UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2001.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-892
GOODRICH CORPORATION
(Exact name of registrant as specified in its charter)
New York 34-0252680
(State of incorporation) (I.R.S. Employer Identification No.)
Four Coliseum Centre
2730 West Tyvola Road 28217
Charlotte, North Carolina (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code: (704) 423-7000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NAME AND EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
--------------------------------- -----------------------------
Common Stock, $5 par value New York Stock Exchange
8.30% Cumulative Quarterly Income
Preferred Securities, Series A* New York Stock Exchange
(*) Issued by BFGoodrich Capital and the payments of trust distributions
and payments on liquidation or redemption are guaranteed under certain
circumstances by Goodrich Corporation. Goodrich Corporation is the
owner of 100% of the common securities issued by BFGoodrich Capital, a
Delaware statutory business trust.
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K. [X]
The aggregate market value of the voting stock, consisting solely of
common stock, held by nonaffiliates of the registrant as of February 15, 2002
was $2.8 billion ($27.99 per share). On such date, 101,715,416 of such shares
were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 2001 Annual Report to Shareholders are
incorporated by reference into Part I (Items 1 and 2), Part II (Items 5, 6, 7,
7a and 8) and Part IV (Item 14) hereof. Portions of the proxy statement dated
March 2002 are also incorporated by reference into Part III.
-2-
(THIS PAGE INTENTIONALLY LEFT BLANK)
-3-
PART I
ITEM 1. BUSINESS
OVERVIEW
We are a leading worldwide supplier of aerospace components, systems and
services serving the commercial, military, regional, business and general
aviation markets. Our major products include 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. Maintenance, repair and overhaul services on commercial airframes and
components are also provided.
Discontinued operations consist of the Performance Materials segment, which was
divested in February 2001, and the Engineered Industrial Products segment, which
is intended to be spun-off to shareholders in the second quarter of 2002. Unless
otherwise noted herein, disclosures in this Annual Report on Form 10-K relate
only to our continuing operations.
Our business is conducted on a global basis with manufacturing, service and
sales undertaken in various locations throughout the world. Our products and
services are principally sold to customers in North America and Europe.
Our principal executive offices are located at Four Coliseum Centre, 2730 West
Tyvola Road, Charlotte, North Carolina 28217 (telephone 704-423-7000).
We were incorporated under the laws of the State of New York on May 2, 1912 as
the successor to a business founded in 1870.
DISCONTINUED OPERATIONS
Proposed Spin-off of Engineered Industrial Products Segment
In September 2001, we announced that our Board of Directors had approved in
principle the tax-free spin-off of our Engineered Industrial Products ("EIP")
segment to shareholders. The spin-off will be effected through a tax-free
distribution to our shareholders of all of the capital stock of EnPro
Industries, Inc. ("EnPro"), a newly formed wholly-owned subsidiary of Goodrich.
The EIP segment is currently owned by Coltec Industries Inc ("Coltec"), a
wholly-owned subsidiary of Goodrich. Prior to the distribution, Coltec's
aerospace business will assume all intercompany balances outstanding between
Coltec and us and Coltec will then transfer to us by way of a dividend all of
the assets, liabilities and operations of Coltec's aerospace business, including
these assumed balances. Following the spin-off, Coltec will be a wholly-owned
subsidiary of EnPro and Coltec's aerospace businesses will be owned by us.
It is anticipated that the $150 million of outstanding Coltec Capital Trust
convertible trust preferred securities will remain outstanding as a part of the
EnPro capital structure. Certain payments with respect to these securities are
guaranteed by Coltec and us, and are expected to be guaranteed by EnPro.
Following the spin-off, these securities will be convertible into a combination
of Goodrich and EnPro common stock. Separately, we expect that we will offer to
exchange the $300 million of Coltec's 7.5% Senior Notes due 2008 for similar
Goodrich debt securities prior to the spin-off. Assuming this exchange offer is
fully subscribed, EnPro will have total debt and convertible trust preferred
securities of approximately $165 million at the time of the spin-off. We also
contemplate that a new EnPro senior secured revolving credit facility will be in
place after the spin-off.
Although the spin-off is subject to certain conditions, no consents are required
from our security holders or the holders of Coltec's outstanding debt or
convertible trust preferred securities to complete the spin-off. We expect to
complete the spin-off in the second quarter of 2002.
The spin-off of the EIP segment represents the disposal of a segment under APB
Opinion No. 30 ("APB 30"). Accordingly, the segment is being accounted for as a
discontinued operation and the revenues, costs and expenses, assets and
liabilities, and cash flows of EIP have been segregated in our Consolidated
Statement of Income, Consolidated Balance Sheet and Consolidated Statement of
Cash Flows.
-4-
Divestiture of Performance Materials Segment
On February 28, 2001, we completed the sale of our Performance Materials ("PM")
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 F to the Consolidated Financial
Statements within the 2001 Annual Report to Shareholders, which is incorporated
herein by reference). 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).
We have calculated a $25 million working capital adjustment in our favor, which
has been considered in the after-tax gain noted above. The Buyer is disputing
our working capital adjustment and has asserted that we owe 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. We expect to finalize the working capital
adjustment during 2002.
Pursuant to the terms of the transaction, we have retained certain assets and
liabilities (primarily pension, postretirement and environmental liabilities) of
the Performance Materials segment. We have 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 our financial condition, but
could be material to our results of operations in a given period.
The disposition of the Performance Materials segment also represented the
disposal of a segment under APB 30. Accordingly, the segment is being accounted
for as a discontinued operation and the revenues, costs and expenses, assets and
liabilities, and cash flows of Performance Materials have been segregated in our
Consolidated Statement of Income, Consolidated Balance Sheet and Consolidated
Statement of Cash Flows.
OTHER DISPOSITIONS
During 2001, we sold a minority interest in one business, resulting in a pre-tax
gain of $7.2 million, which has been reported in other income (expense), net.
During 2000, we sold all of our interest in one business, resulting in a pre-tax
gain of $2.0 million, which has been reported in other income (expense), net.
During 1999, we sold all or a portion of our interest in two businesses,
resulting in a pre-tax gain of $6.8 million, which has been reported in other
income (expense), net.
ACQUISITIONS
Pooling-of-Interests
On July 12, 1999, we completed a merger with Coltec Industries Inc ("Coltec") by
exchanging 35.5 million shares of Goodrich common stock for all of the common
stock of Coltec. Each share of Coltec common stock was exchanged for .56 of one
share of Goodrich common stock. The merger was accounted for as a pooling of
interests, and all prior period financial statements were restated to include
the financial information of Coltec as though Coltec had always been a part of
Goodrich.
Purchases
The following acquisitions were recorded using the purchase method of
accounting. Their results of operations have been included in our results since
their respective dates of acquisition. Acquisitions made by the Performance
Materials and Engineered Industrial Products segments are not discussed below.
During 2001, we acquired a manufacturer of aerospace lighting systems and
related electronics and the assets of a designer and manufacturer of inertial
sensors used for guidance and control of unmanned vehicles and precision-guided
systems. Total consideration paid by us for these acquisitions aggregated $114.4
million, of which $101.6 million represented goodwill and other intangible
assets. The purchase price allocation for these acquisitions has been based on
preliminary estimates.
-5-
During 2000, we acquired a manufacturer of earth and sun sensors for satellite
attitude determination and control; ejection seat technology; a manufacturer of
fuel nozzles; a developer of avionics and displays; the assets of a developer of
precision electro-optical instrumentation serving both the space and military
markets; an equity interest in a joint venture focused on developing and
operating a comprehensive open electronic marketplace for aerospace aftermarket
products and services; a manufacturer of precision and large optical systems,
laser warning systems and visual surveillance systems for day and night use; and
a supplier of pyrotechnic devices for space, missile, and aircraft systems.
Total consideration paid by us for these acquisitions aggregated $242.6 million,
of which $105.4 million represented goodwill and intangible assets.
During 1999, we acquired a manufacturer of spacecraft attitude determination and
control systems and sensor and imaging instruments; the remaining 50 percent
interest in a joint venture, located in Singapore, that overhauls and repairs
thrust reversers, nacelles and nacelle components; an ejection seat business;
and a manufacturer and developer of micro-electromechanical systems, which
integrate electrical and mechanical components to form "smart" sensing and
control devices. Total consideration paid by us aggregated $56.5 million, of
which $55.0 million represented goodwill and intangible assets.
