##### 



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 June 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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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
 Report of Independent Registered Public Accounting Firm
      /s/ Ernst & Young LLP
 
 2




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##### 



CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions, except per
    
    
    (Dollars in millions, except pershare amounts)
    
    
    share amounts)Sales
    
    $
    1,483.2
    
    
    $
    1,352.7
    
    
    $
    2,907.0
    
    
    $
    2,628.2Operating costs and expenses:Cost of sales
    
    
    1,088.0
    
    
    
    990.5
    
    
    
    2,131.9
    
    
    
    1,920.2Selling and administrative costs
    
    
    227.3
    
    
    
    226.1
    
    
    
    464.5
    
    
    
    441.81,315.3
    
    
    
    1,216.6
    
    
    
    2,596.4
    
    
    
    2,362.0Operating Income
    
    
    167.9
    
    
    
    136.1
    
    
    
    310.6
    
    
    
    266.2Interest expense
    
    
    (31.3
    )
    
    
    (33.0
    )
    
    
    (63.3
    )
    
    
    (66.9
    )Interest income
    
    
    1.1
    
    
    
    1.0
    
    
    
    2.2
    
    
    
    1.9Other income (expense)  net
    
    
    (20.9
    )
    
    
    (14.3
    )
    
    
    (31.5
    )
    
    
    (24.4
    )Income from continuing operations before income taxes
    
    
    116.8
    
    
    
    89.8
    
    
    
    218.0
    
    
    
    176.8Income tax benefit (expense)
    
    
    (35.7
    )
    
    
    (27.4
    )
    
    
    63.4
    
    
    
    (57.6
    )Income From Continuing Operations
    
    
    81.1
    
    
    
    62.4
    
    
    
    281.4
    
    
    
    119.2Income (loss) from discontinued operations  net of income taxes
    
    
    (0.1
    )
    
    
    13.3
    
    
    
    0.5
    
    
    
    14.0Cumulative effect of change in accounting
    
    
    
    
    
    
    
    
    
    
    0.6
    
    
    
    Net Income
    
    $
    81.0
    
    
    $
    75.7
    
    
    $
    282.5
    
    
    $
    133.2Basic Earnings Per Share:Continuing operations
    
    $
    0.65
    
    
    $
    0.52
    
    
    $
    2.27
    
    
    $
    0.99Discontinued operations
    
    
    
    
    
    
    0.11
    
    
    
    
    
    
    
    0.12Cumulative effect of change in accounting
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    Net Income
    
    $
    0.65
    
    
    $
    0.63
    
    
    $
    2.28
    
    
    $
    1.11Diluted Earnings Per Share:Continuing operations
    
    $
    0.64
    
    
    $
    0.51
    
    
    $
    2.23
    
    
    $
    0.97Discontinued operations
    
    
    
    
    
    
    0.10
    
    
    
    
    
    
    
    0.11Cumulative effect of change in accounting
    
    
    
    
    
    
    
    
    
    
    0.01
    
    
    
    Net Income
    
    $
    0.64
    
    
    $
    0.61
    
    
    $
    2.24
    
    
    $
    1.08Dividends Declared Per Common Share
    
    $
    0.20
    
    
    $
    0.20
    
    
    $
    0.40
    
    
    $
    0.40
  3




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##### 



CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
 June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in millions,except share amounts)Current AssetsCash and cash equivalents
    
    $
    208.4
    
    
    $
    251.3Accounts and notes receivable, less allowances for doubtful receivables
($20.1 at June 30, 2006 and $23.5 at December 31, 2005)
    
    
    932.5
    
    
    
    709.2Inventories  net
    
    
    1,485.8
    
    
    
    1,308.4Deferred income taxes
    
    
    108.6
    
    
    
    101.3Prepaid expenses and other assets
    
    
    73.0
    
    
    
    55.2Total Current Assets
    
    
    2,808.3
    
    
    
    2,425.4Property, plant and equipment  net
    
    
    1,255.7
    
    
    
    1,194.3Prepaid pension
    
    
    295.0
    
    
    
    337.8Goodwill
    
    
    1,333.2
    
    
    
    1,318.4Identifiable intangible assets  net
    
    
    468.5
    
    
    
    462.3Deferred income taxes
    
    
    49.0
    
    
    
    42.8Other assets
    
    
    709.3
    
    
    
    673.0Total Assets
    
    $
    6,919.0
    
    
    $
    6,454.0Current LiabilitiesShort-term debt
    
    $
    31.0
    
    
    $
    22.3Accounts payable
    
    
    601.3
    
    
    
    534.1Accrued expenses
    
    
    758.1
    
    
    
    764.9Income taxes payable
    
    
    227.9
    
    
    
    284.4Deferred income taxes
    
    
    7.2
    
    
    
    7.2Current maturities of long-term debt and capital lease obligations
    
    
    1.4
    
    
    
    1.7Total Current Liabilities
    
    
    1,626.9
    
    
    
    1,614.6Long-term debt and capital lease obligations
    
    
    1,719.6
    
    
    
    1,742.1Pension obligations
    
    
    693.7
    
    
    
    844.2Postretirement benefits other than pensions
    
    
    290.5
    
    
    
    300.0Deferred income taxes
    
    
    128.1
    
    
    
    42.1Other non-current liabilities
    
    
    443.7
    
    
    
    438.0Commitments and contingent liabilities
    
    
    
    
    
    
    Shareholders EquityCommon stock  $5 par valueAuthorized 200,000,000 shares; issued 138,389,981 shares at June 30,
2006 and 136,727,436 shares at December 31, 2005 (excluding
14,000,000 shares held by a wholly owned subsidiary)
    
    
    692.0
    
    
    
    683.6Additional paid-in capital
    
    
    1,273.5
    
    
    
    1,203.3Income retained in the business
    
    
    517.6
    
    
    
    285.6Accumulated other comprehensive income (loss)
    
    
    (47.8
    )
    
    
    (283.0
    )Common stock
held in treasury, at cost (13,672,949 shares at June 30, 2006 and 13,621,128 shares at December 31, 2005)
    
    
    (418.8
    )
    
    
    (416.5
    )Total Shareholders Equity
    
    
    2,016.5
    
    
    
    1,473.0Total Liabilities And Shareholders Equity
    
    $
    6,919.0
    
    
    $
    6,454.0
  4




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##### 



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 Six Months Ended June 30,2006
    
    
    2005(Dollars in millions)Operating ActivitiesNet income
    
    $
    282.5
    
    
    $
    133.2Adjustments to reconcile net income to net cash provided by
operating activities:Income from discontinued operations
    
    
    (0.5
    )
    
    
    (14.0
    )Cumulative effect of change in accounting
    
    
    (0.6
    )
    
    
    Restructuring and consolidation:Expenses
    
    
    3.6
    
    
    
    3.7Payments
    
    
    (3.6
    )
    
    
    (5.8
    )Asset impairments
    
    
    0.9
    
    
    
    Depreciation and amortization
    
    
    117.6
    
    
    
    112.2Excess tax benefits on equity instruments issued under share-based payment arrangements
    
    
    (4.0
    )
    
    
    Share-based compensation expense
    
    
    28.7
    
    
    
    19.2Loss on exchange or extinguishment of debt
    
    
    1.0
    
    
    
    5.7Deferred income taxes
    
    
    (19.4
    )
    
    
    (25.3
    )Change in assets and liabilities, net of effects of acquisitions and
dispositions of businesses:Receivables
    
