SECURITIES AND EXCHANGE COMMISSION
Form 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
|
| For The Quarterly Period Ended June 30, 2003 |
OR
| o |
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
| 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 þ | No o |
Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).
| Yes þ | No o |
As of June 30, 2003, there were 117,585,771 shares of common stock outstanding (excluding 14,000,000 shares held by a wholly owned subsidiary). There is only one class of common stock.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Independent Accountants’ Review Report
To the Shareholders and Board of Directors of Goodrich Corporation
We have reviewed the accompanying condensed consolidated balance sheet of Goodrich Corporation and subsidiaries as of June 30, 2003, and the related condensed consolidated statements of income and cash flows for the three and six month periods ended June 30, 2003 and 2002. These financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data, and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with auditing standards generally accepted in the United States, which will be performed for the full year with the objective of expressing an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated financial statements referred to above for them to be in conformity with accounting principles generally accepted in the United States.
We have previously audited, in accordance with auditing standards generally accepted in the United States, the consolidated balance sheet of Goodrich Corporation and subsidiaries as of December 31, 2002, and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended, not presented herein; and in our report dated February 4, 2003, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed consolidated balance sheet as of December 31, 2002, is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
| /s/ Ernst & Young LLP |
Charlotte, North Carolina
August 7, 2003
1
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, | ||||||||||||||||
| 2003 | 2002 | 2003 | 2002 | ||||||||||||||
Sales |
$ | 1,094.5 | $ | 899.5 | $ | 2,188.7 | $ | 1,795.3 | |||||||||
Operating Costs and Expenses: |
|||||||||||||||||
Cost of sales |
819.6 | 675.2 | 1,719.5 | 1,348.7 | |||||||||||||
Selling and administrative expenses |
180.1 | 117.4 | 362.4 | 229.1 | |||||||||||||
Restructuring and consolidation costs |
28.7 | 13.3 | 37.8 | 20.0 | |||||||||||||
| 1,028.4 | 805.9 | 2,119.7 | 1,597.8 | ||||||||||||||
Operating income |
66.1 | 93.6 | 69.0 | 197.5 | |||||||||||||
Interest expense |
(38.2 | ) | (23.0 | ) | (78.1 | ) | (46.1 | ) | |||||||||
Interest income |
0.5 | 13.0 | 5.0 | 19.1 | |||||||||||||
Other income (expense) – net |
(2.5 | ) | 6.9 | (15.1 | ) | (2.4 | ) | ||||||||||
Income (loss) before income taxes and Trust distributions |
25.9 | 90.5 | (19.2 | ) | 168.1 | ||||||||||||
Income tax benefit (expense) |
(8.6 | ) | (29.9 | ) | 6.3 | (55.5 | ) | ||||||||||
Distributions on Trust Preferred Securities |
(2.6 | ) | (2.6 | ) | (5.2 | ) | (5.2 | ) | |||||||||
Income (loss) from continuing operations |
14.7 | 58.0 | (18.1 | ) | 107.4 | ||||||||||||
Income (loss) from discontinued operations |
(0.3 | ) | (12.1 | ) | 62.4 | (11.1 | ) | ||||||||||
Cumulative effect of change in accounting |
— | — | (0.5 | ) | (36.1 | ) | |||||||||||
Net income |
$ | 14.4 | $ | 45.9 | $ | 43.8 | $ | 60.2 | |||||||||
Basic Earnings (Loss) per Share: |
|||||||||||||||||
Continuing operations |
$ | 0.13 | $ | 0.57 | $ | (0.15 | ) | $ | 1.05 | ||||||||
Discontinued operations |
(0.01 | ) | (0.12 | ) | 0.52 | (0.11 | ) | ||||||||||
Cumulative effect of change in accounting |
— | — | — | (0.35 | ) | ||||||||||||
Net income |
$ | 0.12 | $ | 0.45 | $ | 0.37 | $ | 0.59 | |||||||||
Diluted Earnings (Loss) per Share: |
|||||||||||||||||
Continuing operations |
$ | 0.12 | $ | 0.55 | $ | (0.15 | ) | $ | 1.02 | ||||||||
Discontinued operations |
— | (0.10 | ) | 0.52 | (0.08 | ) | |||||||||||
Cumulative effect of change in accounting |
— | — | — | (0.35 | ) | ||||||||||||
Net income |
$ | 0.12 | $ | 0.45 | $ | 0.37 | $ | 0.59 | |||||||||
Dividends declared per common share |
$ | 0.20 | $ | 0.275 | $ | 0.40 | $ | 0.475 | |||||||||
See notes to unaudited condensed consolidated financial statements.
