##### Table of Contents



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
 For the quarterly period ended September 30, 2006
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from                 to
 Commission file number 1-892
 GOODRICH CORPORATION
 (Exact name of registrant as specified in its charter)
 New York(State of Incorporation)
    
    34-0252680(I.R.S. Employer Identification No.)Four Coliseum Centre 
2730 West Tyvola Road 
Charlotte, North Carolina(Address of Principal Executive Offices)
    
    28217(Zip Code)
 Registrants telephone number, including area code: (704) 423-7000
 þ o
  þ o o
 o þ




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TABLE OF CONTENTS  PART I. FINANCIAL INFORMATIONItem 1. Financial Statements.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.RESULTS OF OPERATIONSItem 3. Quantitative and Qualitative Disclosures About Market Risk.Item 4. Controls and Procedures.PART II. OTHER INFORMATIONItem 1. Legal Proceedings.Item 1A. Risk Factors.Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.Item 6. ExhibitsSIGNATUREEXHIBIT INDEXEx-10.1Ex-15Ex-31Ex-32    Table of Contents  
 PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements.
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
      
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CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions, except per
    
    
    (Dollars in millions, except pershare amounts)
    
    
    share amounts)Sales
    
    $
    1,436.0
    
    
    $
    1,370.5
    
    
    $
    4,343.0
    
    
    $
    3,998.7Operating costs and expenses:Cost of sales
    
    
    1,042.9
    
    
    
    1,009.9
    
    
    
    3,174.8
    
    
    
    2,930.1Selling and administrative costs
    
    
    218.7
    
    
    
    225.2
    
    
    
    683.2
    
    
    
    667.01,261.6
    
    
    
    1,235.1
    
    
    
    3,858.0
    
    
    
    3,597.1Operating Income
    
    
    174.4
    
    
    
    135.4
    
    
    
    485.0
    
    
    
    401.6Interest expense
    
    
    (30.7
    )
    
    
    (32.3
    )
    
    
    (94.0
    )
    
    
    (99.2
    )Interest income
    
    
    1.4
    
    
    
    1.2
    
    
    
    3.6
    
    
    
    3.1Other income (expense)  net
    
    
    (16.6
    )
    
    
    (11.6
    )
    
    
    (48.1
    )
    
    
    (36.0
    )Income from continuing operations before income taxes
    
    
    128.5
    
    
    
    92.7
    
    
    
    346.5
    
    
    
    269.5Income tax benefit (expense)
    
    
    (27.7
    )
    
    
    (32.1
    )
    
    
    35.7
    
    
    
    (89.7
    )Income From Continuing Operations
    
    
    100.8
    
    
    
    60.6
    
    
    
    382.2
    
    
    
    179.8Income (loss) from discontinued operations  net of income taxes
    
    
    (0.1
    )
    
    
    0.2
    
    
    
    0.4
    
    
    
    14.2Cumulative effect of change in accounting
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    Net Income
    
    $
    100.7
    
    
    $
    60.8
    
    
    $
    383.2
    
    
    $
    194.0Basic Earnings Per Share:Continuing operations
    
    $
    0.81
    
    
    $
    0.50
    
    
    $
    3.07
    
    
    $
    1.49Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.11Cumulative effect of change in accounting
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    Net Income
    
    $
    0.81
    
    
    $
    0.50
    
    
    $
    3.08
    
    
    $
    1.60Diluted Earnings Per Share:Continuing operations
    
    $
    0.80
    
    
    $
    0.49
    
    
    $
    3.03
    
    
    $
    1.46Discontinued operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    0.11Cumulative effect of change in accounting
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    Net Income
    
    $
    0.80
    
    
    $
    0.49
    
    
    $
    3.04
    
    
    $
    1.57Dividends Declared Per Common Share
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.60
    
    
    $
    0.60
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CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
 September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in millions,except share amounts)Current AssetsCash and cash equivalents
    
    $
    140.1
    
    
    $
    251.3Accounts and notes receivable, less allowances for doubtful receivables
($21.0 at September 30, 2006 and $23.5 at December 31, 2005)
    
    
    955.0
    
    
    
    709.2Inventories  net
    
    
    1,525.7
    
    
    
    1,308.4Deferred income taxes
    
    
    96.4
    
    
    
    101.3Prepaid expenses and other assets
    
    
    69.7
    
    
    
    55.2Total Current Assets
    
    
    2,786.9
    
    
    
    2,425.4Property, plant and equipment  net
    
    
    1,271.7
    
    
    
    1,194.3Prepaid pension
    
    
    359.3
    
    
    
    337.8Goodwill
    
    
    1,333.3
    
    
    
    1,318.4Identifiable intangible assets  net
    
    
    466.7
    
    
    
    462.3Deferred income taxes
    
    
    49.0
    
    
    
    42.8Other assets
    
    
    712.6
    
    
    
    673.0Total Assets
    
    $
    6,979.5
    
    
    $
    6,454.0Current LiabilitiesShort-term debt
    
    $
    90.6
    
    
    $
    22.3Accounts payable
    
    
    575.8
    
    
    
    534.1Accrued expenses
    
    
    800.4
    
    
    
    764.9Income taxes payable
    
    
    123.4
    
    
    
    284.4Deferred income taxes
    
    
    7.2
    
    
    
    7.2Current maturities of long-term debt and capital lease obligations
    
    
    1.2
    
    
    
    1.7Total Current Liabilities
    
    
    1,598.6
    
    
    
    1,614.6Long-term debt and capital lease obligations
    
    
    1,721.6
    
    
    
    1,742.1Pension obligations
    
    
    692.0
    
    
    
    844.2Postretirement benefits other than pensions
    
    
    290.4
    
    
    
    300.0Deferred income taxes
    
    
    123.9
    
    
    
    42.1Other non-current liabilities
    
    
    461.0
    
    
    
    438.0Commitments and contingent liabilities
    
    
    
    
    
    
    Shareholders EquityCommon stock  $5 par value
Authorized 200,000,000 shares; issued 138,442,098 shares at September 30,
2006 and 136,727,436 shares at December 31, 2005 (excluding
14,000,000 shares held by a wholly owned subsidiary)
    
    
    692.2
    
    
    
    683.6Additional paid-in capital
    
    
    1,279.9
    
    
    
    1,203.3Income retained in the business
    
    
    593.0
    
    
    
    285.6Accumulated other comprehensive income (loss)
    
    
    (54.0
    )
    
    
    (283.0
    )Common stock held in treasury, at cost (13,680,341 shares at
September 30, 2006 and 13,621,128 shares at December 31, 2005)
    
    
    (419.1
    )
    
    
    (416.5
    )Total Shareholders Equity
    
    
    2,092.0
    
    
    
    1,473.0Total Liabilities And Shareholders Equity
    
    $
    6,979.5
    
    
    $
    6,454.0
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CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 Nine Months Ended September 30,2006
    
    
    2005(Dollars in millions)Operating ActivitiesNet income
    
    $
    383.2
    
    
    $
    194.0Adjustments to reconcile net income to net cash provided by
operating activities:Income from discontinued operations
    
    
    (0.4
    )
    
    
    (14.2
    )Cumulative effect of change in accounting
    
    
    (0.6
    )
    
    
    Restructuring and consolidation:Expenses
    
    
    4.4
    
    
    
    7.4Payments
    
    
    (4.7
    )
    
    
    (9.5
    )Pension contributions
    
    
    (98.9
    )
    
    
    (40.1
    )Asset impairments
    
    
    3.3
    
    
    
    Depreciation and amortization
    
    
    177.0
    
    
    
    169.9Excess tax benefits on equity instruments issued under share-based payment arrangements
    
    
    (4.2
    )
    
    
    Share-based compensation expense
    
    
    36.3
    
    
    
    28.4Loss on exchange or extinguishment of debt
    
    
    2.0
    
    
    
    9.6Deferred income taxes
    
    
    (3.2
    )
    
    
    (34.8
    )Change in assets and liabilities, net of effects of acquisitions and
dispositions of businesses:Receivables
    
    
    (156.2
    )
    
    
    (165.1
    )Change in receivables sold, net
    
    
    (97.1
    )
    
    
    18.8Inventories
    
    
    (198.2
    )
    
    
    (147.0
    )Other current assets
    
    
    11.0
    
    
    
    9.2Accounts payable
    
    
    38.7
    
    
    
    14.9Accrued expenses
    
    
    24.2
    
    
    
    9.1Income taxes payable
    
    
    (142.4
    )
    
    
    78.9Realized tax benefit on non-qualified options
    
    
    
    
    
    
    14.3Other non-current assets and liabilities
    
    
    36.8
    
    
    
    51.5Net Cash Provided By Operating Activities
    
    
    11.0
    
    
    
    195.3Investing ActivitiesPurchases of property, plant and equipment
    
    
    (153.6
    )
    
    
    (103.4
    )Proceeds from sale of property, plant and equipment
    
    
    1.7
    
    
    
    10.4Payments received (payments made) in connection with
acquisitions, net of cash acquired
    
    
    
    
    
    
    (9.3
    )Net Cash Used In Investing Activities
    
    
    (151.9
    )
    
    
    (102.3
    )Financing ActivitiesIncrease (decrease) in short-term debt, net
    
    
    67.6
    
    
    
    (1.0
    )Loss on exchange or extinguishment of debt
    
    
    (4.5
    )
    
    
    (10.3
    )Proceeds from issuance of long-term debt, net of premiums
paid of $20.6 million in 2006
    
    
    512.7
    
    
    