The purchase agreement for the manufacturer and developer of
micro-electromechanical systems provides for additional consideration to be paid
over six years based on a percentage of net sales. The additional consideration
for the first five years, however, is guaranteed to be not less than $3.5
million. As the $3.5 million of additional consideration is not contingent on
future events, it has been included in the purchase price and allocated to the
net assets acquired. All additional contingent amounts payable under the
purchase agreement will be recorded as additional purchase price/goodwill when
earned.
The impact of these acquisitions was not material in relation to our results of
operations. Consequently, pro forma financial information is not presented.
OPERATING SEGMENTS
Due to the sale of our Performance Materials segment in 2001, as well as the
intended spin-off of our Engineered Industrial Products segment in 2002, we have
redefined our segments. Our operations are now classified into four reportable
business segments: Aerostructures and Aviation Technical Services, Landing
Systems, Engine and Safety Systems and Electronic Systems.
Aerostructures and Aviation Technical Services: Aerostructures is a leading
supplier of nacelles, pylons, thrust reversers and related aircraft engine
housing components. The aviation technical sales division performs comprehensive
total aircraft maintenance, repair, overhaul and modification for many
commercial airlines, independent operations, aircraft leasing companies and
airfreight carriers.
Landing Systems: Landing Systems provides systems and components pertaining to
aircraft taxi, take-off, landing and stopping. Several divisions within the
segment are linked by their ability to contribute to the integration, design,
manufacture and service of entire aircraft undercarriage systems, including
sensors, landing gear, certain brake controls and wheels and brakes.
Engine and Safety Systems: Engine and Safety Systems produces engine and fuel
controls, pumps, fuel delivery systems, as well as structural and rotating
components such as disks, blisks, shafts and airfoils for both aerospace and
industrial gas turbine applications. This segment also produces aircraft
evacuation, de-icing and passenger restraint systems, as well as ejection seats
and crew and attendant seating.
Electronic Systems: Electronic Systems produces a wide array of products that
provide flight performance measurements, flight management, and control and
safety data. Included are a variety of sensors systems that measure and manage
aircraft fuel and monitor oil debris; engine, transmission and structural
health; and aircraft motion control systems. The segment's products also include
instruments and avionics, warning and detection systems, ice detection systems,
test equipment, aircraft lighting systems, landing gear cables and harnesses,
satellite control, data management and payload systems, launch and missile
telemetry systems, airborne surveillance and reconnaissance systems and laser
warning systems.
For financial information concerning the sales, operating income, total assets,
capital expenditures, depreciation and amortization and geographic information
by segment, see Note L to the Consolidated Financial Statements within the 2001
Annual Report to Shareholders, which is incorporated herein by reference.
-6-
CUSTOMERS
We serve a broad range of customers worldwide in the commercial, military,
regional, business and general aviation markets. We market our products, systems
and services directly to our customers through an internal marketing and sales
force.
In 2001, 2000 and 1999, sales to The Boeing Company totaled 23 percent, 23
percent and 26 percent, respectively, of consolidated sales. In 2001, 2000 and
1999, sales to Airbus totaled 13 percent of consolidated sales. These amounts
include direct sales to Boeing and Airbus as well as indirect sales through
system suppliers and sub-assemblers.
COMPETITION
The aerospace industry in which we operate is highly competitive. Principal
competitive factors include price, product and system performance, quality,
service, design and engineering capabilities, new product innovation and timely
delivery. We compete worldwide with a number of United States and international
companies that are both larger and smaller than us in terms of resources and
market share, and some of which are our customers. Some of our competitors have
more extensive or more specialized engineering, manufacturing and marketing
capabilities than we do in certain areas. As a result, these competitors may be
able to adapt more quickly to new or emerging technologies and changes in
customer requirements or may be able to devote greater resources to the
development, promotion and sale of their products than we can.
We experience intense competition for new commercial programs, as well.
Manufactures of many aircraft offer their customers various choices of products
at the time of sale of the aircraft. As a result, we and our competitors may
offer substantial discounts and other financial incentives, performance and
operating cost guarantees, participation in financing arrangements and
maintenance agreements. The original selection of components by manufactures,
and by purchasers, of the new aircraft can also have a significant impact on
later sales of spare parts and maintenance services.
BACKLOG
At December 31, 2001, we had a backlog of approximately $3.4 billion, of which
approximately 53 percent is expected to be filled during 2002. The amount of
backlog at December 31, 2000 was approximately $3.2 billion. Backlogs are
subject to delivery delays or program cancellations, which are beyond our
control.
RAW MATERIALS
Raw materials and components used in the manufacture of our products, including
aluminum, steel and carbon fibers, are available from a number of manufacturers
and are generally in adequate supply.
ENVIRONMENTAL
We are subject to various domestic and international environmental laws and
regulations which may require that we investigate and remediate the effects of
the release or disposal of materials at sites associated with past and present
operations. We are currently involved in the investigation and remediation of a
number of sites under these laws. Based on currently available information, we
do not believe that future environmental costs in excess of those accrued with
respect to such sites will have a material adverse effect on our financial
condition. There can be no assurance, however, that additional future
developments, administrative actions or liabilities relating to environmental
matters will not have a material adverse effect on our results of operations or
cash flows in a given period.
For additional information concerning environmental matters, see Note T to the
Consolidated Financial Statements within the 2001 Annual Report to Shareholders,
which is incorporated herein by reference.
RESEARCH AND DEVELOPMENT
We perform research and development under Company funded programs for commercial
products and under contracts with others. Research and development under
contracts with others is performed on both military and commercial products.
Total research and development expenditures in 2001, 2000 and 1999 were $198.2
million, $186.0 million and $180.0 million, respectively. Of these amounts,
$49.0 million, $50.6 million and $43.7 million, respectively, were funded by
customers.
-7-
INTELLECTUAL PROPERTY
We have many patents of our own and have acquired licenses under patents of
others. While such patents in the aggregate are important to us, neither our
primary business nor any of our industry segments is dependent on any single
patent or group of related patents. We use a number of trademarks important
either to our business as a whole or to our industry segments considered
separately. We believe that these trademarks are adequately protected.
HUMAN RESOURCES
As of December 31, 2001, we had approximately 16,600 employees in the United
States. An additional 2,600 people were employed by us in other countries. The
Company has 4,800 employees in businesses reported as discontinued operations
which are not included in the amounts above. We believe that we have good
relationships with our employees. The hourly employees who are unionized are
covered by collective bargaining agreements with a number of labor unions and
with varying contract termination dates through June 2004. There were no
material work stoppages during 2001.
FOREIGN OPERATIONS
We are engaged in business in foreign markets. Our manufacturing and service
facilities are located in Australia, Canada, England, France, Germany, Hong
Kong, India, Mexico, Poland, Scotland, Singapore, and Slovakia. We also market
our products and services through sales subsidiaries and distributors in a
number of foreign countries. We also have technical fee, patent royalty
agreements and joint venture agreements with various foreign companies.
Outside North America, no single foreign geographic area is currently
significant, although we continue to expand our business in Europe. Currency
fluctuations, tariffs and similar import limitations, price controls and labor
regulations can affect our foreign operations, including foreign affiliates.
Other potential limitations on our foreign operations include expropriation,
nationalization, restrictions on foreign investments or their transfers, and
additional political and economic risks. In addition, the transfer of funds from
foreign operations could be impaired by the unavailability of dollar exchange or
other restrictive regulations that foreign governments could enact. We do not
believe that such restrictions or regulations would have a materially adverse
effect on our business, in the aggregate.
For additional financial information about U.S. and foreign sales, see Note L to
the Consolidated Financial Statements within the 2001 Annual Report to
Shareholders, which is incorporated herein by reference.
CERTAIN BUSINESS RISKS
Our business, financial condition, results of operations and cash flows can be
impacted by a number of factors, including but not limited to those set forth
below and elsewhere in this Annual Report on Form 10-K, any one of which could
cause our actual results to vary materially from recent results or from our
anticipated future results.
THE MARKETS WE SERVE ARE CYCLICAL AND SENSITIVE TO DOMESTIC AND FOREIGN ECONOMIC
CONSIDERATIONS WHICH COULD ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL RESULTS.
