ACTIVITIES
Purchases of property (92.2) (65.5)
Proceeds from sale of property 1.2 17.3
Proceeds from sale of businesses 15.6 4.8
Payments made in connection with acquisitions,
net of cash acquired (20.4) (24.9)
-------- --------
Net cash used by investing activities of continuing operations (95.8) (68.3)
-------- --------
FINANCING ACTIVITIES
Increase (decrease) in short-term debt (728.0) 368.7
Repayment of long-term debt and capital lease obligations (7.5) (9.3)
Proceeds from issuance of capital stock 50.6 8.0
Purchases of treasury stock -- (275.2)
Dividends (56.5) (60.5)
Distributions on Trust preferred securities (9.2) (9.2)
-------- --------
Net cash provided (used) by financing activities of
continuing operations (750.6) 22.5
-------- --------
DISCONTINUED OPERATIONS
Net cash provided (used) by discontinued operations (2.1) 27.9
Proceeds from sale of discontinued operations 1,039.1 --
-------- --------
Net cash provided by discontinued operations 1,037.0 27.9
-------- --------
Effect of Exchange Rate Changes on Cash and Cash 0.7 (1.8)
-------- --------
Equivalents
Net Increase in Cash and Cash Equivalents 214.8 15.1
Cash and Cash Equivalents at Beginning of Period 77.5 66.4
-------- --------
Cash and Cash Equivalents at End of Period $ 292.3 $ 81.5
======== ========
Supplemental Cash Flow Information:
Income taxes paid $ 95.1 $ 23.1
======== ========
Interest paid, net of amounts capitalized $ 70.4 $ 72.8
======== ========
See notes to condensed consolidated financial statements.
5
GOODRICH CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A: BASIS OF INTERIM FINANCIAL STATEMENT PREPARATION - The accompanying
unaudited condensed consolidated financial statements of Goodrich Corporation
("Goodrich" or the "Company") have been prepared in accordance with the
instructions to Form 10-Q and do not include all of the information and
footnotes required by accounting principles generally accepted in the United
States for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Certain amounts in prior year financial
statements have been reclassified to conform to the current year presentation.
Operating results for the three and six months ended June 30, 2001 are not
necessarily indicative of the results that may be achieved for the year ending
December 31, 2001. For further information, refer to the consolidated financial
statements and footnotes included in the Company's Annual Report on Form 10-K
for the year ended December 31, 2000.
NOTE B: DISCONTINUED OPERATIONS - On February 28, 2001, the Company completed
the sale of its Performance Materials segment to an investor group led by AEA
Investors, Inc. for approximately $1.4 billion. Total net proceeds, after
anticipated tax payments and transaction costs, included approximately $1
billion in cash and $172 million in debt securities issued by the buyer (see
additional discussion regarding the debt securities received in Note E below).
The transaction resulted in an after-tax gain of $93.5 million and is subject to
certain post closing adjustments (e.g. working capital adjustments).
The Company has calculated a $25 million working capital adjustment in its
favor, which has been considered in the after-tax gain noted above. The Buyer is
disputing the Company's working capital adjustment and has asserted that the
Company owes the Buyer approximately $10 million under the purchase and sale
agreement. Should the parties not be able to settle their differences, the
disputed matters will be forwarded to an independent third party for resolution.
Such resolution will be final and binding on all parties. The Company expects to
finalize the working capital adjustment in 2001.
The disposition of the Performance Materials segment represents the disposal of
a segment under APB Opinion No. 30 ("APB 30"). Accordingly, the revenues, costs
and expenses, assets and liabilities, and cash flows of Performance Materials
have been segregated in the Condensed Consolidated Statement of Income,
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Cash Flows.
Included below is summarized financial information for Performance Materials:
Two Months Six Months
Ended Ended
February 28, June 30,
(Dollars in millions) 2001 2000
------ ------
Sales $187.0 $606.1
Operating income $ 8.3 $ 66.0
Net interest expense, including allocated interest $ 9.6 $ 23.5
Income tax (benefit) expense $ (1.5) $ 18.8
Net income (loss) from operations $ (2.1) $ 25.7
Gain on sale (net of income tax expense of
$54.9 million in 2001) $ 93.5 $ --
Income from discontinued operations $ 91.4 $ 25.7
Pursuant to the terms of the transaction, the Company has retained certain
assets and liabilities (primarily pension, postretirement and environmental
liabilities) of the Performance Materials segment. The Company has also agreed
to indemnify the buyer for liabilities arising from certain events as defined in
the agreement. Such indemnification is not expected to be material to the
Company's financial condition, but could be material to the Company's results of
operations in a given period. Certain of the retained assets, primarily land
located at the segment's Brecksville facility and the segment's Electronic
Materials business, are for sale and were recorded at their estimated net
realizable value at the time of the Performance Materials disposition. The
Company recently signed an agreement to sell the Electronic Materials business
and expects to complete the sale in the third quarter of this year.
6
NOTE C: ACQUISITIONS - In the first six months of 2001, the Company acquired a
supplier of compressed air auditing services and systems products, as well as
the assets of a designer and manufacturer of inertial sensors used for guidance
and control of unmanned vehicles and precision-guided systems. Total
consideration aggregated $16.5 million, of which $11.0 million represented
goodwill and other intangible assets. The purchase price allocation for these
acquisitions has been based on preliminary estimates.
NOTE D: INVENTORIES - Inventories included in the accompanying Condensed
Consolidated Balance Sheet consist of:
(DOLLARS IN MILLIONS) JUNE 30, DECEMBER 31,
2001 2000
-------- --------
FIFO or average cost (which approximates current costs):
Finished products $ 176.8 $ 202.5
In process 654.9 615.5
Raw materials and supplies 222.2 175.4
-------- --------
1,053.9 993.4
Less:
Reserve to reduce certain
inventories to LIFO (52.7) (52.0)
Progress payments and advances (66.2) (76.1)
-------- --------
Total $ 935.0 $ 865.3
======== ========
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 $66.7 million related to design and
development costs on the B717-200 program at June 30, 2001. In addition, the
Company has excess-over-average inventory of $54.2 million related to costs
associated with the production of the flight test inventory and the first
production units on this program. The aircraft was certified by the FAA on
September 1, 1999, and Boeing is actively marketing the aircraft. Recovery of
these costs will depend on the ultimate number of aircraft delivered and
successfully achieving the Company's cost projections in future years.
NOTE E: PAYMENT-IN-KIND NOTES RECEIVABLE
The proceeds from the sale of the Company's Performance Materials segment
included $172 million in debt securities issued by the buyer in the form of
unsecured notes with interest payable in cash or payment-in-kind, at the option
of the issuer. Payment-in-kind refers to the issuer's ability to issue
additional debt securities with identical terms and maturities as the original
debt securities as opposed to making interest payments in cash. The notes have a
term of 10.5 years, and bear interest at a rate of 13 percent, which increases
to 15 percent if cash interest payments do not commence after the fifth year.
The Company initially recorded a discount of $21.2 million based on a 14 percent
discount rate. The notes have a prepayment clause that allows the issuer to
reduce the principal amount by $75 million in the second year by making a $60
million cash payment. In determining the discount on the notes, the Company has
assumed that the prepayment will be made and that cash interest payments on the
notes will commence after the fifth year.
Interest income on the notes is recognized using the effective interest method
and is recorded in Interest Income in the Condensed Consolidated Statement of
Income. The notes are classified as held-to-maturity in accordance with SFAS No.
115, "Accounting for Certain Investments in Debt and Equity Securities".
The Company does not currently believe a valuation allowance is necessary. The
Company will record a valuation allowance if events or changes in circumstances
indicate that the carrying amount of the notes may not be recoverable. The fair
market value of the notes at June 30, 2001 approximated $133 million.
7
NOTE F: BUSINESS SEGMENT INFORMATION - The Company's operations are classified
into two reportable business segments: Goodrich Aerospace ("Aerospace") and
Goodrich Engineered Industrial Products ("Engineered Industrial Products"). The
Company's reportable business segments are managed separately based on
fundamental differences in their operations.
Segment operating income is total segment revenue reduced by operating expenses
identifiable with that business segment. Merger related and consolidation costs
are presented separately and are discussed in Note I of these unaudited
condensed consolidated financial statements. The accounting policies of the
reportable segments are the same as those for the consolidated Company. There
are no significant intersegment sales.