    Repayment of long-term debt and capital lease obligations
    
    
    (534.2
    )
    
    
    (181.5
    )Proceeds from issuance of common stock
    
    
    47.0
    
    
    
    101.2Purchases of treasury stock
    
    
    (2.1
    )
    
    
    (1.1
    )Dividends
    
    
    (75.1
    )
    
    
    (72.2
    )Excess tax benefits on equity instruments issued under share-based payment arrangements
    
    
    4.2
    
    
    
    Distributions to minority interest holders
    
    
    (2.4
    )
    
    
    (2.4
    )Net Cash Provided (Used) By Financing Activities
    
    
    13.2
    
    
    
    (167.3
    )Discontinued Operations (revisedsee Note 1)Net cash provided by (used in) operating activities
    
    
    11.1
    
    
    
    0.2Net cash provided by (used in) investing activities
    
    
    
    
    
    
    25.8Net cash provided by (used in) financing activities
    
    
    
    
    
    
    Net cash provided by discontinued operations
    
    
    11.1
    
    
    
    26.0Effect of exchange rate changes on cash and cash equivalents
    
    
    5.4
    
    
    
    (5.6
    )Net decrease in cash and cash equivalents
    
    
    (111.2
    )
    
    
    (53.9
    )Cash and cash equivalents at beginning of year
    
    
    251.3
    
    
    
    297.9Cash and cash equivalents at end of period
    
    $
    140.1
    
    
    $
    244.0
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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1. Basis of Interim Financial Statement Preparation
  Note 2. New Accounting Standards
 Accounting for Certain Hybrid Financial Instruments
  6




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Accounting for Uncertainty in Income Taxes
  Fair Value Measurement
  Accounting for Defined Benefit Pension and Other Postretirement Plans
  7




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Accounting for Postretirement Benefits Associated with Split-Dollar Life Insurance
  Note 3. Restructuring and Consolidation Costs
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Engine Systems
    
    $
    0.9
    
    
    $
    0.7
    
    
    $
    2.5
    
    
    $
    1.1Airframe Systems
    
    
    
    
    
    
    2.7
    
    
    
    0.4
    
    
    
    5.1Electronic Systems
    
    
    (0.1
    )
    
    
    0.3
    
    
    
    1.5
    
    
    
    1.2$
    0.8
    
    
    $
    3.7
    
    
    $
    4.4
    
    
    $
    7.4Personnel-related costs
    
    $
    0.5
    
    
    $
    3.1
    
    
    $
    3.1
    
    
    $
    5.8Facility closure and other costs
    
    
    0.3
    
    
    
    0.6
    
    
    
    1.3
    
    
    
    1.6$
    0.8
    
    
    $
    3.7
    
    
    $
    4.4
    
    
    $
    7.4Cost of sales
    
    $
    
    
    
    $
    1.8
    
    
    $
    1.0
    
    
    $
    5.1Selling and administrative costs
    
    
    0.8
    
    
    
    1.9
    
    
    
    3.4
    
    
    
    2.3$
    0.8
    
    
    $
    3.7
    
    
    $
    4.4
    
    
    $
    7.4
  (Dollars in millions)Reserve balance at December 31, 2005
    
    $
    6.5Restructuring charges
    
    
    4.5Return to profit
    
    
    (0.1
    )Used as intended
    
    
    (4.7
    )Foreign exchange adjustments
    
    
    0.4Reserve balance at September 30, 2006
    
    $
    6.6
 Future Restructuring and Consolidation Costs for Programs Announced and Initiated
  8




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Personnel-
    
    
    FacilityRelated
    
    
    ClosureCosts
    
    
    Costs
    
    
    Total(Dollars in millions)Engine Systems
    
    $
    0.2
    
    
    $
    
    
    
    $
    0.2Airframe Systems
    
    
    
    
    
    
    
    
    
    
    Electronic Systems
    
    
    2.6
    
    
    
    4.1
    
    
    
    6.7Total
    
    $
    2.8
    
    
    $
    4.1
    
    
    $
    6.9
 Note 4. Other Income (Expense)  Net
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Retiree health care expenses related to previously owned businesses
    
    $
    (4.5
    )
    
    $
    (4.1
    )
    
    $
    (13.5
    )
    
    $
    (12.6
    )Loss on exchange or extinguishment of debt
    
    
    
    
    
    
    (5.6
    )
    
    
    (4.8
    )
    
    
    (11.6
    )Expenses related to previously owned businesses
    
    
    (6.0
    )
    
    
    (2.3
    )
    
    
    (14.0
    )
    
    
    (3.8
    )Minority interest and equity in affiliated companies
    
    
    (3.6
    )
    
    
    (0.1
    )
    
    
    (11.0
    )
    
    
    (6.8
    )Other  net
    
    
    (2.5
    )
    
    
    0.5
    
    
    
    (4.8
    )
    
    
    (1.2
    )Other income (expense)  net
    
    $
    (16.6
    )
    
    $
    (11.6
    )
    
    $
    (48.1
    )
    
    $
    (36.0
    )
 Note 5. Earnings Per Share
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions, except per share amounts)Numerator:Numerator for basic and diluted earnings per share  income from
continuing operations
    
    $
    100.8
    
    
    $
    60.6
    
    
    $
    382.2
    
    
    $
    179.8Denominator:Denominator for basic earnings per share  weighted- average shares
    
    
    124.7
    
    
    
    122.4
    
    
    
    124.2
    
    
    
    121.1Effect of dilutive securities:Stock options, employee stock purchase plan, restricted stock and
restricted stock units
    
    
    1.5
    
    
    
    2.6
    
    
    
    1.8
    
    
    
    2.4Other deferred compensation shares
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.11.6
    
    
    
    2.7
    
    
    
    1.9
    
    
    
    2.5Denominator for diluted earnings per share  adjusted
weighted-average shares and assumed conversion
    
    
    126.3
    
    
    
    125.1
    
    
    
    126.1
    
    
    
    123.6Per share income from continuing operations:Basic
    
    $
    0.81
    
    
    $
    0.50
    
    
    $
    3.07
    
    
    $
    1.49Diluted
    
    $
    0.80
    
    
    $
    0.49
    
    
    $
    3.03
    
    
    $
    1.46
  9




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Note 6. Inventories
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)FIFO or average cost (which approximates current costs):Finished products
    
    $
    320.1
    
    
    $
    193.4In process
    
    
    877.3
    
    
    
    908.7Raw materials and supplies
    
    
    408.0
    
    
    
    305.01,605.4
    
    
    
    1,407.1Less:Reserve to reduce certain inventories to LIFO basis
    
    
    (44.6
    )
    
    
    (43.5
    )Progress payments and advances
    
    
    (35.1
    )
    
    
    (55.2
    )Total
    
    $
    1,525.7
    
    
    $
    1,308.4
  Note 7. Goodwill
  BusinessBalance
    
    
    Combinations
    
    
    Foreign
    
    
    BalanceDecember 31,
    
    
    Completed or
    
    
    Currency
    
    
    September 30,2005
    
    
    Finalized
    
    
    Translation
    
    
    2006(Dollars in millions)Engine Systems
    
    $
    483.1
    
    
    $
    (0.4
    )
    
    $
    22.5
    
    
    $
    505.2Airframe Systems
    
    
    239.6
    
    
    
    (0.1
    )
    
    
    13.8
    
    
    
    253.3Electronic Systems
    
    
    595.7
    
    
    
    (2.3
    )
    
    
    (18.6
    )
    
    
    574.8$
    1,318.4
    
    
    $
    (2.8
    )(a)
    
    $
    17.7
    
    
    $
    1,333.3
 
 (a)
    
    Represents a revision of plan provisions used in the actuarial valuation of other
postretirement benefits related to the acquisition of the aeronautical systems businesses. 10




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Note 8. Financing Arrangements
 Credit Facilities
     11




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Long-term Debt
  
    
    $177.9 million principal amount of its 7.5 percent notes due in 2008;
    
    $32.7 million principal amount of its 6.45 percent notes due in 2008; and
    
    $80.1 million principal amount of its 6.6 percent notes due in 2009.
   12




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September 30, 2006
    
    
    December 31, 2005(Dollars in millions)Medium-term notes payable
    
    $
    639.8
    
    
    $
    672.17.5% senior notes, maturing in 2008
    
    
    116.5
    
    
    
    294.06.6% senior notes, maturing in 2009
    
    
    131.0
    
    
    
    213.57.625% senior notes, maturing in 2012
    
    
    256.9
    
    
    
    498.86.29% senior notes, maturing in 2016
    
    
    283.0
    
    
    
    6.80% senior notes, maturing in 2036
    
    
    230.2
    
    
    
    Other debt, maturing through 2020 (interest rates from 2.8% to 5.9%)
    
    
    55.5
    
    
    
    55.31,712.9
    
    
    
    1,733.7Capital lease obligation
    
    
    8.7
    
    
    
    8.4Total
    
    $
    1,721.6
    
    
    $
    1,742.1
 13




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##### Table of Contents



Note 9. Off Balance Sheet Arrangements
 Lease Commitments
  Sale of Receivables
  Note 10. Pensions and Postretirement Benefits
 Pensions
  U.S. Plans
    
    
    U.K. Plans
    
    
    Other Non-U.S. PlansThree Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Service cost
    
    $
    9.5
    
    
    $
    11.9
    
    
    $
    7.5
    
    
    $
    5.9
    
    
    $
    1.1
    
    
    $
    0.8Interest cost
    
    
    39.6
    
    
    
