UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

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

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		28217
2730 West Tyvola Road		(Zip Code)
Charlotte, North Carolina
(Address of principal executive offices)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company filer (as defined in Rule 12b-2 of the Exchange Act). Yes o
No þ

At March 31, 2011, there were 124,870,523 shares of common stock outstanding (excluding 14,000,000 shares held by wholly owned subsidiary). There is only one class of common stock.

 

 

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements			2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			29
Item 3. Quantitative and Qualitative Disclosures About Market Risk			59
Item 4. Controls and Procedures			59
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			60
Item 1A. Risk Factors			60
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			61
Item 6. Exhibits			62
SIGNATURE			63
EXHIBIT INDEX			64
EX-10.1
EX-15
EX-31.1
EX-31.2
EX-32
EX-101 INSTANCE DOCUMENT
EX-101 SCHEMA DOCUMENT
EX-101 CALCULATION LINKBASE DOCUMENT
EX-101 LABELS LINKBASE DOCUMENT
EX-101 PRESENTATION LINKBASE DOCUMENT
EX-101 DEFINITION LINKBASE DOCUMENT

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We have reviewed the condensed consolidated balance sheet of Goodrich Corporation as of March 31, 2011, and the related condensed consolidated statements of income for the three-month period ended March 31, 2011 and 2010, and the condensed consolidated statements of cash flows for the three-month period ended March 31, 2011 and 2010. These financial statements are the responsibility of the Company’s management.

We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board, the objective of which is the expression of 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 condensed consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Goodrich Corporation as of December 31, 2010, 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 15, 2011, 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, 2010, 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
April 21, 2011

CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)

		Three Months Ended
		March 31,
		2011				2010
		(Dollars in millions, except per
		share amounts)
Sales		$	1,895.9			$	1,695.2
Operating costs and expenses:
Cost of sales			1,310.5				1,204.3
Selling and administrative costs			285.1				269.9
			1,595.6				1,474.2
Operating Income			300.3				221.0
Interest expense			(34.6	)			(33.5	)
Interest income			0.3				0.1
Other income (expense) — net			(5.8	)			(6.4	)
Income from continuing operations before income taxes			260.2				181.2
Income tax expense			(63.6	)			(68.6	)
Income From Continuing Operations			196.6				112.6
Income from discontinued operations — net of income taxes			—				1.2
Consolidated Net Income			196.6				113.8
Net income attributable to noncontrolling interests			(1.8	)			(2.6	)
Net Income Attributable to Goodrich		$	194.8			$	111.2
Amounts attributable to Goodrich:
Income from continuing operations		$	194.8			$	110.0
Income from discontinued operations — net of income taxes			—				1.2
Net Income Attributable to Goodrich		$	194.8			$	111.2
Earnings per common share attributable to Goodrich:
Basic Earnings Per Share
Continuing operations		$	1.53			$	0.87
Discontinued operations			—				0.01
Net Income Attributable to Goodrich		$	1.53			$	0.88
Diluted Earnings Per Share
Continuing operations		$	1.52			$	0.86
Discontinued operations			—				0.01
Net Income Attributable to Goodrich		$	1.52			$	0.87
Dividends Declared Per Common Share		$	0.29			$	0.27

See Notes to Condensed Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)

		March 31,				December 31,
		2011				2010
		(Dollars in millions,
		except share amounts)
Current Assets
Cash and cash equivalents		$	811.1			$	798.9
Accounts and notes receivable, less allowances for doubtful receivables ($16 at March 31, 2011 and $16.8 at December 31, 2010)			1,267.7				1,102.7
Inventories — net			2,564.5				2,449.4
Deferred income taxes			162.5				158.3
Prepaid expenses and other assets			85.4				68.1
Income taxes receivable			7.5				93.7
Total Current Assets			4,898.7				4,671.1
Property, plant and equipment, less accumulated depreciation ($1,902.7 at March 31, 2011 and $1,843.9 at December 31, 2010)			1,477.5				1,521.5
Goodwill			1,773.5				1,762.2
Identifiable intangible assets — net			672.5				675.8
Deferred income taxes			16.8				16.4
Other assets			758.4				624.6
Total Assets		$	9,597.4			$	9,271.6
Current Liabilities
Short-term debt		$	5.1			$	4.1
Accounts payable			647.8				514.0
Accrued expenses			980.4				1,041.8
Income taxes payable			30.4				2.9
Deferred income taxes			28.4				28.1
Current maturities of long-term debt and capital lease obligations			1.5				1.5
Total Current Liabilities			1,693.6				1,592.4
Long-term debt and capital lease obligations			2,352.7				2,352.8
Pension obligations			525.7				556.7
Postretirement benefits other than pensions			295.1				296.9
Long-term income taxes payable			136.0				150.7
Deferred income taxes			460.3				431.2
Other non-current liabilities			514.1				503.1
Shareholders’ Equity
Common stock — $5 par value
Authorized 200,000,000 shares; issued 149,233,822 shares at March 31, 2011 and 148,213,331 shares at December 31, 2010 (excluding 14,000,000 shares held by a wholly owned subsidiary)			746.2				741.1
Additional paid-in capital			1,798.4				1,751.2
Income retained in the business			2,685.1				2,527.2
Accumulated other comprehensive income (loss)			(558.7	)			(676.1	)
Common stock held in treasury, at cost (24,363,299 shares at March 31, 2011 and 23,259,865 shares at December 31, 2010)			(1,093.1	)			(996.5	)
Total Shareholders’ Equity			3,577.9				3,346.9
Noncontrolling interests			42.0				40.9
Total Equity			3,619.9				3,387.8
Total Liabilities And Equity		$	9,597.4			$	9,271.6

See Notes to Condensed Consolidated Financial Statements (Unaudited)

CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)

		Three Months Ended
		March 31,
		2011				2010
		(Dollars in millions)
Operating Activities
Consolidated net income		$	196.6			$	113.8
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
(Income) loss from discontinued operations			—				(1.2	)
Pension and postretirement benefits:
Expenses			26.6				47.6
Contributions and benefit payments			(75.4	)			(112.7	)
Depreciation and amortization			72.4				67.1
Excess tax benefits related to share-based payment arrangements			(8.6	)			(8.0	)
Share-based compensation expense			17.9				18.2
Deferred income taxes			(5.2	)			5.8
Change in assets and liabilities, net of effects of acquisitions and divestitures:
Receivables			(157.3	)			(100.5	)
Inventories, net of pre-production and excess-over-average			(41.0	)			(7.4	)
Pre-production and excess-over-average inventories			(55.8	)			(50.3	)
Other current assets			1.8				(2.3	)
Accounts payable			90.5				68.0
Accrued expenses			(68.3	)			(20.7	)
Income taxes payable/receivable			105.8				37.5
Other assets and liabilities			(3.6	)			(25.4	)
Net Cash Provided By Operating Activities			96.4				29.5
Investing Activities
Purchases of property, plant and equipment			(35.6	)			(20.9	)
Proceeds from sale of property, plant and equipment			0.1				0.1
Payments received (made) in connection with acquisitions, net of cash acquired			8.3				—
Investments in and advances to equity investees			(0.5	)			(0.5	)
Net Cash Used In Investing Activities			(27.7	)			(21.3	)
Financing Activities
Increase (decrease) in short-term debt, net			0.8				1.1
Proceeds (repayments) of long-term debt and capital lease obligations			(0.5	)			—
Proceeds from issuance of common stock			27.1				35.2
Purchases of treasury stock			(96.6	)			(42.8	)
Dividends paid			(0.5	)			(34.1	)
Excess tax benefits related to share-based payment arrangements			8.6				8.0
Distributions to noncontrolling interests			(0.7	)			(0.6	)
Net Cash Used In Financing Activities			(61.8	)			(33.2	)
Discontinued Operations
Net cash provided by (used in) operating activities			(0.1	)			(0.2	)
Net cash provided by (used in) investing activities			—				—
Net cash provided by (used in) financing activities			—				—
Net cash provided by (used in) discontinued operations			(0.1	)			(0.2	)
Effect of exchange rate changes on cash and cash equivalents			5.4				(7.4	)
Net increase (decrease) in cash and cash equivalents			12.2				(32.6	)
Cash and cash equivalents at beginning of period			798.9				811.0
Cash and cash equivalents at end of period		$	811.1			$	778.4

See Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1. Basis of Interim Financial Statements

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 notes 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. The Company believes that 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 months ended March 31, 2011 are not necessarily indicative of the results that may be achieved for the twelve months ending December 31, 2011. Unless otherwise noted, disclosures pertain to the Company’s continuing operations. For further information, refer to the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Use of Estimates. The preparation of financial statements requires management to make estimates and assumptions that affect amounts recognized. Estimates and assumptions are reviewed and updated regularly as new information becomes available. During the three months ended March 31, 2011 and 2010, the Company changed its estimates of revenues and costs on certain long-term contracts primarily in its aerostructures and aircraft wheels and brakes businesses. The changes in estimates increased income from continuing operations before income taxes during the three months ended March 31, 2011 and 2010 by $20.7 million and $16 million ($13.1 million and $10 million after tax, or $0.10 and $0.08 per diluted share, respectively). These changes 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.