    
    (134.3
    )
    
    
    (136.2
    )Change in receivables sold, net
    
    
    (97.1
    )
    
    
    28.8Inventories
    
    
    (152.8
    )
    
    
    (111.5
    )Other current assets
    
    
    11.9
    
    
    
    10.5Accounts payable
    
    
    64.7
    
    
    
    29.9Accrued expenses
    
    
    (17.7
    )
    
    
    (27.9
    )Income taxes payable
    
    
    (38.3
    )
    
    
    60.3Realized tax benefit on non-qualified options
    
    
    
    
    
    
    8.8Other non-current assets and liabilities
    
    
    12.3
    
    
    
    15.8Net Cash Provided By Operating Activities
    
    
    54.9
    
    
    
    107.4Investing ActivitiesPurchases of property, plant and equipment
    
    
    (95.1
    )
    
    
    (66.4
    )Proceeds from sale of property, plant and equipment
    
    
    1.4
    
    
    
    5.3Payments received (payments made) in connection with
acquisitions, net of cash acquired
    
    
    
    
    
    
    (9.3
    )Net Cash Used In Investing Activities
    
    
    (93.7
    )
    
    
    (70.4
    )Financing ActivitiesIncrease (decrease) in short-term debt, net
    
    
    8.0
    
    
    
    (1.0
    )Loss on exchange or extinguishment of debt
    
    
    (3.5
    )
    
    
    (5.2
    )Proceeds from issuance of long-term debt, net of premiums paid of $20.5 million in 2006
    
    
    512.8
    
    
    
    Repayment of long-term debt and capital lease obligations
    
    
    (534.0
    )
    
    
    (100.9
    )Proceeds from issuance of common stock
    
    
    46.1
    
    
    
    51.3Purchases of treasury stock
    
    
    (1.9
    )
    
    
    (0.6
    )Dividends
    
    
    (49.8
    )
    
    
    (47.9
    )Excess tax benefits on equity instruments issued under share-based payment arrangements
    
    
    4.0
    
    
    
    Distributions to minority interest holders
    
    
    (1.9
    )
    
    
    (2.4
    )Net Cash Used In Financing Activities
    
    
    (20.2
    )
    
    
    (106.7
    )Discontinued Operations (revisedsee Note 1)Net cash provided by (used in) operating activities
    
    
    11.2
    
    
    
    0.4Net cash provided by (used in) investing activities
    
    
    
    
    
    
    26.8Net cash provided by (used in) financing activities
    
    
    
    
    
    
    Net cash provided by discontinued operations
    
    
    11.2
    
    
    
    27.2Effect of exchange rate changes on cash and cash equivalents
    
    
    4.9
    
    
    
    (4.1
    )Net decrease in cash and cash equivalents
    
    
    (42.9
    )
    
    
    (46.6
    )Cash and cash equivalents at beginning of year
    
    
    251.3
    
    
    
    297.9Cash and cash equivalents at end of period
    
    $
    208.4
    
    
    $
    251.3
  5




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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
  Accounting for Servicing of Financial Assets
  6




---



##### 



Accounting for Uncertainty in Income Taxes
  Note 3. Restructuring and Consolidation Costs
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Engine Systems
    
    $
    1.4
    
    
    $
    0.2
    
    
    $
    1.6
    
    
    $
    0.4Airframe Systems
    
    
    
    
    
    
    0.2
    
    
    
    0.4
    
    
    
    2.4Electronic Systems
    
    
    0.7
    
    
    
    0.1
    
    
    
    1.6
    
    
    
    0.9$
    2.1
    
    
    $
    0.5
    
    
    $
    3.6
    
    
    $
    3.7Personnel-related costs
    
    $
    1.9
    
    
    $
    0.2
    
    
    $
    2.6
    
    
    $
    2.7Facility closure and other costs
    
    
    0.2
    
    
    
    0.3
    
    
    
    1.0
    
    
    
    1.0$
    2.1
    
    
    $
    0.5
    
    
    $
    3.6
    
    
    $
    3.7Cost of sales
    
    $
    0.1
    
    
    $
    0.3
    
    
    $
    1.0
    
    
    $
    3.3Selling and administrative costs
    
    
    2.0
    
    
    
    0.2
    
    
    
    2.6
    
    
    
    0.4$
    2.1
    
    
    $
    0.5
    
    
    $
    3.6
    
    
    $
    3.7
  (Dollars in millions)Reserve balance at December 31, 2005
    
    $
    6.5Restructuring charges
    
    
    3.6Used as intended
    
    
    (3.6
    )Return to profit
    
    
    Foreign exchange adjustments
    
    
    0.4Reserve balance at June 30, 2006
    
    $
    6.9
 7




---



##### 



Future Restructuring and Consolidation Costs for Programs Announced and Initiated
   Personnel-
    
    
    FacilityRelated
    
    
    ClosureCosts
    
    
    Costs
    
    
    Total(Dollars in millions)Engine Systems
    
    $
    0.3
    
    
    $
    
    
    
    $
    0.3Airframe Systems
    
    
    
    
    
    
    
    
    
    
    Electronic Systems
    
    
    5.3
    
    
    
    4.0
    
    
    
    9.3Total
    
    $
    5.6
    
    
    $
    4.0
    
    
    $
    9.6
 Note 4. Other Income (Expense)  Net
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Retiree health care expenses related to previously owned businesses
    
    $
    (4.2
    )
    
    $
    (3.8
    )
    
    $
    (9.0
    )
    
    $
    (8.5
    )Loss on exchange or extinguishment of debt
    
    
    (4.8
    )
    
    
    (5.7
    )
    
    
    (4.8
    )
    
    
    (5.7
    )Expenses related to previously owned businesses
    
    
    (6.6
    )
    
    
    (0.1
    )
    
    
    (8.0
    )
    
    
    (1.5
    )Minority interest and equity in affiliated companies
    
    
    (3.6
    )
    
    
    (3.9
    )
    
    
    (7.4
    )
    
    
    (6.7
    )Other  net
    
    
    (1.7
    )
    
    
    (0.8
    )
    
    
    (2.3
    )
    
    
    (2.0
    )Other income (expense)  net
    
    $
    (20.9
    )
    
    $
    (14.3
    )
    
    $
    (31.5
    )
    
    $
    (24.4
    )
 8




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##### 



Note 5. Earnings Per Share
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(In millions, exceptper share amounts)Numerator:Numerator for basic and diluted earnings
per share  income from continuing
operations
    
    $
    81.1
    
    
    $
    62.4
    
    
    $
    281.4
    
    
    $
    119.2Denominator:Denominator for basic earnings per share 
weighted- average shares
    
    
    124.5
    
    
    
    121.1
    
    
    
    124.0
    
    
    
    120.4Effect of dilutive securities:Stock options, employee stock purchase
plan, restricted stock and restricted stock
units
    
    
    1.8
    
    
    
    2.4
    
    
    
    1.9
    
    
    
    2.4Other deferred compensation shares
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.1
    
    
    
    0.11.9
    
    
    
    2.5
    
    
    
    2.0
    
    
    
    2.5Denominator for diluted earnings per share
 adjusted weighted- average shares and
assumed conversion
    
    
    126.4
    
    
    
    123.6
    
    
    
    126.0
    
    
    