The markets in which we sell our products are, to varying degrees, cyclical and
have experienced periodic downturns. For example, markets for certain of our
commercial aviation products sold to OEMs have experienced downturns during
periods of slowdowns in the commercial airline industry and during periods of
weak conditions in the economy generally, as demand for new aircraft typically
declines during these periods. Although we believe that aftermarket demand for
many of our products may reduce our exposure to these business downturns, we
have experienced these conditions in our business in the past and may experience
downturns in the future.
The U.S. and other world markets are currently experiencing an economic downturn
and many of the markets that we serve have been affected by this downturn. As a
result, our business and financial results have been adversely affected. If this
economic downturn were to continue for an extended period or if conditions were
to worsen, the negative impact on our business and financial results could be
further exacerbated.
-8-
Further, the terrorist attacks of September 11, 2001 adversely impacted the U.S.
and world economies and a wide range of industries. Those terrorist attacks, the
allied military response and subsequent developments may lead to future acts of
terrorism, additional hostilities and financial, economic and political
instability. While the precise effects of such instability on our industry and
our business is difficult to determine, it may negatively impact our business,
financial condition, results of operations and cash flows.
CURRENT CONDITIONS IN THE AIRLINE INDUSTRY COULD ADVERSELY AFFECT OUR BUSINESS
AND FINANCIAL RESULTS.
The downturn in the commercial air transport market, exacerbated by the
terrorist attacks of September 11, has adversely affected the financial
condition of many of our commercial airline customers. Many of our airline
customers have announced reductions in their aircraft fleet sizes, resulting in
decreased aftermarket demand for many of our products. In addition, many of our
airline customers have requested extended payment terms or reduced pricing. We
have been evaluating these requests on a case-by-case basis. To the extent
extended payment terms are granted to customers, it may negatively affect our
future cash flow. We perform ongoing credit evaluations on the financial
condition of all of our customers and maintain reserves for uncollectible
accounts receivable based upon expected collectibility. Although we believe that
our reserves are adequate, we are not able to predict with certainty the changes
in the financial stability of these customers. Any material change in the
financial status of any one or group of customers could have a material adverse
effect on our financial condition, results of operations, or cash flows.
A SIGNIFICANT DECLINE IN BUSINESS WITH BOEING OR AIRBUS COULD ADVERSELY AFFECT
OUR BUSINESS AND FINANCIAL RESULTS.
Approximately 23% and 13% of our sales for the year ended December 31, 2001 were
made to Boeing and its designated subcontractors, and Airbus and its designated
subcontractors. Accordingly, a significant reduction in purchases by either of
these customers could materially impair our results of operations and weaken our
financial condition. Boeing and Airbus have both announced that new commercial
aircraft deliveries for 2002 will be lower than 2001 as a result of reduced
demand. We expect that this reduction in commercial aircraft deliveries by
Boeing and Airbus will adversely affect our results of operations and cash
flows.
DEMAND FOR OUR DEFENSE AND SPACE RELATED PRODUCTS IS DEPENDENT UPON GOVERNMENT
SPENDING.
Approximately 20% of our net sales for the year ended December 31, 2001 were
derived from the defense and space industry. The defense and space industry is
largely dependent upon government budgets, particularly the U.S. defense budget.
We cannot assure you that new military aircraft programs will enter full-scale
production as expected. A change in levels of defense spending could curtail or
enhance prospects in our military business. A change in the level of anticipated
new product development costs could negatively impact our business.
COMPETITIVE PRESSURES MAY ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL RESULTS.
The aerospace industry in which we operate is highly competitive. We compete
worldwide with a number of United States and international companies that are
both larger and smaller than us in terms of resources and market share, and some
of which are our customers. While we are the market and technology leader in
many of our products, in certain areas some of our competitors may have more
extensive or more specialized engineering, manufacturing and marketing
capabilities than we do in areas in which we compete. As a result, these
competitors may be able to adapt more quickly to new or emerging technologies
and changes in customer requirements or may be able to devote greater resources
to the development, promotion and sale of their products than we can.
THE SIGNIFICANT CONSOLIDATION OCCURRING IN THE AEROSPACE INDUSTRY COULD
ADVERSELY AFFECT OUR BUSINESS AND FINANCIAL RESULTS.
The aerospace industry in which we operate has been experiencing significant
consolidation among suppliers, including us and our competitors, and the
customers we serve. Commercial airlines have increasingly been merging and
creating global alliances to achieve greater scale and enhance their geographic
reach. Aircraft manufacturers have made acquisitions to expand their product
portfolios to better compete in the global marketplace. In addition, aviation
suppliers have been consolidating and forming alliances to broaden their product
and integrated system offerings and achieve critical mass. This supplier
consolidation is in part attributable to aircraft manufacturers and airlines
more frequently awarding long-term sole source or preferred supplier contracts
to the most capable suppliers, thus reducing the total number of suppliers from
whom components and systems are purchased. We cannot assure you that our
business and financial results will not be adversely impacted as a result of
consolidation by our competitors or customers.
-9-
OUR CONSOLIDATION AND RESTRUCTURING ACTIONS MAY NOT RESULT IN COST SAVINGS.
During the fourth quarter of 2001, we announced that we were eliminating
approximately 2,400 aerospace and corporate positions and consolidating various
aerospace operations in order to align capacity with current customer demand. We
cannot assure you that these consolidation and restructuring actions will prove
successful or result in all of the cost savings that we currently anticipate
within the timeframe expected.
OUR ACQUISITION STRATEGY EXPOSES US TO RISKS, INCLUDING THE RISK THAT WE MAY NOT
BE ABLE TO SUCCESSFULLY INTEGRATE ACQUIRED BUSINESSES.
We have a consistent strategy to grow, in part, by the acquisition of additional
businesses and are continuously evaluating various acquisition opportunities.
Our ability to grow by acquisition is dependent upon, among other factors, the
availability of suitable acquisition candidates. Growth by acquisition involves
risks that could adversely affect our operating results, including difficulties
in integrating the operations and personnel of acquired companies, the potential
amortization of acquired intangible assets and the potential loss of key
employees of acquired companies. We may not be able to complete acquisitions on
satisfactory terms or, if any acquisitions are completed, satisfactorily
integrate these acquired businesses.
THE AEROSPACE INDUSTRY IS HIGHLY REGULATED.
The aerospace industry is highly regulated in the United States by the Federal
Aviation Administration, or FAA, and in other countries by similar agencies. We
must be certified by the FAA and, in some cases, by individual original
equipment manufacturers, or OEMs, in order to engineer and service parts and
components used in specific aircraft models. If material authorizations or
approvals were revoked or suspended, our operations would be adversely affected.
New or more stringent governmental regulations may be adopted, or industry
oversight heightened, in the future, and we may incur significant expenses to
comply with any new regulations or any heightened industry oversight.
WE MAY HAVE LIABILITIES RELATING TO ENVIRONMENTAL LAWS AND REGULATIONS WHICH
COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.
We are subject to various domestic and international environmental laws and
regulations which may require that we investigate and remediate the effects of
the release or disposal of materials at sites associated with past and present
operations. We are currently involved in the investigation and remediation of a
number of sites under these laws. Based on currently available information, we
do not believe that future environmental costs in excess of those accrued with
respect to such sites will have a material adverse effect on our financial
condition. There can be no assurance, however, that additional future
developments, administrative actions or liabilities relating to environmental
matters will not have a material adverse effect on our results of operations or
cash flows in a given period.
ANY PRODUCT LIABILITY CLAIMS IN EXCESS OF INSURANCE MAY ADVERSELY AFFECT OUR
FINANCIAL CONDITION.
Our operations expose us to potential liability for personal injury or death as
a result of the failure of an aircraft component that has been serviced by us,
the failure of an aircraft component designed or manufactured by us or the
irregularity of metal products processed or distributed by us. While we believe
that our liability insurance is adequate to protect us from these liabilities,
our insurance may not cover all liabilities. Additionally, insurance coverage
may not be available in the future at a cost acceptable to us. Any material
liability not covered by insurance or for which third party indemnification is
not available could have a material adverse effect on our financial condition.
OUR FACILITIES COULD BE DAMAGED BY CATASTROPHES WHICH COULD REDUCE OUR
PRODUCTION CAPACITY AND RESULT IN A LOSS OF CUSTOMERS.
We have facilities in the U.S. and in foreign countries, which, by virtue of
their geographical location are susceptible to earthquakes and other natural
disasters. Although we carry property insurance, including earthquake insurance
and business interruption insurance, our inability to meet customer schedules as
a result of a catastrophe may result in a loss of customers or significant
additional costs, such as penalty claims, under customer contracts.