Accrued Expenses. Accrued expenses consisted of the following:

		March 31,				December 31,
		2011				2010
		(Dollars in millions)
Deferred revenue		$	327.1			$	274.9
Wages, vacations, pensions and other employment costs			223.5				313.2
Warranties			95.3				90.0
Postretirement benefits other than pensions			29.6				29.7
Accrued taxes			39.5				31.1
Foreign currency hedges			11.9				22.5
Other			253.5				280.4
Total		$	980.4			$	1,041.8

Note 2. New Accounting Standards Not Yet Adopted

As of March 31, 2011, there were no new standards applicable to the Company that have not yet been adopted.

Note 3. Business Segment Information

The Company’s business segments are as follows:

	•		The Actuation and Landing Systems segment provides systems, components and related services pertaining to aircraft taxi, take-off, flight control, landing and stopping, and engine components, including fuel delivery systems and rotating assemblies.
	•		The Nacelles and Interior Systems segment produces products and provides maintenance, repair and overhaul services associated with aircraft engines, including thrust reversers, cowlings, nozzles and their components, and aircraft interior products, including slides, seats, cargo and lighting systems.
	•		The Electronic Systems segment produces a wide array of systems and components that provide flight performance measurements, flight management, fuel controls, electrical systems, control and safety data, reconnaissance and surveillance systems and precision guidance systems.

The Company measures each reporting segment’s profit based upon operating income. Accordingly, the Company does not allocate net interest expense, other income (expense) — net and income taxes to its reporting segments. The company-wide Enterprise Resource Planning (ERP) costs that are not directly associated with a specific business were not allocated to the segments. The accounting policies of the reportable segments are the same as those for the Company’s condensed consolidated financial statements.

		Three Months Ended
		March 31,
		2011				2010
		(Dollars in millions)
Sales:
Actuation and Landing Systems		$	684.3			$	613.1
Nacelles and Interior Systems			656.4				555.8
Electronic Systems			555.2				526.3
		$	1,895.9			$	1,695.2
Intersegment sales:
Actuation and Landing Systems		$	9.8			$	6.8
Nacelles and Interior Systems			2.8				1.9
Electronic Systems			10.9				6.7
		$	23.5			$	15.4
Operating income:
Actuation and Landing Systems		$	86.5			$	69.4
Nacelles and Interior Systems			157.3				118.8
Electronic Systems			91.0				70.8
			334.8				259.0
Corporate general and administrative expenses			(30.9	)			(33.9	)
ERP costs			(3.6	)			(4.1	)
Total operating income		$	300.3			$	221.0

Note 4. Other Income (Expense) — Net

Other Income (Expense) — Net consisted of the following:

		Three Months Ended
		March 31,
		2011				2010
		(Dollars in millions)
Retiree health care expenses related to previously owned businesses		$	(2.6	)		$	(2.7	)
Expenses related to previously owned businesses			(1.6	)			(1.2	)
Equity in affiliated companies			(0.9	)			(1.9	)
Other — net			(0.7	)			(0.6	)
Other income (expense) — net		$	(5.8	)		$	(6.4	)

Note 5. Share-Based Compensation

During the three months ended March 31, 2011 and 2010, the Company expensed share-based compensation awards under the Goodrich Equity Compensation Plan and the Goodrich Corporation 2008 Global Employee Stock Purchase Plan for employees and under the Outside Director Deferral and Outside Director Phantom Share plans for non-employee directors. A detailed description of the awards under these plans is included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

The compensation cost recorded for share-based compensation plans during the three months ended March 31, 2011 and 2010 was $17.9 million and $18.2 million, respectively.

Grants

A summary of the Company’s grants during the three months ended March 31, 2011 and the weighted-average fair value per share are as follows:

Stock Options						Restricted Stock Units								Performance Units
		Weighted Average								Weighted Average								Weighted Average
Shares		Fair Value Per Share				Shares				Fair Value Per Share				Units				Fair Value Per Unit
733,400		$	28.35				497,950			$	88.64				140,600			$	102.67

The grant date fair value for the stock options with the three-year service condition was estimated under the Black-Scholes-Merton formula using the following weighted-average assumptions:

		2011				2010
Risk-free interest rate (%)			2.2				2.9
Expected dividend yield (%)			1.3				1.6
Historical volatility factor (%)			35.6				35.0
Weighted-average expected life of the options (years)			5.6				5.7

Employee Stock Purchase Plan Shares Issued

There were 236,855 and 406,778 shares of common stock issued during the three months ended March 31, 2011 and 2010, respectively. Employee contributions of $13.2 million and $12.3 million during the years ended December 31, 2010 and 2009, respectively, were used to purchase the Company’s stock during the three months ended March 31, 2011 and 2010, respectively.

Note 6. Earnings Per Share

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

		Three Months Ended
		March 31,
		2011				2010
		(In millions, except per
		share amounts)
Numerator
Numerator for basic and diluted EPS — income from continuing operations attributable to Goodrich		$	194.8			$	110.0
Percentage allocated to common shareholders (1)			98.6	%			98.6	%
Numerator for basic and diluted EPS		$	192.1			$	108.4
Denominator
Denominator for basic EPS — weighted-average shares			125.3				125.0
Effect of dilutive securities:
Stock options, employee stock purchase plan and other deferred compensation shares			1.1				1.3
Denominator for diluted EPS — adjusted weighted-average shares and assumed conversion			126.4				126.3
Per common share income from continuing operations
Basic		$	1.53			$	0.87
Diluted		$	1.52			$	0.86

(1) Basic weighted-average common shares outstanding			125.3				125.0
Basic weighted-average common shares outstanding and unvested restricted share units expected to vest			127.0				126.7
Percentage allocated to common shareholders			98.6	%			98.6	%

The Company’s unvested restricted share units contain rights to receive nonforfeitable dividend equivalents, and thus, are participating securities requiring the two-class method of computing EPS. The calculation of EPS for common stock shown above excludes the income attributable to the unvested restricted share units from the numerator and excludes the dilutive impact of those units from the denominator.

At March 31, 2011 and 2010, the Company had 3.6 million and 4.7 million, respectively, of outstanding stock options. Stock options are included in the diluted earnings per share calculation using the treasury stock method, unless the effect of including the stock options would be anti-dilutive. For the three months ended March 31, 2011 and 2010, 0.7 million and 1.6 million anti-dilutive stock options, respectively, were excluded from the diluted EPS calculation.

During the three months ended March 31, 2011 and 2010, the Company issued 1 million and 1.5 million, respectively, of shares of common stock pursuant to stock option exercises and other share-based compensation plans.

The Company’s share repurchase program was approved by the Board of Directors for $1.1 billion in total. During the three months ended March 31, 2011 and 2010, the Company repurchased 0.9 million and 0.5 million shares, respectively. From inception of the program through March 31, 2011, the Company has repurchased 9.8 million shares for approximately $618 million under its share repurchase program.

Note 7. Fair Value Measurements

The Company defines fair value as the price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The following three levels of inputs are used to measure fair value:

	Level 1 —		quoted prices in active markets for identical assets and liabilities.
	Level 2 —		observable inputs other than quoted prices in active markets for identical assets and liabilities.
	Level 3 —		unobservable inputs in which there is little or no market data available, which require the reporting entity to develop its own assumptions.