    122.9Per share income from continuing operations:Basic
    
    $
    0.65
    
    
    $
    0.52
    
    
    $
    2.27
    
    
    $
    0.99Diluted
    
    $
    0.64
    
    
    $
    0.51
    
    
    $
    2.23
    
    
    $
    0.97
   Note 6. Inventories
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)FIFO or average cost (which approximates current costs):Finished products
    
    $
    345.1
    
    
    $
    218.1In process
    
    
    866.1
    
    
    
    908.7Raw materials and supplies
    
    
    355.7
    
    
    
    280.31,566.9
    
    
    
    1,407.1Less:Reserve to reduce certain inventories to LIFO basis
    
    
    (44.2
    )
    
    
    (43.5
    )Progress payments and advances
    
    
    (36.9
    )
    
    
    (55.2
    )Total
    
    $
    1,485.8
    
    
    $
    1,308.4
 9




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##### 



Note 7. Goodwill
  BusinessBalance
    
    
    Combinations
    
    
    Foreign
    
    
    BalanceDecember 31,
    
    
    Completed or
    
    
    Currency
    
    
    June 30,2005
    
    
    Finalized
    
    
    Translation
    
    
    2006(Dollars in millions)Engine Systems
    
    $
    483.1
    
    
    $
    (0.4
    )
    
    $
    19.5
    
    
    $
    502.2Airframe Systems
    
    
    239.6
    
    
    
    (0.1
    )
    
    
    12.1
    
    
    
    251.6Electronic Systems
    
    
    595.7
    
    
    
    (2.3
    )
    
    
    (14.0
    )
    
    
    579.4$
    1,318.4
    
    
    $
    (2.8
    ) (a)
    
    $
    17.6
    
    
    $
    1,333.2
 
 (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.
 Note 8. Financing Arrangements
 Credit Facilities
   10




---



##### 



Long-term Debt
  
    
    $177.9 million principal amount of its 7.50 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 6.60 percent notes due in 2009.
 11




---



##### 



12




---



##### 



June 30, 2006
    
    
    December 31, 2005(Dollars in millions)Medium-term notes payable
    
    $
    639.3
    
    
    $
    672.17.5% senior notes, maturing in 2008
    
    
    115.4
    
    
    
    294.06.6% senior notes, maturing in 2009
    
    
    131.5
    
    
    
    213.57.625% senior notes, maturing in 2012
    
    
    256.9
    
    
    
    498.86.29% senior notes, maturing in 2016
    
    
    282.2
    
    
    
    6.80% senior notes, maturing in 2036
    
    
    230.0
    
    
    
    Other debt, maturing through 2020 (interest rates from 2.8% to 5.3%)
    
    
    55.5
    
    
    
    55.31,710.8
    
    
    
    1,733.7Capital lease obligation
    
    
    8.8
    
    
    
    8.4Total
    
    $
    1,719.6
    
    
    $
    1,742.1
 Note 9. Off Balance Sheet Arrangements
 Lease Commitments
  Sale of Receivables
  13




---



##### 



Note 10. Pensions and Postretirement Benefits
 Pensions
  U.S. Plans
    
    
    U.K. Plans
    
    
    Other Non-U.S. PlansThree Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Service cost
    
    $
    12.2
    
    
    $
    13.1
    
    
    $
    7.2
    
    
    $
    6.2
    
    
    $
    1.0
    
    
    $
    0.7Interest cost
    
    
    37.9
    
    
    
    37.7
    
    
    
    8.2
    
    
    
    7.8
    
    
    
    1.3
    
    
    
    1.1Expected return on plan assets
    
    
    (43.5
    )
    
    
    (43.0
    )
    
    
    (12.8
    )
    
    
    (10.7
    )
    
    
    (1.2
    )
    
    
    (1.1
    )Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    2.5
    
    
    
    2.2
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial (gain) loss
    
    
    10.2
    
    
    
    13.0
    
    
    
    (0.3
    )
    
    
    (0.1
    )
    
    
    0.3
    
    
    
    0.3Periodic benefit cost (income)
    
    
    19.3
    
    
    
    23.0
    
    
    
    1.8
    
    
    
    3.2
    
    
    
    1.4
    
    
    
    1.0Settlements and curtailments (gain) loss
    
    
    10.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special termination benefit charge (credit)
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    30.2
    
    
    $
    23.0
    
    
    $
    2.0
    
    
    $
    3.2
    
    
    $
    1.4
    
    
    $
    1.0
 U.S. Plans
    
    
    U.K. Plans
    
    
    Other Non-U.S. PlansSix Months
    
    
    Six Months
    
    
    Six MonthsEnded
    
    
    Ended
    
    
    EndedJune 30,
    
    
    June 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Service cost
    
    $
    25.9
    
    
    $
    23.9
    
    
    $
    14.4
    
    
    $
    12.3
    
    
    $
    2.1
    
    
    $
    1.5Interest cost
    
    
    76.2
    
    
    
    74.1
    
    
    
    16.3
    
    
    
    15.5
    
    
    
    2.5
    
    
    
    2.2Expected return on plan assets
    
    
    (89.4
    )
    
    
    (85.6
    )
    
    
    (24.6
    )
    
    
    (21.6
    )
    
    
    (2.6
    )
    
    
    (2.0
    )Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    4.7
    
    
    
    4.4
    
    
    
    (0.5
    )
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial (gain) loss
    
    
    26.2
    
    
    
    24.2
    
    
    
    
    
    
    
    (0.1
    )
    
    
    0.6
    
    
    
    0.3Periodic benefit cost (income)
    
    
    43.6
    
    
    
    41.0
    
    
    
    5.6
    
    
    
    6.1
    
    
    
    2.6
    
    
    
    2.0Settlements and curtailments (gain) loss
    
    
    10.9
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special termination benefit charge (credit)
    
    
    
    
    
    
    
    
    
    
    0.2
    
    
    
    
    
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    54.5
    
    
    $
    41.0
    
    
    $
    5.8
    
    
    $
    6.1
    
    
    $
    2.6
    
    
    $
    2.0
  U.S. Plans
    
    U.K. Plans
    
    Other Non-U.S. PlansThree Months and Six Months
    
    Three Months and Six Months
    
    Three Months and Six MonthsEnded
    
    Ended
    
    EndedJune 30,
    
    June 30,
    
    June 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 5/19/06-6/30/06
    
    
    6.34%
    
    
    
    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%
 14




---



##### 



U.S. Retirement Plan Changes in 2006
    15




---



##### 



Postretirement Benefits Other Than Pensions
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Service cost
    
    $
    0.7
    
    
    $
    0.5
    
    
    $
    0.7
    
    
    $
    0.8Interest cost
    
    
    5.2
    
    
    
    5.0
    
    
    
    9.8
    
    
    
    11.3Amortization of prior service cost
    
    
    
    
    
    
    (0.1
    )
    
    
    (0.1
    )
    
    
    (0.1
    )Amortization of actuarial (gain) loss
    
    
    0.8
    
    
    
    0.3
    
    
    
    0.6
    
    
    
    0.8Periodic benefit cost (income)
    
    
    6.7
    
    
    
    5.7
    
    
    
    11.0
    
    
    
    12.8Settlements and curtailments (gain) loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special termination benefit charge (credit)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    6.7
    
    
    $
    5.7
    
    
    $
    11.0
    
    
    $
    12.8
   Three Months and Six Months EndedJune 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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Comprehensive Income/(Loss)Net income
    