-10-
IF COLTEC IS UNABLE TO MEET ITS OBLIGATIONS IN THE FUTURE, INCLUDING OBLIGATIONS
TO ASBESTOS CLAIMANTS, COLTEC CREDITORS MAY SEEK TO RECOVER FROM GOODRICH.
After the spin-off is completed, it is possible that asbestos-related claims
might be asserted against us on the theory that we have some responsibility for
the asbestos-related liabilities of Coltec or its subsidiaries, even though the
activities that led to those claim occurred prior to our ownership of Coltec.
Also, it is possible that a claim could be asserted against us that Coltec's
dividend of its aerospace business to us prior to the spin-off was made at a
time when Coltec was insolvent or caused Coltec to become insolvent. Such a
claim could seek recovery from us on behalf of Coltec of the fair market value
of the dividend.
No such claims have been asserted against us to date. We believe that we would
have substantial legal defenses against any such claims. Any such claims would
require, as a practical matter, that Coltec's subsidiaries were unable to
satisfy their asbestos-related liabilities and that Coltec was found to be
responsible for these liabilities and is unable to meet its financial
obligations. In addition, the distribution agreement between EnPro and Goodrich
that will be used to effectuate the spin-off will provide Goodrich with an
indemnification from EnPro covering, among other things, these liabilities. We
believe any such claims would be without merit and that Coltec will be solvent
both before and after the dividend. If we are ultimately found to be responsible
for the asbestos-related liabilities of Coltec's subsidiaries, we believe it
would not have a material adverse effect on our financial condition, but could
have a material adverse effect on our results of operations and cash flows in a
particular period. However, because of the uncertainty as to the number, timing
and payments related to future asbestos-related claims, there can be no
assurance that any such claims will not have a material adverse effect on our
financial condition, results of operations and cash flows. If a claim related to
the dividend of Coltec's aerospace business were successful, it could have a
material adverse impact on our financial condition, results of operations and
cash flows.
ITEM 2. PROPERTIES
We operate manufacturing plants and service facilities in 28 states in the U.S.
and in Australia, Canada, England, France, Germany, Hong Kong, India, Mexico,
Poland, Scotland, Singapore, and Slovakia. In addition, we have other facilities
throughout the United States and in various foreign countries, which include
sales offices, administrative offices and warehouses.
Certain information with respect to our significant facilities that are owned is
set forth below:
Approximate
Number of
Segment Location Square Feet
------- -------- -----------
Aerostructures and Chula Vista, California 1,840,000
Aviation Technical Riverside, California 1,160,000
Services Everett, Washington (b) 1,030,000
Landing Systems Troy, Ohio 410,000
Oakville, Canada 360,000
Engine and Safety West Hartford, Connecticut (a) 550,000
Systems
Electronic Systems Danbury, Connecticut 520,000
EIP (c) Beloit, Wisconsin 855,000
Palmyra, New York 685,000
Quincy, Illinois 325,000
(a) The Engine and Safety Systems Segment utilizes approximately 300,000
square feet, with the balance leased to third parties.
(b) Although the building is owned, the land at this facility is leased.
(c) After the spin-off of EIP, we will no longer own these facilities.
-11-
In addition to the owned facilities, certain manufacturing activities are
conducted within leased premises, the largest of which is in the Aerostructures
and Aviation Technical Services Segment, located in Chula Vista, California, and
covers approximately 890,000 square feet. Some of these leases provide for
options to purchase or to renew such leases.
In the spring of 2000, we moved our headquarters operations to a new office
building in Charlotte, North Carolina. We leased approximately 110,000 square
feet for an initial term of ten years, with two, five-year options to 2020. The
new offices provide space for the Corporate headquarters and also for the
headquarters of the Aerostructures and Aviation Technical Services, Engine and
Safety Systems and the Electronic Systems Segments.
In the opinion of management, our principal properties, whether owned or leased,
are suitable and adequate for the purposes for which they are used and are
suitably maintained for such purposes. See Item 1, "Business-Environmental
Matters" for a description of proceedings under applicable environmental laws
regarding some of our properties.
In addition, we and our subsidiaries are lessees under a number of cancelable
and non-cancelable leases for certain real properties, used primarily for
administrative, retail, maintenance, repair and overhaul of aircraft, aircraft
wheels and brakes and evacuation systems and warehouse operations, and for
certain equipment (see Note I to the Consolidated Financial Statements within
the 2001 Annual Report to Shareholders, which is incorporated herein by
reference).
ITEM 3. LEGAL PROCEEDINGS
GENERAL
There are pending or threatened against us or our 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. We believe that any
liability that may finally be determined with respect to such claims, lawsuits
and proceedings should not have a material effect on our consolidated financial
position or results of operations. From time to time, we are also involved in
legal proceedings as a plaintiff involving contract, patent protection,
environmental and other matters.
ENVIRONMENTAL
We are subject to various domestic and international environmental laws and
regulations which may require that we investigate and remediate the effects of
the release or disposal of materials at sites associated with past and present
operations, including sites at which we have been identified as a potentially
responsible party under the federal Superfund laws and comparable state laws. We
are currently involved in the investigation and remediation of a number of sites
under these laws.
Environmental liabilities are recorded when our liability is probable and the
costs are reasonably estimable, which generally is not later than at completion
of a feasibility study or when we have recommended a remedy or have committed to
an appropriate plan of action. The accruals are reviewed periodically and, as
investigations and remediations proceed, adjustments are made as necessary.
Accruals for losses from environmental remediation obligations do not consider
the effects of inflation, and anticipated expenditures are not discounted to
their present value. The accruals are not reduced by possible recoveries from
insurance carriers or other third parties, but do reflect anticipated
allocations among potentially responsible parties at federal Superfund sites or
similar state-managed sites and an assessment of the likelihood that such
parties will fulfill their obligations at such sites. Our measurement of
environmental liabilities by us is based on currently available facts, present
laws and regulations, and current technology. Such estimates take into
consideration our prior experience in site investigation and remediation, the
data concerning cleanup costs available from other companies and regulatory
authorities, and the professional judgment of our environmental experts in
consultation with outside environmental specialists, when necessary.
Estimates of our liability are further subject to uncertainties regarding the
nature and extent of site contamination, the range of remediation alternatives
available, evolving remediation standards, imprecise engineering evaluations and
estimates of appropriate cleanup technology, methodology and cost, the extent of
corrective actions that may be required, and the number and financial condition
of other potentially responsible parties, as well as the extent of their
responsibility for the remediation. Accordingly, as investigation and
remediation of these sites proceeds, it is likely that adjustments in our
accruals will be necessary to reflect new information. The amounts of any such
adjustments could have a material adverse effect on our results of operations in
a given period,
-12-
but the amounts, and the possible range of loss in excess of the amounts
accrued, are not reasonably estimable. Based on currently available information,
however, management does not believe that future environmental costs in excess
of those accrued with respect to sites with which we have been identified are
likely to have a material adverse effect on the our financial condition. There
can be no assurance, however, that additional future developments,
administrative actions or liabilities relating to environmental matters will not
have a material adverse effect on our results of operations in a given period.
At December 31, 2001, our reserves for environmental remediation obligations
totaled $84.9 million, of which $11.0 million was included in accrued
liabilities ($1.5 million of which is classified within merger-related and
consolidation costs). Of the $84.9 million, $12.8 million is associated with
ongoing operations and $72.1 million is associated with businesses previously
disposed of or discontinued.
The timing of expenditures depends on a number of factors that vary by site,
including the nature and extent of contamination, the number of potentially
responsible parties, the timing of regulatory approvals, the complexity of the
investigation and remediation, and the standards for remediation. We expect that
we will expend present accruals over many years, and will complete remediation
of all sites which we have identified in up to thirty years. This period
includes operation and monitoring costs which are generally incurred over 15
years.
TOLO LITIGATION
In May 2000, we and our subsidiary Rohr, Inc. ("Rohr"), 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 we and Rohr breached the stock purchase agreement by
failing to pay $2.4 million under the terms of the agreement. In September 2001,
a jury found us liable to the shareholders for the $2.4 million retained by Rohr
under the stock purchase agreement and also assessed punitive damages of $48
million. The court subsequently reduced the punitive damage award to $24
million.