(DOLLARS IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------------- -----------------------
2001 2000 2001 2000
-------- -------- -------- --------
Sales
Aerospace $1,066.4 $ 900.2 $2,067.5 $1,793.2
Engineered Industrial 172.6 182.2 348.8 359.8
-------- -------- -------- --------
Products
Total Sales $1,239.0 $1,082.4 $2,416.3 $2,153.0
======== ======== ======== ========
Segment Operating Income
Aerospace $ 169.2 $ 141.9 $ 323.9 $ 280.6
Engineered Industrial 24.7 32.6 50.6 66.2
-------- -------- -------- --------
Products
193.9 174.5 374.5 346.8
Corporate General and
Administrative Expenses (22.7) (17.6) (40.0) (36.3)
Merger-related and
Consolidation Costs (8.3) (15.4) (14.1) (20.8)
-------- -------- -------- --------
Total Operating Income $ 162.9 $ 141.5 $ 320.4 $ 289.7
======== ======== ======== ========
JUNE 30, DECEMBER 31,
2001 2000
-------- --------
Assets
Aerospace $3,691.5 $3,499.9
Engineered Industrial Products 386.1 380.5
Net Assets of Discontinued Operations -- 1,049.7
Corporate 1,220.9 787.4
-------- --------
Total Assets $5,298.5 $5,717.5
======== ========
NOTE G: EARNINGS PER SHARE - The computation of basic and diluted earnings per
share from continuing operations is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS) JUNE 30, JUNE 30,
-------------------- --------------------
2001 2000 2001 2000
------- ------- ------- -------
Numerator:
Numerator for basic earnings per share
- income available to common shareholders $ 83.3 $ 69.1 $ 164.2 $ 142.1
Effect of dilutive securities:
Convertible preferred securities 1.5 1.6 3.0 3.2
------- ------- ------- -------
Numerator for diluted earnings per
share-income available to common
shareholders after assumed conversions $ 84.8 $ 70.7 $ 167.2 $ 145.3
======= ======= ======= =======
Denominator:
Denominator for basic earnings per
share - weighted-average shares 103.7 106.1 103.3 107.8
------- ------- ------- -------
Effect of dilutive securities:
Stock options, performance shares and
restricted shares 1.6 1.6 1.5 1.0
Convertible preferred securities 2.9 2.9 2.9 2.9
------- ------- ------- -------
Dilutive potential common shares 4.5 4.5 4.4 3.9
------- ------- ------- -------
Denominator for diluted earnings per
share - adjusted weighted-average shares
and assumed conversions 108.2 110.6 107.7 111.7
======= ======= ======= =======
Earnings per share:
Basic $ 0.80 $ 0.65 $ 1.59 $ 1.32
======= ======= ======= =======
Diluted $ 0.78 $ 0.64 $ 1.55 $ 1.30
======= ======= ======= =======
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NOTE H: COMPREHENSIVE INCOME
Total comprehensive income consists of the following:
(DOLLARS IN MILLIONS) THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
----------------- -------------------
2001 2000 2001 2000
------ ------ ------ ------
Net Income $ 83.3 $ 81.7 $255.6 $167.8
Other Comprehensive Income -
Unrealized translation adjustments
during period 3.2 (5.4) (1.4) (3.1)
------ ------ ------ ------
Total Comprehensive Income $ 86.5 $ 76.3 $254.2 $164.7
====== ====== ====== ======
Accumulated other comprehensive income consists of the following (dollars in
millions):
JUNE 30, DECEMBER 31,
2001 2000
------ ------
Cumulative unrealized translation adjustments $(55.3) $(53.9)
Minimum pension liability adjustment (5.7) (5.7)
------ ------
$(61.0) $(59.6)
====== ======
NOTE I: MERGER RELATED AND CONSOLIDATION COSTS
Through June 30, 2001, the Company recorded charges totaling $14.1 million ($9.3
million after-tax). The charges were recorded across the Company's segments as
follows:
(DOLLARS IN MILLIONS) SIX MONTHS
ENDED
JUNE 30, 2001
-------------
Aerospace $10.9
Engineered Industrial Products 1.4
Corporate 1.8
-----
$14.1
Merger-related and consolidation reserves at December 31, 2000 and June 30,
2001, as well as activity during the six months ended June 30, 2001, consisted
of:
(DOLLARS IN MILLIONS)
--------------------------------------------------
BALANCE BALANCE
DECEMBER 31, JUNE 30,
2000 PROVISION ACTIVITY 2001
------------ --------- -------- --------
Personnel-related costs $14.2 $ 6.2 $ (7.3) $13.1
Transaction costs 1.9 -- (1.9) --
Consolidation 43.5 7.9 (45.3) 6.1
----- ----- ------ -----
$59.6 $14.1 $(54.5) $19.2
===== ===== ====== =====
The $14.1 million PROVISION for the six months ended June 30, 2001 related to:
o $1.0 million for employee relocation costs (personnel-related)
o $5.2 million for employee severance costs - approximately 335 positions
(personnel-related)
o $7.2 million for facility consolidation and closure costs
(consolidation)
o $0.7 million for asset write-offs (consolidation)
The $54.5 million in ACTIVITY during the six months ended June 30, 2001 includes
reserve reductions of $61.0 consisting of $17.0 million in cash payments, $1.4
million reclassified to pension and postretirement benefit liabilities, $1.2
million in asset write-offs and $41.4 million for restructuring costs associated
with the sale of Performance Materials that will be administered by the buyer.
Also included in the activity column is a $5.7 million increase in reserves for
severance costs associated with an acquisition and $0.8 million in reserves
transferred from Performance Materials for severance costs that will be
administered by the Company.
9
NOTE J: CONTINGENCIES
GENERAL
There are pending or threatened against Goodrich or its subsidiaries various
claims, lawsuits and administrative proceedings, all arising from the ordinary
course of business with respect to commercial, product liability, asbestos and
environmental matters, which seek remedies or damages. Goodrich believes that
any liability that may finally be determined with respect to commercial and
non-asbestos product liability claims should not have a material effect on the
Company's consolidated financial position or results of operations. From time to
time, the Company is also involved in legal proceedings as a plaintiff involving
contract, patent protection, environmental and other matters. Gain
contingencies, if any, are recognized when they are realized.
In May 2000, the Company and its subsidiary Rohr, Inc., were served with
complaints in a lawsuit filed in the Superior Court of Orange County,
California, by former shareholders and certain former employees of Tolo, Inc.
Tolo, Inc. is a subsidiary of Rohr that was acquired in 1997. The former
shareholders alleged that the Company and Rohr breached the stock purchase
agreement by failing to pay $2.4 million under the terms of the agreement. In
June 2001, a jury found that the Company was liable to the shareholders for the
$2.4 million retained by Rohr under the stock purchase agreement and was also
assessed punitive damages of $48 million.
The Company and its legal counsel believe that there are several points of error
in the judgment and in the court proceedings and has filed post-trial motions
indicating such. Should the post-trial motions not result in a reversal of the
assessed damages, the Company intends to appeal the verdict. It is the Company's
opinion, as well as that of its legal counsel, that it is more likely than not
that the trial court judgment will be reversed or vacated either as a result of
our post-trial motions or on appeal. As a result, Goodrich believes that any
liability that may finally be determined will not have a material effect on the
Company's consolidated financial position or results of operations.
ENVIRONMENTAL
The Company and its subsidiaries are generators of both hazardous wastes and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party ("PRP") by
the U.S. Environmental Protection Agency ("EPA"), or similar state agencies, in
connection with several sites.
The Company initiates corrective and/or preventive environmental projects of its
own to ensure safe and lawful activities at its current operations. It also
conducts a compliance and management systems audit program. The Company believes
that compliance with current laws and governmental regulations concerning the
environment 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
environmental issues at past and existing operating sites, as well as off-site
disposal sites at which the Company has been identified as a PRP. This process
includes investigation and remedial selection and implementation, as well as
negotiations with other PRPs and governmental agencies.
At June 30, 2001, the Company has recorded in Accrued Expenses and in Other
Non-Current Liabilities a total of $115.2 million to cover future environmental
expenditures. This amount is recorded on an undiscounted basis.
The Company believes that its reserves are adequate 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.
10
ASBESTOS
GARLOCK INC. AND THE ANCHOR PACKING COMPANY
As of June 30, 2001, these two subsidiaries of the Company were among a number
of defendants (typically 15 to 40) in actions filed in various states by
plaintiffs alleging injury or death as a result of exposure to asbestos fibers.
Settlements are generally made on a group basis with payments made to individual
claimants over a period of one to four years. The Company recorded charges to
operations amounting to approximately $4.0 million during the first six months
of 2001 and 2000 related to payments not covered by insurance.
In accordance with the Company's internal procedures for the processing of
asbestos product liability actions and due to the proximity to trial or
settlement, certain outstanding actions against Garlock and Anchor have
progressed to a stage where the Company can reasonably estimate the cost to
dispose of these actions. These actions are classified as actions in advanced
stages and are included in the table as such below. Garlock and Anchor are also
defendants in other asbestos-related lawsuits or claims involving maritime
workers, medical monitoring claimants, co-defendants and property damage
claimants. Based on its past experience, the Company believes that these
categories of claims will not involve any material liability and are not
included in the table below.
With respect to outstanding actions against Garlock and Anchor, which are in
preliminary procedural stages, as well as any actions that may be filed in the
future, the Company lacks sufficient information upon which judgments can be
made as to the validity or ultimate disposition of such actions, thereby making
it difficult to estimate with reasonable certainty what, if any, potential
liability or costs may be incurred by the Company. However, the Company believes
that Garlock and Anchor are in a favorable position compared to many other
defendants because, among other things, the asbestos fibers in the
asbestos-containing products sold by Garlock and Anchor were encapsulated.