The Company’s financial assets and (liabilities) measured at fair value on a recurring basis were, in millions, as follows:

		Fair Value																Fair Value
		March 31,																December 31,
		2011				Level 1				Level 2				Level 3				2010				Level 1				Level 2				Level 3
Cash Equivalents (1)		$	207.6			$	207.6			$	—			$	—			$	596.2			$	596.2			$	—			$	—
Derivative Financial Instruments (2)
Cash Flow Hedges			99.9				—				99.9				—				30.6				—				30.6				—
Other Forward Contracts			(1.0	)			—				(1.0	)			—				(0.2	)			—				(0.2	)			—
Rabbi Trust Assets (3)			61.2				61.2				—				—				55.3				55.3				—				—
Long-term debt (4)			(2,559.9	)			—				(2,559.9	)			—				(2,531.8	)			—				(2,531.8	)			—

Note 8. Inventories

Inventories consist of the following:

		March 31,				December 31,
		2011				2010
		(Dollars in millions)
Average or actual cost (which approximates current costs):
Finished products		$	223.8			$	224.4
In-process			1,977.1				1,866.1
Raw materials and supplies			710.2				692.8
			2,911.1				2,783.3
Less:
Reserve to reduce certain inventories to LIFO basis			(53.2	)			(52.7	)
Progress payments and advances			(293.4	)			(281.2	)
Total		$	2,564.5			$	2,449.4

In-process inventory included $1,224 million and $1,154.2 million at March 31, 2011 and December 31, 2010, respectively, for the following: (1) pre-production and excess-over-average inventory accounted for under long-term contract accounting; and (2) engineering costs recoverable under long-term contractual arrangements. The March 31, 2011 balance of $1,224 million included $604.2 million related to the Boeing 787, $252.7 million related to the Airbus A350 XWB and $186.9 million related to the Pratt and Whitney PurePower® PW 1000G engine contracts.

The Company uses the last-in, first-out (LIFO) cost method of valuing inventory for certain of the Company’s legacy aerospace manufacturing businesses, primarily the aircraft wheels and brakes business in the Actuation and Landing Systems segment. An actual valuation of inventory under the LIFO method can be made only at the end of each year based on the inventory levels and costs at that time.

Progress payments and advances represent (1) non-refundable payments for work-in-process and (2) cash received from government customers where the government has legal title to the work-in-process.

Note 9. Goodwill

The changes in the carrying amount of goodwill by segment were as follows:

										Foreign
		Balance								Currency				Balance
		December 31,				Business				Translation/				March 31,
		2010				Combinations				Other				2011
		(Dollars in millions)
Actuation and Landing Systems		$	327.7			$	—			$	6.2			$	333.9
Nacelles and Interior Systems(1)			591.6				(2.9	)			5.0				593.7
Electronic Systems			842.9				—				3.0				845.9
		$	1,762.2			$	(2.9	)		$	14.2			$	1,773.5

Note 10. Financing Arrangements

The Company has a $500 million committed global syndicated revolving credit facility, which expires in May 2012. Interest rates under this facility vary depending upon:

	•		The amount borrowed;
	•		The Company’s public debt rating by Standard & Poor’s, Moody’s and Fitch; and
	•		At the Company’s option, rates tied to the agent bank’s prime rate or, for U.S. Dollar and Great Britain Pounds Sterling borrowings, the London Interbank Offered Rate and for Euro Dollar borrowings, the Euro Interbank Offered Rate.

At March 31, 2011, there were no borrowings and $62.7 million in letters of credit outstanding under the facility. At December 31, 2010, there were no borrowings and $62.5 million in letters of credit outstanding under the facility. The level of unused borrowing capacity varies from time to time depending, in part, upon the Company’s compliance with financial and other covenants set forth in the related agreement, including the consolidated net worth requirement and maximum leverage ratio. The Company is currently in compliance with all such covenants. Under the most restrictive of these covenants, $2,090 million of income retained in the business and additional paid-in capital was free from such limitations at March 31, 2011. At March 31, 2011, the Company had borrowing capacity under this facility of $437.3 million, after reductions for letters of credit outstanding under the facility.

At March 31, 2011, the Company also maintained $75 million of uncommitted U.S. working capital facilities and $156.8 million of uncommitted and committed foreign working capital facilities with various banks to meet short-term borrowing requirements. At March 31, 2011 and December 31, 2010, there were $5.1 million and $4.1 million, respectively, in borrowings and $23 million in letters of credit and bank guarantees outstanding under these facilities. These credit facilities are provided by a small number of commercial banks that also provide the Company with committed credit through the syndicated revolving credit facility described above and with various cash management, trust and other services.

At March 31, 2011, the Company had letters of credit and bank guarantees of $123 million, inclusive of letters of credit outstanding under the Company’s syndicated revolving credit facility, uncommitted U.S. working capital facilities and uncommitted and committed foreign working capital facilities, as discussed above.

Long-term Debt

Long-term debt and capital lease obligations, excluding current maturities, consisted of:

		March 31,				December 31,
		2011				2010
		(Dollars in millions)
Medium-term notes payable (interest rates from 6.8% to 8.7%)		$	398.9			$	398.9
6.29% senior notes, maturing in 2016			294.8				295.0
6.125% senior notes, maturing in 2019			298.2				298.1
4.875% senior notes, maturing in 2020			299.4				299.4
3.6% senior notes, maturing in 2021			598.8				598.8
6.80% senior notes, maturing in 2036			233.9				233.7
7.0% senior notes, maturing in 2038			199.2				199.2
Other debt, maturing through 2020 (interest rates from 0.3% to 4.5%)			16.5				16.5
			2,339.7				2,339.6
Capital lease obligations			13.0				13.2
Total		$	2,352.7			$	2,352.8

Lease Commitments

The Company leases certain of its office and manufacturing facilities, machinery and equipment and corporate aircraft under various committed lease arrangements provided by financial institutions. Future minimum lease payments under operating leases were $214.5 million at March 31, 2011.

Note 11. Pensions and Postretirement Benefits Other Than Pensions

Pensions

The following table sets forth the components of net periodic benefit cost and the weighted-average assumptions used to determine the net periodic benefit cost. The net periodic benefit cost for divested or discontinued operations retained by the Company is included in the amounts below:

		U.S. Plans								U.K. Plans								Other Plans
		Three Months Ended								Three Months Ended								Three Months Ended
		March 31,								March 31,								March 31,
		2011				2010				2011				2010				2011				2010
		(Dollars in millions)
Service cost		$	12.2			$	11.7			$	4.2			$	4.1			$	1.7			$	1.2
Interest cost			43.1				42.2				10.8				9.8				2.0				1.8
Expected return on plan assets			(52.6	)			(45.9	)			(15.4	)			(13.2	)			(2.1	)			(1.7	)
Amortization of prior service cost			1.6				1.8				(0.1	)			(0.1	)			0.1				—
Amortization of actuarial loss			15.6				30.2				0.4				0.6				0.6				0.4
Net periodic benefit cost (income)		$	19.9			$	40.0			$	(0.1	)		$	1.2			$	2.3			$	1.7
Termination benefit charge		$	—			$	—			$	0.7			$	—			$	—			$	—

The following table provides the weighted-average assumptions used to determine the net periodic benefit cost.

		U.S. Plans								U.K. Plans								Other Plans
		2011				2010				2011				2010				2011				2010
Discount rate			5.67	%			5.90	%			5.81	%			5.88	%			5.19	%			5.75	%
Expected long-term rate of return on assets			8.25	%			8.75	%			8.25	%			8.50	%			8.08	%			8.32	%
Rate of compensation increase			4.10	%			4.10	%			3.75	%			3.75	%			3.40	%			3.38	%

We generally amortize the actuarial gains and losses for our pension plans over the average future service period of the active participants. However, in 2011, we are amortizing the actuarial losses in our U.S. salaried plan over the remaining life of the inactive plan participants since almost all of the plan participants are now inactive. This results in a reduction in the amortization of actuarial losses from 2010 in the U.S. salaried plan.

Postretirement Benefits Other Than Pensions

The following table sets forth the components of net periodic postretirement benefit cost other than pensions. Other postretirement benefits related to the divested and discontinued operations retained by the Company are included in the amounts below.

		Three Months Ended
		March 31,
		2011				2010
		(Dollars in millions)
Service cost		$	0.3			$	0.4
Interest cost			4.2				4.3
Amortization of prior service cost			—				—
Amortization of actuarial (gain) loss			—				—
Net periodic benefit cost		$	4.5			$	4.7

The following table provides the assumptions used to determine the net periodic postretirement benefit cost.