    37.0
    
    
    
    8.5
    
    
    
    7.3
    
    
    
    1.2
    
    
    
    1.2Expected return on plan assets
    
    
    (46.3
    )
    
    
    (42.7
    )
    
    
    (12.8
    )
    
    
    (10.3
    )
    
    
    (1.4
    )
    
    
    (1.1
    )Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    1.9
    
    
    
    2.2
    
    
    
    (0.2
    )
    
    
    
    
    
    
    0.1
    
    
    
    Amortization of actuarial (gain) loss
    
    
    10.2
    
    
    
    12.1
    
    
    
    
    
    
    
    0.1
    
    
    
    0.3
    
    
    
    0.1Periodic benefit cost (income)
    
    
    14.9
    
    
    
    20.5
    
    
    
    3.0
    
    
    
    3.0
    
    
    
    1.3
    
    
    
    1.0Settlements and curtailments (gain) loss
    
    
    0.1
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special termination benefit charge (credit)
    
    
    
    
    
    
    
    
    
    
    0.3
    
    
    
    1.3
    
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    15.0
    
    
    $
    20.5
    
    
    $
    3.3
    
    
    $
    4.3
    
    
    $
    1.3
    
    
    $
    1.0
 14




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##### Table of Contents



U.S. Plans
    
    
    U.K. Plans
    
    
    Other Non-U.S. PlansNine Months
    
    
    Nine Months
    
    
    Nine MonthsEnded
    
    
    Ended
    
    
    EndedSeptember 30,
    
    
    September 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Service cost
    
    $
    35.4
    
    
    $
    35.8
    
    
    $
    21.9
    
    
    $
    18.2
    
    
    $
    3.2
    
    
    $
    2.3Interest cost
    
    
    115.8
    
    
    
    111.1
    
    
    
    24.8
    
    
    
    22.8
    
    
    
    3.7
    
    
    
    3.4Expected return on plan assets
    
    
    (135.7
    )
    
    
    (128.3
    )
    
    
    (37.4
    )
    
    
    (31.9
    )
    
    
    (4.0
    )
    
    
    (3.1
    )Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    6.6
    
    
    
    6.6
    
    
    
    (0.7
    )
    
    
    
    
    
    
    0.1
    
    
    
    Amortization of actuarial (gain) loss
    
    
    36.4
    
    
    
    36.3
    
    
    
    
    
    
    
    
    
    
    
    0.9
    
    
    
    0.4Periodic benefit cost (income)
    
    
    58.5
    
    
    
    61.5
    
    
    
    8.6
    
    
    
    9.1
    
    
    
    3.9
    
    
    
    3.0Settlements and curtailments (gain) loss
    
    
    11.0
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special termination benefit charge (credit)
    
    
    
    
    
    
    
    
    
    
    0.5
    
    
    
    1.3
    
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    69.5
    
    
    $
    61.5
    
    
    $
    9.1
    
    
    $
    10.4
    
    
    $
    3.9
    
    
    $
    3.0
  U.S. Plans
    
    U.K. Plans
    
    Other Non-U.S. PlansThree Months and Nine Months
    
    Three Months and Nine Months
    
    Three Months and Nine MonthsEnded
    
    Ended
    
    EndedSeptember 30,
    
    September 30,
    
    September 30,2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Discount rate
1/1/064/10/06
    
    
    5.64
    %
    
    
    N.A.
    
    
    
    4.75
    %
    
    
    N.A.
    
    
    
    4.76
    %
    
    
    N.A.Discount rate
4/11/065/18/06
    
    
    6.01
    %
    
    
    N.A.
    
    
    
    4.75
    %
    
    
    N.A.
    
    
    
    4.76
    %
    
    
    N.A.Discount rate
5/19/069/30/06
    
    
    6.35
    %
    
    
    N.A.
    
    
    
    4.75
    %
    
    
    N.A.
    
    
    
    4.76
    %
    
    
    N.A.Discount rate 2005
    
    
    N.A.
    
    
    
    5.875
    %
    
    
    N.A.
    
    
    
    5.50
    %
    
    
    N.A.
    
    
    
    5.75
    %Expected long-term
return on plan assets
    
    
    9.00
    %
    
    
    9.00
    %
    
    
    8.50
    %
    
    
    8.50
    %
    
    
    8.34
    %
    
    
    8.50
    %Rate of
compensation
increase
    
    
    3.63
    %
    
    
    3.63
    %
    
    
    3.50
    %
    
    
    3.50
    %
    
    
    3.34
    %
    
    
    3.50
    %
   15




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##### Table of Contents



U.S. Retirement Plan Changes in 2006
    Pension Protection Act of 2006
  16




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##### Table of Contents



Postretirement Benefits Other Than Pensions
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Service cost
    
    $
    0.6
    
    
    $
    0.4
    
    
    $
    1.3
    
    
    $
    1.2Interest cost
    
    
    5.5
    
    
    
    5.7
    
    
    
    15.3
    
    
    
    17.0Amortization of prior service cost
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )Amortization of actuarial (gain) loss
    
    
    1.0
    
    
    
    0.3
    
    
    
    1.6
    
    
    
    1.1Periodic benefit cost (income)
    
    
    7.1
    
    
    
    6.4
    
    
    
    18.1
    
    
    
    19.2Settlements and curtailments (gain) loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special termination benefit charge (credit)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    7.1
    
    
    $
    6.4
    
    
    $
    18.1
    
    
    $
    19.2
   Three Months and Nine Months EndedSeptember 30,2006
    
    2005Discount rate
    
    
    5.55
    %
    
    
    5.875
    %Healthcare trend rate
    
    9% in 2006 to 5% in 2010
    
    9% in 2005 to 5% in 2008
 Note 11. Comprehensive Income/(Loss)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Comprehensive Income/(Loss)Net income
    
    $
    100.7
    
    
    $
    60.8
    
    
    $
    383.2
    
    
    $
    194.0Other comprehensive income/(loss):Unrealized foreign currency translation gains (losses) during period
    
    
    5.9
    
    
    
    (9.2
    )
    
    
    81.8
    
    
    
    (56.5
    )Minimum pension liability adjustments during period (Note 10)
    
    
    0.4
    
    
    
    
    
    
    
    109.7
    
    
    
    Gains (losses) on cash flow hedges
    
    
    (12.5
    )
    
    
    
    
    
    
    37.6
    
    
    
    (46.9
    )Gains (losses) on certain investments
    
    
    
    
    
    
    
    
    
    
    (0.1
    )
    
    
    Total
    
    $
    94.5
    
    
    $
    51.6
    
    
    $
    612.2
    
    
    $
    90.6
 17




---



##### Table of Contents



September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)Accumulated Other Comprehensive Income/(Loss)Cumulative unrealized foreign currency translation gains (losses)
    
    $
    217.0
    
    
    $
    135.2Minimum pension liability adjustments
    
    
    (314.4
    )
    
    
    (424.1
    )Accumulated gains (losses) on cash flow hedges
    
    
    43.5
    
    
    
    5.9Accumulated unrealized gains (losses) on certain investments
    
    
    (0.1
    )
    
    
    Total
    
    $
    (54.0
    )
    
    $
    (283.0
    )
  Note 12. Income Taxes
   18




---



##### Table of Contents



Note 13. Business Segment Information
  Engine Systems
  
    
    Aerostructures, which:
 
    
    Produces nacelle systems, pylons, thrust reversers and related engine housing
components; and
    
    Performs maintenance, repair and overhaul services.
 
    
    Engine control systems, which provides:
 
    
    Fuel metering controls, fuel pumping systems and afterburner fuel pump and
metering unit nozzles; and
 
    
    Electronic control software and hardware, variable geometry actuation controls
and engine health monitoring systems.
 
    
    Turbomachinery products, which produces complete rotating assemblies including quality
metallic and thermal barrier coatings for the aircraft and industrial gas turbine engine
industries.
 19




---



##### Table of Contents




    
    Turbine fuel technologies, which provides:
 
    
    Fuel nozzles, injectors, valves and manifolds for aerospace and industrial gas
turbine engines; and
 
    
    Non-aerospace applications that require liquid atomization.
 
    
    Cargo systems, which provides complete cargo handling systems including conveyor
rollers and tracks, side rail guides, side and end latches and power drive control units.
 Airframe Systems
  
    
    Actuation systems, which provides:
 
    
    Actuators for primary flight control systems that operate elevators, ailerons and
rudders, and secondary flight controls systems such as flaps and slats; and
 
    
    Systems that control the movement of steering systems for missiles and
electromechanical systems that are characterized by high power, low weight, low
maintenance, resistance to extreme temperatures and vibrations and reliability.
 
    
    Landing gear systems, which designs, manufactures and services complete landing gear
systems on both commercial and military aircraft.
 
    
    Aircraft wheels and brakes, which provides:
 
    
    Wheel and brake systems containing durable wheels, long-lasting steel brake
designs, light weight and low cost carbon brakes, one source brake control systems, and
state-of-the-art electric brake development; and
 
    
    Original equipment manufacturing (OEM) and overhauls and repairs as well as full
technical and aircraft on ground support through a worldwide network of wheel and brake
service centers.
 