At the time of the purchase we established a reserve of $2.4 million relating to
the amount withheld by Rohr pursuant to the stock purchase agreement. We have
not established an accrual for the punitive damages award of $24 million, which
was based on the plaintiff"s fraudulent concealment claim, for the reasons set
forth below.
We and our legal counsel believe that there were numerous points of reversible
error in the trial that make it more likely than not that the judgment will be
reversed or vacated on appeal. First, we believe the plaintiffs' fraud claim is
legally deficient under California law and should be reversed. If the fraud
claim is not reversed, defendants' should, at a minimum, be granted a new trial
on the fraudulent concealment claim because the trial court permitted plaintiffs
to add this claim late in the trial but did not allow us to introduce evidence
to defend against it. We also believe that the trial court made numerous
prejudicial errors regarding the admission and exclusion of evidence relating to
the fraud claims, which further supports the grant of a new trial. And finally,
we believe that the trial court's directed verdict on plaintiffs' breach of
contract claim should be set aside and a new trial granted because, among other
things, there was sufficient evidence for the jury to find for the defendants on
this claim.
ENGINEERED INDUSTRIAL PRODUCTS - CONTINGENCIES
Asbestos
Garlock and Anchor. Two subsidiaries of Coltec, Garlock Sealing Technologies,
LLC ("Garlock") and The Anchor Packing Company ("Anchor"), have been 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.
Among the products at issue in those actions are industrial sealing products,
predominantly gaskets, manufactured and/or sold by Garlock or Anchor. The
damages claimed vary from action to action and in some cases plaintiffs seek
both compensatory and punitive damages. To date, neither Garlock nor Anchor has
been required to pay any punitive damage awards, although there can be no
assurance that they will not be required to do so in the future. Liability for
compensatory damages has historically been allocated among all responsible
defendants, thus limiting the potential monetary impact of a particular judgment
or settlement on any individual defendant.
-13-
We believe that Garlock and Anchor are in a favorable position compared to many
other asbestos defendants because, among other things, the asbestos-containing
products sold by Garlock and Anchor are encapsulated, which means the asbestos
fibers are incorporated into the product during the manufacturing process and
sealed in a binder. They are also nonfriable, which means they cannot be
crumbled by hand pressure. The Occupational Safety and Health Administration,
which began generally requiring warnings on asbestos-containing products in
1972, has never required that a warning be placed on products such as Garlock's
gaskets. Notwithstanding that no warning label has been required, Garlock
included one on all of its asbestos-containing products beginning in 1978.
Further, gaskets such as those previously manufactured and sold by Garlock are
one of the few asbestos-containing products permitted to be manufactured under
regulations of the EPA. Since the mid-1980s, U.S. sales of asbestos-containing
industrial sealing products have not been a material part of Garlock's sales and
those sales have been predominantly to sophisticated purchasers such as the U.S.
Navy and large petrochemical facilities. These purchasers generally have
extensive health and safety procedures and are familiar with the risks
associated with the use and handling of industrial sealing products that contain
asbestos. Garlock discontinued distributing asbestos-containing products in the
U.S. during 2000 and world-wide mid-2001.
Garlock settles and disposes of actions on a regular basis. In addition, some
actions are disposed of at trial. Garlock's historical settlement strategy has
been to try to match the timing of payments with recoveries received from
insurance. However, in 1999 and 2000, Garlock implemented a short-term
aggressive settlement strategy. The purpose of this short-term strategy was to
achieve a permanent reduction in the number of overall asbestos claims through
the settlement of a larger than normal number of claims, including some claims
not yet filed as lawsuits. Garlock believes that these settlements were at a
lower overall cost to Garlock than would eventually have been paid even though
the timing of payment was accelerated. Mainly due to this short-term aggressive
settlement strategy and because settlements are made over a period of time, the
settlement amounts paid in 2001, 2000 and 1999 increased over prior periods.
Settlements are generally made on a group basis with payments made to individual
claimants over a period of one to four years and are made without any admission
of liability. Settlement amounts vary depending upon a number of factors,
including the jurisdiction where the action was brought, the nature of the
disease alleged, the occupation of the plaintiff, the presence or absence of
other possible causes of the plaintiff's alleged illness, the availability of
legal defenses, such as the statute of limitations, and whether the action is an
individual one or part of a group. Garlock's allocable portion of the total
settlement amount for an action typically ranges from 1% to 2% of the total
amount.
Before any payment on a settled claim is made, the claimant is required to
submit a medical report acceptable to Garlock substantiating the
asbestos-related illness and meeting specific criteria of disability. In
addition, sworn testimony that the claimant worked with or around Garlock
asbestos-containing products is required. Generally, the claimant is also
required to sign a full and unconditional release of Garlock, its subsidiaries,
parent, officers, directors, affiliates and related parties from any liability
for asbestos-related injuries or claims.
When a settlement demand is not reasonable given the totality of the
circumstances, Garlock generally will try the case. Garlock has been successful
in winning a substantial majority of the cases it has tried to verdict.
Garlock's share of adverse verdicts in these cases in 2001, 2000 and 1999
totaled less than $7 million in the aggregate, and some of those verdicts are on
appeal.
Anchor is an inactive and insolvent subsidiary of Coltec. The insurance coverage
available to it is fully committed. Anchor continues to pay settlement amounts
covered by its insurance but has not committed to settle any further actions
since 1998. As cases reach the trial stage, Anchor is typically dismissed
without payment.
The insurance coverage available to Garlock is substantial. At December 31,
2001, Garlock had available $1.011 billion of insurance coverage from carriers
that it believes to be solvent. Of that amount, $119 million is allocated to
claims that have been paid by Garlock and submitted to its insurance companies
for reimbursement and $161 million has been committed to claim settlements not
yet paid by Garlock. Thus, at December 31, 2001, $731 million remained available
for coverage of future claims. 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, a few of
which allege initial exposure after July 1, 1984. To date, no payments with
respect to these claims, pursuant to a settlement or otherwise, have been made.
In addition, Garlock and Anchor believe that they have substantial defenses to
these claims and therefore automatically reject them for settlement. However,
there can be no assurance that any or all of these defenses will be successful
in the future.
-14-
Arrangements with Garlock's insurance carriers limit the amount that can be
received by it in any one year. The amount of insurance available to cover
claims paid by Garlock currently is limited to $80 million per year in 2001 and
2000 ($60 million in 1999), covering both settlements and reimbursements of
legal fees. This limit automatically increases by 8% every three years. Amounts
paid by Garlock in excess of this annual limit that would otherwise be
recoverable from insurance may be collected from the insurance companies in
subsequent years so long as insurance is available but subject to the annual
limit in each subsequent year. As a result, Garlock is required to pay out of
its own cash any amounts paid to settle or dispose of asbestos-related claims in
excess of the annual limit and collect these amounts from its insurance carriers
in subsequent years. Various options, such as raising the annual limit, are
being pursued to ensure as close a match as possible between payments by Garlock
and recoveries received from insurance. There can be no assurance that Garlock
will be successful as to any or all of these options.
In accordance with 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 cost to dispose of these actions can reasonably be estimated. These actions
are classified as actions in advanced stages and are included in the table as
such below. With respect to outstanding actions against Garlock and Anchor that
are in preliminary procedural stages, as well as any actions that may be filed
in the future, insufficient information exists upon which judgments can be made
as to the validity or ultimate disposition of such actions, thereby making it
difficult to reasonably estimate what, if any, potential liability or costs may
be incurred. Accordingly, no estimate of future liability has been included in
the table below for such claims.
We record an accrual for liabilities related to Garlock and Anchor
asbestos-related matters that are deemed probable and can be reasonably
estimated, which consist of settled claims and actions in advanced stages of
processing. We also record an asset equal to the amount of those liabilities
that is expected to be recovered by insurance. These amounts are reflected
within discontinued operations in our consolidated balance sheet and statement
of cash flows. A table is provided below depicting quantitatively the items
discussed above.
2001 2000 1999
------- ------- -------
(NUMBER OF CASES)
New Actions Filed During the Year (1) 37,600 36,200 30,200
Actions in Advanced Stages at Year-End 2,500 5,800 8,300
Open Actions at Year-End 95,400 96,300 96,000
(DOLLARS IN MILLIONS AT YEAR-END)
Estimated Liability for Settled Claims and Actions
in Advanced Stages of Processing (2) $170.9 $231.2 $163.1
Estimated Amounts Recoverable From Insurance (2)(3) $293.7 $285.7 $188.2
(DOLLARS IN MILLIONS)
Payments (2) $162.7 $119.7 $ 84.5
Insurance Recoveries (2) 87.9 83.3 65.2
------ ------ ------
Net Cash Flow (3) $(74.8) $(36.4) $(19.3)
====== ====== ======
(1) Consists only of actions actually filed with a court of competent
jurisdiction. To the extent that a particular action names both Garlock
and Anchor as defendants, for purposes of this table the action is
treated as a single action.