    $
    81.0
    
    
    $
    75.7
    
    
    $
    282.5
    
    
    $
    133.2Other comprehensive income/(loss):Unrealized foreign currency translation gains (losses) during period
    
    
    64.1
    
    
    
    (48.0
    )
    
    
    75.9
    
    
    
    (47.3
    )Minimum pension liability adjustments during period (Note 10)
    
    
    109.3
    
    
    
    
    
    
    
    109.3
    
    
    
    Gains (losses) on cash flow hedges
    
    
    46.5
    
    
    
    (28.7
    )
    
    
    50.1
    
    
    
    (46.9
    )Gains (losses) on certain investments
    
    
    (0.1
    )
    
    
    
    
    
    
    (0.1
    )
    
    
    Total
    
    $
    300.8
    
    
    $
    (1.0
    )
    
    $
    517.7
    
    
    $
    39.0
 16




---



##### 



June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)Accumulated Other Comprehensive Income/(Loss)Cumulative unrealized foreign currency translation gains (losses)
    
    $
    211.1
    
    
    $
    135.2Minimum pension liability adjustments
    
    
    (314.8
    )
    
    
    (424.1
    )Accumulated gains (losses) on cash flow hedges
    
    
    56.0
    
    
    
    5.9Accumulated unrealized gains (losses) on certain
investments
    
    
    (0.1
    )
    
    
    Total
    
    $
    (47.8
    )
    
    $
    (283.0
    )
  Note 12. Income Taxes
  17
         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.
 18




---



##### 




    
    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.
 19




---



##### 




    
    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 & 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.
 
    
    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;
 20




---



##### 




    
    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 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.
 21




---



##### 



Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Net customer sales:Engine Systems
    
    $
    634.6
    
    
    $
    565.8
    
    
    $
    1,245.1
    
    
    $
    1,093.9Airframe Systems
    
    
    488.6
    
    
    
    464.0
    
    
    
    958.9
    
    
    
    906.7Electronic Systems
    
    
    360.0
    
    
    
    322.9
    
    
    
    703.0
    
    
    
    627.6$
    1,483.2
    
    
    $
    1,352.7
    
    
    $
    2,907.0
    
    
    $
    2,628.2Intersegment sales:Engine Systems
    
    $
    5.9
    
    
    $
    7.3
    
    
    $
    10.8
    
    
    $
    16.4Airframe Systems
    
    
    12.3
    
    
    
    13.0
    
    
    
    24.4
    
    
    
    25.9Electronic Systems
    
    
    8.3
    
    
    
    9.1
    
    
    
    21.1
    
    
    
    17.0$
    26.5
    
    
    $
    29.4
    
    
    $
    56.3
    
    
    $
    59.3Segment operating income:Engine Systems
    
    $
    128.9
    
    
    $
    108.8
    
    
    $
    247.6
    
    
    $
    199.3Airframe Systems
    
    
    28.0
    
    
    
    10.8
    
    
    
    42.3
    
    
    
    38.6Electronic Systems
    
    
    45.8
    
    
    
    37.7
    
    
    
    82.7
    
    
    
    70.0202.7
    
    
    
    157.3
    
    
    
    372.6
    
    
    
    307.9Corporate general and administrative expenses
    
    
    (23.9
    )
    
    
    (21.2
    )
    
    
    (51.1
    )
    
    
    (41.7
    )Pension curtailment (Note 10)
    
    
    (10.9
    )
    
    
    
    
    
    
    (10.9
    )
    
    
    Total operating income
    
    $
    167.9
    
    
    $
    136.1
    
    
    $
    310.6
    
    
    $
    266.2
 Note 14. Derivatives and Hedging Activities
 Cash Flow Hedges
   
    
    $47.3 million recorded as a current asset in Prepaid expenses and
    
    $51.7 million recorded as a non-current asset in other assets; partially offset by,
    
    $9.7 million recorded as a current liability in accrued expenses and
 22




---



##### 




    
    $0.1 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; and
    
    Two $50 million fixed-to-floating interest rate swaps on the 7.50 percent notes due in 2008
  23




---



##### 



Other Forward Contracts
  Note 15. Contingencies
 General
  Environmental
   24




---



##### 



25




---



##### 



Asbestos
     26




---



##### 



Liabilities of Divested Businesses
 Asbestos
   Other
  Guarantees
  27




---



##### 



Commercial Airline Customers
  Aerostructures Long-Term Contracts
  Compliance with Specialty Metals Clause in U.S. Defense Contracts and Subcontracts
 at any tier
  28




---



##### 



Tax
    29




---



##### 



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)
   30




---



##### 



Note 16. Guarantees
  Maximum
    
    CarryingPotential
    
    Amount ofPayment
    
    Liability(Dollars in millions)Environmental remediation indemnification (Note 15)
    
    No limit
    
    $
    14.6Financial Guarantees:Debt and lease payments (Note 8)
    
    $
    2.3
    
    
    $
    Residual value on leases (Note 9)
    
    $
    24.8
    
    
    $
    Letter of credit and bank guarantees (Note 8)
    
    $
    54.7
    
    
    $
    
 Service and Product Warranties
   (Dollars in millions)Balance at December 31, 2005
    
    $
    162.4Service and product warranty provision
    
    
    28.1Return to profit
    
    
    (2.8
    )Used as intended
    
    
    (33.1
    )Foreign currency translation
    
    
    6.3Balance at June 30, 2006
    
    $
    160.9
  June 30,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)Short-term liabilities
    
    $
    59.6
    
    
    $
    61.0Long-term liabilities
    
    
    101.3
    
    
    
    101.4Total
    
    $
    160.9
    
    
    $
    162.4
 31




---



##### 



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
six months ended June 30, 2005 than if the previous method of accounting had been used by
approximately $1.6 million ($1 million after tax). As a result of applying the
straight-line method, the Company 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 expected 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.
 32




---



##### 




    
    Prior to the adoption of SFAS 123(R), the Company presented all excess tax benefits of
deductions resulting from share-based payments as operating cash flows 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 financing cash flows. The $4 million excess pro forma
tax benefit was classified as a financing cash inflow during the six months ended June 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 SEC 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 ($7 million after tax, or $0.06 per diluted share) was recognized during the
six months ended June 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 six months ended June 30, 2005 by approximately $7 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.
   33




---



##### 



Stock Options
   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
 34




---



##### 



Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicShares
    
    
    Price
    
    
    Term
    
    
    Value(in thousands)
    
    
    
    
    
    
    
    
    
    
    (in millions)Outstanding at January 1, 2006
    
    
    6,951.7
    
    
    $
    30.85Granted
    
    
    696.3
    
    
    
    40.43Exercised
    
    
    (1,324.8
    )
    
    
    29.91Forfeited or expired
    
    
    (47.0
    )
    
    
    31.08Outstanding at June 30, 2006
    
    
    6,276.2
    
    
    $
    32.11
    
    
    5.5 years
    
    $
    50.0Vested or expected to vest (1)
    
    
    6,239.3
    
    
    $
    32.07
    
    
    5.5 years
    
    $
    49.9Exercisable at June 30, 2006
    
    
    4,978.9
    
    
    $
    31.01
    
    
    4.6 years
    
    $
    44.6
 
 (1)
    
    Represents outstanding options reduced by expected forfeitures.   Restricted Stock Units
   35