		Three Months Ended March 31,
		2011				2010
Discount rate			5.29	%			5.55	%
Healthcare trend rate		7.5% in 2011 to 5% in 2017				7.3% in 2010 to 5% in 2015

Note 12. Comprehensive Income (Loss)

Total comprehensive income (loss) consisted of the following:

		Three Months Ended
		March 31,
		2011				2010
		(Dollars in millions)
Net income attributable to Goodrich		$	194.8			$	111.2
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation gains (losses) during the period			60.6				(53.3	)
Pension/OPEB liability adjustments during the period, net of tax for the three months ended March 31, 2011 and 2010 of ($5.7) and ($13.1), respectively			8.8				21.7
Gain (loss) on cash flow hedges, net of tax for the three months ended March 31, 2011 and 2010 of ($22.7) and $18, respectively			48.0				(30.6	)
Less: Other comprehensive income (loss) attributable to noncontrolling interests			—				—
Total comprehensive income (loss)		$	312.2			$	49.0

Accumulated other comprehensive income (loss) consisted of the following:

		March 31,				December 31,
		2011				2010
		(Dollars in millions)
Cumulative unrealized foreign currency translation gains, net of deferred taxes of $1.7 and $1.7, respectively		$	200.2			$	139.6
Pension/OPEB liability adjustments, net of deferred taxes of $489.4 and $495.1, respectively			(822.7	)			(831.5	)
Accumulated gains (losses) on cash flow hedges, net of deferred taxes of $27.3 and $4.6, respectively			63.8				15.8
TOTAL		$	(558.7	)		$	(676.1	)

Note 13. Noncontrolling Interests

The changes in the Company’s noncontrolling interests were as follows:

		Three months ended
		March 31,
		2011				2010
		(Dollars in millions)
Balance at January 1		$	40.9			$	46.6
Distributions to noncontrolling interests			(0.7	)			(0.6	)
Comprehensive income:
Net income attributable to noncontrolling interests			1.8				2.6
Other comprehensive income, net of tax			—				—
Comprehensive income			1.8				2.6
Balance at March 31		$	42.0			$	48.6

Note 14. Income Taxes

The Company’s effective tax rate for the three months ended March 31, 2011 was 24.4%. Significant items that impacted the Company’s effective tax rate as compared to the U.S. federal statutory rate of 35% included a tax settlement with the IRS for the remaining unresolved issue for tax years prior to 2000 which reduced the effective tax rate by approximately 8 percentage points, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate which reduced the effective tax rate by approximately 2 percentage points, foreign and domestic tax credits and benefits related to domestic manufacturing which reduced the effective tax rate by approximately 4 percentage points, state income taxes (net of related federal tax benefit) which increased the effective tax rate by approximately 1 percentage point and adjustments to reserves for tax contingencies, including interest thereon (net of related tax benefit), which increased the effective tax rate by approximately 1 percentage point.

The Company’s effective tax rate for the three months ended March 31, 2010 was 37.9%. A significant item impacting the Company’s effective tax rate as compared to the U.S. federal statutory rate of 35% was a charge of approximately $10 million in the three months ended March 31, 2010 due to the passage of health care reform legislation, which increased the effective tax rate by approximately 6 percentage points. Other items that impacted the effective tax rate included foreign and domestic tax credits and benefits related to domestic manufacturing which reduced the effective tax rate by approximately 4 percentage points, earnings in foreign jurisdictions taxed at rates different from the statutory U.S. federal rate which reduced the effective tax rate by approximately 3 percentage points, deemed repatriation of non-U.S. earnings which increased the effective tax rate by approximately 2 percentage points, adjustments to reserves for tax contingencies, including interest thereon (net of related tax benefit), which increased the effective tax rate by approximately 1 percentage point and state income taxes (net of related tax benefit) which increased the effective tax rate by approximately 2 percentage points.

At March 31, 2011, the Company had $150.3 million of unrecognized tax benefits; however, the total amount of unrecognized benefits that, if recognized, would have affected the effective tax rate was $193.9 million. The difference relates to the impact of indirect effects including the federal benefit of state taxes and interest and penalties net of any related federal benefit as well as temporary differences which do not affect the effective tax rate. The Company reported interest and penalties related to unrecognized tax benefits in income tax expense.

At December 31, 2010, the Company had $147.1 million of unrecognized tax benefits; however, the total amount of unrecognized benefits that, if recognized, would have affected the effective tax rate was $203.9 million. The difference relates to the impact of indirect effects including the federal benefit of state taxes and interest and penalties net of any related federal benefit as well as temporary differences which do not affect the effective tax rate.

Note 15. Contingencies

General

There are various pending or threatened claims, lawsuits and administrative proceedings against the Company or its subsidiaries, arising from the ordinary course of business which seek remedies or damages. Although no assurance can be given with respect to the ultimate outcome of these matters, the Company believes that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on its consolidated financial position, results of operations or cash flows. Legal costs are expensed as incurred.

Environmental

The Company is subject to environmental laws and regulations which may require that the Company investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. At certain sites, the Company has been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. The Company is currently involved in the investigation and remediation of a number of sites under applicable laws.

Estimates of the Company’s environmental liabilities are based on current facts, laws, regulations and technology. These estimates take into consideration the Company’s prior experience and professional judgment of the Company’s environmental specialists. Estimates of the Company’s environmental liabilities 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 cost estimates, 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 proceed, it is likely that adjustments in the Company’s accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on the Company’s results of operations or cash flows in a given period. Based on currently available information, however, the Company does not believe that future environmental costs in excess of those accrued with respect to sites for which the Company has been identified as a potentially responsible party are likely to have a material adverse effect on the Company’s financial condition.

Environmental liabilities are recorded when the liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when the Company has recommended a remedy or has committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigation and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation and anticipated expenditures are not discounted to their present value. The liabilities 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, third party indemnity obligations or contractual obligations, and an assessment of the likelihood that such parties will fulfill their obligations at such sites.

The Company’s condensed consolidated balance sheet included an accrued liability for environmental remediation obligations of $69.3 million and $67.7 million at March 31, 2011 and December 31, 2010, respectively. At March 31, 2011 and December 31, 2010, $18.1 million and $14.6 million, respectively, of the accrued liability for environmental remediation were included in current liabilities as accrued expenses. At March 31, 2011 and December 31, 2010, $30.2 million and $27.3 million, respectively, was associated with ongoing operations and $39.1 million and $40.4 million, respectively, was associated with previously owned businesses.

The Company expects that it will expend present accruals over many years, and will generally complete remediation in less than 30 years at sites for which it has been identified as a potentially responsible party. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years.

Certain states in the U.S. and countries globally are promulgating or proposing new or more demanding regulations or legislation impacting the use of various chemical substances by all companies. The Company continues to evaluate the potential impact, if any, of complying with such regulations and legislation.

Asbestos

The Company and some of its subsidiaries have been named as defendants in various actions by plaintiffs alleging damages as a result of exposure to asbestos fibers in products or at formerly owned facilities. The Company believes that pending and reasonably anticipated future actions are not likely to have a material adverse effect on the Company’s financial condition, results of operations or cash flows. There can be no assurance, however, that future legislative or other developments will not have a material adverse effect on the Company’s results of operations and cash flows in a given period.

Insurance Coverage

The Company maintains a comprehensive portfolio of insurance policies, including aviation products liability insurance which covers most of its products. The aviation products liability insurance typically provides first dollar coverage for defense and indemnity of third party claims.

A portion of the Company’s primary and excess layers of pre-1986 insurance coverage for third party claims, primarily related to certain long-tail toxic tort and environmental claims, was provided by certain insurance carriers who are either insolvent, undergoing solvent schemes of arrangement or in run-off. The Company has entered into settlement agreements with a number of these insurers pursuant to which the Company agreed to give up its rights with respect to certain insurance policies in exchange for negotiated payments. These settlements represent negotiated payments for the Company’s loss of insurance coverage, as it no longer has this insurance available for claims that may have qualified for coverage. The portion of these payments which related to recovery of past costs (recognized as expense in prior periods) or for which there are currently no anticipated future claims is recognized in income when the payments are received. The portion related to potential future claims is recorded as deferred settlement credits on the balance sheet.