(2) Includes amounts with respect to all claims settled, whether or not an
action has actually been filed with a court of competent jurisdiction,
claims which have been dismissed or tried and claims otherwise closed
during the period.
(3) Payments made during the period for which Garlock does not receive a
corresponding insurance recovery due to the annual limit imposed under
Garlock's insurance policies will be recovered in future periods to the
extent insurance is available. When estimating the amounts recoverable,
Garlock only includes insurance coverage available from carriers
believed to be solvent.
As shown in the table above, the number of new actions filed during 2001
increased slightly over 2000, while the number of new actions filed during 2000
increased significantly over 1999. We believe this increase represents the
acceleration of claims from future periods mostly attributable to bankruptcies
of other asbestos defendants. The acceleration of claims may have the impact of
accelerating the associated settlement payments. We believe the number of new
actions will decrease in future years due, in part, to the previously-described
acceleration of future claims and because the largest asbestos exposures
occurred prior to the mid-1970s. However, there can be no assurance that the
number of new claims filed will not remain at current levels or increase in
future years.
-15-
Garlock and Anchor recorded charges to operations amounting to approximately $8
million in each of 2001, 2000 and 1999, representing payments and related
expenditures made during the periods which are not recoverable at all under
insurance, whether in the present period or in future periods.
Garlock and Anchor paid $74.8, $36.4 million and $19.3 million for the defense
and disposition of asbestos-related actions, net of amounts received from
insurance carriers, during 2001, 2000 and 1999, respectively. The amount of
payments in 2001 was consistent with their expectation that payments during 2001
would be higher than in 2000 and in 1999.
Considering the foregoing, as well as the experience of our 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, we believe that
pending actions against Garlock and Anchor are not likely to have a material
adverse effect on our consolidated financial condition, but could be material to
our consolidated results of operations or cash flows in a given period. However,
because of the uncertainty as to the number and timing of potential future
actions, as well as the amount that will have to be paid to settle or satisfy
any such actions in the future, there can be no assurance that those future
actions will not have a material adverse effect on our consolidated financial
condition, results of operations and cash flows.
Coltec and some of its subsidiaries (other than 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. The number of claims to date
has not been significant and insurance coverage is available to Coltec. Based on
the above, we believe that these pending and reasonably anticipated future
actions are not likely to have a material adverse effect on our consolidated
financial condition, results of operations and cash flows and are therefore not
discussed above.
Coltec, Garlock, Anchor and some of Coltec's other subsidiaries are also
defendants in other asbestos-related lawsuits or claims involving maritime
workers, medical monitoring claimants and co-defendants. Based on past
experience, we believe that these categories of claims are not likely to have a
material adverse effect on our consolidated financial condition, results of
operations and cash flows and are therefore not discussed above.
OTHER EIP MATTERS
Coltec has contingent liabilities related to discontinued operations of its
predecessors for which it has retained liabilities or is obligated under
indemnity agreements. These contingent liabilities include potential product
liability and associated claims related to Coltec's former Colt Firearms
subsidiary for firearms manufactured prior to 1990 and related to Coltec's
former Central Maloney subsidiary for electrical transformers manufactured prior
to 1994. There are currently no claims pending against Coltec related to these
former subsidiaries. However, such claims could arise in the future. Coltec also
has ongoing obligations with regard to workers compensation and medical benefit
matters associated with Crucible Materials Corporation and Colt Firearms that
relate to Coltec's periods of ownership of these companies.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
-16-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The number of common shareholders of record at December 31, 2001, was 11,235.
The discussions of the limitations and restrictions on the payment of dividends
on common stock are included in Notes H and Q to the Consolidated Financial
Statements within the 2001 Annual Report to Shareholders, which is incorporated
herein by reference.
Common Stock Prices and Dividends. Our common stock (symbol GR) is listed on the
New York Stock Exchange. The table below lists dividends per share and quarterly
price ranges for our common stock based on New York Stock Exchange prices.
2001 2000
-------------------------------------- --------------------------------------
QUARTER HIGH LOW DIVIDEND QUARTER HIGH LOW DIVIDEND
-------- ----- ----- -------- ------- ----- ----- ---------
First 42.65 33.06 $.275 First 29 9/16 21 9/16 $.275
Second 44.50 36.01 .275 Second 37 13/16 27 3/4 .275
Third 38.80 15.91 .275 Third 43 1/8 31 3/16 .275
Fourth 26.89 18.65 .275 Fourth 42 3/4 32 1/2 .275
ITEM 6. SELECTED FINANCIAL DATA
The tabular information appearing under "Selected Financial Data" on page 67 of
the 2001 Annual Report to Shareholders is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The information appearing under "Management's Discussion and Analysis" on pages
1 through 25 of the 2001 Annual Report to Shareholders is incorporated herein by
reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information appearing under "Quantitative and Qualitative Disclosures About
Market Risk" on page 26 of the 2001 Annual Report to Shareholders is
incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements and related notes thereto, together with
the report thereon by Ernst & Young LLP dated February 4, 2002, as well as the
Quarterly Financial Data, appearing on pages 28 through 66 of the 2001 Annual
Report to Shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-17-
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Biographical information concerning our Directors appearing under the caption
"Election of Directors" and information under the caption "Section 16(a)
Beneficial Ownership Reporting Compliance" in our proxy statement dated March
2002 is incorporated herein by reference. Biographical information concerning
our Executive Officers is as follows:
DAVID L. BURNER, AGE 62, CHAIRMAN AND CHIEF EXECUTIVE OFFICER
Mr. Burner joined the Company in 1983 as Financial Vice President of the
Company's Engineered Products Group. Later that year he became Vice President
and General Manager of the Off-Highway Braking Systems Division and in 1985
became an Executive Vice President of the Aerospace and Defense Division. In
February 1987 Mr. Burner became President of that Division, which is now
Goodrich Aerospace. He was elected a Senior Vice President of the Company in
1990 and Executive Vice President in October 1993. He joined the Office of the
Chairman in July 1994, was elected President of the Company in December 1995,
Chief Executive Officer in December 1996 and Chairman in July 1997. Mr. Burner
began his career with Arthur Andersen & Co. He received his B.S.C. degree from
Ohio University. Mr. Burner is a member of the Board of Directors of Briggs &
Stratton Corporation, Lance, Inc., Milacron Inc. and Progress Energy, Inc.
MARSHALL O. LARSEN, AGE 53, PRESIDENT AND CHIEF OPERATING OFFICER
Mr. Larsen joined the Company in 1977 as an Operations Analyst. In 1981, he
became Director of Planning and Analysis and subsequently Director of Product
Marketing. In 1986, he became Assistant to the President and later served as
General Manager of several divisions of the Company's aerospace business. He was
elected a Vice President of the Company and named a Group Vice President of
Goodrich Aerospace in 1994 and was elected an Executive Vice President of the
Company and President and Chief Operating Officer of Goodrich Aerospace in 1995.
He was elected President and Chief Operating Officer of the Company in February
2002. Mr. Larsen received a B.S. in Engineering from the U.S. Military Academy
and an M.S. in Industrial Management from the Krannert Graduate School of
Management at Purdue University.
ERNEST F. SCHAUB, AGE 58, EXECUTIVE VICE PRESIDENT AND PRESIDENT AND CHIEF
OPERATING OFFICER, GOODRICH ENGINEERED INDUSTRIAL PRODUCTS
Mr. Schaub joined the Company in November 1971 as a Key Industrial Engineer. He
served in various management positions until 1987 when he was named Group Vice
President, Braking Systems of Goodrich Aerospace. In January 1994 Mr. Schaub was
named Group President, Landing Systems of Goodrich Aerospace. In September 1999
he was elected Executive Vice President of the Company and President and Chief
Operating Officer of Goodrich Engineered Industrial Products. Mr. Schaub
received a B.S. in industrial engineering from the University of New Haven and
an M.B.A. from Case Western Reserve University.