---



##### 



Weighted-AverageGrant dateShares
    
    
    Fair Value(in thousands)Nonvested at January 1, 2006
    
    
    1,095.1
    
    
    $
    31.55Granted
    
    
    591.8
    
    
    
    40.48Vested
    
    
    (74.9
    )
    
    
    33.72Forfeited
    
    
    (29.5
    )
    
    
    34.56Nonvested at June 30, 2006
    
    
    1,582.5
    
    
    
    34.75
  Restricted Stock Awards
  Performance Units
    36




---



##### 



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
    
    
    331.9
    
    
    
    40.10Converted and paid out
    
    
    (313.7
    )
    
    
    32.20Forfeited
    
    
    (43.5
    )
    
    
    40.64Outstanding at June 30, 2006
    
    
    658.2
    
    
    $
    40.03
    
    
    1.5 years
    
    $
    26.3Vested or expected to vest (1)
    
    
    613.4
    
    
    $
    39.94
    
    
    1.5 years
    
    $
    24.5
 
 (1)
    
    Represents outstanding units reduced by expected forfeitures.  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
 37




---



##### 



Outside Director Phantom Share Plan
   Outside Director Deferral Plan
   38




---



##### 



Note 18. Discontinued Operations
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)
    
    
    (Dollars in millions)Sales
    
    $
    
    
    
    $
    1.5
    
    
    $
    
    
    
    $
    8.0Operating income
    
    $
    (0.1
    )
    
    $
    0.2
    
    
    $
    0.9
    
    
    $
    1.3Gain on sale
    
    
    
    
    
    
    20.2
    
    
    
    
    
    
    
    20.2Income tax expense
    
    
    
    
    
    
    (7.1
    )
    
    
    (0.4
    )
    
    
    (7.5
    )Income from discontinued operations
    
    $
    (0.1
    )
    
    $
    13.3
    
    
    $
    0.5
    
    
    $
    14.0
   39




---



##### 



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
    40




---



##### 



Commercial and General Aviation Airplane Aftermarket
     Defense and Space
    41




---



##### 



Long-term Sustainable Growth
  
    
    Awards for key products on important new programs, including
the Airbus A380, 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 Airbus and regional and business 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; and
    
    Expansion of our product offerings in support of high growth areas in the defense and
space market channel.
 Quarter Ended June 30, 2006 Sales Content by Market Channel
  Quarter EndedJune 30, 2006Airbus Commercial OE
    
    
    16
    %Boeing Commercial OE
    
    
    10
    %Regional and General Aviation Airplane OE
    
    
    7
    %Total Commercial and General Aviation Airplane OE
    
    
    33
    %Large Commercial Airplane Aftermarket
    
    
    27
    %Regional and General Aviation Airplane Aftermarket
    
    
    7
    %Heavy Airplane Maintenance
    
    
    3
    %Total Commercial and General Aviation Airplane Aftermarket
    
    
    37
    %Total Defense and Space
    
    
    25
    %Other
    
    
    5
    %Total
    
    
    100
    %
 42




---



##### 



Summary Performance  Quarter Ended June 30, 2006 as Compared to the Quarter Ended June 30,
2005
 Quarter Ended June 30,2006
    
    
    2005
    
    
    % Change(Dollars in millions, except diluted EPS)Sales
    
    $
    1,483.2
    
    
    $
    1,352.7
    
    
    
    9.6
    %Segment operating income
    
    $
    202.7
    
    
    $
    157.3
    
    
    
    28.9
    %Percent of sales
    
    
    13.7
    %
    
    
    11.6
    %Income from continuing operations
    
    $
    81.1
    
    
    $
    62.4
    
    
    
    30.0
    %Net income
    
    $
    81.0
    
    
    $
    75.7
    
    
    
    7.0
    %Capital expenditures
    
    $
    51.9
    
    
    $
    39.6
    
    
    
    31.1
    %Net cash provided (used) by operating activities
    
    $
    (10.7
    )
    
    $
    90.6
    
    
    
    (111.8
    )%Diluted EPS:Continuing operations
    
    $
    0.64
    
    
    $
    0.51
    
    
    
    25.5
    %Net income
    
    $
    0.64
    
    
    $
    0.61
    
    
    
    4.9
    %
  
    
    Large commercial airplane OE sales increased 18 percent;
    
    Regional, business and general aviation airplane OE sales increased 24 percent, led by
strong sales growth for our aerostructures products;
    
    Large commercial, regional and general aviation airplane aftermarket sales increased by
20 percent, with continued strong sales of our aerostructures products and services; and
    
    Defense and space sales of both OE and aftermarket products and services decreased by
about 6 percent. Defense and space sales growth in the Electronic Systems segment of 10
percent was more than offset by a decrease in sales in the Engine Systems segment due to
completion of certain contracts in 2005.
  Quarter EndedIncome (Expense)
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    Increase (Decrease)(Dollars in millions, except diluted EPS)Before
    
    
    
    
    
    
    
    
    
    
    Before
    
    
    
    
    
    
    
    
    
    
    BeforeTax
    
    
    Net
    
    
    Diluted
    
    
    Tax
    
    
    Net
    
    
    Diluted
    
    
    Tax
    
    
    Net
    
    
    DilutedIncome
    
    
    Income
    
    
    EPS
    
    
    Income
    
    
    Income
    
    
    EPS
    
    
    Income
    
    
    Income
    
    
    EPSPension curtailment charge
    
    $
    (10.9
    )
    
    $
    (6.8
    )
    
    $
    (0.05
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (10.9
    )
    
    $
    (6.8
    )
    
    $
    (0.05
    )Pension expense, excluding curtailment charge
    
    $
    (22.5
    )
    
    $
    (14.1
    )
    
    $
    (0.11
    )
    
    $
    (27.3
    )
    
    $
    (17.1
    )
    
    $
    (0.14
    )
    
    $
    4.8
    
    
    $
    3.0
    
    
    $
    0.03Loss on exchange or extinguishment of debt
    
    $
    (4.8
    )
    
    $
    (3.0
    )
    
    $
    (0.02
    )
    
    $
    (5.7
    )
    
    $
    (3.6
    )
    
    $
    (0.03
    )
    
    $
    0.9
    
    
    $
    0.6
    
    
    $
    0.01A380 actuation systems costs to reserve for
retrofit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (15.0
    )
    
    $
    (9.4
    )
    
    $
    (0.08
    )
    
    $
    15.0
    
    
    $
    9.4
    
    
    $
    0.08Foreign exchange rate impact, including net
monetary asset remeasurement
    
    $
    (11.1
    )
    
    $
    (6.9
    )
    
    $
    (0.05
    )
    
    $
    1.7
    
    
    $
    1.1
    
    
    $
    0.01
    
    
    $
    (12.8
    )
    
    $
    (8.0
    )
    
    $
    (0.06
    )
 43




---



##### 



44




---



##### 



Summary Performance  Six Months Ended June 30, 2006 as Compared to the Six Months Ended June 30,
2005
 Six Months EndedJune 30,2006
    
    
    2005
    
    
    % Change(Dollars in millions, except diluted EPS)Sales
    
    $
    2,907.0
    
    
    $
    2,628.2
    
    
    
    10.6
    %Segment Operating Income
    
    $
    372.6
    
    
    $
    307.9
    
    
    
    21.0
    %% of Sales
    
    
    12.8
    %
    
    
    11.7
    %Income from Continuing Operations
    
    $
    281.4
    
    
    $
    119.2
    
    
    