The deferred settlement credits partially offset future costs related to insurable claims utilizing a systematic and consistent approach. The recognition of the deferred settlement credits is calculated utilizing the estimated percent of costs incurred in the current period that insurance companies would have reimbursed to the Company if insurance coverage were still in place. This approach utilizes historical claims and insurance information of the Company and is reviewed and updated at least annually.

A summary of the deferred settlement credits activity for the three months ended March 31, 2011, in millions, is as follows:

Balance at December 31, 2010		$	48.6
Proceeds from insurance settlements			0.5
Amounts recorded as reduction of costs			(1.6	)
Balance at March 31, 2011		$	47.5

At March 31, 2011 and December 31, 2010, $6 million and $5.7 million, respectively, of the deferred settlement credits was reported in accrued expenses and $41.5 million and $42.9 million, respectively, was reported in other non-current liabilities. It is not practical to estimate when the remaining deferred settlement credits are expected to be recognized. The proceeds from such insurance settlements were reported as a component of net cash provided by operating activities in the period payments were received.

Liabilities of Divested Businesses

In connection with the divestiture of the Company’s tire, vinyl and other businesses, the Company has received contractual rights of indemnification from third parties for environmental and other claims arising out of the divested businesses. Failure of these third parties to honor their indemnification obligations could have a material adverse effect on the Company’s financial condition, results of operations and cash flows.

Aerostructures Long-term Contracts

The Company’s aerostructures business in the Nacelles and Interior Systems segment has several long-term contracts in the pre-production phase including the Airbus A350 XWB, the A320neo and the Pratt and Whitney PurePower® PW 1000G engine contracts, and in the early production phase, including the Boeing 787. These contracts are accounted for in accordance with long-term construction contract accounting.

The pre-production phase includes design of the product to meet customer specifications as well as design of the processes to manufacture the product. Also involved in this phase is securing the supply of material and subcomponents produced by third party suppliers, generally accomplished through long-term supply agreements.

Contracts in the early production phase include excess-over-average inventories, which represent the excess of current manufactured cost over the estimated average manufactured cost during the life of the contract.

Cost estimates over the lives of contracts are affected by estimates of future cost reductions including learning curve efficiencies. Because these contracts cover manufacturing periods of up to 20 years or more, there is risk associated with the estimates of future costs made during the pre-production and early production phases. These estimates may be different from actual costs due to various risk factors, including the following:

	•		Ability to recover costs incurred for change orders and claims;
	•		Costs, including material and labor costs and related escalation;
	•		Labor improvements due to the learning curve experience;
	•		Anticipated cost and/or productivity improvements, including overhead absorption, related to new, or changes to, manufacturing methods and processes;
	•		Supplier pricing, including escalation where applicable, potential supplier claims, the supplier’s financial viability and the supplier’s ability to perform;
	•		The cost impact of product design changes that frequently occur during the flight test and certification phases of a program; and
	•		Effect of foreign currency exchange fluctuations.

Additionally, total contract revenue is based on estimates of future units to be delivered to the customer, the ability to recover costs incurred for change orders and claims and sales price escalation, where applicable. There is a risk that there could be differences between the actual units delivered and the estimated total units to be delivered under the contract and differences in actual revenues compared to estimates. Changes in estimates could have a material impact on the Company’s results of operations and cash flows.

Provisions for estimated losses on uncompleted contracts are recorded in the period such losses are determined to the extent total estimated costs exceed total estimated contract revenues.

Aerostructures 787 Contract with Boeing

During 2004, the Company’s Aerostructures business entered into a long-term contract with Boeing on the 787 program. The Company’s latest outlook estimates original equipment sales in excess of $5 billion for this contract. Aftermarket sales associated with this program are not accounted for using the percentage-of-completion method of accounting.

This program is in the pre-production phase, with entry into service expected in the second half of 2011 followed by rapidly increasing production rates shortly thereafter. For this contract to remain profitable, it will be important that assumptions are realized as currently estimated in the Company’s outlook, such as:

	•		Supplier pricing consistent with projected costs must be negotiated for portions of the product. These prices could be impacted by design changes, changes in material costs and availability of reliable suppliers in competitive cost countries;
	•		New automated equipment is being utilized to manufacture the 787 composite nacelle, which is expected to reduce costs significantly during the contract period;
	•		Nacelle product design changes continue to occur to improve product performance, reduce weight and lower cost. The Company expects that some of the costs for these changes will be recoverable from Boeing and also expects to have success on its various cost reduction initiatives; and
	•		Material and overhead cost escalation and inflation assumptions could be different than estimated.

While the Company continues to believe the contract will be profitable, it is important to note that changes to any of the current cost and/or revenue assumptions will have a significant impact on the overall profitability of the contract and could have a material impact on the Company’s results of operations in the period identified. From a sensitivity perspective, a 1% change in the Company’s estimate of recurring costs would change its estimate of total costs over the contract by approximately $50 million.

All of the risk factors listed in “Aerostructures Long-term Contracts” above could also affect the Company’s outlook of profitability on this contract.

JSTARS Program

In 2002, Seven Q Seven, Ltd. (7Q7) was selected by Northrop Grumman Corporation to provide propulsion pods for the re-engine program for the JT3D engines used by the U.S. Air Force. The Company was selected by 7Q7 as a supplier for the inlet, thrust reverser, exhaust, EBU, strut systems and wing interface systems. As of March 31, 2011, the Company has $20.1 million (net of advances of $11.1 million) of pre-production costs and inventory related to this program.

Future program funding remains uncertain and there can be no assurance of such funding. If the program were to be cancelled, the Company would recognize an impairment.

Tax

The Company is continuously undergoing examination by the IRS as well as various state and foreign jurisdictions. The IRS and other taxing authorities routinely challenge certain deductions and credits reported by the Company on its income tax returns. See Note 14, “Income Taxes”, for additional detail.

Tax Years 2007 and 2008

In January 2011, the IRS issued a Revenue Agent’s Report (RAR) for the tax years 2007 and 2008. In February 2011, the Company submitted a protest to the Appeals Division of the IRS with respect to certain unresolved issues which involve the proper timing of deductions. Although it is reasonably possible that these matters could be resolved during the next 12 months, the timing or ultimate outcome is uncertain.

Tax Years 2005 and 2006

During 2009, the IRS issued a RAR for the tax years 2005 and 2006. In July 2009, the Company submitted a protest to the Appeals Division of the IRS with respect to certain unresolved issues which involve the proper timing of deductions. Although it is reasonably possible that these matters could be resolved during the next 12 months, the timing or ultimate outcome is uncertain.

Tax Years 2000 to 2004

During 2007, the IRS and the Company reached agreement on substantially all of the issues raised with respect to the examination of taxable years 2000 to 2004. The Company submitted a protest to the Appeals Division of the IRS with respect to the remaining unresolved issues which involve the proper timing of certain deductions. The Company and the IRS were unable to reach agreement on the remaining issues. In December 2009, the Company filed a petition in the U.S. Tax Court and in March 2010 the Company also filed a complaint in the Federal District Court. The Company believes the amount of the estimated tax liability if the IRS were to prevail is fully reserved. The Company cannot predict the timing or ultimate outcome of a final resolution of the remaining unresolved issues.

Tax Years Prior to 2000

The previous examination cycle included the consolidated income tax groups for the audit periods identified below:

Coltec Industries Inc. and Subsidiaries		December, 1997 — July, 1999 (through date of acquisition)
Goodrich Corporation and Subsidiaries		1998 — 1999 (including Rohr, Inc. (Rohr) and Coltec)

The IRS and the Company previously reached final settlement on all but one of the issues raised in this examination cycle. The Company received statutory notices of deficiency dated June 14, 2007 related to the remaining unresolved issue which involves the proper timing of certain deductions. The Company filed a petition with the U.S. Tax Court in September 2007 to contest the notices of deficiency.

In December 2010, the Company reached a tentative agreement with the IRS to settle the remaining unresolved issue but due to the size of the potential refund, the agreement required approval by the Joint Committee on Taxation (JCT). In January 2011, the JCT approved the terms of the settlement agreement. In March 2011, the U.S. Tax Court accepted the terms of the settlement agreement and agreed to the litigants’ request to dismiss the matter. The Company recognized a tax benefit of approximately $21 million in the three months ended March 31, 2011.