    
    Aviation technical services, which provides:
 
    
    Comprehensive heavy airframe maintenance, component repair and overhaul, aircraft
painting, engineering and certification services; and
 
    
    Aircraft modification services that include VIP interior completion and passenger
to freight conversions.
 20




---



##### Table of Contents




    
    Engineered polymer products, which provides:
 
    
    Large-scale marine composite structures and acoustic materials;
    
    Acoustic absorbing and reflecting materials along with vibration dampening material; and
    
    Fireproof composites.
 Electronic Systems
  
    
    Optical and space systems, which:
 
    
    Provides intelligence, surveillance and reconnaissance systems and
electro-optical defense, scientific and commercial applications; and
    
    Designs and builds custom engineered electronics, optics, shortwave infrared
cameras and arrays.
 
    
    Sensor systems, which provides:
 
    
    Numerous sensors for a wide variety of commercial and military aircraft that
measure mass flow, inertia and altitude, liquid level, position, speed, and temperature;
and
    
    Air data heading reference systems, angle of attack and stall protection systems,
windshield heater controllers, ice detection systems, micro electromechanical systems,
and windshield wiper and washer systems.
 
    
    Power systems, which provides:
 
    
    Constant frequency and variable frequency AC and DC electrical generating systems; and
    
    Rescue hoist and cargo winches.
 21




---



##### Table of Contents




    
    Aircraft interior products, which provides:
 
    
    Evacuations slides and life rafts for several types of aircraft;
    
    Complete aircrew escape systems primarily for military aircraft including canopy
removal, sequencing systems and ejection seats;
    
    Component products such as gas generators, rocket motors, linear explosives,
catapults and numerous cartridge actuated or propellant actuated devices for a wide
variety of applications; and
    
    Seating systems that include cockpit crew and cabin attendant seats.
 
    
    Fuel & utility systems, which provides:
 
    
    Fuel measurement and management systems, fuel system safety devices, and fire
protection systems; and
    
    Health and usage management systems, motion controls and actuators, proximity
sensing systems, braking and steering systems and computer interfaces.
 
    
    De-Icing & specialty systems, which provides:
 
    
    Pneumatic and electrothermal ice protection application;
    
    Heated aircraft components, including heated drain masts, lavatory and galley
water heaters and specialty air heaters; and
    
    Potable water systems and components, aerospace composites and molding resin.
 
    
    Lighting systems, which provides:
 
    
    Interior lighting systems that include cabin and compartment lights, cockpit
lights and controllers along with information signs;
    
    External lighting systems that include anti-collision lights and power supplies,
wing and tail strobe lights, navigation and flood lights, and eternal emergency lights;
and
    
    Night vision imaging systems, covert lighting, main landing gear cables and nose
gear steering cables.
 22




---



##### Table of Contents



Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Net customer sales:Engine Systems
    
    $
    582.5
    
    
    $
    567.3
    
    
    $
    1,827.6
    
    
    $
    1,661.2Airframe Systems
    
    
    481.1
    
    
    
    475.2
    
    
    
    1,440.0
    
    
    
    1,381.9Electronic Systems
    
    
    372.4
    
    
    
    328.0
    
    
    
    1,075.4
    
    
    
    955.6$
    1,436.0
    
    
    $
    1,370.5
    
    
    $
    4,343.0
    
    
    $
    3,998.7Intersegment sales:Engine Systems
    
    $
    5.6
    
    
    $
    5.2
    
    
    $
    16.4
    
    
    $
    21.6Airframe Systems
    
    
    10.4
    
    
    
    14.3
    
    
    
    34.8
    
    
    
    40.2Electronic Systems
    
    
    10.5
    
    
    
    8.8
    
    
    
    31.6
    
    
    
    25.8$
    26.5
    
    
    $
    28.3
    
    
    $
    82.8
    
    
    $
    87.6Segment operating income:Engine Systems
    
    $
    116.2
    
    
    $
    104.1
    
    
    $
    363.8
    
    
    $
    303.4Airframe Systems
    
    
    30.8
    
    
    
    16.1
    
    
    
    73.1
    
    
    
    54.7Electronic Systems
    
    
    50.4
    
    
    
    37.2
    
    
    
    133.1
    
    
    
    107.2197.4
    
    
    
    157.4
    
    
    
    570.0
    
    
    
    465.3Corporate general and administrative expenses
    
    
    (23.0
    )
    
    
    (22.0
    )
    
    
    (74.1
    )
    
    
    (63.7
    )Pension curtailment (Note 10)
    
    
    
    
    
    
    
    
    
    
    (10.9
    )
    
    
    Total operating income
    
    $
    174.4
    
    
    $
    135.4
    
    
    $
    485.0
    
    
    $
    401.6
 Note 14. Derivatives and Hedging Activities
 Cash Flow Hedges
   
    
    $38.5 million recorded as a current asset in prepaid expenses and other assets and
    
    $35.3 million recorded as a non-current asset in other assets; partially offset by,
    
    $3.1 million recorded as a current liability in accrued expenses and
 23




---



##### Table of Contents




    
    $0.7 million recorded as a non-current liability in other non-current liabilities.
   Fair Value Hedges
  
    
    A $43 million fixed-to-floating interest rate swap on the 6.45 percent notes due in 2008;
    
    Two $50 million fixed-to-floating interest rate swaps on the 7.5 percent notes due in 2008; and
    
    A $50 million fixed-to-floating interest rate swap on the 6.29 percent notes due in 2016.
  24




---



##### Table of Contents



Other Forward Contracts
  Note 15. Contingencies
 General
  25




---



##### Table of Contents



Environmental
     26




---



##### Table of Contents



Asbestos
    27




---



##### Table of Contents



Liabilities of Divested Businesses
 Asbestos
   28




---



##### Table of Contents



Other
  Guarantees
  Commercial Airline Customers
  Aerostructures Long-Term Contracts
  Compliance with Specialty Metals Clause in U.S. Defense Contracts and Subcontracts
  29




---



##### Table of Contents



at any
tier
  Tax
   30




---



##### Table of Contents



Rohr, Inc. and Subsidiaries
    
    July, 1995  December, 1997 (through date of acquisition)Coltec Industries Inc and Subsidiaries
    
    December, 1997   July, 1999 (through date of acquisition)Goodrich Corporation and Subsidiaries
    
    1998-1999 (including Rohr and Coltec)
  31




---



##### Table of Contents



Note 16. Guarantees
  Maximum
    
    CarryingPotential
    
    Amount ofPayment
    
    LiabilityEnvironmental remediation indemnification (Note 15)
    
    No limit
    
    $
    13.9Financial Guarantees:Debt and lease payments (Note 8)
    
    $
    2.2
    
    
    $
    Residual value on leases (Note 9)
    
    $
    24.8
    
    
    $
    Letter of credit and bank guarantees (Note 8)
    
    $
    55.8
    
    
    $
    
 Service and Product Warranties
  32




---



##### Table of Contents



(Dollars in millions)Balance at December 31, 2005
    
    $
    162.4Service and product warranty provision
    
    
    41.4Return to profit
    
    
    (7.8
    )Used as intended
    
    
    (45.5
    )Foreign currency translation
    
    
    7.1Balance at September 30, 2006
    
    $
    157.6
  September 30,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)Short-term liabilities
    
    $
    60.0
    
    
    $
    61.0Long-term liabilities
    
    
    97.6
    
    
    
    101.4Total
    
    $
    157.6
    
    
    $
    162.4
 Note 17. Share-Based Compensation Plans
   
    
    SFAS 123(R) requires entities to apply the same attribution method to all awards
subject to graded vesting. The Company has two types of share-based compensation awards
that are subject to graded vesting: stock options and restricted stock units. In the years
prior to January 1, 2006, stock options were accounted for under the straight-line
attribution method and restricted stock units were accounted for under the accelerated
attribution method. Effective upon the adoption of SFAS 123(R), the Company made a policy
election to apply the straight-line method to all share-based awards that are subject to
graded vesting. As a result of this election, the straight-line method being applied to
restricted stock unit grants would have calculated higher before tax compensation expense
during the nine months ended September 30, 2005 than if the previous method of accounting
had been used by approximately $2.4 million ($1.5 million after tax). As a result of
applying the straight-line method, the Company
 33




---



##### Table of Contents



expects that before tax compensation expense recognized during the year ending December 31,
2006 will be approximately $1 million lower than under the accelerated method.
 
    
    The Company previously accounted for forfeitures as they occurred. Under SFAS 123(R),
the Company is required to estimate forfeitures at the grant date and recognize
compensation cost only for those awards expected to vest. Effective January 1, 2006, the
Company recorded income of $1.8 million ($1.1 million after tax, or $0.01 per diluted
share) to adjust previously recognized compensation cost on unvested awards to the amount
of compensation cost recognized had forfeitures been estimated. This amount was recorded as
a cumulative effect of a change in accounting.
    
    In accordance with SFAS 123, the Company previously recorded compensation cost on
performance unit awards using the intrinsic-value method. However, SFAS 123(R) requires
liability awards to be accounted for using the fair value method. One-half of the Companys
performance unit awards have a market condition, which must be considered in the
determination of fair value. Effective January 1, 2006, the Company recorded expense of
$0.9 million ($0.5 million after tax) to adjust previously recognized compensation cost on
vested performance unit awards to the amount of compensation recognized had the fair value
of the awards been recorded prior to the adoption of SFAS 123(R). This amount was recorded
as a cumulative effect of a change in accounting.
    
    Prior to the adoption of SFAS 123(R), the Company presented all excess tax benefits of
deductions resulting from share-based payments as net cash provided by operating activities
in the Statement of Cash Flows. SFAS 123(R) requires the cash flows from tax deductions in
excess of compensation cost to be classified as net cash provided by financing activities.
The $4.2 million excess pro forma tax benefit was classified as net cash provided by
financing activities during the nine months ended September 30, 2006.
    