    136.1
    %Net Income
    
    $
    282.5
    
    
    $
    133.2
    
    
    
    112.1
    %Capital expenditures
    
    $
    95.1
    
    
    $
    66.4
    
    
    
    43.2
    %Net Cash Provided by Operating Activities
    
    $
    54.9
    
    
    $
    107.4
    
    
    
    (48.9
    )%Diluted EPS:Continuing Operations
    
    $
    2.23
    
    
    $
    0.97
    
    
    
    129.9
    %Net Income
    
    $
    2.24
    
    
    $
    1.08
    
    
    
    107.4
    %
  
    
    Large commercial airplane OE sales increased 22 percent;
    
    Regional, business and general aviation airplane OE sales increased 23 percent, led by
strong sales growth for our aerostructures products;
    
    Large commercial, regional and general aviation airplane aftermarket sales increased by
18 percent, with continued strong sales of our aerostructures products and services; and
    
    Defense and space sales of both OE and aftermarket products and services decreased by
about 4 percent. Defense and space sales growth in the Electronic Systems segment of 13
percent was more than offset by a decrease in sales in the Engine Systems segment due to
completion of certain contracts in 2005.
  45




---



##### 



Six Months EndedIncome (Expense)
    
    June 30, 2006
    
    
    June 30, 2005
    
    
    Increase (Decrease)Before
    
    
    
    
    
    
    
    
    
    
    Before
    
    
    
    
    
    
    
    
    
    
    BeforeTax
    
    
    Net
    
    
    Diluted
    
    
    Tax
    
    
    Net
    
    
    Diluted
    
    
    Tax
    
    
    Net
    
    
    DilutedIncome
    
    
    Income
    
    
    EPS
    
    
    Income
    
    
    Income
    
    
    EPS
    
    
    Income
    
    
    Income
    
    
    EPS(Dollars in millions, exceptdiluted EPS)Pension curtailment charge
    
    $
    (10.9
    )
    
    $
    (6.8
    )
    
    $
    (0.05
    )
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (10.9
    )
    
    $
    (6.8
    )
    
    $
    (0.05
    )Pension expense, excluding curtailment charge
    
    $
    (51.8
    )
    
    $
    (32.4
    )
    
    $
    (0.26
    )
    
    $
    (49.1
    )
    
    $
    (30.7
    )
    
    $
    (0.25
    )
    
    $
    (2.7
    )
    
    $
    (1.7
    )
    
    $
    (0.01
    )Loss on exchange or extinguishment of debt
    
    $
    (4.8
    )
    
    $
    (3.0
    )
    
    $
    (0.02
    )
    
    $
    (5.7
    )
    
    $
    (3.6
    )
    
    $
    (0.03
    )
    
    $
    0.9
    
    
    $
    0.6
    
    
    $
    0.01A380 actuation systems costs to reserve for retrofit
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (15.0
    )
    
    $
    (9.4
    )
    
    $
    (0.08
    )
    
    $
    15.0
    
    
    $
    9.4
    
    
    $
    0.08Net income tax settlements and refunds
    
    $
    
    
    
    $
    139.0
    
    
    $
    1.10
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    139.0
    
    
    $
    1.10Foreign exchange rate impact, including net
monetary asset remeasurement
    
    $
    (12.0
    )
    
    $
    (7.5
    )
    
    $
    (0.06
    )
    
    $
    4.0
    
    
    $
    2.5
    
    
    $
    0.02
    
    
    $
    (16.0
    )
    
    $
    (10.0
    )
    
    $
    (0.08
    )Share-base compensation, including the impact of
the adoption of SFAS 123(R)
    
    $
    (28.7
    )
    
    $
    (17.9
    )
    
    $
    (0.14
    )
    
    $
    (19.2
    )
    
    $
    (12.0
    )
    
    $
    (0.10
    )
    
    $
    ( 9.5
    )
    
    $
    (5.9
    )
    
    $
    (0.04
    )
     46




---



##### 



2006 Outlook
       47




---



##### 




    
    We expect deliveries of Airbus and Boeing large commercial aircraft to increase by more
than 20 percent in 2006 compared to 2005, and by a somewhat lesser amount in 2007,
including the expected reduction of A380 deliveries in 2006 and 2007. Our sales of large
commercial aircraft OE products are projected to increase by approximately 15 percent in
2006. This expected growth rate is lower than the growth rate in aircraft deliveries
because many of our products are delivered well in advance of manufacturers deliveries to
their customers, causing sales to occur in 2005 for planes to be delivered well into 2006.
    
    Capacity in the global airline system, as measured by available seat miles (ASMs), is
expected to continue to grow approximately 5 percent in 2006, compared to 2005. Our sales
to airlines and package carriers for large commercial and regional aircraft aftermarket
parts and services are now expected to grow by about 10 percent in 2006, compared to 2005.
    
    Total regional and business aircraft production is expected to be flat or slightly down
in 2006, compared to 2005, as 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 OE sales in this market
channel for the full year 2006, compared to 2005.
    
    Defense and space sales (OE and aftermarket) are expected to be relatively flat to
slightly down in 2006, compared to 2005. Sales for the C-5 Reliability Enhancement and
Re-engining Program are expected to temporarily decrease in 2006, and sales of military
aftermarket products are also expected to decline in the customer services business. These
decreases are expected to be largely offset by strong growth in the sales of defense and
space products in our optical and space systems business.
 48




---



##### 




    
    Foreign exchange  We are currently more than 90 percent hedged for our expected 2006
foreign exchange exposure. Based on these hedges and current market conditions, we expect
that foreign currency translation related to sales and expenses denominated in currencies
other than the U.S. dollar will have an unfavorable impact of approximately $26 million
before tax ($16 million after tax, or $0.13 per diluted share) during 2006, compared to
2005, as gains from hedges maturing in 2006 will be less than gains realized in 2005.
    
    Stock-based compensation  We implemented FAS 123, prospectively, and a new stock
option and restricted stock unit program on January 1, 2004. The cost of each annual
restricted stock unit grant is amortized over a five-year vesting period. Consequently,
expense increases year-over-year as each new restricted stock unit grant is added. Also,
under the provisions of FAS 123(R), beginning in 2006, we have recognized the value of
stock options and restricted stock units granted to all employees who are eligible for
retirement, or who will become eligible for retirement prior to the normal vesting date, on
an accelerated basis. In total, these items resulted in an increase in stock-based
compensation expense, for 2006 compared to 2005, of approximately $13 million before tax
($8 million after tax, or $0.06 per diluted share).
 RESULTS OF OPERATIONS
 Adoption of SFAS No. 123(R)
  49




---



##### 




    
    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 six months ended June 30, 2005 higher than the
previous method of accounting by approximately $1.6 million ($1 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 expected 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.
    
