Goodrich Announces 26 Percent Increase in Third Quarter 2011 Earnings

CHARLOTTE, N.C., Oct. 27, 2011 /PRNewswire via COMTEX/ — Goodrich Corporation (NYSE: GR) announced results today for the third quarter 2011, and updated its full year outlook for 2011.

Commenting on the company’s performance and its outlook, Marshall Larsen, Chairman, President and Chief Executive Officer said, "Our company continued its track record of strong performance. Excellent execution and strong customer demand drove segment operating margins of 19.3 percent and overall sales growth of 16 percent, compared to the third quarter last year.

“This sales increase of 16 percent included strong growth in all of our major market channels. Commercial aftermarket sales increased by 13 percent, compared to the third quarter 2010, a continuation of the very good growth we experienced during the first half of 2011. We continue to expect commercial aftermarket sales to increase by about 13 percent this year.

“Our defense and space sales also experienced strong growth of 9 percent, including 4 percent organic growth. Our presence in attractive, high growth markets such as ISR, helicopters and precision munitions has enabled us to grow our defense and space sales at rates faster than most of our peers in this industry.

“Our sales to the large commercial airplane OE market grew at a much higher rate in the third quarter than in the first half of 2011. The 23 percent third quarter growth rate in this market channel reflected the positive impact of production rate increases announced by the aircraft manufacturers over the last two years. We expect this market channel to grow by more than 15 percent in 2011.

“Our strong performance in sales growth and margins allowed us to once again revise our net income per diluted share outlook for 2011. Our revised full year 2011 outlook of $5.90 – $6.00 per diluted share now includes $0.15 per diluted share associated with merger-related costs as well as $0.17 per diluted share associated with plant closure and Microtecnica acquisition-related costs announced previously. Our revised outlook represents an earnings per diluted share growth rate of more than 30 percent, including these costs, compared to 2010.

“We are looking forward to completing the merger with United Technologies. As I noted on the day the transaction was announced, we are extremely pleased to have an agreement with United Technologies that delivers immediate cash value to our shareholders at a premium that reflects the strength of our business. Our combination with United Technologies is a testament to our employees and will enable us to shape the future of the aerospace industry through continued innovation, increased global scale and the best talent in the industry. Importantly, United Technologies has a similar culture of mutual trust and respect, accountability and teamwork. Goodrich’s long and proud history will enter a new chapter as part of United Technologies.”

Third Quarter 2011 Results

Goodrich reported third quarter 2011 net income of $201 million, or $1.57 per diluted share, on sales of $2,033 million. In the third quarter 2010, the company reported net income of $160 million, or $1.25 per diluted share, on sales of $1,748 million. Segment operating income margin for the third quarter 2011 was 19.3 percent.

For the third quarter 2011 compared with the third quarter 2010, Goodrich sales changes by market channel were as follows:

Large commercial airplane original equipment sales increased by about 23 percent,
Regional, business and general aviation airplane original equipment sales increased by about 47 percent, of which about 18 percent was organic growth,
Large commercial, regional, business and general aviation airplane aftermarket sales increased by about 13 percent, of which about 11 percent was organic growth, and
Defense and space sales of both original equipment and aftermarket products and services increased by about 9 percent. Organic sales growth for this market channel was about 4 percent.
The increase in net income is attributable primarily to the impact of sales growth in all of the company’s major market channels, strong operational performance, further success on continuous improvement initiatives, higher favorable changes in estimates for certain long-term contracts and lower pension expense, partially offset by merger-related costs. Several of these factors are noted below:

The third quarter 2011 results included lower pre-tax income of $27 million, $17 million after-tax or $0.13 per diluted share, related to the expected merger with United Technologies. The pre-tax costs consist of $12 million of transaction-related costs for third party fees as well as $15 million of increased share-based compensation expenses related to the increased share price.
The third quarter 2011 results included higher pre-tax income of $19 million, $12 million after-tax or $0.10 per diluted share, related to the changes in estimates for certain long-term contracts primarily in our aerostructures and aircraft wheels and brakes businesses, compared to the third quarter 2010. Total pre-tax changes in estimates for the third quarter 2011 were $42 million. Changes in both periods were related primarily to favorable cost and operational performance, changes in volume expectations and sales pricing improvements and finalization of contract terms on current and/or follow-on contracts.
The third quarter 2011 results included higher pre-tax income of $19 million, $12 million after-tax or $0.09 per diluted share, related to lower world-wide pension plan expense, compared to the third quarter 2010.
The company reported an effective tax rate of 32.2 percent for the third quarter 2011, compared to an effective tax rate of 27.7 percent during the third quarter 2010.
The company recorded pre-tax costs of $3 million, $2 million after-tax or $0.01 per diluted share, during the third quarter 2011, related to a plant closure decision announced in June 2011.
Net cash provided by operating activities, minus capital expenditures, for the third quarter 2011 was $168 million, a decrease of $36 million from the same period in 2010. The decrease was due primarily to higher capital expenditures during the third quarter 2011, compared to the third quarter 2010. Capital expenditures were $80 million in the third quarter 2011, compared with capital expenditures of $48 million in the third quarter 2010.

Year-to-date 2011 Results

For the first nine months of 2011, the company reported net income of $573 million, or $4.48 per diluted share, on sales of $5,930 million, compared to the first nine months of 2010 net income of $430 million, or $3.36 per diluted share, on sales of $5,161 million.

The increase in net income is attributable primarily to the impact of sales growth in all of the company’s major market channels, strong operational performance, further success on continuous improvement initiatives, a lower effective tax rate, higher favorable changes in estimates for certain long-term contracts and lower pension expense, partially offset by merger-related costs, plant closure costs and acquisition-related costs. Several of these factors are noted below:

The first nine months of 2011 results included lower pre-tax income of $27 million, $17 million after-tax or $0.13 per diluted share, related to the expected merger with United Technologies. The pre-tax costs consist of $12 million of transaction-related costs for third party fees as well as $15 million of increased share-based compensation expenses related to the increased share price.
The first nine months of 2011 results included pre-tax costs of $18 million, $12 million after-tax or $0.09 per diluted share related to a plant closure decision announced in June 2011.
The first nine months of 2011 results included pre-tax and after-tax costs of $8 million, or $0.06 per diluted share, associated with the Microtecnica acquisition. These costs are included in the segment operating income for Actuation and Landing Systems.
The first nine months of 2011 results included higher pre-tax income of $12 million, $8 million after-tax or $0.06 per diluted share, related to the revision of estimates for certain long-term contracts primarily in our aerostructures and aircraft wheels and brakes businesses, compared to the first nine months of 2010. Total revisions in estimates for the first nine months of 2011 were $83 million, pre-tax. Revisions in both periods were primarily related to favorable cost and operational performance, changes in volume expectations and sales pricing improvements and finalization of contract terms on current and/or follow-on contracts.
The first nine months of 2011 results included higher pre-tax income of $59 million, $37 million after-tax or $0.29 per diluted share, related to lower world-wide pension plan expense, compared to the first nine months of 2010.
The company reported an effective tax rate of 29.9 percent for the first nine months of 2011, compared to an effective tax rate of 32.2 percent for the first nine months of 2010. Compared to the first nine months of 2010, the first nine months of 2011 results included a benefit of $21 million, or $0.17 per diluted share related to a tax settlement and the benefit of the U.S. R&D tax credit, which had not been renewed in the first nine months of 2010.
Net cash provided by operating activities, minus capital expenditures, for the first nine months of 2011 was $408 million, an increase of $2 million from the same period in 2010. During the first nine months of 2011, Goodrich contributed $82 million to its worldwide pension plans, compared to contributions of $131 million in the first nine months of 2010. Capital expenditures were $178 million in the first nine months of 2011, compared with capital expenditures of $100 million in the first nine months of 2010.