Rohr was examined by the State of California for the tax years ended July 31, 1985, 1986 and 1987. The State of California disallowed certain expenses incurred by one of Rohr’s subsidiaries in connection with the lease of certain tangible property. California’s Franchise Tax Board held that the deductions associated with the leased equipment were non-business deductions. In addition, California audited our amended tax returns filed to reflect the changes resulting from the settlement of the U.S. Tax Court for Rohr’s tax years 1986 to 1997. California issued an assessment based on numerous issues including proper timing of deductions and allowance of tax credits. In October 2010, a comprehensive settlement was reached with the California Tax Board addressing all issues for tax years 1985 through 2001. The Company recognized a tax benefit of approximately $23 million in the three months ended December 31, 2010.

Note 16. Guarantees

The Company extends financial and product performance guarantees to third parties. At March 31, 2011, the following environmental remediation and indemnification and financial guarantees were outstanding:

		Maximum				Carrying
		Potential				Amount of
		Payment				Liability
		(Dollars in millions)
Environmental remediation and other indemnifications (Note 15, “Contingencies”)		No Limit				$	15.3
Guarantees of residual value on leases		$	28.1			$	—
Guarantees of JV debt and other financial instruments		$	41.7			$	—

The Company has guarantees of residual values on certain lease obligations in which the Company is obligated to either purchase or remarket the assets at the end of the lease term.

The Company is guarantor on a revolving credit agreement totaling £35 million between Rolls-Royce Goodrich Engine Control Systems Limited (JV) and a financial institution. In addition, the Company guarantees the JV’s foreign exchange credit line with a notional amount of $154.9 million and a fair value asset of $5 million at March 31, 2011. The Company is indemnified by Rolls-Royce for 50% of the gains/losses resulting from the foreign exchange hedges.

Service and Product Warranties

The Company provides service and warranty policies on certain of its products. The Company accrues liabilities under service and warranty policies based upon specific claims and a review of historical warranty and service claim experience. Adjustments are made to accruals as claim data and historical experience change. In addition, the Company incurs discretionary costs to service its products in connection with product performance issues.

The changes in the carrying amount of service and product warranties for the three months ended March 31, 2011, in millions, are as follows:

Balance at December 31, 2010		$	148.5
Net provisions for warranties issued during the period			15.2
Net change to warranties existing at the beginning of the year			0.7
Payments			(11.7	)
Foreign currency translation and other			2.4
Balance at March 31, 2011		$	155.1

The current and long-term portions of service and product warranties were as follows:

		March 31,				December 31,
		2011				2010
		(Dollars in millions)
Accrued expenses		$	95.2			$	90.0
Other non-current liabilities			59.9				58.5
Total		$	155.1			$	148.5

Note 17. Derivatives and Hedging Activities

Cash Flow Hedges

The Company has subsidiaries that conduct a substantial portion of their business in Great Britain Pounds Sterling, Euros, Canadian Dollars, Indian Rupees and Polish Zlotys but have significant sales contracts that are denominated primarily in U.S. Dollars. Periodically, the Company enters into forward contracts to exchange U.S. Dollars for these currencies to hedge a portion of the Company’s exposure from U.S. Dollar sales.

The forward contracts described above are used to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates that impact the Company’s U.S. Dollar sales for certain foreign operations. The forward contracts are accounted for as cash flow hedges and are recorded in the Company’s condensed consolidated balance sheet at fair value, with the offset reflected in Accumulated Other Comprehensive Income (AOCI), net of deferred taxes. The gain or loss on the forward contracts is reported as a component of other comprehensive income (loss) (OCI) and reclassified into earnings in the same period or periods during which the hedged transactions affect earnings. The notional value of the forward contracts at March 31, 2011 and December 31, 2010 was $2,213.7 million and $2,286.5 million, respectively. As of March 31, 2011 and December 31, 2010, the total fair value before taxes of the Company’s forward contracts and the accounts in the condensed consolidated balance sheet in which the fair value amounts are included are shown below:

		March 31,				December 31,
		2011				2010
		(Dollars in millions)
Prepaid expenses and other assets		$	39.5			$	20.3
Other assets			77.1				44.6
Accrued expenses			11.9				22.7
Other non-current liabilities			4.8				11.6

The amounts recognized in OCI and reclassified from AOCI into earnings are shown below:

		Three months ended
		March 31,
		2011				2010
		(Dollars in millions)
Amount of gain/(loss) recognized in OCI, net of tax of ($22.7) and $18, respectively		$	48.0			$	(30.6	)
Amount of gain/(loss) reclassified from AOCI into sales		$	1.2			$	(5.1	)

The total fair value of the Company’s forward contracts of a $99.9 million net asset (after deferred taxes of $28.1 million) at March 31, 2011, combined with $2.8 million of losses on previously matured hedges of intercompany sales and gains from forward contracts terminated prior to the original maturity dates, is recorded in AOCI and will be reflected in income as earnings are affected by the hedged items. As of March 31, 2011, the portion of the net $99.9 million asset that would be reclassified into earnings to offset the effect of the hedged item in the next 12 months is a gain of $27.6 million. These forward contracts mature on a monthly basis with maturity dates that range from April 2011 to December 2015. There was a de minimis amount of both ineffectiveness and hedge components excluded from the assessment of effectiveness during the three months ended March 31, 2011 and 2010.

Fair Value Hedges

The Company enters into interest rate swaps to increase the Company’s exposure to variable interest rates. The settlement and maturity dates on each swap are the same as those on the referenced notes. The interest rate swaps are accounted for as fair value hedges and the carrying value of the notes is adjusted to reflect the fair values of the interest rate swaps. At March 31, 2011 and December 31, 2010, the Company had no outstanding interest rate swaps. For the three months ended March 31, 2011 and 2010, before tax gains of $0.4 million and $0.8 million ($0.3 million and $0.5 million after tax), respectively, were recorded as a reduction to interest expense. These amounts represent previously terminated swaps which are amortized over the life of the underlying debt.

Other Forward Contracts

As a supplement to the foreign exchange cash flow hedging program, the Company enters into forward contracts to manage its foreign currency risk related to the translation of monetary assets and liabilities denominated in currencies other than the relevant functional currency. These forward contracts generally mature monthly and the notional amounts are adjusted periodically to reflect changes in net monetary asset balances. Since these contracts are not designated as hedges, the gains or losses on these forward contracts are recorded in selling and administrative costs or cost of sales, as appropriate. These contracts are utilized to mitigate the earnings impact of the translation of net monetary assets and liabilities.

During the three months ended March 31, 2011, the Company recorded a transaction loss on its monetary assets of $13.5 million, which was offset by gains on the other forward contracts described above of $10.2 million. During the three months ended March 31, 2010, the Company recorded a transaction gain on its monetary assets of $11.6 million, which was offset by losses on the other forward contracts described above of $12.5 million.

Note 18. Subsequent Event

On March 31, 2011, the Company signed an agreement to acquire Microtecnica S.r.l., a leading provider of flight control actuation systems for helicopter, regional and business aircraft, missile actuation, and aircraft thermal and environmental control systems. The purchase price is expected to be approximately 330 million Euros. The transaction is expected to close during the three months ended June 30, 2011, subject to customary government approvals.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN ITEM 1 OF THIS DOCUMENT.

THIS MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CONTAINS FORWARD-LOOKING STATEMENTS. SEE “FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY” FOR A DISCUSSION OF CERTAIN OF THE UNCERTAINTIES, RISKS AND ASSUMPTIONS ASSOCIATED WITH THESE STATEMENTS.

UNLESS OTHERWISE NOTED HEREIN, DISCLOSURES PERTAIN ONLY TO OUR CONTINUING OPERATIONS.

OVERVIEW

We are one of the largest worldwide suppliers of aerospace components, systems and services to the commercial and general aviation airplane markets. We are also a leading supplier of systems and products to the global defense and space markets. Our business is conducted globally with manufacturing, service and sales undertaken in various locations throughout the world. Our products and services are principally sold to customers in North America, Europe and Asia.

Key Market Channels for Products and Services, Growth Drivers and Industry and our Highlights

We participate in three key market channels: commercial, regional, business and general aviation airplane original equipment (OE); commercial, regional, business and general aviation airplane aftermarket; and defense and space.

Commercial, Regional, Business and General Aviation Airplane OE

Commercial, regional, business and general aviation airplane OE includes sales of products and services for new airplanes produced by Airbus and Boeing, and regional, business and small airplane manufacturers.