    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 operating cash flows 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 financing cash flows. The $4 million excess tax
benefit was classified as a financing cash inflow during the six months ended June 30,
2006.
 50




---



##### 




    
    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 SEC 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 ($7 million after tax, or $0.06 per diluted share) was recognized during the
six months ended June 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 six months ended June 30, 2005 by approximately $7 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.
  Quarter Ended June 30, 2006 Compared with Quarter Ended June 30, 2005
 Quarter EndedJune 30,2006
    
    
    2005(Dollars in millions)Sales
    
    $
    1,483.2
    
    
    $
    1,352.7Segment operating income
    
    $
    202.7
    
    
    $
    157.3Corporate general and administrative costs
    
    
    (23.9
    )
    
    
    (21.2
    )Pension curtailment
    
    
    (10.9
    )
    
    
    Total operating income
    
    
    167.9
    
    
    
    136.1Net interest expense
    
    
    (30.2
    )
    
    
    (32.0
    )Other income (expense)  net
    
    
    (20.9
    )
    
    
    (14.3
    )Income tax expense
    
    
    (35.7
    )
    
    
    (27.4
    )Income from continuing operations
    
    
    81.1
    
    
    
    62.4Income (loss) from discontinued operations
    
    
    (0.1
    )
    
    
    13.3Net income
    
    $
    81.0
    
    
    $
    75.7
   51




---



##### 



Six Months Ended June 30, 2006 Compared with Six Months Ended June 30, 2005
 Six Months EndedJune 30,2006
    
    
    2005(Dollars in millions)Sales
    
    $
    2,907.0
    
    
    $
    2,628.2Segment operating income
    
    $
    372.6
    
    
    $
    307.9Corporate general and administrative costs
    
    
    (51.1
    )
    
    
    (41.7
    )Pension curtailment
    
    
    (10.9
    )
    
    
    Total operating income
    
    
    310.6
    
    
    
    266.2Net interest expense
    
    
    (61.1
    )
    
    
    (65.0
    )Other income (expense)  net
    
    
    (31.5
    )
    
    
    (24.4
    )Income tax benefit (expense)
    
    
    63.4
    
    
    
    (57.6
    )Income from continuing operations
    
    
    281.4
    
    
    
    119.2Income from discontinued operations
    
    
    0.5
    
    
    
    14.0Cumulative effect of change in accounting
    
    
    0.6
    
    
    
    Net income
    
    $
    282.5
    
    
    $
    133.2
 52




---



##### 




    
    Higher costs related to the ERP implementation of approximately $5 million;
    
    Higher salary and benefits resulting from inflationary increases of approximately $3 million; and
    
    Higher incentive compensation, including the adoption of SFAS 123(R), of approximately $2 million.
       53




---



##### 



BUSINESS SEGMENT PERFORMANCE
   Quarter Ended June 30, 2006 Compared with Quarter Ended June 30, 2005
 Quarter Ended June 30,%
    
    
    % of Sales2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005(Dollars in millions)NET CUSTOMER SALESEngine Systems
    
    $
    634.6
    
    
    $
    565.8
    
    
    
    12.2Airframe Systems
    
    
    488.6
    
    
    
    464.0
    
    
    
    5.3Electronic Systems
    
    
    360.0
    
    
    
    322.9
    
    
    
    11.5Total Sales
    
    $
    1,483.2
    
    
    $
    1,352.7
    
    
    
    9.6SEGMENT OPERATING INCOMEEngine Systems
    
    $
    128.9
    
    
    $
    108.8
    
    
    
    18.5
    
    
    
    20.3
    
    
    
    19.2Airframe Systems
    
    
    28.0
    
    
    
    10.8
    
    
    
    159.3
    
    
    
    5.7
    
    
    
    2.3Electronic Systems
    
    
    45.8
    
    
    
    37.7
    
    
    
    21.5
    
    
    
    12.7
    
    
    
    11.7Segment Operating Income
    
    $
    202.7
    
    
    $
    157.3
    
    
    
    28.9
    
    
    
    13.7
    
    
    
    11.6
 Engine Systems
 
    
    Higher large commercial airplane OE and aftermarket (including maintenance, repair and
overhaul (MRO)) volume of approximately $96 million primarily in our aerostructures and
customer services businesses; and
    
    Higher sales volume of approximately $14 million of regional and business OE and
aftermarket products primarily from our aerostructures business.
    54




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##### 



Airframe Systems:
 
    
    Lower sales in actuation systems of approximately $10 million driven primarily by lower
volume and an unfavorable foreign exchange translation impact; and
    
    Lower volume of airframe heavy maintenance sales of approximately $9 million.
  
    
    The absence of a $15.1 million charge recorded in the quarter ended June 30, 2005 for
the retrofit of redesigned motor drive electronics for the A380 actuation systems,
including supplier claims and a related asset impairment, not recurring in the current
period; and
    
    Lower research and development costs of approximately $6 million, primarily in our
actuation systems business.
  Electronic Systems:
 
    
    Higher sales volume of approximately $16 million, including sales from Sensors
Unlimited (SUI) which was acquired in the fourth quarter of 2005, and from our defense and
space OE primarily in our optical and space, fuel and utility, sensors and power systems
businesses;
    
    Higher sales volume of approximately $9 million of regional and general aviation
airplane OE products in our sensors, lighting and power systems businesses; and
    
    Higher sales volume of $8 million of large commercial airplane OE and aftermarket
products in sensors, lighting and power systems businesses.
  55




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##### 




    
    Higher sales volume as described above generating segment operating income of
approximately $14 million, which includes operating income from
SUI that was acquired during the fourth quarter 2005; and
    
    Favorable sales mix in our aircraft interior products, optical and space systems,
lighting systems and power systems businesses, which generated segment operating income of
approximately $3 million.
  
    
    Higher operating costs of approximately $7 million, including warranty and pension expenses; and
    
    Unfavorable foreign exchange translation of approximately $2 million.
 Six Months Ended June 30, 2006 Compared with Six Months Ended June 30, 2005
 Six Months Ended June 30,%
    
    
    % of Sales2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005(Dollars in millions)NET CUSTOMER SALESEngine Systems
    
    $
    1,245.1
    
    
    $
    1,093.9
    
    
    
    13.8Airframe Systems
    
    
    958.9
    
    
    
    906.7
    
    
    
    5.8Electronic Systems
    
    
    703.0
    
    
    
    627.6
    
    
    
    12.0Total Sales
    
    $
    2,907.0
    
    
    $
    2,628.2
    
    
    
    10.6SEGMENT OPERATING INCOMEEngine Systems
    
    $
    247.6
    
    
    $
    199.3
    
    
    
    24.2
    
    
    
    19.9
    
    
    
    18.2Airframe Systems
    
    
    42.3
    
    
    
    38.6
    
    
    
    9.6
    
    
    
    4.4
    
    
    
    4.3Electronic Systems
    
    
    82.7
    
    
    
    70.0
    
    
    
    18.1
    
    
    
    11.8
    
    
    
    11.2Segment Operating Income
    
    $
    372.6
    
    
    $
    307.9
    
    
    
    21.0
    
    
    
    12.8
    
    
    
    11.7
 Engine Systems
 
    
    Higher commercial OE and aftermarket (including MRO) volume of approximately $183
million primarily in our aerostructures, engine controls and customer services businesses;
and
    
    Higher sales volume of approximately $26 million of regional and business OE products
primarily from our aerostructures business.
  56




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##### 




    
    Higher sales volume as described above generating operating income of approximately $70
million; and
    
    Lower net cumulative catch-up charges of approximately $3 million in the six months
ended June 30, 2006 as compared to the six months ended June 30, 2005 on several long-term
contracts in our aerostructures business.
  Airframe Systems
 
    
    Lower volume of airframe heavy maintenance sales of approximately $26 million;
    
    Lower sales in our actuation systems business of approximately $5 million primarily
driven by an unfavorable foreign exchange impact; and
    
    Lower volume in our wheels and brakes business of approximately $5 million, which was
primarily driven by a decrease in military volume.
  