    Compensation expense on share-based payment grants made subsequent to January 1, 2006
to retirement eligible individuals will be recognized over the requisite service period
(i.e., through date of retirement eligibility). In accordance with the Securities and
Exchange Commissions guidance, expense related to grants prior to the adoption of SFAS
123(R) will continue to be recognized over the explicit vesting period, which is generally
three or five years, with acceleration of any remaining unrecognized compensation cost when
an employee actually retires. As a result of applying this provision of SFAS 123(R), before
tax compensation cost of approximately $12 million ($8 million after tax, or $0.06 per
diluted share) was recognized during the nine months ended September 30, 2006, which is
approximately $10 million higher than recorded under the previous method. Applying this
provision to all awards granted subsequent to December 31, 1994 (the effective date of SFAS
123) would have calculated higher before tax compensation cost during the nine months ended
September 30, 2005 by approximately $5 million. For the year ending December 31, 2006, the
Company expects that before tax compensation cost will be approximately $9 million higher
than under the previous method.
 34




---



##### Table of Contents



Stock Options
  35




---



##### Table of Contents



2006
    
    2005Risk-free interest rate (%)
    
    
    4.3
    
    
    
    4.0Dividend yield (%)
    
    
    2.0
    
    
    
    2.6Volatility factor (%)
    
    
    36.1
    
    
    
    40.6Weighted-average expected life of the options (years)
    
    
    5.5
    
    
    
    7.0
  Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    Value(in thousands)
    
    
    
    
    
    
    
    
    
    
    (in millions)Outstanding at January 1, 2006
    
    
    6,951.7
    
    
    $
    30.85Granted
    
    
    711.9
    
    
    
    40.21Exercised
    
    
    (1,362.8
    )
    
    
    29.80Forfeited or expired
    
    
    (51.7
    )
    
    
    32.47Outstanding at September 30, 2006
    
    
    6,249.1
    
    
    $
    32.13
    
    
    5.3 years
    
    $
    53.9Vested or expected to vest (1)
    
    
    6,220.2
    
    
    $
    32.10
    
    
    5.2 years
    
    $
    53.8Exercisable at September 30, 2006
    
    
    4,948.3
    
    
    $
    31.03
    
    
    4.4 years
    
    $
    47.8
 
 (1)
    
    Represents outstanding options reduced by expected forfeitures.   36




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##### Table of Contents



Restricted Stock Units
    Weighted-AverageGrant dateShares
    
    Fair Value(in thousands)Nonvested at January 1, 2006
    
    
    1,095.1
    
    
    $
    31.55Granted
    
    
    594.8
    
    
    
    40.48Vested
    
    
    (84.3
    )
    
    
    33.45Forfeited
    
    
    (39.9
    )
    
    
    34.45Nonvested at September 30, 2006
    
    
    1,565.7
    
    
    
    34.76
  Restricted Stock Awards
  37




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##### Table of Contents



Performance Units
      Weighted-Weighted-
    
    
    AverageAverage
    
    
    RemainingFair
    
    
    Contractual
    
    
    AggregateShares
    
    
    Value
    
    
    Term
    
    
    Fair Value(in thousands)
    
    
    
    
    
    
    
    
    
    
    (in millions)Outstanding at January 1, 2006
    
    
    683.5
    
    
    $
    39.38Units granted, dividends reinvested and additional
shares due to performance condition
    
    
    346.6
    
    
    
    40.33Converted and paid out
    
    
    (313.7
    )
    
    
    32.20Forfeited
    
    
    (58.1
    )
    
    
    40.23Outstanding at September 30, 2006
    
    
    658.3
    
    
    $
    39.79
    
    
    1.2 years
    
    $
    26.2Vested or expected to vest (1)
    
    
    613.7
    
    
    $
    39.60
    
    
    1.2 years
    
    $
    24.3
 
 (1)
    
    Represents outstanding units reduced by expected forfeitures. 38




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##### Table of Contents



Employee Stock Purchase Plan
   2006
    
    2005Risk-free interest rate (%)
    
    
    4.4
    
    
    
    2.8Dividend yield (%)
    
    
    2.0
    
    
    
    2.6Volatility factor (%)
    
    
    34.9
    
    
    
    40.6Weighted-average expected life of the option (years)
    
    
    1.0
    
    
    
    1.0
  39




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##### Table of Contents



Outside Director Phantom Share Plan
   Outside Director Deferral Plan
   Note 18. Discontinued Operations
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Sales
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    8.0Operating income
    
    $
    (0.3
    )
    
    $
    
    
    
    $
    0.6
    
    
    $
    1.3Gain on sale
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    20.4Income tax expense
    
    
    0.2
    
    
    
    
    
    
    
    (0.2
    )
    
    
    (7.5
    )Income (loss) from discontinued operations-net of income taxes
    
    $
    (0.1
    )
    
    $
    0.2
    
    
    $
    0.4
    
    
    $
    14.2
 40




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##### Table of Contents



Note
19. Subsequent Events
   41




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##### Table of Contents



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
    OVERVIEW
  Key Market Channels for Products and Services, Growth Drivers and our Highlights
  Commercial and General Aviation Airplane OE
   42




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Commercial and General Aviation Airplane Aftermarket
     Defense and Space
    43




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Long-term Sustainable Growth
  
    
    Awards for key products on important new and expected programs, including the Airbus
A380 and A350 XWB, the Boeing 787 and 747-8, the Embraer 190, the Dassault Falcon 7X and
the Lockheed Martin F-35 Lightning II and F-22 Raptor;
    
    Growing commercial airplane fleet, which should fuel sustained aftermarket strength;
    
    Balance in the large commercial airplane market, with strong sales to both Airbus and Boeing;
    
    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 sales on new and existing
commercial airplanes;
    
    Increased opportunities for aftermarket growth due to airline outsourcing;
    
    Growth in global maintenance, repair and overhaul opportunities, particularly in
Europe, Asia and the Middle East, where we are expanding our capacity; and
    
    Expansion of our product offerings in support of high growth areas in the defense and
space market channel, such as intelligence, surveillance and reconnaissance products.
 44




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Quarter Ended September 30, 2006 Sales Content by Market Channel
  Quarter EndedSeptember 30, 2006Airbus Commercial OE
    
    
    15
    %Boeing Commercial OE
    
    
    9
    %Regional and General Aviation Airplane OE
    
    
    7
    %Total Commercial and General Aviation Airplane OE
    
    
    31
    %Large Commercial Airplane Aftermarket
    
    
    28
    %Regional and General Aviation Airplane Aftermarket
    
    
    6
    %Heavy Airplane Maintenance
    
    
    3
    %Total Commercial and General Aviation Airplane Aftermarket
    
    
    37
    %Total Defense and Space
    
    
    26
    %Other
    
    
    6
    %Total
    
    
    100
    %
 Summary Performance  Quarter Ended September 30, 2006 as Compared to the Quarter Ended
September 30, 2005
 Quarter Ended September 30,2006
    
    
    2005
    
    
    % Change(Dollars in millions, except diluted EPS)Sales
    
    $
    1,436.0
    
    
    $
    1,370.5
    
    
    
    4.8Segment operating income (1)
    
    $
    197.4
    
    
    $
    157.4
    
    
    
    25.4Percent of sales
    
    
    13.7
    %
    
    
    11.5
    %Income from continuing operations
    
    $
    100.8
    
    
    $
    60.6
    
    
    
    66.3Net income
    
    $
    100.7
    
    
    $
    60.8
    
    
    
    65.6Capital expenditures
    
    $
    58.5
    
    
    $
    37.0
    
    
    
    58.1Net cash provided by (used in) operating activities
    
    $
    (43.9
    )
    
    $
    87.9Diluted EPS:Continuing operations
    
    $
    0.80
    
    
    $
    0.49
    
    
    
    63.3Net income
    
    $
    0.80
    
    
    $
    0.49
    
    
    
    63.3
 
 (1)
    
    Segment operating income is total segment revenue reduced by operating expenses
directly identifiable with our business segments. Segment operating income is used by
management to assess the operating performance of the segments. For a reconciliation of
total segment operating income to total operating income, see Note 13, Business Segment
Information to our Unaudited Consolidated Financial Statements.  
    