The key growth drivers in this market channel include the number of orders for the manufacturers’ airplanes, which will be delivered to their customers over a period of several years, OE manufacturer production and delivery rates for in-service airplanes such as the Airbus A320 and Boeing 737NG, and introductions of new airplane models such as the Boeing 787 and 747-8 and the Airbus A350 XWB and A320neo, and engine types such as the Pratt and Whitney PurePower^® PW1000G.

We have significant sales content on most of the airplanes manufactured in this market channel. Over the last few years, we have benefited from the historically high production rates and deliveries of Airbus and Boeing airplanes and from our substantial content on many of the regional and general aviation airplanes. Airbus and Boeing have announced production rate increases for 2011 and beyond. However, production rates are always subject to change, and may be impacted by economic conditions which may influence customers’ willingness and/or ability to purchase new aircraft.

Commercial, Regional, Business and General Aviation Airplane Aftermarket

The commercial, regional, business and general aviation airplane aftermarket channel includes sales of products and services for existing commercial and general aviation airplanes, primarily to airlines and package carriers around the world.

We have significant product content on most of the airplane models that are currently in service and we enjoy the benefit of having excellent positions on the newer, more fuel-efficient airplanes currently in service. The key growth drivers in this channel include worldwide passenger capacity growth measured by Available Seat Miles (ASM) and the size, type and utilization levels of the worldwide airplane fleet. Other important factors affecting growth in this market channel are the age and types of the airplanes in the fleet, fuel prices, airline maintenance practices, Gross Domestic Product (GDP) trends in countries and regions around the world and domestic and international air freight activity.

Capacity in the global airline system, as measured by ASM, is expected to grow in 2011 as compared to 2010 due in large part to the expected global economic recovery. ASM expectations could be adversely affected if airlines choose to fly their in-service airplanes less frequently, or temporarily ground airplanes due to decreased demand, high fuel prices and other factors including weaker than expected global economic recovery.

Defense and Space

Worldwide defense and space sales include sales to prime contractors such as Boeing, Northrop Grumman, Lockheed Martin, the U.S. Government and foreign companies and governments.

The key growth drivers in this channel include the level of defense spending by the U.S. and foreign governments, the number of new platform starts, the level of military flight operations, the level of upgrade, overhaul and maintenance activities associated with existing platforms and demand for optical surveillance and reconnaissance systems.

The market for our defense and space products is global, and is not dependent on any single program, platform or customer. We anticipate fewer new fighter and transport aircraft platform starts over the next several years. We also anticipate that the introduction of the F-35 Lightning II and new helicopter platforms, along with upgrades on existing defense and space platforms, will provide long-term growth opportunities in this market channel. Additionally, we are participating in, and developing new products for, the expanding intelligence, surveillance and reconnaissance sector (ISR), which should further strengthen our position in this market channel.

Long-term Sustainable Growth

We believe that we are well positioned to grow our sales, organically and through acquisitions, over the long-term due to:

	•		Awards for key products on important new and expected programs, including the Airbus A350 XWB and A320neo, the Boeing 787 and 747-8, the Pratt & Whitney PurePower® PW1000G engine and the Lockheed Martin F-35 Lightning II;
	•		The large installed base on commercial airplanes and our strong positions on newer, more fuel-efficient airplanes, which should fuel sustained long-term aftermarket strength;
	•		Balance in the commercial airplane market, with strong sales to Airbus, Boeing and the regional and business jet airplane manufacturers;
	•		Aging of the existing large commercial and regional airplane fleets, which should result in increased aftermarket support;
	•		Increased number of long-term agreements for product and service sales on new and existing commercial airplanes;
	•		Increased opportunities for aftermarket growth due to airline outsourcing;

	•		Growth in global maintenance, repair and overhaul (MRO) opportunities for our systems and components, particularly in Europe, Asia and the Middle East, where we have expanded our capacity; and
	•		Expansion of our product offerings in support of high growth areas in the defense and space market channel, such as helicopter products and systems, ISR products and precision guidance systems for munitions.

First Quarter 2011 Sales Content by Market Channel

During the first quarter 2011, approximately 95% of our sales were from our three key market channels described above. Following is a summary of the percentage of sales by market channel:

Airbus Commercial OE			18	%
Boeing Commercial OE			9	%
Regional, Business and General Aviation Airplane OE			7	%
Total Large Commercial, Regional, Business and General Aviation Airplane OE			34	%
Large Commercial Airplane Aftermarket			24	%
Regional, Business and General Aviation Airplane Aftermarket			7	%
Total Large Commercial, Regional, Business and General Aviation Airplane Aftermarket			31	%
Total Defense and Space			30	%
Other			5	%
Total			100	%

Results of Operations — First Quarter 2011 as Compared to First Quarter 2010

										Favorable/
										(Unfavorable)
		First Quarter								$				%
		2011				2010				Change				Change
						(Dollars in millions, except diluted EPS)
Sales		$	1,895.9			$	1,695.2			$	200.7				11.8
Segment operating income (1)		$	334.8			$	259.0			$	75.8				29.3
Corporate general and administrative costs			(34.5	)			(38.0	)			3.5				9.2
Total operating income			300.3				221.0				79.3				35.9
Net interest expense			(34.3	)			(33.4	)			(0.9	)			(2.7	)
Other income (expense) — net			(5.8	)			(6.4	)			0.6				9.4
Income from continuing operations before income taxes			260.2				181.2				79.0				43.6
Income tax expense			(63.6	)			(68.6	)			5.0				7.3
Income from continuing operations			196.6				112.6				84.0				74.6
Income from discontinued operations			—				1.2				(1.2	)			(100.0	)
Consolidated net income			196.6				113.8				82.8				72.8
Net income attributable to noncontrolling interests			(1.8	)			(2.6	)			0.8				30.8
Net income attributable to Goodrich		$	194.8			$	111.2			$	83.6				75.2
Effective tax rate			24.4	%			37.9	%
Diluted EPS:
Continuing operations		$	1.52			$	0.86			$	0.66				76.7
Net income attributable to Goodrich		$	1.52			$	0.87			$	0.65				74.7

Sales

The sales increase in the first quarter 2011 as compared to the first quarter 2010 was driven by changes in each of our major market channels as follows:

	•		Defense and space sales of both original equipment and aftermarket products and services increased by approximately $54 million, or 10%;
	•		Regional, business and general aviation airplane original equipment sales increased by approximately $51 million, or 55%, including sales associated with the recent acquisition of DeCrane’s cabin management assets;
	•		Large commercial, regional, business and general aviation airplane aftermarket sales increased by approximately $62 million, or 12%; and
	•		Large commercial airplane original equipment sales increased by approximately $27 million, or 6%.

Segment operating income

See discussion in the “Business Segment Performance” section.

Corporate general and administrative costs

Corporate general and administrative costs decreased primarily due to lower share-based compensation and lease-related expenses.

Net interest expense

Net interest expense increased primarily as a result of higher debt levels in the first quarter 2011 as compared to the first quarter 2010.

Other income (expense) — net

Other income (expense) — net remained unchanged for the first quarter 2011 as compared to the first quarter 2010.

Income from continuing operations

In addition to the items described above, income from continuing operations during the first quarter 2011 as compared to the first quarter 2010 was impacted by the following items:

		Increase (Decrease)
		Before				After				Diluted
		Tax				Tax				EPS
		(Dollars in millions, except diluted EPS)
Lower pension and postretirement benefits expense		$	21.0			$	13.0			$	0.10
Lower effective tax rate		$	—			$	35.1			$	0.28

Lower pension and postretirement benefits expense

The decrease in pension and postretirement benefits expense was primarily the result of actuarial changes, including the change in the amortization period for gains and losses for our U.S. salaried plan, the benefit of $300 million in incremental contributions that were made in 2010 and favorable returns on our plan assets.

Lower effective tax rate

For the first quarter of 2011 we reported an effective tax rate of 24.4% as compared to 37.9% in the first quarter 2010. The decrease in the effective tax rate was primarily due to a tax settlement with the IRS for the remaining unresolved issues for tax years prior to 2000 which reduced the effective tax rate in the first quarter of 2011 by approximately 8 percentage points, and a charge of approximately $10 million in the first quarter 2010 to adjust deferred income taxes due to the passage of U.S. health care reform legislation, which increased our effective tax rate in the first quarter of 2010 by approximately 6 percentage points.