    
    The absence of a $15.1 million charge recorded in the six months ended June 30, 2005
for the retrofit of redesigned motor drive electronics for the A380 actuation systems,
including supplier claims and a related asset impairment, not recurring in the current
period; and
    
    Lower research and development costs of approximately $11 million, primarily in the
actuation systems business.
  57




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##### 



Electronic Systems:
 
    
    Higher sales volume of approximately $37 million of defense and space OE and
aftermarket products primarily in our optical and space, fuel and utility, sensors and
power systems businesses, partially offset by a decline in sales volume in our propulsion
systems business;
    
    Higher sales volume of $20 million of large commercial OE and aftermarket products in
virtually all of our business units;
    
    Higher sales volume of approximately $12 million of regional and general aviation
airplane OE and aftermarket products in our sensors, lighting and power systems businesses;
and
    
    Sales of approximately $9 million from SUI, which was acquired during the fourth
quarter 2005.
  
    
    Higher sales volume as described above generating segment operating income of
approximately $28 million, which includes operating income from SUI; and
    
    Favorable mix in our power systems, optical and space systems and aircraft interior
products businesses of approximately $6 million.
  
    
    Increased operating costs of approximately $16 million, including warranty expense and
incentive compensation expenses; and
    
    Increased investments of approximately $5 million in research and development and new
product introduction costs in our optical and space, sensors, and fuel and utility
businesses to support new programs.
 Future Restructuring and Consolidation Costs for Programs Announced and Initiated
  58




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##### 



LIQUIDITY AND CAPITAL RESOURCES
  Cash
  Credit Facilities
     59




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##### 



Long-Term Financing
   
    
    $177.9 million principal amount of our 7.50 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 6.60 percent notes due in 2009.
    60




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##### 



Off-Balance Sheet Arrangements
  UndiscountedMinimumFuture Lease
    
    
    ReceivablesPayments
    
    
    Sold(Dollars in millions)Tax advantaged operating leases
    
    $
    19.3Standard operating leases
    
    
    133.4$
    152.7Short-term Receivables securitization program
    
    
    
    
    
    $
    
 Lease Agreements
    Sale of Receivables
  61




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##### 



Cash Flow Hedges
   
    
    $47.3 million recorded as a current asset in Prepaid expenses; and
    
    $51.7 million recorded as a non-current asset in other assets; partially offset by,
    
    $9.7 million recorded as a current liability in accrued expenses; and
    
    $0.1 million recorded as a non-current liability in other non-current liabilities.
   62




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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; and
    
    Two $50 million fixed-to-floating interest rate swaps on the 7.50 percent notes due in 2008.
   Other Forward Contracts
  CASH FLOW
  Six Months EndedJune 30,Net Cash Provided by (Used by):
    
    2006
    
    2005(Dollars in millions)Operating activities of continuing operations
    
    $
    54.9
    
    
    $
    107.4Investing activities of continuing operations
    
    $
    (93.7
    )
    
    $
    (70.4
    )Financing activities of continuing operations
    
    $
    (20.2
    )
    
    $
    (106.7
    )Discontinued operations
    
    $
    11.2
    
    
    $
    27.2
 63




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##### 



Six Months Ended June 30, 2006 as Compared to Six Months Ended June 30, 2005
 Operating Activities of Continuing Operations
   Investing Activities of Continuing Operations
   Segment
    
    PercentEngines
    
    
    41
    %Airframe
    
    
    31
    %Electronics
    
    
    20
    %Corporate
    
    
    8
    %100
    %
 Financing Activities of Continuing Operations
  64




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##### 



Discontinued Operations
  CONTINGENCIES
 General
  Environmental
   65




---



##### 



Asbestos
  66




---



##### 



Liabilities of Divested Businesses
 Asbestos
   67




---



##### 



Other
  Guarantees
  Commercial Airline Customers
  Aerostructures Long-Term Contracts
  68




---



##### 



Compliance with Specialty Metals Clause in U.S. Defense Contracts and Subcontracts
 at any tier
  Tax
   69




---



##### 



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)
  70




---



##### 



NEW ACCOUNTING STANDARDS
 Accounting for Certain Hybrid Financial Instruments
  Accounting for Servicing of Financial Assets
  71




---



##### 



Accounting for Uncertainty in Income Taxes
  CRITICAL ACCOUNTING POLICIES
   Revenue Recognition
  Contract Accounting-Percentage of Completion
 Revenue Recognition
  72




---



##### 



73




---



##### 




    
    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.
 Inventory
   Income Taxes
    74




---



##### 



Identifiable Intangible Assets
   Participation Payments
  Entry Fees
  75




---



##### 




    
    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
  76




---



##### 



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
  U.S. Retirement Plan Changes in 2006
  77




---



##### 



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;
    
    potential cancellation 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 actual amount of future liabilities assumed by us pursuant to the partial
settlement with Northrop Grumman related to the purchase of aeronautical systems;
    
    the possibility of additional 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;
 78




---



##### 




    
    threats and events associated with and efforts to combat terrorism;
    
    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;
    
    domestic and foreign government spending, budgetary and trade policies;
    
    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.
  Item 3. Quantitative and Qualitative Disclosures About Market Risk.
  79




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##### 



Item 4. Controls and Procedures.
      80




---



##### 



Item 1. Legal Proceedings.
  Item 1A. Risk Factors.
  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)April 2006
    
    
    30,302
    
    
    $
    42.74
    
    
    
    N/A
    
    
    
    N/AMay 2006
    
    
    9,440
    
    
    
    46.39
    
    
    
    N/A
    
    
    
    N/AJune 2006
    
    
    2,079
    
    
    
    42.72
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    41,821
    
    
    $
    43.56
    
    
    
    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. We do not otherwise have any plan or program to
purchase our common stock. 81




---



##### 



Item 4. Submission of Matters to a Vote of Security Holders.
  
    
    The eleven nominees for director were elected; and.
    
    The appointment of Ernst & Young LLP as independent auditors for the year 2006 was ratified.
  Election of Directors:
 Number of Shares Voted For
    
    Number of Shares Vote WithheldDiane C. Creel
    
    
    55,934,827
    
    
    
    54,206,959George A. Davidson, Jr.
    
    
    108,389,432
    
    
    
    1,752,354Harris E. DeLoach, Jr.
    
    
    109,144,072
    
    
    
    997,714James W. Griffith
    
    
    108,505,312
    
    
    
    1,636,474William R. Holland
    
    
    108,818,609
    
    
    
    1,323,177John P. Jumper
    
    
    109,090,164
    
    
    
    1,051,622Marshall O. Larsen
    
    
    108,401,471
    
    
    
    1,740,315Douglas E. Olesen
    
    
    109,131,133
    
    
    
    1,010,653Alfred M. Rankin, Jr.
    
    
    107,792,846
    
    
    
    2,348,940James R. Wilson
    
    
    109,129,965
    
    
    
    1,011,821A. Thomas Young
    
    
    108,401,632
    
    
    
    1,740,154
 Appointment of Independent Registered Public Accounting Firm:
  82




---



##### 



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 15
    
    Letter Re: Unaudited Interim Financial Information.Exhibit 31
    
    Rule 13a-14(a)/15d-14(a) Certifications.Exhibit 32
    
    Section 1350 Certifications.
 83




---



##### 



SIGNATURE
  August 3, 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) 84




---



##### 



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.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. 85