STEPHEN R. HUGGINS, AGE 58, SENIOR VICE PRESIDENT, STRATEGIC RESOURCES AND
INFORMATION TECHNOLOGY
Mr. Huggins joined the Company in 1988 as Group Vice President, Specialty
Products. He later served as Group Vice President, Engine and Fuel Systems from
1991 to 1995 and as Vice President - Business Development, Aerospace from 1995
to 1999. In February 1999, he was elected Vice President, Strategic Planning and
Chief Knowledge Officer. In February 2000, Mr. Huggins was elected Senior Vice
President, Strategic Resources and Information Technology. Mr. Huggins received
a B.S. in aerospace engineering from Virginia Polytechnic Institute.
JERRY S. LEE, AGE 60, SENIOR VICE PRESIDENT, TECHNOLOGY AND INNOVATION
Mr. Lee joined the Company in 1979 as Manager of Engineering Science, Engineered
Products Group. He later served as Director of R&D, Goodrich Aerospace from 1983
to 1988, Vice President - Technology from 1989 - 1998 and Vice President -
Technology and Innovation from 1998 to June 2000. In June 2000, Mr. Lee was
elected Senior Vice President - Technology and Innovation. Mr. Lee received a
B.S. in mechanical engineering and Ph.D. in mechanical engineering from North
Carolina State University.
-18-
TERRENCE G. LINNERT, AGE 55, SENIOR VICE PRESIDENT, HUMAN RESOURCES AND
ADMINISTRATION, GENERAL COUNSEL
Mr. Linnert joined Goodrich in November 1997. Prior to joining Goodrich, Mr.
Linnert was Senior Vice President of Corporate Administration, Chief Financial
Officer and General Counsel at Centerior Energy Corporation. At Goodrich, Mr.
Linnert has responsibilities for the Company's human resources, administration,
legal, internal auditing and government relations organizations. Mr. Linnert
joined The Cleveland Electric Illuminating Company in 1968, holding various
engineering, procurement and legal positions until 1986, when CEI and The Toledo
Edison Company became affiliated as wholly owned subsidiaries of Centerior
Energy Corporation. Subsequently, Mr. Linnert had a variety of legal
responsibilities until he was named director of legal services in 1990. In 1992,
he was appointed a vice president, with responsibilities for legal, governmental
and regulatory affairs. Prior to joining the Company, his responsibilities at
Centerior included managing the legal, finance, human resources, regulatory and
governmental affairs, internal auditing and corporate secretary functions. Mr.
Linnert received a B.S. in electrical engineering from the University of Notre
Dame and a juris doctor degree from the Cleveland-Marshall School of Law at
Cleveland State University.
ULRICH SCHMIDT, AGE 52, SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
Mr. Schmidt joined the Company in 1994 as Vice President of Finance for Goodrich
Aerospace and served in that capacity until 1999, when he was named Vice
President of Finance and Business Development for Goodrich Aerospace. In October
2000, Mr. Schmidt was elected Senior Vice President and Chief Financial Officer
of the Company. Mr. Schmidt received a B.A. in business administration and an
M.B.A. in finance from Michigan State University.
ROBERT D. KONEY, JR., AGE 45, VICE PRESIDENT AND CONTROLLER
Mr. Koney joined the Company in 1986 as a financial accounting manager. He
became Assistant Controller for Goodrich Aerospace in 1992 before being
appointed Vice President and Controller for the Commercial Wheels and Brakes
business in 1994. He was elected Vice President and Controller in April 1998.
Prior to joining Goodrich, he held management positions with Picker
International and Arthur Andersen & Company. Mr. Koney received a B.A. in
accounting from the University of Notre Dame and an M.B.A. from Case Western
Reserve University.
ITEM 11. EXECUTIVE COMPENSATION
Information concerning executive compensation appearing under the captions
"Executive Compensation" and "Governance of the Company - Compensation of
Directors" in our proxy statement dated March 2002 is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security ownership data appearing under the captions "Holdings of Company Equity
Securities by Directors and Executive Officers" and "Beneficial Ownership of
Securities" in our proxy statement dated March 2002 is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information appearing under the captions "Executive Compensation --
Indebtedness" and "Executive Compensation-Executive Stock Purchase Program" in
our proxy statement dated March 2002 is incorporated herein by reference.
-19-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Documents filed as part of this report:
(1) The 2001 Annual Report to Shareholders. The following
financial information is incorporated herein by reference:
(PAGE REFERENCES TO 2001 ANNUAL REPORT)
PAGE
----
Management's Discussion and Analysis 1
Management's Responsibility for Financial Statements 27
Report of Independent Auditors 28
Consolidated Statement of Income for the years ended
December 31, 2001, 2000 and 1999 29
Consolidated Balance Sheet at December 31, 2001 and 2000 30
Consolidated Statement of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 31
Consolidated Statement of Shareholders' Equity for the
years ended December 31, 2001, 2000 and 1999 32
Notes to Consolidated Financial Statements 33
Quarterly Financial Data (Unaudited) 66
Selected Financial Data 67
(2) Consolidated Financial Statement Schedules:
Schedules have been omitted because they are not
applicable or the required information is shown in
the Consolidated Financial Statements or the Notes to
the Consolidated Financial Statements.
(3) Listing of Exhibits: A listing of exhibits is on
pages 22 to 24 of this Form 10-K.
(b) Reports on Form 8-K filed in the fourth quarter of 2001:
Current Report on Form 8-K filed October 25, 2001 (relating to
the announcement of the Company's earnings for the three-month
and nine-month periods ended September 30, 2001).
Current Report on Form 8-K filed November 6, 2001 (relating to
the furnishing of information pursuant to Regulation FD)
Current Report on Form 8-K filed December 14, 2001 (relating
to the furnishing of information pursuant to Regulation FD).
-20-
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED ON FEBRUARY 19, 2002.
GOODRICH CORPORATION
(Registrant)
By /s/ David L. Burner
-------------------------------
(David L. Burner, Chairman and
Chief Executive Officer)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW ON FEBRUARY 19, 2002 BY THE FOLLOWING PERSONS
(INCLUDING A MAJORITY OF THE BOARD OF DIRECTORS) ON BEHALF OF THE REGISTRANT AND
IN THE CAPACITIES INDICATED.
/s/ DAVID L. BURNER /s/ROBERT D. KONEY, JR.
---------------------------------------- ----------------------------------
(David L. Burner) (Robert D. Koney, Jr.)
Chairman and Chief Executive Officer Vice President and Controller
And Director (Principal Executive Officer) (Principal Accounting Officer)
/s/ ULRICH SCHMIDT /s/ DOUGLAS E. OLESEN
---------------------------------------- ----------------------------------
(Ulrich Schmidt) (Douglas E. Olesen)
Senior Vice President and Chief Financial Director
Officer (Principal Financial Officer)
/s/ DIANE C. CREEL /s/ RICHARD de J. OSBORNE
---------------------------------------- ----------------------------------
(Diane C. Creel) (Richard de J. Osborne)
Director Director
/s/ GEORGE A. DAVIDSON, JR. /s/ ALFRED M. RANKIN, JR.
---------------------------------------- ----------------------------------
(George A. Davidson, Jr.) (Alfred M. Rankin, Jr.)
Director Director
/s/ HARRIS E. DELOACH, JR . /s/ JAMES R. WILSON
----------------------------------------- ----------------------------------
(Harris E. DeLoach, Jr.) (James R. Wilson)
Director Director
/s/ JAMES J. GLASSER /s/ A. THOMAS YOUNG
---------------------------------------- ----------------------------------
(James J. Glasser) (A. Thomas Young)
Director Director
/s/ WILLIAM R. HOLLAND
----------------------------------------
(William R. Holland)
Director
-21-
INDEX TO EXHIBITS
Exhibit
Number Description
---------- --------------
2(A) Agreement for Sale and Purchase of Assets Between The
B.F.Goodrich Company and PMD Group Inc., dated as of November
28, 2000, filed as Exhibit 2(A) to the Company's Annual Report
on Form 10-K for the year ended December 31, 2000, is
incorporated herein by reference.
3(A) The Company's Restated Certificate of Incorporation, with
amendments filed August 4, 1997 and May 6, 1998, filed as
Exhibit 3(A) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1998, is incorporated herein by
reference.
3(B) The Company's By-Laws, as amended, through April 20, 1998,
filed as Exhibit 3(B) to the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1998, is
incorporated herein by reference.