    Large commercial airplane OE sales increased by more than 4 percent;
    
    Regional, business and general aviation airplane OE sales increased 18 percent, led by
strong sales growth for nacelles and thrust reverser systems; and
    
    Large commercial, regional and general aviation airplane aftermarket sales increased by
10 percent, with continued strong sales of nacelles and thrust reverser systems and related
services.
 45




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Increase (Decrease)(Dollars in millions, except diluted EPS)Before
    
    
    Net
    
    
    DilutedTax
    
    
    Income
    
    
    EPSForeign exchange rate impact, including net monetary asset remeasurement
    
    $
    (12.4
    )
    
    $
    (7.7
    )
    
    $
    (0.06
    )Pension expense, including curtailments, settlements and special termination benefits
    
    $
    6.2
    
    
    $
    3.8
    
    
    $
    0.03Loss on extinguishment of debt
    
    $
    5.6
    
    
    $
    3.5
    
    
    $
    0.03Delta and Northwest bankruptcy filings
    
    $
    2.0
    
    
    $
    1.3
    
    
    $
    0.02
      46




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Summary Performance  Nine Months Ended September 30, 2006 as Compared to the Nine Months Ended
September 30, 2005
 Nine Months EndedSeptember 30,2006
    
    
    2005
    
    
    % Change(Dollars in millions, except diluted EPS)Sales
    
    $
    4,343.0
    
    
    $
    3,998.7
    
    
    
    8.6Segment Operating Income (1)
    
    $
    570.0
    
    
    $
    465.3
    
    
    
    22.5% of Sales
    
    
    13.1
    %
    
    
    11.6
    %Income from Continuing Operations
    
    $
    382.2
    
    
    $
    179.8
    
    
    
    112.6Net Income
    
    $
    383.2
    
    
    $
    194.0
    
    
    
    97.5Capital Expenditures
    
    $
    153.6
    
    
    $
    103.4
    
    
    
    48.5Net Cash Provided by Operating Activities
    
    $
    11.0
    
    
    $
    195.3
    
    
    
    (94.4
    )Diluted EPS:Continuing Operations
    
    $
    3.03
    
    
    $
    1.46
    
    
    
    107.5Net Income
    
    $
    3.04
    
    
    $
    1.57
    
    
    
    93.6
 
 (1)
    
    Segment operating income is total segment revenue reduced by operating expenses
directly identifiable with our business segments except for the pension curtailment charge
which was not allocated to our segments. Segment operating income is used by management to
assess the operating performance of the segments. For a reconciliation of total segment
operating income to total operating income, see Note 13, Business Segment Information to
our Unaudited Consolidated Financial Statements.  
    
    Large commercial airplane OE sales increased 16 percent;
    
    Regional, business and general aviation airplane OE sales increased 22 percent, led by
strong sales growth for nacelles and thrust reverser systems; and
    
    Large commercial, regional and general aviation airplane aftermarket sales increased by
15 percent, with continued strong sales of nacelles and thrust reverser systems and related
services.
   47




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Increase (Decrease)Before
    
    
    Net
    
    
    DilutedTax
    
    
    Income
    
    
    EPS(Dollars in millions, except diluted EPS)Foreign exchange rate impact, including net monetary asset remeasurement
    
    $
    (28.1
    )
    
    $
    (17.5
    )
    
    $
    (0.14
    )A380 actuation systems costs to reserve for retrofit
    
    $
    16.2
    
    
    $
    10.1
    
    
    $
    0.08Pension curtailments, settlements and special termination benefits
    
    $
    (10.2
    )
    
    $
    (6.4
    )
    
    $
    (0.05
    )Pension expense, excluding curtailment charge
    
    $
    2.6
    
    
    $
    1.6
    
    
    $
    0.01Loss on exchange or extinguishment of debt
    
    $
    6.8
    
    
    $
    4.3
    
    
    $
    0.03Share-base compensation, including the impact of the adoption of SFAS 123(R)
    
    $
    (7.9
    )
    
    $
    (4.6
    )
    
    $
    (0.04
    )
     48




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##### Table of Contents



2006 Outlook
   49




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##### Table of Contents



2007 Outlook
     50




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2006 and 2007 Outlooks  Market Channel Assumptions
  
    
    We expect deliveries of Airbus and Boeing large commercial aircraft to increase by more
than 20 percent in 2006, compared to 2005, and by about 8 to 10 percent in 2007 compared to
2006. Our sales of large commercial aircraft original equipment products are projected to
increase by approximately 15 percent in 2006 and by about the same rate as the increase in
deliveries in 2007.
    
    Capacity in the global airline system, as measured by ASMs, is expected to grow at
about 4 to 5 percent in both 2006 and 2007. Our sales to airlines and package carriers for
large commercial and regional aircraft aftermarket parts and services are expected to grow
by more than 10 percent in 2006 compared to 2005, and by more than the underlying
market-based growth in 2007 compared to 2006.
    
    Total regional and business aircraft production is expected to be flat or slightly down
in 2006 and in 2007. In both years, deliveries of business jets are expected to increase,
partially offsetting the expected decrease in regional aircraft deliveries. Deliveries to
Embraer in support of its EMBRAER 190 aircraft, which includes a significant amount of our
content, are expected to enable us to substantially increase our original equipment sales
in this market channel for both 2006 and 2007.
    
    Defense and space sales (OE and aftermarket) are expected to be relatively flat to
slightly down in 2006, compared to 2005. Sales in this market channel are expected to
resume modest overall growth in 2007 compared to 2006, reflecting continued strong growth
for defense and space products in our Electronic Systems segment, and a resumption of
growth in the Engine Systems segment.
 51




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RESULTS OF OPERATIONS
 Adoption of SFAS No. 123(R)
   
    
    SFAS 123(R) requires entities to apply the same attribution method to all awards
subject to graded vesting. We have two types of share-based compensation awards that are
subject to graded vesting: stock options and restricted stock units. These awards are
described more fully in Note 17, Share-Based Compensation Plans, to our Unaudited
Condensed Consolidated Financial Statements. In the years prior to January 1, 2006, stock
options were accounted for under the straight-line attribution method and restricted stock
units were accounted for under the accelerated attribution method. Effective upon the
adoption of SFAS 123(R), we made a policy election to apply the straight-line method to all
share-based awards that are subject to graded vesting. As a result of this election, the
straight-line method being applied to restricted stock unit grants would have calculated
before tax compensation expense during the nine months ended September 30, 2005 higher than
the previous method of accounting by approximately $2.4 million ($1.5 million after tax).
As a result of applying the straight-line method, we expect that before tax compensation
expense recognized during the twelve months ending December 31, 2006 will be approximately
$1 million lower than it would have been under the accelerated method.
    
    We previously accounted for forfeitures as they occurred. Under SFAS 123(R), we are
required to estimate forfeitures at the grant date and recognize compensation cost only for
those awards expected to vest. Effective January 1, 2006, we recorded income of $1.8
million ($1.1 million after tax, or $0.01 per diluted share) to adjust previously
recognized compensation cost on unvested awards to the amount of compensation cost
recognized had forfeitures been estimated. This amount was recorded as a cumulative effect
of a change in accounting.
 52




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##### Table of Contents




    
    In accordance with SFAS 123, we previously recorded compensation cost on performance
unit awards, described more fully in Note 17, Share-Based Compensation Plans, to our
Unaudited Condensed Consolidated Financial Statements, using the intrinsic-value method.
However, SFAS 123(R) requires liability awards to be accounted for using the fair value
method. One-half of our performance unit awards have a market condition, which must be
considered in the determination of fair value. Effective January 1, 2006, we recorded
expense of $0.9 million ($0.5 million after tax) to adjust previously recognized
compensation cost on vested performance unit awards to the amount of compensation
recognized had the fair value of the awards been recorded prior to the adoption of SFAS
123(R). This amount was recorded as a cumulative effect of a change in accounting.
    
    Prior to the adoption of SFAS 123(R), we presented all excess tax benefits of
deductions resulting from share-based payments as net cash provided by operating activities
in the Statement of Cash Flows. SFAS 123(R) requires the cash flows from tax deductions in
excess of the compensation cost to be classified as net cash provided by financing
activities. The $4.2 million excess tax benefit was classified as net cash provided by
financing activities inflow during the nine months ended September 30, 2006.
    
    Compensation expense on share-based payment grants made subsequent to January 1, 2006
to retirement eligible individuals will be recognized over the requisite service period
(i.e., through date of retirement eligibility). In accordance with Securities and Exchange
Commission guidance, expense related to grants prior to the adoption of SFAS 123(R) will
continue to be recognized over the explicit vesting period, which is generally three or
five years, with acceleration of any remaining unrecognized compensation cost when an
employee actually retires. As a result of applying this provision of SFAS 123(R), before
tax compensation cost of approximately $12 million ($8 million after tax, or $0.06 per
diluted share) was recognized during the nine months ended September 30, 2006, which is
approximately $10 million higher than recorded under the previous method. Applying this
provision to all awards granted subsequent to December 31, 1994 (the effective date of SFAS
123) would have calculated higher before tax compensation cost during the nine months ended
September 30, 2005 by approximately $5 million. For the year ending December 31, 2006, we
expect that before tax compensation cost will be approximately $9 million higher than under
the previous method.
  53




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Quarter Ended September 30, 2006 Compared with Quarter Ended September 30, 2005
 Quarter EndedSeptember 30,2006
    
    
    2005(Dollars in millions)Sales
    
    $
    1,436.0
    
    
    $
    1,370.5Segment operating income
    
    $
    197.4
    
    
    $
    157.4Corporate general and administrative costs
    
    
    (23.0
    )
    
    
    (22.0
    )Pension curtailment
    
    
    
    
    
    
    Total operating income
    
    
    174.4
    
    
    
    135.4Net interest expense
    
    
    (29.3
    )
    
    
    (31.1
    )Other income (expense)  net
    
    
    (16.6
    )
    
    
    (11.6
    )Income tax expense
    
    
    (27.7
    )
    
    
    (32.1
    )Income from continuing operations
    
    
    100.8
    
    
    
    60.6Income (loss) from discontinued operations
    
    
    (0.1
    )
    
    
    0.2Net income
    
    $
    100.7
    
    
    $
    60.8
      54




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Nine Months Ended September 30, 2006 Compared with Nine Months Ended September 30, 2005
 Nine Months EndedSeptember 30,2006
    
    
    2005(Dollars in millions)Sales
    
    $
    4,343.0
    
    
    $
    3,998.7Segment operating income
    
    $
    570.0
    
    
    $
    465.3Corporate general and administrative costs
    
    
    (74.1
    )
    
    
    (63.7
    )Pension curtailment
    
    
    (10.9
    )
    