Subsidiaries of the Company discontinued distributing encapsulated
asbestos-bearing products in the United States during 2000.
Anchor is an inactive and insolvent subsidiary of the Company. The insurance
coverage available to it is fully committed. Anchor continues to pay settlement
amounts covered by its insurance and is not committing to settle any further
actions.
Considering the foregoing, as well as the experience of the Company's
subsidiaries and other defendants in asbestos litigation, the likely sharing of
judgments among multiple responsible defendants, recent bankruptcies of other
defendants, legislative efforts and given the substantial amount of insurance
coverage that Garlock expects to be available from its solvent carriers to cover
the majority of its exposure, the Company believes that pending and reasonably
anticipated future actions against Garlock and Anchor are not likely to have a
material adverse effect on the Company's financial condition, but could be
material to the Company's results of operations or cash flows in a given period.
Although the insurance coverage which Garlock has available to it is substantial
(approximately $965 million, of which approximately $216 million was committed
as of June 30, 2001), it should be noted that insurance coverage for asbestos
claims is not available to cover exposures initially occurring on and after July
1, 1984. Garlock and Anchor continue to be named as defendants in new actions,
some of which allege initial exposure after July 1, 1984. However, these cases
are not significant and the Company regularly rejects them for settlement.
11
The Company has recorded an accrual for liabilities related to Garlock and
Anchor asbestos-related matters that are deemed probable and can be reasonably
estimated (settled actions and actions in advanced stages of processing), and
has separately recorded an asset equal to the amount of such liabilities that is
expected to be recovered by insurance. In addition, the Company has recorded a
receivable for that portion of payments previously made for Garlock and Anchor
asbestos product liability actions and related litigation costs that is
recoverable from its insurance carriers. A table is provided below depicting
quantitatively the items discussed above.
SIX MONTHS ENDED
(DOLLARS IN MILLIONS) JUNE 30, JUNE 30,
2001 2000
--------- ---------
New Actions Filed 18,700 19,200
Payments $ (90.7) $ (59.0)
Insurance Received 43.3 36.3
--------- ---------
Net Cash Flow $ (47.4) $ (22.7)
========= =========
AT JUNE 30, AT DECEMBER 31,
2001 2000
--------- ---------
Actions in Advanced Stages 2,218 5,800
Open Actions 87,200 96,300
Estimated Liability for Settled Actions and
Actions in Advanced Stages of Processing $ 224.2 $ 231.3
Estimated Amounts Recoverable
from Insurance $ 323.0 $ 285.7
The Company paid $47.4 million and $22.7 million for the defense and disposition
of Garlock and Anchor asbestos-related claims, net of amounts received from
insurance carriers, during the first six months of 2001 and 2000, respectively.
The amount of spending during the first six months of 2001 was consistent with
the Company's expectation that spending during 2001 would be higher than in
2000.
Although the number of new actions filed year to date is less than the same
period last year, the Company continues to believe there will be an increase in
the number of new actions filed during 2001 as compared to the prior year. The
Company believes this increase will represent the acceleration of claims from
future periods rather than an increase in the total number of asbestos-related
claims expected.
The acceleration of the claims also may have the impact of accelerating
the associated settlement payments. Arrangements with Garlock's insurance
carriers, however, potentially limit the amount that can be received in any one
year. The Company is currently pursuing various options to ensure as close a
matching as possible between payments made on behalf of Garlock and recoveries
received from insurance. Although these efforts, if successful, would result in
the acceleration of receipt of insurance proceeds, they also may result in
additional costs to the Company due to the uncollectibility of certain insolvent
insurance. These costs, if any, cannot be reasonably 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.
12
OTHER
The Company and certain of its subsidiaries (excluding Garlock and Anchor) have
also been named as defendants in various actions by plaintiffs alleging injury
or death as a result of exposure to asbestos fibers. These actions primarily
relate to previously owned businesses. The number of claims to date has not been
significant and the Company has substantial insurance coverage available to it.
Also, some of these claims are usually resolved/dismissed as part of the Garlock
and/or Anchor settlements reached. Based on the above, the Company believes that
these pending and reasonably anticipated future actions are not likely to have a
material adverse effect on the Company's financial condition or results of
operations.
The Company and certain of its subsidiaries (excluding Garlock and Anchor) are
also defendants in other asbestos-related lawsuits or claims involving maritime
workers, medical monitoring claimants, co-defendants and property damage
claimants. Based on its past experience, the Company believes that these
categories of claims are not likely to have a material adverse effect on the
Company's financial condition or results of operations.
13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
POSITION AND RESULTS OF OPERATIONS
SIGNIFICANT EVENTS
- Net income for the second quarter was $83.3 million, or $0.78 per
share, compared to $81.7 million, or $0.75 per share, during the second
quarter last year. Net income for the first six months of 2001 was
$255.6 million, or $2.40 per share, compared to $167.8 million, $1.53
per share, during the first six months of 2000.
- Net income, excluding special items, for the second quarter was $88.8
million, or $0.83 per share, compared to $78.8 million, or $0.73 per
share, in the second quarter last year. Net income, excluding special
items, for the first six months of 2001 was $168.8 million, or $1.60
per share, compared to $155.2 million, or $1.42 per share during the
first six months of 2000.
- The Company completed its sale of the Performance Materials Segment
during the first quarter.
- Segment operating income margins held constant in Aerospace but
declined significantly in Engineered Industrial Products for the
quarter and first six months of 2001 as compared with the same periods
in 2000.
- Net cash provided by operating activities of continuing operations
decreased from $34.8 million during the first six months of 2000 to
$23.5 million during the first six months of 2001.
- Free cash flow, defined as operating cash flows adjusted for cash
payments related to special items less capital expenditures, decreased
from $19.2 million during the first six months of 2000 to a negative
$51.7 million during the first six months of 2001.
SECOND QUARTER BUSINESS HIGHLIGHTS
During the second quarter, the Company has continued to expand and strengthen
its global business franchises through acquisitions, new program wins and
product development. The company has announced plans to:
o acquire Dana Corporation's Glacier Industrial Bearings
business;
o acquire the second largest aerospace lighting company in the
world, Hella Aerospace GmbH, and combine it with its own
lighting business;
o divest its Electronic Materials Division, which formerly
operated as part of the Performance Materials Segment, to
Sumitomo Bakelite Co., Ltd.
All three transactions are expected to close by the end of the third quarter.
The Company also announced an agreement that extends its position as the
exclusive supplier of landing gear for nearly all of Boeing's commercial
aircraft through 2006, and an agreement with Rolls Royce to supply the fuel
delivery system for the Trent (R) 900 jet engine which will power the Airbus
A380 aircraft. During the quarter, Goodrich also introduced new aircraft seating
products and announced new business for fuel and utility systems and avionics at
the Paris Air Show.
The Company also announced that it has been selected by Airbus to supply the
evacuation systems for the A380 in a program that could represent $300 - $400
million in sales over 20 years. Together with the previously announced contracts
for landing gear and fuel delivery systems, the Company has emerged with major
positions for this new aircraft and has become one of Airbus' largest suppliers.
14
OUTLOOK
Prospects for the Company's Aerospace segment in 2001 continue to be excellent.
Full year revenues are expected to exceed $4.2 billion and margins are expected
to remain strong. Driving the segment's performance for the year are higher
expected deliveries of commercial transport aircraft, coupled with the Company's
increasingly strong presence in the aftermarket and in regional and business
aircraft markets.
In Engineered Industrial Products, revenue and operating income expectations for
2001 have been lowered as the previously expected recovery in the second half
does not appear to be materializing. The Company currently expects revenue of
approximately $700 million excluding the pending acquisition of Dana's
industrial polymer bearings business. Despite continued product mix and volume
issues, coupled with pricing pressures and the impact of increased utility
costs, the Company expects second half operating income performance to be
slightly higher than the first six months of 2001.
In light of this environment, the Company expects full-year earnings, excluding
special items, to be between $3.30 and $3.35 per share and free cash flow to be
between $210 and $235 million. This revised outlook assumes that current
commercial transport deliveries and revenue-passenger-mile volume forecasts are
correct and that the economic outlook for our industrial products does not
deteriorate further.
The Company expects third quarter diluted earnings per share, excluding special
items, to be at the same level, or slightly higher, than the second quarter of
2001.
DIVESTITURE OF PERFORMANCE MATERIALS SEGMENT
On February 28, 2001, the Company completed the sale of its Performance
Materials segment to an investor group led by AEA Investors, Inc. (the "Buyer")
for approximately $1.4 billion. Total net proceeds, after anticipated tax
payments and transaction costs, included approximately $1 billion in cash and
$172 million in debt securities issued by the buyer (see additional discussion
regarding the debt securities received in Note E of the accompanying unaudited
condensed consolidated financial statements). The transaction resulted in an
after-tax gain of $93.5 million and is subject to certain post closing
adjustments (e.g. working capital adjustments).