Our effective tax rate for the first quarter 2010 was not reduced for the benefit of the U.S. Research and Development Credit (R&D Credit) because the federal statute authorizing the R&D Credit had not been extended until the fourth quarter of 2010. We estimate that the effective tax rate at March 31, 2010 would have been approximately 1 percentage point lower had we been able to consider the tax benefits associated with the R&D Credit.

2011 OUTLOOK

We expect the following approximate results for the year ending December 31, 2011:

		2011 Outlook		2010 Actual
Sales		$7.8 billion		$7 billion
Diluted EPS — Net Income Attributable to Goodrich		$5.40 to $5.55 per share		$4.51 per share
Capital Expenditures		$300 million to $350 million		$222.3 million
Operating Cash Flow minus Capital Expenditures		Exceed 85% of net income attributable to Goodrich		50% of net income attributable to Goodrich

Our 2011 sales outlook does not include the impact of the Microtechnica S.r.l. (Microtechnica) acquisition, or any other potential acquisitions or divestitures. Potential restructuring activities that have not yet been approved are not included in the current outlook. Our 2011 outlook includes, among other factors:

	•		Lower worldwide pre-tax pension expense of approximately $74 million, $46 million after-tax or $0.37 per diluted share. For 2011, we expect total worldwide pre-tax pension expense of approximately $88 million, compared to $162 million in 2010; and
	•		A full-year effective tax rate of approximately 30 percent for 2011, which is unchanged from our previous outlook. We expect an effective tax rate of approximately 32 percent for the remaining quarters of 2011.

On March 14, 2011, our landing gear business, which is reported in the Actuation and Landing Systems segment, began discussions with one of its local employee unions regarding a new contract. The current contract expires in May 2011. The discussions include the fact that we are considering the potential closure of our landing gear facility located on Marble Avenue in Cleveland, Ohio, where approximately 400 employees are located. Negotiations with the union are ongoing. Should we decide to close the facility, we would likely need to recognize personnel-related and facility closure costs at that time.

Sales

Our current market assumptions for each of our major market channels for the full year 2011 outlook compared to 2010 include the following:

	•		Large commercial airplane original equipment sales are expected to increase approximately 15%. 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 approximately 30% to 35%, including incremental sales associated with the DeCrane acquisition;

	•		Large commercial, regional, business and general aviation airplane aftermarket sales are expected to increase approximately 7% to 9%; and
	•		Defense and space sales of both original equipment and aftermarket products and services are expected to increase approximately 8% to 10%.

Cash Flow

We expect net cash provided by operating activities, minus capital expenditures, to exceed 85% of net income. This outlook reflects ongoing investments to support the current schedule for the Boeing 787 and Airbus A350 XWB airplane programs, fixed assets and working capital to support announced production rate increases associated with the Boeing 737 and Airbus A320 airplanes, and competitive cost country manufacturing and productivity initiatives that are expected to enhance margins over the near and long term. We expect capital expenditures in 2011 to be approximately $300 million to $350 million. Worldwide pension plan contributions are expected to be approximately $100 million.

BUSINESS SEGMENT PERFORMANCE

Our three business segments are as follows:

	•		The Actuation and Landing Systems segment provides systems, components and related services pertaining to aircraft taxi, take-off, flight control, landing and stopping, and engine components, including fuel delivery systems and rotating assemblies.
	•		The Nacelles and Interior Systems segment produces products and provides maintenance, repair and overhaul services associated with aircraft engines, including thrust reversers, cowlings, nozzles and their components, and aircraft interior products, including slides, seats, cargo and lighting systems.
	•		The Electronic Systems segment produces a wide array of systems and components that provide flight performance measurements, flight management, fuel controls, electrical systems, control and safety data, reconnaissance and surveillance systems and precision guidance systems.

We measure each reporting segment’s profit based upon operating income. Accordingly, we do not allocate net interest expense, other income (expense) — net and income taxes to the reporting segments. The company-wide ERP costs that were not directly associated with a specific business were not allocated to the segments. The accounting policies of the reportable segments are the same as those for our condensed consolidated financial statements. For a reconciliation of total segment operating income to total operating income, see Note 3, “Business Segment Information” to our condensed consolidated financial statements.

First Quarter 2011 Compared with First Quarter 2010

		First Quarter																% of Sales
										Favorable/				%
		2011				2010				(Unfavorable)				Change				2011				2010
		(Dollars in millions)
NET CUSTOMER SALES
Actuation and Landing Systems		$	684.3			$	613.1			$	71.2				11.6
Nacelles and Interior Systems			656.4				555.8				100.6				18.1
Electronic Systems			555.2				526.3				28.9				5.5
		$	1,895.9			$	1,695.2			$	200.7				11.8
SEGMENT OPERATING INCOME
Actuation and Landing Systems		$	86.5			$	69.4			$	17.1				24.6				12.6				11.3
Nacelles and Interior Systems			157.3				118.8				38.5				32.4				24.0				21.4
Electronic Systems			91.0				70.8				20.2				28.5				16.4				13.5
		$	334.8			$	259.0			$	75.8				29.3				17.7				15.3

Actuation and Landing Systems: Actuation and Landing Systems segment sales for the first quarter 2011 increased from the first quarter 2010 primarily due to the following:

	•		Higher defense and space OE and aftermarket sales of approximately $30 million, primarily in our aircraft wheels and brakes, landing gear and engine components businesses;
	•		Higher large commercial airplane OE sales of approximately $15 million, primarily in our landing gear and actuation systems businesses;
	•		Higher large commercial, regional, business and general aviation airplane aftermarket sales of approximately $11 million, primarily in our aircraft wheels and brakes business;
	•		Higher regional, business and general aviation airplane OE sales of approximately $10 million, primarily in our landing gear, actuation systems and engine components businesses; and
	•		Higher non-aerospace sales of approximately $7 million, primarily in our actuation systems and engine components businesses.

Actuation and Landing Systems segment operating income for the first quarter 2011 increased from the first quarter 2010 primarily as a result of the following:

	•		Higher sales volume and favorable product mix across most businesses resulting in higher income of approximately $23 million; partially offset by
	•		Higher operating costs across most businesses partially offset by favorable pricing, which resulted in lower income of approximately $4 million; and
	•		Unfavorable foreign exchange of approximately $2 million.

Nacelles and Interior Systems: Nacelles and Interior Systems segment sales for the first quarter 2011 increased from the first quarter 2010 primarily due to the following:

	•		Higher regional, business and general aviation airplane OE sales of approximately $43 million, primarily in our aerostructures and interiors businesses, including sales associated with the acquisition of DeCrane’s cabin management assets;
	•		Higher large commercial, regional, business, and general aviation airplane aftermarket sales of approximately $34 million, primarily in our aerostructures and interiors businesses;
	•		Higher defense and space OE and aftermarket sales of approximately $13 million, primarily in our aerostructures business; and
	•		Higher large commercial airplane OE sales of approximately $9 million, primarily in our aerostructures business.

Nacelles and Interior Systems segment operating income for the first quarter 2011 increased from the first quarter 2010 primarily due to the following:

	•		Higher sales volume and favorable product mix which resulted in higher income of approximately $39 million, primarily in our aerostructures business; and
	•		Favorable pricing partially offset by higher operating costs, primarily in our aerostructures business, which resulted in higher income of approximately $2 million.

Electronic Systems: Electronic Systems segment sales for the first quarter 2011 increased from the first quarter 2010 primarily due to the following:

	•		Higher large commercial, regional, business and general aviation airplane aftermarket sales primarily in our sensors and integrated systems and engine controls and electrical power businesses of approximately $17 million;
	•		Higher defense and space OE and aftermarket sales across most businesses of approximately $11 million; and

	•		Higher large commercial airplane OE sales of approximately $4 million, primarily in our sensors and integrated systems and engine controls and electrical power businesses; partially offset by
	•		Lower regional, business, and general aviation airplane OE sales of approximately $2 million, primarily in our engine controls and electrical power business.

Electronic Systems segment operating income for the first quarter 2011 increased from the first quarter 2010 primarily due to the following:

	•		Higher sales volume and favorable product mix across all businesses, which resulted in higher income of approximately $13 million;
	•		Higher income of approximately $6 million related to changes in estimates for certain long-term contracts in our ISR business, consisting of favorable changes in estimates of approximately $2 million in the first quarter of 2011 compared to a charge of approximately $4 million in the first quarter of 2010; and
	•		Favorable foreign exchange of approximately $3 million.