2
GOODRICH CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
(DOLLARS IN MILLIONS)
| June 30, | December 31, | |||||||||||
| 2003 | 2002 | |||||||||||
ASSETS |
||||||||||||
Current Assets |
||||||||||||
Cash and cash equivalents |
$ | 267.8 | $ | 149.9 | ||||||||
Accounts and notes receivable, less allowance for doubtful receivables
($35.8 at June 30, 2003; $31.4 at December 31, 2002) |
656.4 | 716.0 | ||||||||||
Inventories |
950.9 | 962.6 | ||||||||||
Deferred income taxes |
117.2 | 121.3 | ||||||||||
Prepaid expenses and other assets |
57.9 | 38.0 | ||||||||||
Assets of discontinued operations |
— | 46.5 | ||||||||||
Total Current Assets |
2,050.2 | 2,034.3 | ||||||||||
Property, plant and equipment |
1,157.2 | 1,222.4 | ||||||||||
Prepaid pension |
246.7 | 250.5 | ||||||||||
Goodwill |
1,185.6 | 1,194.2 | ||||||||||
Identifiable intangible assets |
473.0 | 464.8 | ||||||||||
Payment-in-kind notes receivable, less discount ($11.0 at December 31, 2002) |
— | 141.7 | ||||||||||
Deferred income taxes |
65.4 | 45.5 | ||||||||||
Other assets |
610.6 | 644.9 | ||||||||||
| $ | 5,788.7 | $ | 5,998.3 | |||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
||||||||||||
Current Liabilities |
||||||||||||
Short-term bank debt |
$ | — | $ | 379.2 | ||||||||
Accounts payable |
408.6 | 435.8 | ||||||||||
Accrued expenses |
618.5 | 576.9 | ||||||||||
Income taxes payable |
253.9 | 150.8 | ||||||||||
Liabilities of discontinued operations |
— | 16.3 | ||||||||||
Current maturities of long-term debt and capital lease obligations |
3.5 | 3.9 | ||||||||||
Total Current Liabilities |
1,284.5 | 1,562.9 | ||||||||||
Long-term debt and capital lease obligations |
2,133.2 | 2,129.0 | ||||||||||
Pension obligations |
724.3 | 722.1 | ||||||||||
Postretirement benefits other than pensions |
322.5 | 323.2 | ||||||||||
Other non-current liabilities |
196.1 | 202.8 | ||||||||||
Commitments and contingent liabilities |
— | — | ||||||||||
Mandatorily redeemable preferred securities of trust |
125.6 | 125.4 | ||||||||||
Shareholders’ Equity |
||||||||||||
Common stock - $5 par value |
||||||||||||
Authorized 200,000,000 shares; issued 131,111,776 shares at June 30, 2003,
and 130,568,582 shares at December 31, 2002 (excluding 14,000,000 shares
held by a wholly-owned subsidiary at each date) |
655.6 | 652.9 | ||||||||||
Additional capital |
1,033.1 | 1,027.4 | ||||||||||
Income retained in the business |
32.8 | 36.1 | ||||||||||
Accumulated other comprehensive income |
(304.1 | ) | (369.1 | ) | ||||||||
Unearned compensation |
(1.8 | ) | (1.6 | ) | ||||||||
Common stock held in treasury, at cost (13,526,005 shares at June 30, 2003,
and 13,506,977 shares at December 31, 2002) |
(413.1 | ) | (412.8 | ) | ||||||||
Total Shareholders’ Equity |
1,002.5 | 932.9 | ||||||||||
| $ | 5,788.7 | $ | 5,998.3 | |||||||||
See notes to unaudited condensed consolidated financial statements.
3
GOODRICH CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
(DOLLARS IN MILLIONS)
| Six Months Ended | ||||||||||||
| June 30, | ||||||||||||
| 2003 | 2002 | |||||||||||
OPERATING ACTIVITIES |
||||||||||||
Income (loss) from continuing operations |
$ | (18.1 | ) | $ | 107.4 | |||||||
Adjustments to reconcile income (loss) from continuing operations to net cash
Provided by operating activities: |
||||||||||||
Restructuring and consolidation: |
||||||||||||
Expenses |
37.8 | 20.0 | ||||||||||
Payments |
(21.3 | ) | (32.1 | ) | ||||||||
Rotable asset
impairment |
6.2 | — | ||||||||||
Super 27 asset impairment |
79.9 | — | ||||||||||
Depreciation and amortization |
108.8 | 78.8 | ||||||||||
Deferred income taxes |
8.5 | 1.6 | ||||||||||
Net gains on sales of businesses |
— | (2.5 | ) | |||||||||
Payment-in-kind interest income |
(4.3 | ) | (11.5 | ) | ||||||||
Change in assets and liabilities, net of effects of acquisitions and dispositions
of businesses: |
||||||||||||
Receivables |
40.0 | 42.1 | ||||||||||
Change in receivables sold, net |
(2.1 | ) | (32.4 | ) | ||||||||
Inventories |
(14.3 | ) | (20.3 | ) | ||||||||
Other current assets |
(7.2 | ) | (0.6 | ) | ||||||||
Accounts payable |
(45.9 | ) | (86.8 | ) | ||||||||
Accrued expenses |
32.7 | (17.6 | ) | |||||||||
Income taxes payable |
25.2 | 94.0 | ||||||||||
Other non-current assets and liabilities |
(8.3 | ) | 16.6 | |||||||||
Net cash provided by operating activities of continuing operations |
217.6 | 156.7 | ||||||||||
INVESTING ACTIVITIES |
||||||||||||
Purchases of property and equipment |
(46.7 | ) | (36.6 | ) | ||||||||
Proceeds from sale of property and equipment |
3.4 | 5.1 | ||||||||||
Proceeds from sale of businesses |
— | 6.0 | ||||||||||
Proceeds from sale of payment-in-kind note |
151.9 | 4.8 | ||||||||||
Payments (made) received in connection with acquisitions, net of cash acquired |
31.0 | (0.4 | ) | |||||||||
Net cash provided (used) by investing activities of continuing operations |