The Company has calculated a $25 million working capital adjustment in its
favor, which has been considered in the after-tax gain noted above. The Buyer is
disputing the Company's working capital adjustment and has asserted that the
Company owes the Buyer approximately $10 million under the purchase and sale
agreement. Should the parties not be able to settle their differences, the
disputed matters will be forwarded to an independent third party for resolution.
Such resolution will be final and binding on all parties. The Company expects to
finalize the working capital adjustment in 2001.
The disposition of the Performance Materials segment represents the disposal of
a segment under APB Opinion No. 30 ("APB 30"). Accordingly, the revenues, costs
and expenses, assets and liabilities, and cash flows of Performance Materials
have been segregated in the Condensed Consolidated Statement of Income,
Condensed Consolidated Balance Sheet and Condensed Consolidated Statement of
Cash Flows.
Pursuant to the terms of the transaction, the Company has retained certain
assets and liabilities (primarily pension, postretirement and environmental
liabilities) of the Performance Materials segment. The Company has also agreed
to indemnify the buyer for liabilities arising from certain events as defined in
the agreement. Such indemnification is not expected to be material to the
Company's financial condition, but could be material to the Company's results of
operations in a given period. Certain of the retained assets, primarily land
located at the segment's Brecksville facility and the segment's Electronic
Materials business, are for sale and were recorded at their estimated net
realizable value at the time of the Performance Materials disposition. As noted
above, the Company has signed an agreement to sell the Electronic Materials
business and expects to complete the sale during the third quarter of this year.
15
RESULTS OF OPERATIONS
TOTAL COMPANY
SECOND QUARTER OF 2001 COMPARED WITH SECOND QUARTER OF 2000
Three Months Ended
June 30,
(Dollars in Millions) 2001 2000
------------------------------------------------------------
SALES:
Aerospace $1,066.4 $ 900.2
Engineered Industrial
Products 172.6 182.2
------------------------------------------------------------
Total $1,239.0 $1,082.4
============================================================
OPERATING INCOME:
Aerospace $ 169.2 $ 141.9
Engineered Industrial
Products 24.7 32.6
------------------------------------------------------------
Total Reportable
Segments 193.9 174.5
Corporate General and
Administrative Costs (22.7) (17.6)
Merger-related and
Consolidation Costs (8.3) (15.4)
------------------------------------------------------------
Total Operating Income 162.9 141.5
Net Interest Expense (21.2) (23.8)
Other income (expense)-net (8.6) (3.6)
Income Tax Expense (45.2) (40.4)
Distribution on Trust
Preferred Securities (4.6) (4.6)
------------------------------------------------------------
Income from Continuing
Operations 83.3 69.1
Income from Discontinued
Operations - 12.6
------------------------------------------------------------
Net Income $ 83.3 $81.7
============================================================
Changes in sales and segment operating income are discussed within the Business
Segment Performance section below.
Unallocated corporate general and administrative costs increased by $5.1
million, from $17.6 million during the second quarter of 2000 to $22.7 million
during the second quarter of 2001. The increase between periods was due
primarily to increased outside consulting fees (primarily related to tax and
legal matters).
Merger-related and consolidation costs of $8.3 million and $15.4 million were
recorded during the second quarter of 2001 and 2000, respectively (see further
discussion in Note I of the accompanying unaudited condensed consolidated
financial statements). The Company expects to incur additional merger-related
and consolidation costs during the remainder of 2001. The timing of these costs
is dependent on the finalization of management's plans and on the nature of the
costs (accruable or period costs). These charges will consist primarily of costs
associated with the reorganization of operating facilities and for employee
relocation and severance costs.
Interest expense-net decreased $2.6 million from $23.8 million in 2000 to $21.2
million during the second quarter of 2001. The decrease was primarily
attributable to interest income on the PIK note, partially offset by higher
interest expense. In March 2001, the Company used approximately $750 million of
proceeds from the sale of Performance Materials to reduce short-term
indebtedness. Interest expense related to continuing operations is net of
amounts allocated to Performance Materials during periods prior to the sale.
Such allocation was based on the respective net assets of Performance Materials
in relation to the net assets of the Company and effectively resulted in a
reduction in indebtedness attributable to continuing operations in periods prior
to the sale even though indebtedness reflected on the Condensed Consolidated
Balance Sheet does not reflect such an allocation. Taking the above into
consideration, outstanding average indebtedness attributed to continuing
operations increased during the second quarter of 2001 as compared to the same
period last year driven mostly by acquisitions and additional working capital
needs. This increase in outstanding average indebtedness resulted in the higher
interest expense noted above.
16
Other expense-net increased $5.0 million from $3.6 million in the second quarter
of 2000 to $8.6 million in the second quarter of 2001. Excluding gains from the
sale of businesses during both periods, other expense-net increased by $4.1
million from $4.5 million in 2000 to $8.6 million in 2001. The increase was due
primarily to increased retiree healthcare costs related to previously disposed
of businesses and increased earnings due to minority interest shareholders. The
increase in retiree healthcare costs related to previously disposed of
businesses was primarily due to increased costs associated with providing
retiree healthcare benefits as well as increased costs resulting from the sale
of Performance Materials in the first quarter of 2001 and the retaining of most
of its retiree healthcare obligations. The increase in earnings due minority
interest shareholders was primarily due to the sale of a 30 percent interest in
an aerospace overhaul business in the Asia Pacific region during the first
quarter of 2001 that had previously been consolidated within the Company's
results.
The Company's estimated effective tax rate from continuing operations during the
second quarter of 2001 was 34.0 percent. This compares to an estimated effective
tax rate of 35.4 percent during the second quarter of 2000 and the actual
effective tax rate of 34.0 percent for all of 2000. The estimated effective tax
rate in the second quarter of 2001 is consistent with the rate expected for all
of 2001.
Income from discontinued operations decreased $12.6 million from quarter to
quarter due to the sale of Performance Materials during the first quarter of
2001. The Company and the Buyer continue to work through the final purchase and
sale agreement adjustments (i.e. working capital adjustment) and the Company is
in the process of selling the Electronic Materials business that was previously
reported as part of Performance Materials. Any adjustment to the gain on sale
that was recorded during the first quarter of 2001 is expected to occur before
the end of this year as a result of these activities.
FIRST SIX MONTHS OF 2001 AS COMPARED TO THE FIRST SIX MONTHS OF 2000
Six Months Ended
June 30,
(Dollars in Millions) 2001 2000
------------------------------------------------------------
SALES:
Aerospace $2,067.5 $1,793.2
Engineered Industrial
Products 348.8 359.8
------------------------------------------------------------
Total $2,416.3 $2,153.0
============================================================
OPERATING INCOME:
Aerospace $ 323.9 $ 280.6
Engineered Industrial
Products 50.6 66.2
------------------------------------------------------------
Total Reportable
Segments 374.5 346.8
Corporate General and
Administrative Costs (40.0) (36.3)
Merger-related and
Consolidation Costs (14.1) (20.8)
------------------------------------------------------------
Total Operating Income 320.4 289.7
Net Interest Expense (48.5) (47.4)
Other income (expense)-net (9.2) (8.1)
Income Tax Expense (89.3) (82.9)
Distribution on Trust
Preferred Securities (9.2) (9.2)
------------------------------------------------------------
Income from Continuing
Operations 164.2 142.1
Income from Discontinued
Operations 91.4 25.7
------------------------------------------------------------
Net Income $ 255.6 $ 167.8
============================================================
Changes in sales and segment operating income are discussed within the Business
Segment Performance section below.
Unallocated corporate general and administrative costs increased by $3.7
million, from $36.3 million during the first six months of 2000 to $40.0 million
during the first six months of 2001. The increase between periods was due
primarily to increased outside consulting fees (primarily related to tax and
legal matters).
17
Merger-related and consolidation costs of $14.1 million and $20.8 million were
recorded during the first six months of 2001 and 2000, respectively (see further
discussion in Note I of the accompanying unaudited condensed consolidated
financial statements). The Company expects to incur less than $5 million of
additional merger-related and consolidation costs during the remainder of 2001.
The timing of these costs is dependent on the finalization of management's plans
and on the nature of the costs (accruable or period costs). These charges will
consist primarily of costs associated with the reorganization of operating
facilities and for employee relocation and severance costs.
Interest expense-net increased $1.1 million from $47.4 million during the first
six months of 2000 to $48.5 million during the first six months of 2001. While
interest income increased approximately $10 million during the first six months
of 2001 as compared to the same period last year, interest expense increased by
approximately $11 million. The increase in interest income was due primarily to
interest on the PIK note. In March 2001, the Company used approximately $750
million of proceeds from the sale of Performance Materials to reduce short-term
indebtedness. Interest expense related to continuing operations is net of
amounts allocated to Performance Materials during periods prior to the sale.
Such allocation was based on the respective net assets of Performance Materials
in relation to the net assets of the Company and effectively resulted in a
reduction in indebtedness attributable to continuing operations in periods prior
to the sale even though indebtedness reflected on the Condensed Consolidated
Balance Sheet does not reflect such an allocation. Taking the above into
consideration, outstanding average indebtedness attributed to continuing
operations increased during the first six months of 2001 as compared to the same
period last year driven mostly by acquisitions and additional working capital
needs. This increase in outstanding average indebtedness resulted in the higher
interest expense noted above.