Significant Events

Goodrich and United Technologies announced that they have reached agreement for United Technologies to purchase Goodrich Corporation (NYSE: GR) for $127.50 per share in cash. This equates to a total enterprise value of $18.4 billion, including $1.9 billion in net debt assumed. The closing is subject to customary closing conditions, including regulatory and Goodrich shareholder approvals.
The Board of Directors of Goodrich declared a quarterly dividend of 29 cents per share on its common stock, payable January 3, 2012 to shareholders of record as of December 1, 2011.
Goodrich announced that it has acquired Winslow Marine Products Corporation, a leading provider of life rafts to the corporate aviation, helicopter, and marine markets. The transaction closed on September 30, 2011.
Goodrich announced that it has been selected by Embraer to provide the primary flight control system for the new Embraer KC-390 jet transport aircraft. Under the agreement, Goodrich will design and manufacture a new, fully-integrated, fly-by wire, primary flight control system comprising state of the art electro-hydrostatic actuators (EHAs), electro-backup hydrostatic actuators (EBHAs), actuator electronics and electrical controls.
2011 Outlook

The company’s 2011 sales outlook is based on market assumptions for each of its major market channels. The current market assumptions for the full year 2011, compared with the full year 2010 results, include:

Large commercial airplane original equipment sales are expected to increase by more than 15 percent. This outlook assumes all announced production rate increases are implemented, and Boeing 787 and 747-8 deliveries are consistent with the latest schedule announced by Boeing,
Regional, business and general aviation airplane original equipment sales are expected to grow by about 40 percent, of which about 20 percent is organic growth,
Large commercial, regional, business and general aviation airplane aftermarket sales are expected to increase by about 13 percent, of which about 12 percent is organic growth, and
Defense and space sales of both original equipment and aftermarket products and services are expected to increase by about 13 – 15 percent, including sales associated with the Microtecnica acquisition. Organic growth is expected to be about 9 -10 percent.
The company’s full year 2011 sales outlook is unchanged at approximately $8.1 billion, representing growth of over 16 percent from the full year 2010 results. Organic growth is expected to be approximately 13 percent. The outlook for 2011 net income per diluted share has been revised to a range of $5.90 – $6.00, an increase of more than 30 percent compared to 2010 net income per diluted share of $4.51. The prior outlook for net income per diluted share was $5.85 – $6.00.

Due to the merger agreement entered into with UTC, the 2011 outlook now includes lower pre-tax income of $30 million, $19 million after-tax or $0.15 per diluted share, consisting of $14 million of transaction-related costs for third party fees as well as $16 million of increased share-based compensation expenses related to the increased share price.

Our 2011 outlook also includes the following, which are largely unchanged from our previous outlook:

Pre-tax costs related to plant closure decision announced in June 2011 of approximately $23 million, $14 million after-tax or $0.11 per diluted share and pre-tax and after-tax costs of approximately $8 million, or $0.06 per diluted share, associated with the Microtecnica acquisition that closed in May 2011. These costs are included in the segment operating income for Actuation and Landing Systems and were included in our prior outlook.
Pre-tax income of approximately $35 million related to agreements reached with a customer for previously unresolved and ongoing pricing and reimbursement of certain non-recurring costs.
Lower worldwide pre-tax pension expense of approximately $78 million, $49 million after-tax or $0.39 per diluted share. For 2011, the company continues to expect total worldwide pre-tax pension expense of approximately $84 million, compared to $162 million in 2010.
A full-year effective tax rate of approximately 30 percent for 2011.
For 2011, Goodrich continues to expect net cash provided by operating activities, minus capital expenditures, to exceed 85 percent of net income. This outlook reflects ongoing investments to support the current schedule for the Boeing 787, Airbus A350 XWB and A320neo, Bombardier CSeries and Mitsubishi Regional Jet (MRJ) aircraft programs, fixed assets and working capital to support announced production rate increases associated with the Boeing 737 and Airbus A320 aircraft, and competitive cost country manufacturing and productivity initiatives that are expected to enhance margins over the near and long term. The company continues to expect capital expenditures for 2011 to be in a range of $300 – $350 million and pre-tax worldwide pension plan contributions to be approximately $100 million.

The 2011 outlook does not include any potential acquisitions or divestitures.

The supplemental discussion and tables that follow provide more detailed information about the third quarter 2011 segment results.

Goodrich Corporation, a Fortune 500 company, is a global supplier of systems and services to aerospace, defense and homeland security markets. With one of the most strategically diversified portfolios of products in the industry, Goodrich serves a global customer base with significant worldwide manufacturing and service facilities. For more information visit http://www.goodrich.com/.