    
    Total operating income
    
    
    485.0
    
    
    
    401.6Net interest expense
    
    
    (90.4
    )
    
    
    (96.1
    )Other income (expense)  net
    
    
    (48.1
    )
    
    
    (36.0
    )Income tax benefit (expense)
    
    
    35.7
    
    
    
    (89.7
    )Income from continuing operations
    
    
    382.2
    
    
    
    179.8Income from discontinued operations
    
    
    0.4
    
    
    
    14.2Cumulative effect of change in accounting
    
    
    0.6
    
    
    
    Net income
    
    $
    383.2
    
    
    $
    194.0
      55




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BUSINESS SEGMENT PERFORMANCE
  Quarter Ended September 30, 2006 Compared with Quarter Ended September 30, 2005
 Quarter Ended September 30,%
    
    
    % of Sales2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005(Dollars in millions)NET CUSTOMER SALESEngine Systems
    
    $
    582.5
    
    
    $
    567.3
    
    
    
    2.7Airframe Systems
    
    
    481.1
    
    
    
    475.2
    
    
    
    1.2Electronic Systems
    
    
    372.4
    
    
    
    328.0
    
    
    
    13.5Total Sales
    
    $
    1,436.0
    
    
    $
    1,370.5
    
    
    
    4.8SEGMENT OPERATING INCOMEEngine Systems
    
    $
    116.2
    
    
    $
    104.1
    
    
    
    11.6
    
    
    
    19.9
    
    
    
    18.4Airframe Systems
    
    
    30.8
    
    
    
    16.1
    
    
    
    91.3
    
    
    
    6.4
    
    
    
    3.4Electronic Systems
    
    
    50.4
    
    
    
    37.2
    
    
    
    35.5
    
    
    
    13.5
    
    
    
    11.3Segment Operating Income
    
    $
    197.4
    
    
    $
    157.4
    
    
    
    25.4
    
    
    
    13.7
    
    
    
    11.5
 56




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##### Table of Contents



Engine Systems
 
    
    Higher large commercial airplane aftermarket, including maintenance, repair and
overhaul (MRO), volume of approximately $26 million, primarily in our aerostructures
business; and
    
    Higher regional and business OE and aftermarket sales volume of approximately $8
million, primarily in our aerostructures business.
    Airframe Systems:
 
    
    Higher large commercial airplane aftermarket sales volume of approximately $8 million,
primarily in our landing gear and actuation systems businesses; and
    
    Higher large commercial airplane OE net sales volume of approximately $8 million.
Increased sales to Boeing were partially offset by decreased sales to Airbus, primarily in
support of the A380.
  57




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##### Table of Contents




    
    Lower costs of approximately $25 million, primarily due to lower research and
development costs in our actuation systems business, lower warranty costs in our landing
gear and wheel and brakes businesses, lower costs related to product upgrades in our wheel
and brakes business and savings from the workforce reduction in our landing gear business;
and
    
    Lower restructuring expenses of approximately $3 million, primarily in our actuation
systems business.
  Electronic Systems:
  
    
    Higher defense and space sales volume of approximately $21 million, primarily in our
optical and space, fuel and utility, and power systems businesses, partially offset by a
decline in sales volume in our lighting systems business;
    
    Higher large commercial OE and aftermarket sales volume of approximately $13 million in
nearly all of our businesses; and
    
    Higher regional, business and general aviation airplane OE and aftermarket sales volume
of approximately $8 million, primarily in our aircraft interior products, sensors and
lighting systems businesses, partially offset by a decline in sales volume in our power
systems businesses.
  
    
    Higher sales volume as described above, which generated operating income of
approximately $16 million, including operating income from a company that was acquired
during the quarter ended December 31, 2005; and
    
    Lower research and development costs of $5 million, primarily in the power and aircraft
interior products systems businesses.
 58




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Nine Months Ended September 30, 2006 Compared with Nine Months Ended September 30, 2005
 Nine
Months Ended September 30,%
    
    
    % of Sales2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005(Dollars in millions)NET CUSTOMER SALESEngine Systems
    
    $
    1,827.6
    
    
    $
    1,661.2
    
    
    
    10.0Airframe Systems
    
    
    1,440.0
    
    
    
    1,381.9
    
    
    
    4.2Electronic Systems
    
    
    1,075.4
    
    
    
    955.6
    
    
    
    12.5Total Sales
    
    $
    4,343.0
    
    
    $
    3,998.7
    
    
    
    8.6SEGMENT OPERATING INCOMEEngine Systems
    
    $
    363.8
    
    
    $
    303.4
    
    
    
    19.9
    
    
    
    19.9
    
    
    
    18.3Airframe Systems
    
    
    73.1
    
    
    
    54.7
    
    
    
    33.6
    
    
    
    5.1
    
    
    
    4.0Electronic Systems
    
    
    133.1
    
    
    
    107.2
    
    
    
    24.2
    
    
    
    12.4
    
    
    
    11.2Segment Operating Income
    
    $
    570.0
    
    
    $
    465.3
    
    
    
    22.5
    
    
    
    13.1
    
    
    
    11.6
 Engine Systems
 
    
    Higher large commercial OE and aftermarket, including MRO volume of approximately $197
million, primarily in our aerostructures and engine controls businesses; and
    
    Higher regional and business OE sales volume of approximately $35 million, primarily
from our aerostructures business.
   
    
    Higher sales volume as described above, which generated operating income of
approximately $84 million; and
    
    Lower net cumulative catch-up charges of approximately $2 million in the nine months
ended September 30, 2006 as compared to the nine months ended September 30, 2005 on several
long-term contracts in our aerostructures business.
 59




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Airframe Systems
 
    
    Higher large commercial airplane OE sales volume, primarily to Boeing, of approximately
$56 million, primarily in our landing gear and actuation systems businesses;
    
    Higher large commercial airplane aftermarket sales volume of approximately $33 million,
primarily in our landing gear and actuation systems businesses; and
    
    Higher regional and business aftermarket sales of approximately $10 million, primarily
in our wheel and brakes and landing gear businesses.
  
    
    Lower airframe heavy maintenance sales of approximately $31 million;
    
    A decrease in defense OE and aftermarket sales volume of approximately $13 million,
primarily driven by lower sales in our wheel and brake and actuation systems businesses,
which were partially offset by higher sales volume in our landing gear business; and
    
    Unfavorable net foreign currency translation of $8 million, primarily driven by a $15
million unfavorable impact in our actuation systems business, partially offset by a $7
million favorable impact in our landing gear business.
  
    
    Higher sales volume as described above, which generated operating income of
approximately $15 million;
    
    The absence of a $16.2 million charge recorded in the nine months ended September 30,
2005 for the retrofit of redesigned motor drive electronics for the A380 actuation system,
including supplier claims and a related asset impairment;
    
    Lower operating costs of approximately $28 million, primarily research and development
costs in our actuation systems business, warranty costs in our landing gear and wheel and
brakes businesses, costs related to product upgrades in our wheel and brakes business, and
savings from the workforce reduction in our landing gear business; and
 60




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
    
    Lower restructuring expenses of approximately $5 million, primarily in our actuation
systems business.
  Electronic Systems:
 
    
    Higher defense and space sales volume of approximately $56 million, primarily in our
optical and space, fuel and utility, sensor and power systems businesses, partially offset
by a decline in sales volume in our propulsion and lighting systems business;
    
    Higher large commercial OE and aftermarket sales volume of approximately $31 million in
all of our businesses;
    
    Higher regional, business and general aviation airplane OE sales volume of
approximately $22 million in all of our businesses; and
    
    Higher sales volume of approximately $12 million of other non-aerospace products,
primarily in our optical and space systems business.
  Future Restructuring and Consolidation Costs for Programs Announced and Initiated
  61




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LIQUIDITY AND CAPITAL RESOURCES
  Cash
  Credit Facilities
     62




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Long-Term Financing
   
    
    $177.9 million principal amount of our 7.5 percent notes due in 2008;
    
    $32.7 million principal amount of our 6.45 percent notes due in 2008; and
    
    $80.1 million principal amount of our 6.6 percent notes due in 2009.
     63




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Off-Balance Sheet Arrangements
  UndiscountedMinimumFuture Lease
    
    
    ReceivablesPayments
    
    
    Sold(Dollars in millions)Tax advantaged operating leases
    
    $
    17.4Standard operating leases
    
    
    128.2$
    145.6Short-term Receivables securitization program
    
    
    
    
    
    $
    
 Lease Agreements
   64




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Sale of Receivables
  Cash Flow Hedges
   
    
    $38.5 million recorded as a current asset in prepaid expenses and other assets and
    
    $35.3 million recorded as a non-current asset in other assets; partially offset by,
    
    $3.1 million recorded as a current liability in accrued expenses and
    
    $0.7 million recorded as a non-current liability in other non-current liabilities.
  65




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Fair Value Hedges
  
    
    A $43 million fixed-to-floating interest rate swap on the 6.45 percent notes due in 2008;
    
    Two $50 million fixed-to-floating interest rate swaps on the 7.5 percent notes due in 2008; and
    
    A $50 million fixed-to-floating interest rate swap on the 6.29 percent notes due in 2016.
   66




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Other Forward Contracts
  CASH FLOW
  Nine Months EndedSeptember 30,Net Cash Provided by (Used by):
    
    2006
    
    2005(Dollars in millions)Operating activities of continuing operations
    
    $
    11.0
    
    
    $
    195.3Investing activities of continuing operations
    
    $
    (151.9
    )
    