139.6 | (21.1 | ) | |||||||||
FINANCING ACTIVITIES |
||||||||||||
Increase (decrease) in short-term debt |
(379.9 | ) | 113.2 | |||||||||
Proceeds from issuance of long-term debt |
7.0 | 0.3 | ||||||||||
Repayment of long-term debt and capital lease obligations |
(2.0 | ) | — | |||||||||
Proceeds from issuance of capital stock |
— | 4.1 | ||||||||||
Purchases of treasury stock |
— | (4.8 | ) | |||||||||
Dividends |
(46.9 | ) | (56.1 | ) | ||||||||
Distributions on Trust preferred securities |
(5.2 | ) | (8.7 | ) | ||||||||
Net cash provided (used) by financing activities of continuing operations |
(427.0 | ) | 48.0 | |||||||||
DISCONTINUED OPERATIONS |
||||||||||||
Net cash provided (used) by discontinued operations |
185.0 | (122.9 | ) | |||||||||
Effect of Exchange Rate Changes on Cash and Cash Equivalents |
2.7 | 2.2 | ||||||||||
Net Increase in Cash and Cash Equivalents |
117.9 | 62.9 | ||||||||||
Cash and Cash Equivalents at Beginning of Period |
149.9 | 85.8 | ||||||||||
Cash and Cash Equivalents at End of Period |
$ | 267.8 | $ | 148.7 | ||||||||
See notes to unaudited condensed consolidated financial statements.
4
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 and its subsidiaries 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. Unless indicated otherwise or the context requires, the terms “we,” “our,” “us”, “Goodrich” or “Company” refer to Goodrich Corporation and its subsidiaries. In our opinion, 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, 2003 are not necessarily indicative of the results that may be achieved for the year ending December 31, 2003. For further information, refer to the consolidated financial statements and footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2002.
The Company completed its acquisition of TRW Inc.’s Aeronautical Systems businesses during the fourth quarter of 2002. The results of the Aeronautical Systems businesses are included from the date of acquisition, and are therefore included in the three and six months ended June 30, 2003 results, but not the three and six months ended June 30, 2002 results.
As discussed in Note J, our former Engineered Industrial Products segment, our former Avionics business and our former Passenger Restraints Systems business have been accounted for as discontinued operations. Unless otherwise noted, disclosures herein pertain to our continuing operations.
Note B: Stock-Based Employee Compensation
During the first quarter of 2003, the Company adopted Statement No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosures” (SFAS 148), which amends Statement No. 123 “Accounting for Stock-Based Compensation” (SFAS 123). The interim disclosures required by SFAS 148 are presented below.
The Company grants stock options and performance shares to certain employees, and administers an employee stock purchase plan. Stock-based employee compensation is accounted for in accordance with Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” No compensation expense is included in net income for stock options or employee stock purchase plan shares. Compensation expense is recognized for performance shares based on an estimate of the number of shares that will be earned adjusted for changes in the market price of the Company’s common stock.
5
The following table represents the effect on net income and earnings per share if the Company had applied the fair value based method and recognition provisions of SFAS 123. For purposes of the pro forma disclosures, the estimated fair value of stock options at the date of grant is amortized to expense over the stock option vesting period. Pro forma compensation expense for the employee stock purchase plan awards in a given year included both the fair value of the option to purchase shares at the date of grant and additional compensation to reflect the discounted purchase price. The grant date fair value of performance shares is amortized to expense over the three-year plan cycle without adjustments for subsequent changes in the market price of the Company’s common stock.
| Three Months | Six Months | ||||||||||||||||
| Ended | Ended | ||||||||||||||||
| June 30, | June 30, | ||||||||||||||||
| (In millions, except per share amounts) | 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net income, as reported |
$ | 14.4 | $ | 45.9 | $ | 43.8 | $ | 60.2 | |||||||||
Stock-based employee compensation
expense (income) included in reported
net income, net of related tax effects |
1.5 | 0.9 | (1.5 | ) | 4.1 | ||||||||||||
Stock-based employee compensation
(expense) income determined under fair
value method for all awards, net of
related tax effects |
(4.0 | ) | (4.4 | ) | (4.2 | ) | (8.8 | ) | |||||||||
Pro forma net income |
$ | 11.9 | $ | 42.4 | $ | 38.1 | $ | 55.5 | |||||||||
Earnings per share: |
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