Other expense-net increased $1.1 million from $8.1 million during the first six
months of 2000 to $9.2 million during the first six of 2001. Excluding gains
from the sale of businesses during both periods, other expense-net increased by
$6.2 million from $10.2 million during the first six months of 2000 to $16.4
million during the first six months of 2001. The increase was due primarily to
increased retiree healthcare costs related to previously disposed of businesses
and increased earnings due to minority interest shareholders. The increase in
retiree healthcare costs related to previously disposed of businesses was
primarily due to increased costs associated with providing retiree healthcare
benefits as well as the sale of Performance Materials in the first quarter of
2001 and the retaining of most of its retiree healthcare obligations. The
increase in earnings due minority interest shareholders was primarily due to the
sale of a 30 percent interest in an aerospace overhaul business in the Asia
Pacific region during the first quarter of 2001 that had previously been
consolidated within the Company's results.
The Company's estimated effective tax rate from continuing operations during the
first six months of 2001 was 34.0 percent. This compares to an estimated
effective tax rate of 35.4 percent during the first six months of 2000 and the
actual effective tax rate of 34.0 percent for all of 2000. The estimated
effective tax rate during the first six months of 2001 is consistent with the
rate expected for all of 2001.
Income from discontinued operations increased $65.7 million, from $25.7 million
during the first six months of 2000 to $91.4 million during the first six months
of 2001. Excluding the after-tax gain on sale of $93.5 million, income from
discontinued operations decreased by $27.8 million. The decrease was primarily
the result of significantly higher raw material and energy costs, as well as
lower sales volumes and prices due to continued weakness in the markets served
by the former Performance Materials segment.
18
BUSINESS SEGMENT PERFORMANCE
SEGMENT ANALYSIS
The Company's operations are classified into two reportable business segments:
Goodrich Aerospace ("Aerospace") and Goodrich Engineered Industrial Products
("Engineered Industrial Products"). The Company's reportable business segments
are managed separately based on fundamental differences in their operations.
Aerospace consists of four business groups: Aerostructures and Aviation
Technical Services, Landing Systems, Engine and Safety Systems and Electronic
Systems. They serve commercial, military, regional, business and general
aviation markets. Aerospace's major products are aircraft engine nacelle and
pylon systems, aircraft landing gear, wheels and brakes, sensors and
sensor-based systems, fuel measurement and management systems, flight attendant
and cockpit seats, aircraft evacuation slides and rafts, optical and
electro-optical systems, space applications, ice protection systems and
collision warning systems. Aerospace also provides maintenance, repair and
overhaul services on commercial airframes and components.
Engineered Industrial Products is a single business group. This group
manufactures industrial seals, gaskets, packing products, self-lubricating
bearings, diesel, gas and dual-fuel engines, air compressors, spray nozzles and
vacuum pumps.
Corporate includes general and administrative costs. Segment operating income is
total segment revenue reduced by operating expenses directly identifiable with
that business segment, except for merger-related and consolidation costs which
are presented separately (see further discussion in Note I to the accompanying
unaudited condensed consolidated financial statements).
An expanded analysis of sales and operating income by business segment follows.
AEROSPACE
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------------- -------------------------------------
2001 2000 % CHANGE 2001 2000 % CHANGE
------------ ------------ ------------ ------------ ------------ ----------
SALES
Aerostructures and Aviation
Technical Services $ 405.5 $ 348.4 16.4 $ 765.3 $ 706.0 8.4
Landing Systems 280.1 259.0 8.1 569.7 519.1 9.7
Engine and Safety Systems 196.6 153.5 28.1 373.9 301.3 24.1
Electronic Systems 184.2 139.3 32.2 358.6 266.8 34.4
-------- ------- ------- --------
Total Sales $1,066.4 $ 900.2 18.5 $2,067.5 $1,793.2 15.3
======== ======= ======== ========
OPERATING INCOME
Aerostructures and Aviation
Technical Services $ 63.3 $ 49.0 29.2 $ 115.9 $ 97.9 18.4
Landing Systems 33.5 35.1 (4.6) 74.3 72.4 2.6
Engine and Safety Systems 39.4 30.2 30.5 69.3 57.5 20.5
Electronic Systems 33.0 27.6 19.6 64.4 52.8 22.0
-------- ------- ------- --------
Total Operating Income $ 169.2 $ 141.9 19.2 $ 323.9 $ 280.6 15.4
======== ======= ======== ========
OPERATING INCOME AS A
PERCENT OF SALES
Aerostructures and Aviation
Technical Services 15.6 14.1 15.1 13.9
Landing Systems 12.0 13.6 13.0 13.9
Engine and Safety Systems 20.0 19.7 18.5 19.1
Electronic Systems 17.9 19.8 18.0 19.8
Total Aerospace 15.9 15.8 15.7 15.6
19
SECOND QUARTER 2001 COMPARED WITH SECOND QUARTER 2000
AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES GROUP: Sales increased $57.1
million, or 16.4 percent, from $348.4 million during the second quarter of 2000
to $405.5 million during the second quarter of 2001. The increase was primarily
due to strong aerostructures sales as well as a slight increase in aviation
technical services sales (i.e. airframe maintenance and modification services,
component overhauls, etc.). The increase in aerostructures sales was primarily
driven by program rate increases on the PW4000, B717-200 and V2500 programs,
higher aftermarket spares sales, increased aftermarket services (i.e.
aerostructures maintenance, repair and overhaul services) and several program
start-ups (C-5 Pylon, F-15). Partially offsetting these increases was a decrease
in aftermarket sales of Super 27 aircraft.
Operating income increased $14.3 million, or 29.2 percent, from $49.0 million
during the second quarter of 2000 to $63.3 million during the second quarter of
2001. The increase was primarily due to the increase in sales noted above, as
well as productivity improvements on several aerostructures programs, increased
higher margin aftermarket sales and lower costs and increased efficiencies
associated with aviation technical services. Partially offsetting these gains
were additional costs associated with the implementation of an ERP system at the
group's aerostructures businesses.
LANDING SYSTEMS GROUP: Sales increased $21.1 million, or 8.1 percent, from
$259.0 million during the second quarter of 2000 to $280.1 million during the
second quarter of 2001. The increase was primarily attributable to higher sales
of landing gear and wheels and brakes. Landing gear sales increased across all
major markets primarily due to increased sales of original equipment to Boeing,
Bombardier, and the U.S. government. Major programs contributing to the
increased sales of landing gear included the B737-700, B777, F16, RJ601, and
CRJ700 programs. Wheel and brake sales were higher than the second quarter of
2000 due to increased aftermarket sales in the commercial, regional, and
military markets primarily on the B747-400, Embraer 145, DeHavilland Dash 8,
F16, and P3B programs. This increase in sales was partially offset by decreased
sales of landing gear overhaul services due primarily to fewer customer removals
as a result of airline operating cost constraints.
Operating income decreased $1.6 million, or 4.6 percent, from $35.1 million
during the second quarter of 2000 to $33.5 million during the second quarter of
2001. The decrease in operating income was primarily due to increased wheel and
brake sales incentives primarily to Airbus, Embraer, and Bombardier and
decreased sales of landing gear overhaul services. The decrease in operating
income was partially offset by increased original equipment sales of landing
gear as well as increased aftermarket sales of wheels and brakes.
ENGINE AND SAFETY SYSTEMS GROUP: Sales increased $43.1 million, or 28.1 percent,
from $153.5 million during the second quarter of 2000 to $196.6 million during
the second quarter of 2001. While all of the group's product lines experienced
an increase in sales over the second quarter last year, the increase was
primarily attributable to a significant increase in aftermarket sales of
evacuation products, particularly on the B747 program, increased demand for the
group's gas turbine products that serve both the aerospace and industrial engine
markets, as well as acquisitions.
Operating income increased $9.2 million, or 30.5 percent, from $30.2 million
during the second quarter of 2000 to $39.4 million during the second quarter of
2001. The increase was primarily attributable to the increase in sales noted
above, partially offset by increased R&D expenses primarily related to
continuing development of passenger restraint systems.
ELECTRONIC SYSTEMS GROUP: Sales increased $44.9 million, or 32.2 percent, from
$139.3 million during the second quarter of 2000 to $184.2 million during the
second quarter of 2001. The increase was driven by acquisitions (approximately
$37 million) and increased sales by the group's core businesses (approximately
$8 million). The increase in sales at the group's core businesses was primarily
attributable to increased sales of sensors, fuel and utility systems as well as
lightning detection and collision avoidance units. The increase in sensor sales
was driven by increased regional and business OE demand, airline retrofits and
the resumption of thermocouple shipments to the USAF. Increased sales of fuel
and utility systems was due mostly to aftermarket sales of spares and retrofit
products, particularly on the B747 and B737 programs. These increases were
partially offset by program delays and cancellations that impacted the group's
space-based businesses.