3(C) Amendment to Restated Certificate of Incorporation filed June
1, 2001, filed as Exhibit 3(C) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2001.
3(D) Certificate of Correction to Restated Certificate of
Incorporation filed November 1, 2001. (*)
4 Information relating to the Company's long-term debt and trust
preferred securities is set forth in Note H -- "Financing
Arrangements" and Note Q - "Preferred Securities of Trust" to
the Company's financial statements, which are filed as Exhibit
13 to this Annual Report on Form 10-K. Instruments defining
the rights of holders of such long-term debt and trust
preferred securities are not filed herewith since no single
item exceeds 10% of consolidated assets. Copies of such
instruments will be furnished to the Commission upon request.
10(A) Stock Option Plan, filed as Exhibit 10(A) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
10(B) Form of Disability Income Agreement, filed as Exhibit 10(B)(4)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference.
10(C) Form of Supplemental Executive Retirement Plan Agreement,
filed as Exhibit 10(C) to the Company's Annual Report on Form
10-K for the year ended December 31, 1998, is incorporated
herein by reference.
10(D) Management Incentive Program, filed as Exhibit 10(D) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998, is incorporated herein by reference.
10(E) Form of Management Continuity Agreement entered into by The
B.F.Goodrich Company and certain of its employees, filed as
Exhibit 10(E) to the Company's Annual Report on Form 10-K for
the year ended December 31, 1999, is incorporated herein by
reference.
10(F) Senior Executive Management Incentive Plan, filed as Appendix
B to the Company's 2000 Proxy Statement dated March 3, 2000,
is incorporated herein by reference.
10(G) Rights Agreement, dated as of June 2, 1997, between The
B.F.Goodrich Company and The Bank of New York which includes
the form of Certificate of Amendment setting forth the terms
of the Junior Participating Preferred Stock, Series F, par
value $1 per share, as Exhibit A, the form of Right
Certificate as Exhibit B and the Summary of Rights to Purchase
Preferred Shares as Exhibit C, filed as Exhibit 1 to the
Company's Registration Statement on Form 8-A filed June 19,
1997, is incorporated herein by reference.
-22-
10(H) Employee Protection Plan, filed as Exhibit 10(I) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997, is incorporated herein by reference.
10(I) Benefit Restoration Plan, filed as Exhibit 10(J) to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1992, is incorporated herein by reference.
10(J) The B.F.Goodrich Company Savings Benefit Restoration Plan,
filed as Exhibit 4(b) to the Company's Registration Statement
on Form S-8 (No. 333-19697), is incorporated herein by
reference.
10(K) 1998 - 2000 Long-Term Incentive Plan Summary Plan Description
and form of award, filed as Exhibit 10(K) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1998, is incorporated herein by reference.
10(L) 1999 - 2001 Long-Term Incentive Plan Summary Plan Description
and form of award, filed as Exhibit 10(L) to the Company's
Annual Report on Form 10-K for the year ended December 31,
1999, is incorporated herein by reference.
10(M) Performance Share Deferred Compensation Plan Summary Plan
Description, filed as Exhibit 10(LL) to the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
2000, is incorporated herein by reference.
10(N) 2000 - 2001 and 2000 - 2002 Long-Term Incentive Plan Summary
Plan Description, filed as Exhibit 10(MM) to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30,
2000, is incorporated herein by reference.
10(O) Form of Award Agreement for 2000 - 2001 Long-Term Incentive
Plan, filed as Exhibit 10(NN) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000, is
incorporated herein by reference.
10(P) Form of Award Agreement for 2000 - 2002 Long-Term Incentive
Plan, filed as Exhibit 10(OO) to the Company's Quarterly
Report on Form 10-Q for the quarter ended June 30, 2000, is
incorporated herein by reference.
10(Q) Amended and Restated Assumption of Liabilities and
Indemnification Agreement between the Company and The Geon
Company, filed as Exhibit 10.3 to the Registration Statement
on Form S-1 (No. 33-70998) of The Geon Company, is
incorporated herein by reference.
10(R) Outside Directors' Phantom Share Plan, filed as Exhibit 10(R)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 2000, is incorporated herein by reference.
10(S) Directors Deferred Compensation Plan, filed as Exhibit 10(N)
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1997, is incorporated herein by reference.
10(T) Rohr, Inc. Supplemental Retirement Plan (Restated 1997), filed
as an exhibit to Rohr, Inc.'s Quarterly Report on Form 10-Q
for the quarterly period ended May 4, 1997, is incorporated
herein by reference.
10(U) Rohr, Inc. 1991 Stock Compensation for Non-Employee Directors,
filed as an exhibit to Rohr, Inc.'s Annual Report on Form 10-K
for the fiscal year ended July 31, 1992, is incorporated
herein by reference.
10(V) Rohr, Inc. 1989 Stock Option Plan, filed as Exhibit 10.18 to
the Rohr Industries, Inc. Annual Report on Form 10-K for the
fiscal year ended July 31, 1990, is incorporated herein by
reference.
10(W) Rohr, Inc. 1995 Stock Incentive Plan, filed as Exhibit 4.1 to
Rohr, Inc.'s Registration Statement on Form S-8 (File No.
33-65447) filed on December 28, 1995, is incorporated herein
by reference.
10(X) Benefits Equalization Plan of Coltec Industries Inc effective
January 1, 1976 and Amended and Restated as of January 1,
1989, filed as Exhibit 10.3 to Coltec Industries Inc's Annual
Report on Form 10-K for the year ended December 31, 1997, is
incorporated herein by reference.
-23-
10(Y) 1992 Stock Option and Incentive Plan of Coltec Industries Inc,
filed as Exhibit 10.24 to Coltec Industries Inc's Annual
Report on Form 10-K for the year ended December 31, 1991, is
incorporated herein by reference.
10(Z) Amendment No. 1 to Coltec Industries Inc's 1992 Stock Option
and Incentive Plan, filed as Exhibit 10.15 to Coltec
Industries Inc's Annual Report on Form 10-K for the year ended
December 31, 1993, is incorporated herein by reference.
10(AA) Second Amendment to Coltec Industries Inc's 1992 Stock Option
and Incentive Plan, filed as Exhibit 10.3 to Coltec Industries
Inc's Quarterly Report on Form 10-Q for the quarter ended
September 28, 1997, is incorporated herein by reference.
10(BB) Amendment No. 3 to Coltec Industries Inc's 1992 Stock Option
and Incentive Plan, filed as Exhibit A to Coltec Industries
Inc's definitive proxy statement filed March 26, 1997, is
incorporated herein by reference.
10(CC) Stock Option Plan, filed as Appendix B to the Company's
definitive proxy statement filed March 4, 1999, is
incorporated herein by reference.
10(DD) 2001 Stock Option Plan, filed as Exhibit D to the Company's
2001 Proxy Statement dated March 5, 2001 is incorporated
herein by reference.
10(EE) Amendment Number One to the 2001 Stock Option Plan, filed as
Exhibit 10(JJ) to the Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 2001, is incorporated
herein by reference.
10(FF) 2001 - 2003 Long-Term Incentive Plan Summary Plan Description
and form of award agreement, filed as Exhibit 10(HH) to the
Company's Quarterly Report on Form 10-Q for the quarter ended
June 30, 2001, is incorporated herein by reference.
10(GG) Employee Stock Purchase Plan, filed as Exhibit E to the
Company's 2001 Proxy Statement dated March 5, 2001 is
incorporated herein by reference.
10(HH) Amendment Number One to the Employee Stock Purchase Plan,
filed as Exhibit 10(KK) to the Company's Quarterly Report on
Form 10-Q for the quarter ended September 30, 2001, is
incorporated herein by reference.
10(II) Goodrich Corporation Severance Plan, filed as Exhibit 10(II)
to the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2001, is incorporated herein by reference.
13 Annual Report to Shareholders. The Company's 2001 Annual
Report to Shareholders (only those portions incorporated by
reference in the Form 10-K).(*)
21 Subsidiaries. (*)
23(a) Consent of Ernst & Young LLP, Independent Auditors(*)
----------------------------
(*) Filed herewith.
The Company will supply copies of the foregoing exhibits to any shareholder upon
receipt of a written request addressed to the Assistant Secretary of Goodrich
Corporation, 2730 West Tyvola Road, Charlotte, NC 28217, and the payment of $.50
per page to help defray the costs of handling, copying and postage.
-24-