    $
    (102.3
    )Financing activities of continuing operations
    
    $
    13.2
    
    
    $
    (167.3
    )Discontinued operations
    
    $
    11.1
    
    
    $
    26.0
 Operating Activities of Continuing Operations
   67




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Investing Activities of Continuing Operations
   Financing Activities of Continuing Operations
    68




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Discontinued Operations
  CONTINGENCIES
 General
  Environmental
   69




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70




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Asbestos
     71




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Liabilities of Divested Businesses
 Asbestos
   Other
  Guarantees
  72




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Commercial Airline Customers
  Aerostructures Long-Term Contracts
  Compliance with Specialty Metals Clause in U.S. Defense Contracts and Subcontracts
 at any tier
  73




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Tax
    74




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Rohr, Inc. and Subsidiaries
    
    July, 1995  December, 1997 (through date of acquisition)Coltec Industries Inc and Subsidiaries
    
    December, 1997  July, 1999 (through date of acquisition)Goodrich Corporation and Subsidiaries
    
    1998-1999 (including Rohr and Coltec)
   75




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NEW ACCOUNTING STANDARDS
 Accounting for Certain Hybrid Financial Instruments
  Accounting for Uncertainty in Income Taxes
  Fair Value Measurement
  76




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Accounting for Defined Benefit Pension and Other Postretirement Plans
  Accounting for Postretirement Benefits Associated with Split-Dollar Life Insurance
  CRITICAL ACCOUNTING POLICIES
  77




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Revenue Recognition
  Contract Accounting-Percentage of Completion
 Revenue Recognition
   78




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
    
    Projected number of units to be delivered under the contracts;
    
    Assumed escalation factor for future sales prices under the contracts;
    
    Estimated costs, including material and labor costs;
    
    Estimated labor improvement due to the learning curve;
    
    Estimated supplier pricing; and
    
    Estimated cost increases due to inflation or availability of certain materials.
 79




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Inventory
   Income Taxes
    80




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Identifiable Intangible Assets
   Participation Payments
  Entry Fees
  81




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
    
    Changes in market conditions that may affect product sales under the program, including
market acceptance and competition from others;
    
    Performance of subcontract suppliers and other production risks;
    
    Bankruptcy or other less significant financial difficulties of other program
participants, including the aircraft manufacturer, the OEM and other program suppliers or
the aircraft customer; and
    
    Availability of specialized raw materials in the marketplace.
 Sales Incentives
  Flight Certification Costs
  82




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Service and Product Warranties
   
    
    The historical performance of our products and changes in performance of newer products;
    
    The mix and volumes of products being sold; and
    
    The impact of product changes.
 Pension and Postretirement Benefits Other Than Pensions
  83




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U.S. Retirement Plan Changes in 2006
    Pension Protection Act of 2006
  84




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FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
   
    
    demand for and market acceptance of new and existing products, such as the Airbus A350
XWB and A380, the Boeing 787 Dreamliner, the EMBRAER 190, the Dassault Falcon 7X and the
Lockheed Martin F-35 Lightning II and F-22 Raptor;
    
    our ability to extend our commercial original equipment contracts beyond the initial
contract periods;
    
    cancellation or delays of orders by customers;
    
    successful development of products and advanced technologies;
    
    the health of the commercial aerospace industry, including the impact of bankruptcies
in the airline industry;
    
    global demand for aircraft spare parts and aftermarket services;
    
    changing priorities or reductions in the defense budgets in the U.S. and other
countries, U.S. foreign policy and the level of activity in military flight operations;
    
    the resolution of contractual disputes with Northrop Grumman related to the purchase of
aeronautical systems;
    
    the resolution of the remaining items in the IRS examination cycle for our tax years
through 1999;
    
    the possibility of restructuring and consolidation actions beyond those previously
announced by us;
    
    threats and events associated with and efforts to combat terrorism;
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
    
    the extent to which expenses relating to employee and retiree medical and pension
benefits continue to rise;
    
    competitive product and pricing pressures;
    
    our ability to recover from third parties under contractual rights of indemnification
for environmental and other claims arising out of the divestiture of our tire, vinyl and
other businesses;
    
    possible assertion of claims against us on the theory that we, as the former corporate
parent of Coltec Industries Inc, bear some responsibility for the asbestos-related
liabilities of Coltec and its subsidiaries, or that Coltecs dividend of its aerospace
business to us prior to the EnPro spin-off was made at a time when Coltec was insolvent or
caused Coltec to become insolvent;
    
    the effect of changes in accounting policies;
    
    cumulative catch-up adjustments or loss contract reserves on long-term contracts
accounted for under the percentage of completion method of accounting;
    
    domestic and foreign government spending, budgetary, tax and
trade policies and regulations;
    
    delay in deliveries of defense and space products requiring strict compliance with
certain provisions of the Berry amendment, as implemented by DFARS 252.225-7014 (Preference
for domestic specialty metals) and DFARS 252.225-7014 (Preference for domestic specialty
metals) Alternate I;
    
    economic and political changes in international markets where we compete, such as
changes in currency exchange rates, inflation, deflation, recession and other external
factors over which we have no control; and
    
    the outcome of contingencies including completion of acquisitions, divestitures, tax
audits, litigation and environmental remediation efforts.
  86




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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  
 Item 4. Controls and Procedures.
    87




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Item 1. Legal Proceedings.
  
 Item 1A. Risk Factors.
  88




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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
  ISSUER PURCHASES OF EQUITY SECURITIES
 (c) Total Number of
    
    
    (d) Maximum NumberShares Purchased as
    
    
    (or Approximate Dollar(a) Total Number
    
    
    
    
    
    
    Part of Publicly
    
    
    Value) of Shares that Mayof Shares
    
    
    (b) Average Price
    
    
    Announced Plans or
    
    
    Yet Be Purchased UnderPeriod
    
    Purchased (1)
    
    
    Paid Per Share
    
    
    Programs (2)
    
    
    the Plans or Programs (2)July 2006
    
    
    3,335
    
    
    $
    39.96
    
    
    
    N/A
    
    
    
    N/AAugust 2006
    
    
    116
    
    
    
    39.90
    
    
    
    N/A
    
    
    
    N/ASeptember 2006
    
    
    3,941
    
    
    
    39.47
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    7,392
    
    
    $
    39.70
    
    
    
    N/A
    
    
    
    N/A
 
 (1)
    
    The issuer purchases during the period covered by this report represent shares delivered to
us by employees to pay withholding taxes due in connection with share-based compensation.(2)
    
    In connection with the exercise of employee stock options and vesting of restricted stock
awards, restricted stock unit awards and deferred long-term incentive plan awards, we from
time to time accept delivery of shares to pay withholding taxes due upon the exercise of
employee stock options or the vesting of restricted stock awards, restricted stock unit awards
or deferred long-term incentive plan awards. On October 24, 2006, our Board of Directors
approved a program that authorizes the repurchase of up to $300 million of our common stock. 
 Item 6. Exhibits
  Exhibit 3.1
    
    Restated Certificate of Incorporation of Goodrich Corporation,
filed as Exhibit 3.1 to Goodrich Corporations Quarterly Report
on Form 10-Q for the quarter ended September 30, 2003 (File No.
1-892), is incorporated herein by reference.Exhibit 3.2
    
    By-Laws of Goodrich Corporation, as amended, filed as Exhibit
4(B) to Goodrich Corporations Registration Statement on Form
S-3 (File No. 333-98165), is incorporated herein by reference.
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K,
Goodrich Corporation hereby undertakes to furnish to the
Securities and Exchange Commission upon request, a copy of all
instruments defining the rights of holders of long-term debt.Exhibit 10.1
    
    Amendment Number 1 to the Goodrich Corporation Severance ProgramExhibit 15
    
    Letter Re: Unaudited Interim Financial Information.Exhibit 31
    
    Rule 13a-14(a)/15d-14(a) Certifications.Exhibit 32
    
    Section 1350 Certifications.
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SIGNATURE
  November 2, 2006
    GOODRICH CORPORATION/s/ SCOTT E. KUECHLEScott E. KuechleSenior Vice President and Chief Financial Officer/s/ SCOTT A. COTTRILLScott A. CottrillVice President and Controller (Principal Accounting
Officer) 90




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EXHIBIT INDEX
 Exhibit 3.1
    
    Restated Certificate of Incorporation of Goodrich Corporation,
filed as Exhibit 3.1 to Goodrich Corporations Quarterly Report
on Form 10-Q for the quarter ended September 30, 2003 (File No.
1-892), is incorporated herein by reference.Exhibit 3.2
    
    By-Laws of Goodrich Corporation, as amended, filed as Exhibit
4(B) to Goodrich Corporations Registration Statement on Form
S-3 (File No. 333-98165), is incorporated herein by reference.
In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K,
Goodrich Corporation hereby undertakes to furnish to the
Securities and Exchange Commission upon request, a copy of all
instruments defining the rights of holders of long-term debt.In accordance with Item 601(b)(4)(iii)(A) of Regulation S-K,
Goodrich Corporation hereby undertakes to furnish to the
Securities and Exchange Commission upon request, a copy of all
instruments defining the rights of holders of long-term debt.Exhibit 10.1
    
    Amendment Number 1 to the Goodrich Corporation Severance Program*Exhibit 15
    
    Letter Re: Unaudited Interim Financial Information.*Exhibit 31
    
    Rule 13a-14(a)/15d-14(a) Certifications.*Exhibit 32
    
    Section 1350 Certifications.*
 
 *
    
    Filed herewith. 91