20
Operating income increased $5.4 million, or 19.6 percent, from $27.6 million
during the second quarter of 2000 to $33.0 million during the second quarter of
2001. The increase was primarily due to the factors noted above, partially
offset by increased investment in MEMS (micro-electromechanical systems)
technologies and products as well as increased R&D expenses on the Smart Deck
Integrated Flight Controls & Display System.
Despite the increase in operating income noted above, operating income margins
decreased from 19.8 percent during the second quarter of last year to 17.9
percent during the second quarter of 2001. The decrease was primarily
attributable to the program delays and cancellations impacting the group's
space-based businesses noted above, as well as lower margins from recent
acquisitions.
FIRST SIX MONTHS OF 2001 COMPARED WITH FIRST SIX MONTHS OF 2000
AEROSTRUCTURES AND AVIATION TECHNICAL SERVICES GROUP: Sales increased $59.3
million, or 8.4 percent, from $706.0 million during the first six months of 2000
to $765.3 million during the first six months of 2001. The increase in sales was
primarily due to rate increases on the PW4000, B717-200, CFM56-5 (A319, A320 and
A321) and V2500 programs, higher aftermarket spares sales, increased aftermarket
services and several program start-ups (C-5 Pylon, F-15). Partially offsetting
these increases was a decrease in aftermarket sales of Super 27 aircraft, rate
decreases on the CFM56-5 (A340) and RR535-E4 programs and a slight decrease in
aviation technical services sales.
Operating income increased $18.0 million, or 18.4 percent, from $97.9 million
during the first six months of 2000 to $115.9 million during the first six
months of 2001. The increase was driven by productivity improvements on several
aerostructures programs, reduced non-recurring engineering costs associated with
the terminated X-33 program, lower costs and increased efficiencies associated
with aviation technical services and the order rate increase on the programs
noted above. Partially offsetting these gains were additional costs associated
with the implementation of an ERP system at the group's aerostructures
businesses and the favorable impact that resulted from the closeout of the MD-11
contract during the first quarter of 2000.
LANDING SYSTEMS GROUP: Sales increased $50.6 million, or 9.7 percent, from
$519.1 million during the first six months of 2000 to $569.7 million during the
first six months of 2001. The increase in sales was primarily attributable to
higher sales of landing gear and wheels and brakes. Landing gear sales increased
across all major markets primarily due to increased sales of original equipment
to Boeing, Bombardier, and the U.S. government. Major programs contributing to
the increased sales of landing gear included the B777, F16, DeHavilland Dash 8,
and RJ601 programs. The increased sales of wheels and brakes related primarily
to increased aftermarket sales in the commercial, regional, business and
military markets primarily on the B747-400, B777, Embraer 145, DeHavilland Dash
8, F16, and Cessna programs. This increase in sales was partially offset by
decreased sales of landing gear overhaul services primarily due to fewer
customer removals as a result of airline operating cost constraints.
Operating income increased $1.9 million, or 2.6 percent, from $72.4 million
during the first six months of 2000 to $74.3 million during the first six months
of 2001. The increase was primarily due to the increase in volume noted above,
partially offset by increased sales incentives and decreased sales of landing
gear overhaul services.
ENGINE AND SAFETY SYSTEMS GROUP: Sales increased $72.6 million, 24.1 percent,
from $301.3 million during the first six months of 2000 to $373.9 million during
the first six months of 2001. While all of the group's product lines experienced
an increase in sales over the second quarter last year, the increase was
primarily attributable to a significant increase in aftermarket sales of
evacuation products, particularly on the B747 program, increased demand for the
group's gas turbine products that serve both the aerospace and industrial engine
markets, as well as acquisitions.
Operating income increased $11.8 million, or 20.5 percent, from $57.5 million
during the first six months of 2000 to $69.3 million during the first six months
of 2001. The increase was primarily attributable to the increase in sales noted
above, partially offset by increased R&D expenses primarily related to
continuing development of passenger restraint systems. The increase was also
negatively affected by the recovery of certain non-recurring engineering costs
during the first six months of 2000. No such recovery occurred in 2001.
21
ELECTRONIC SYSTEMS GROUP: Sales increased $91.8 million, or 34.4 percent, from
$266.8 million during the first six months of 2000 to $358.6 million during the
first six months of 2001. The increase was driven by acquisitions (approximately
$69 million) and increased sales by the group's core businesses (approximately
$23 million). The increase in sales at the group's core businesses was primarily
attributable to increased sales of sensors, fuel and utility systems as well as
lightning detection and collision avoidance units. The increase in sensor sales
was driven by increased regional and business OE demand, airline retrofits and
the resumption of thermocouple shipments to the USAF. The fuel and utility sales
increases were due mostly to aftermarket sales of spares and retrofit products,
particularly on the B747 and B737 programs. These increases were partially
offset by program delays and cancellations that impacted the space-based
businesses of the group.
Operating income increased $11.6 million, or 22.0 percent, from $52.8 million
during the first six months of 2000 to $64.4 million during the first six months
of 2001. The increase was primarily due to the factors noted above, partially
offset by increased investment in MEMS (micro-electromechanical systems)
technologies and products as well as increased R&D expenses on the Smart Deck
Integrated Flight Controls & Display System.
Despite the increase in operating income noted above, operating income margins
decreased from 19.8 percent during the first six months of last year to 18.0
percent during the first six months of 2001. The decrease was primarily
attributable to the program delays and cancellations impacting the group's
space-based businesses noted above, as well as lower margins from recent
acquisitions.
ENGINEERED INDUSTRIAL PRODUCTS
(DOLLARS IN MILLIONS)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2001 2000 2001 2000
------ ------ ------ ------
Sales $172.6 $182.2 $348.8 $359.8
Operating Income $ 24.7 $ 32.6 $ 50.6 $ 66.2
Operating Income as a Percent
of Sales 14.3% 17.9% 14.5% 18.4%
SECOND QUARTER OF 2001 COMPARED WITH SECOND QUARTER OF 2000
Sales decreased by $9.6 million, or 5.3 percent, from $182.2 million during the
second quarter of 2000 to $172.6 million during the second quarter of 2001. The
decrease was primarily attributable to lower sales of sealing products and
continued weakness in the domestic automotive and heavy-duty truck and trailer
markets served by the segment. These decreases were partially offset by
increased engine sales quarter over quarter.
Operating income decreased by $7.9 million, or 24.2 percent, from $32.6 million
during the second quarter of 2000 to $24.7 million during the second quarter of
2001. In addition to the decrease in sales noted above, sales mix, pricing
pressures as well as increased utility costs all contributed to the reduction in
operating income and in the lower percentage of operating income to sales
quarter over quarter (17.9 percent in the second quarter of 2000 versus 14.3
percent in the second quarter of 2001).
22
FIRST SIX MONTHS OF 2001 COMPARED WITH FIRST SIX MONTHS OF 2000
Sales decreased by $11.0 million, or 3.1 percent, from $359.8 million during the
first six months of 2000 to $348.8 million during the first six months of 2001.
The decrease was primarily attributable to lower sales of sealing products and
continued weakness in the domestic automotive and heavy-duty truck and trailer
markets served by the segment. These decreases were partially offset by
increased engine sales period over period.
Operating income decreased by $15.6 million, or 23.6 percent, from $66.2 million
during the first six months of 2000 to $50.6 million during the first six months
of 2001. In addition to the decrease in sales noted above, sales mix, pricing
pressures as well as increased utility costs all contributed to the reduction in
operating income and in the percentage of operating income to sales quarter over
quarter (18.4 percent during the first six months of 2000 versus 14.5 percent
during the first six months of 2001).
CAPITAL RESOURCES AND LIQUIDITY
The following table summarizes our cash flow activities for the periods
indicated:
(DOLLARS IN MILLIONS) SIX MONTHS ENDED
JUNE 30,
-------------------------
2001 2000 CHANGE
-------- -------- --------
Cash flows from:
Operating activities of continuing operations $ 23.5 $ 34.8 $ (11.3)
Investing activities of continuing operations $ (95.8) $ (68.3) $ (27.5)
Financing activities of continuing operations $ (750.6) $ 22.5 $ (773.1)
Discontinued operations $1,037.0 $ 27.9 $1,009.1
Cash flow from operating activities of continuing operations decreased $11.3
million from $34.8 million during the first six months of 2000 to $23.5 million
during the first six months of 2001, primarily as a result of increased working
capital requirements and asbestos-related payments (net of insurance
recoveries), partially offset by lower merger-related and consolidation
payments. Cash used in investing activities of continuing operations increased
$27.5 million between periods mainly due to an expansion of the Company's carbon
producing capabilities and a large ERP project at the Company's aerostructures
operations. The significant increase in cash used in financing activities
between periods was primarily attributable to the repayment of all outstanding
short-term indebtedness with the proceeds from the Performance Materials sale
(see cash flow from Discontinued Operations above).
Approximately $175 million of notes matured in July 2001 and were paid from the
Company's existing cash balances. The Company also expects to pay approximately
$240 million, net, in the third quarter related to previously announced
acquisitions, net of expected proceeds on the sale of the Company's Electronic
Materials business.
The Company expects to have adequate cash flow from operations and has the
credit facilities (described in the Company's Annual Report on Form 10-K for the
year ended December 31, 2000) to satisfy its operating requirements and capital
spending programs, and to finance growth opportunities as they arise.
The Company's net debt-to-capitalization ratio (net of cash and cash
equivalents) was 40.4 percent at June 30, 2001 as compared to 59.1 percent at
December 31, 2000. For purposes of this ratio, the trust preferred securities
are treated as capital. The decrease was primarily attributable to the sale of
Performance Materials during the period and the use of proceeds to reduce
short-term indebtedness of the Company.
23
CONTINGENCIES
GENERAL
There are pending or threatened against Goodrich or its subsidiaries various
claims, lawsuits and administrative proceedings, all arising from the ordinary
course of business with respect to commercial, product liability, asbestos and
environmental matters, which seek remedies or damages. Goodrich believes that
any liability that may finally be determined with respect to commercial and
non-asbestos product liability claims should not have a material effect on the
Company's consolidated financial position or results of operations. From time to
time, the Company is also involved in legal proceedings as a plaintiff involving
contract, patent protection, environmental and other matters. Gain
contingencies, if any, are recognized when they are realized.
In May 2000, the Company and its subsidiary Rohr, Inc., were served with
complaints in a lawsuit filed in the Superior Court of Orange County,
California, by former shareholders and certain former employees of Tolo, Inc.
Tolo, Inc. is a subsidiary of Rohr that was acquired in 1997. The former
shareholders alleged that the Company and Rohr breached the stock purchase
agreement by failing to pay $2.4 million under the terms of the agreement. In
June 2001, a jury found that the Company was liable to the shareholders for the
$2.4 million retained by Rohr under the stock purchase agreement and was also
assessed punitive damages of $48 million.
The Company and its legal counsel believe that there are several points of error
in the judgment and in the court proceedings and has filed post-trial motions
indicating such. Should the post-trial motions not result in a reversal of the
assessed damages, the Company intends to appeal the verdict. As it is the
Company's opinion, as well as that of its legal counsel, that it is more likely
than not that the trial court judgment will be reversed or vacated either as a
result of our post-trial motions or on appeal, no additional amounts have been
recorded within the Company's financial statements as of June 30, 2001.
ENVIRONMENTAL
The Company and its subsidiaries are generators of both hazardous wastes and
non-hazardous wastes, the treatment, storage, transportation and disposal of
which are subject to various laws and governmental regulations. Although past
operations were in substantial compliance with the then-applicable regulations,
the Company has been designated as a potentially responsible party ("PRP") by
the U.S. Environmental Protection Agency ("EPA"), or similar state agencies, in
connection with several sites.
The Company initiates corrective and/or preventive environmental projects of its
own to ensure safe and lawful activities at its current operations. It also
conducts a compliance and management systems audit program. The Company believes
that compliance with current laws and governmental regulations concerning the
environment 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
environmental issues at past and existing operating sites, as well as off-site
disposal sites at which the Company has been identified as a PRP. This process
includes investigation and remedial selection and implementation, as well as
negotiations with other PRPs and governmental agencies.
At June 30, 2001, the Company has recorded in Accrued Expenses and in Other
Non-Current Liabilities a total of $115.2 million to cover future environmental
expenditures. This amount is recorded on an undiscounted basis.
The Company believes that its reserves are adequate 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.
24
ASBESTOS
GARLOCK INC. AND THE ANCHOR PACKING COMPANY
As of June 30, 2001, these two subsidiaries of the Company were among a number
of defendants (typically 15 to 40) in actions filed in various states by
plaintiffs alleging injury or death as a result of exposure to asbestos fibers.
Settlements are generally made on a group basis with payments made to individual
claimants over a period of one to four years. The Company recorded charges to
operations amounting to approximately $4.0 million during the first six months
of 2001 and 2000 related to payments not covered by insurance.
In accordance with the Company's internal procedures for the processing of
asbestos product liability actions and due to the proximity to trial or
settlement, certain outstanding actions against Garlock and Anchor have
progressed to a stage where the Company can reasonably estimate the cost to
dispose of these actions. These actions are classified as actions in advanced
stages and are included in the table as such below. Garlock and Anchor are also
defendants in other asbestos-related lawsuits or claims involving maritime
workers, medical monitoring claimants, co-defendants and property damage
claimants. Based on its past experience, the Company believes that these
categories of claims will not involve any material liability and are not
included in the table below.
With respect to outstanding actions against Garlock and Anchor, which are in
preliminary procedural stages, as well as any actions that may be filed in the
future, the Company lacks sufficient information upon which judgments can be
made as to the validity or ultimate disposition of such actions, thereby making
it difficult to estimate with reasonable certainty what, if any, potential
liability or costs may be incurred by the Company. However, the Company believes
that Garlock and Anchor are in a favorable position compared to many other
defendants because, among other things, the asbestos fibers in the
asbestos-containing products sold by Garlock and Anchor were encapsulated.
Subsidiaries of the Company discontinued distributing encapsulated
asbestos-bearing products in the United States during 2000.
Anchor is an inactive and insolvent subsidiary of the Company. The insurance
coverage available to it is fully committed. Anchor continues to pay settlement
amounts covered by its insurance and is not committing to settle any further
actions.
Considering the foregoing, as well as the experience of the Company's
subsidiaries and other defendants in asbestos litigation, the likely sharing of
judgments among multiple responsible defendants, recent bankruptcies of other
defendants, legislative efforts and given the substantial amount of insurance
coverage that Garlock expects to be available from its solvent carriers to cover
the majority of its exposure, the Company believes that pending and reasonably
anticipated future actions against Garlock and Anchor are not likely to have a
material adverse effect on the Company's financial condition, but could be
material to the Company's results of operations or cash flows in a given period.
Although the insurance coverage which Garlock has available to it is substantial
(approximately $965 million, of which approximately $216 million was committed
as of June 30, 2001), it should be noted that insurance coverage for asbestos
claims is not available to cover exposures initially occurring on and after July
1, 1984. Garlock and Anchor continue to be named as defendants in new actions,
some of which allege initial exposure after July 1, 1984. However, these cases
are not significant and the Company regularly rejects them for settlement.
25
The Company has recorded an accrual for liabilities related to Garlock and
Anchor asbestos-related matters that are deemed probable and can be reasonably
estimated (settled actions and actions in advanced stages of processing), and
has separately recorded an asset equal to the amount of such liabilities that is
expected to be recovered by insurance. In addition, the Company has recorded a
receivable for that portion of payments previously made for Garlock and Anchor
asbestos product liability actions and related litigation costs that is
recoverable from its insurance carriers. A table is provided below depicting
quantitatively the items discussed above.
SIX MONTHS ENDED
(DOLLARS IN MILLIONS) JUNE 30, JUNE 30,
2001 2000
--------- ---------
New Actions Filed 18,700 19,200
Payments $ (90.7) $ (59.0)
Insurance Received 43.3 36.3
--------- ---------
Net Cash Flow $ (47.4) $ (22.7)
========= =========
AT JUNE 30, AT DECEMBER 31,
2001 2000
--------- ---------
Actions in Advanced Stages 2,218 5,800
Open Actions 87,200 96,300
Estimated Liability for Settled Actions and
Actions in Advanced Stages of Processing $ 224.2 $ 231.3
Estimated Amounts Recoverable
from Insurance $ 323.0 $ 285.7
The Company paid $47.4 million and $22.7 million for the defense and disposition
of Garlock and Anchor asbestos-related claims, net of amounts received from
insurance carriers, during the first six months of 2001 and 2000, respectively.
The amount of spending during the first six months of 2001 was consistent with
the Company's expectation that spending during 2001 would be higher than in
2000.
Although the number of new actions filed year to date is less than the same
period last year, the Company continues to believe there will be an increase in
the number of new actions filed during 2001 as compared to the prior year. The
Company believes this increase will represent the acceleration of claims from
future periods rather than an increase in the total number of asbestos-related
claims expected. This acceleration is expected to be mostly attributable to
bankruptcies of other asbestos defendants and proposed legislation currently
being discussed in Congress.
The acceleration of the claims also may have the impact of accelerating the
associated settlement payments. Arrangements with Garlock's insurance carriers,
however, potentially limit the amount that can be received in any one year. The
Company is currently pursuing various options to ensure as close a matching as
possible between payments made on behalf of Garlock and recoveries received from
insurance. Although these efforts, if successful, would result in the
acceleration of receipt of insurance proceeds, they also may result in
additional costs to the Company due to the uncollectibility of certain insolvent
insurance. These costs, if any, cannot be reasonably 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.
26
OTHER
The Company and certain of its subsidiaries (excluding Garlock and Anchor) have
also been named as defendants in various actions by plaintiffs alleging injury
or death as a result of exposure to asbestos fibers. These actions primarily
relate to previously owned businesses. The number of claims to date has not been
significant and the Company has substantial insurance coverage available to it.
Also, some of these claims are usually resolved/dismissed as part of the Garlock
and/or Anchor settlements reached. Based on the above, the Company believes that
these pending and reasonably anticipated future actions are not likely to have a
material adverse effect on the Company's financial condition or results of
operations.
The Company and certain of its subsidiaries (excluding Garlock and Anchor) are
also defendants in other asbestos-related lawsuits or claims involving maritime
workers, medical monitoring claimants, co-defendants and property damage
claimants. Based on its past experience, the Company believes that these
categories of claims are not likely to have a material adverse effect on the
Company's financial condition or results of operations.
CERTAIN AEROSPACE CONTRACTS
The Company's aerostructures business has a contract with Boeing on the B717-200
program that is subject to certain risks and uncertainties. The Company has
pre-production inventory of $66.7 million related to design and development
costs on the B717-200 program at June 30, 2001. In addition, the Company has
excess-over-average inventory of $54.2 million related to costs associated with
the production of the flight test inventory and the first production units on
this program. The aircraft was certified on September 1, 1999 and Boeing is
actively marketing the plane. Recovery of these costs will depend on the
ultimate number of aircraft delivered and successfully achieving the Company's
cost projections in future years.
The Company's aerostructures business is also in the business of re-engining 727
aircraft. The re-engining assists operators of these aircraft meet sound
attenuation requirements as well as improve their fuel efficiency. The
aerostructures business has entered into several collateralized financing
arrangements to assist its customers.
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 twelve 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 bank accounts, accounting systems 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 formation of a multi-discipline Euro
task force and 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 its tax books. The financial institutions with which the Company
has relationships have transitioned to the Euro successfully and are issuing
statements in dual currencies.
27
NEW ACCOUNTING STANDARDS
In September 2000, the Financial Accounting Standards Board ("FASB") issued
Statement No. 140, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 140"). This statement replaces FASB
Statement No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 125"). It revises the standards for
accounting for securitizations and other transfers of financial assets and
collateral and requires certain disclosures, but it carries over most of SFAS
125's provisions without reconsideration. SFAS 140 is effective for transfers
and servicing of financial assets and extinguishments of liabilities occurring
after March 31, 2001. The adoption of SFAS 140 did not have a material impact on
the Company's financial position or results of operations.
In July 2001, the FASB issued Statement No. 141 "Business Combinations" ("SFAS
141") and Statement No. 142 "Goodwill and Other Intangible Assets" ("SFAS 142").
SFAS 141 is effective as follows: a) use of the pooling-of-interest method is
prohibited for business combinations initiated after June 30, 2001; and b) the
provisions of SFAS 141 also apply to all business combinations accounted for by
the purchase method that are completed after June 30, 2001. There are also
transition provisions that apply to business combinations completed before July
1, 2001, that were accounted for by the purchase method. SFAS 142 is effective
for fiscal years beginning after December 15, 2001 and applies to all goodwill
and other intangible assets recognized in an entity's statement of financial
position at that date, regardless of when those assets were initially
recognized. The Company is currently evaluating the provisions of SFAS 141 and
SFAS 142 and has not yet determined the effects of these changes on the
Company's financial position or results of operations.
FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
This document includes statements that reflect projections or expectations of
our future financial condition, results of operations or business that are
subject to risk and uncertainty. We believe such statements to be "forward
looking" statements within the meaning of the Private Securities Litigation
Reform Act of 1995. Goodrich's actual results may differ materially from those
included in the forward-looking statements. Forward-looking statements are
typically identified by words or phrases such as "believe", "expect",
"anticipate", "intend", "estimate", "are likely to be" and similar expressions.
Our Annual Report on Form 10-K for the year ended December 31, 2000 lists
various risks and uncertainties that could cause actual results to differ
materially from those discussed in the forward-looking statements. These risks
and uncertainties are detailed in the Management's Discussion and Analysis
section of that Form 10-K under the heading "Forward-Looking Information is
Subject to Risk and Uncertainty", which is incorporated by reference herein. You
should understand that it is not possible to predict or identify all such risks
and uncertainties. Consequently, you should not consider any such list to be a
complete set of all potential risks or uncertainties.
We caution you not to place undue reliance on the forward-looking statements
contained in this document, which speak only as of the date on which such
statements were made. We undertake no obligation to release publicly any
revisions to these forward-looking statements to reflect events or circumstances
after the date on which such statements were made or to reflect the occurrence
of unanticipated events.
28
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and certain of its subsidiaries are defendants in various lawsuits
involving asbestos-containing products. In addition, the Company has been
notified that it is among potentially responsible parties under federal
environmental laws, or similar state laws, relative to the cost of investigating
and in some cases remediating contamination by hazardous materials at several
sits. See Note J to the accompanying unaudited condensed consolidated financial
statements, which is incorporated herein by reference.
In May 2000, the Company and its subsidiary Rohr, Inc., were served with
complaints in a lawsuit filed in the Superior Court of Orange County,
California, by former shareholders and certain former employees of Tolo, Inc.
Tolo, Inc. is a subsidiary of Rohr that was acquired in 1997. The former
shareholders alleged that the Company and Rohr breached the stock purchase
agreement by failing to pay $2.4 million under the terms of the agreement. In
June 2001, a jury found that the Company was liable to the shareholders for the
$2.4 million retained by Rohr under the stock purchase agreement and was also
assessed punitive damages of $48 million.
The Company and its legal counsel believe that there are several points of error
in the judgement and in the court proceedings and has filed post-trial motions
indicating such. Should the post-trial motions not result in a reversal of the
assessed damages, the Company intends to appeal the verdict. As it is the
Company's opinion, as well as that of its legal counsel, that it is more likely
than not that the trial court judgment will be reversed or vacated either as a
result of our post-trial motions or on appeal, no additional amounts have been
recorded within the Company's financial statements as of June 30, 2001.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on April 17, 2001. As
described in the 2001 Proxy Statement, the following actions were taken:
o The eleven nominees for directors were elected.
o The appointment of Ernst & Young LLP as independent auditors for the
year 2001 was ratified.
o The amendment and restatement of the Restated Certificate of
Incorporation to change the Company's name to Goodrich Corporation and
to eliminate obsolete provisions thereof was approved.
o The 2001 Stock Option Plan was approved.
o The Employee Stock Purchase Plan was approved.
29
The votes were as follows:
For Director:
Number of Number of
Shares Shares
Voted For Vote Withheld
---------- -------------
David L. Burner 92,278,599 1,814,328
Diane C. Creel 92,701,501 1,391,426
George A. Davidson, Jr. 92,696,711 1,396,216
Harris E. DeLoach, Jr. 92,616,463 1,476,464
James J. Glasser 92,580,017 1,512,910
William R. Holland 92,728,952 1,363,975
Douglas E. Olesen 92,724,456 1,368,471
Richard de J. Osborne 92,695,848 1,397,079
Alfred M. Rankin, Jr. 92,583,607 1,509,320
James R. Wilson 92,746,594 1,346,333
A. Thomas Young 92,717,447 1,375,480
For ratification of independent auditors:
91,220,169 shares voted for; 2,020,308 shares voted against; and 852,450 shares
abstained from voting.
For amendment and restatement of the Restated Certificate of Incorporation:
91,889,114 shares voted for; 1,332,062 shares voted against; and 871,751 shares
abstained from voting.
For approval of the 2001 Stock Option Plan:
67,620,084 shares voted for; 15,423,887 shares voted against; and 928,976 shares
abstained from voting.
For approval of the Employee Stock Purchase Plan:
80,907,916 shares voted for; 2,307,194 shares voted against; and 757,837 shares
abstained from voting.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
Exhibit 3(C) Amendment to Restated Certificate of Incorporation
filed June 1, 2001.
Exhibit 10(HH) 2001 - 2003 Long-Term Incentive Plan Summary Plan
Description and form of award agreement.
Exhibit 10(II) 2001 Stock Option Plan, filed as Exhibit D to the
Company's 2001 Proxy Statement dated March 5, 2001 is
incorporated herein by reference.
Exhibit 10(JJ) Employee Stock Purchase Plan, filed as Exhibit E to
the Company's 2001 Proxy Statement dated March 5,
2001 is incorporated herein by reference.
30
(b) Reports on Form 8-K.
The following Current Reports on Form 8-K were filed by the Company
during the quarter ended June 30, 2001:
Current Report on Form 8-K filed May 1, 2001 relating to the
announcement of the Company's earnings for the three month period ended
March 31, 2001 (Item 5).
Current Report on Form 8-K filed May 15, 2001, relating to excerpts
from the presentation materials used at the Credit Suisse First
Boston/Aviation Week Aerospace Finance Conference (Item 9).
Current Report on Form 8-K filed June 19, 2001, relating to excerpts
from the presentation materials used at the Paris Air Show (Item 9).
31
SIGNATURE
Pursuant to the requirements 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.
August 1, 2001 Goodrich Corporation
-------------- --------------------
/S/ULRICH SCHMIDT
--------------------------------
Ulrich Schmidt
Senior Vice President and
Chief Financial Officer
/S/ROBERT D. KONEY, JR.
--------------------------------
Robert D. Koney, Jr.
Vice President & Controller
(Chief Accounting Officer)