##### 



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 March 31, 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
    
    34-0252680(State of incorporation)
    
    (I.R.S. Employer Identification No.)Four Coliseum Centre
    
    282172730 West Tyvola Road
    
    (Zip Code)Charlotte, North Carolina(Address of principal executive offices)
 Registrants telephone number, including area code: (704) 423-7000
 R £
  R £ £
 £ R




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##### 



PART I. FINANCIAL INFORMATION
 Item 1. Financial Statements.
 Report of Independent Registered Public Accounting Firm
       
 2




---



##### 



CONDENSED CONSOLIDATED STATEMENT OF INCOME (UNAUDITED)
 Three Months EndedMarch 31,2006
    
    
    2005(Dollars in millions,except per share amounts)Sales
    
    $
    1,423.8
    
    
    $
    1,275.5Operating costs and expenses:Cost of sales
    
    
    1,043.9
    
    
    
    929.7Selling and administrative costs
    
    
    237.2
    
    
    
    215.71,281.1
    
    
    
    1,145.4Operating Income
    
    
    142.7
    
    
    
    130.1Interest expense
    
    
    (32.0
    )
    
    
    (33.9
    )Interest income
    
    
    1.1
    
    
    
    0.9Other income (expense)  net
    
    
    (10.6
    )
    
    
    (10.1
    )Income from continuing operations before income taxes
    
    
    101.2
    
    
    
    87.0Income tax benefit (expense)
    
    
    99.1
    
    
    
    (30.2
    )Income From Continuing Operations
    
    
    200.3
    
    
    
    56.8Income from discontinued operations  net of income taxes
    
    
    0.6
    
    
    
    0.7Cumulative effect of change in accounting
    
    
    0.6
    
    
    
    Net Income
    
    $
    201.5
    
    
    $
    57.5Basic Earnings Per Share:Continuing operations
    
    $
    1.62
    
    
    $
    0.47Discontinued operations
    
    
    
    
    
    
    0.01Cumulative effect of change in accounting
    
    
    0.01
    
    
    
    Net Income
    
    $
    1.63
    
    
    $
    0.48Diluted Earnings Per Share:Continuing operations
    
    $
    1.59
    
    
    $
    0.46Discontinued operations
    
    
    
    
    
    
    0.01Cumulative effect of change in accounting
    
    
    0.01
    
    
    
    Net Income
    
    $
    1.60
    
    
    $
    0.47Dividends Declared Per Common Share
    
    $
    0.20
    
    
    $
    0.20
  3




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##### 



CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
 March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in millions,except share amounts)Current AssetsCash and cash equivalents
    
    $
    283.0
    
    
    $
    251.3Accounts and notes receivable, less allowances for doubtful receivables
($23.3 at March 31, 2006 and $23.5 at December 31, 2005)
    
    
    788.5
    
    
    
    709.2Inventories  net
    
    
    1,393.6
    
    
    
    1,308.4Deferred income taxes
    
    
    99.4
    
    
    
    101.3Prepaid expenses and other assets
    
    
    48.7
    
    
    
    55.2Total Current Assets
    
    
    2,613.2
    
    
    
    2,425.4Property, plant and equipment  net
    
    
    1,198.9
    
    
    
    1,194.3Prepaid pension
    
    
    318.7
    
    
    
    337.8Goodwill
    
    
    1,319.7
    
    
    
    1,318.4Identifiable intangible assets  net
    
    
    459.7
    
    
    
    462.3Deferred income taxes
    
    
    48.9
    
    
    
    42.8Other assets
    
    
    678.3
    
    
    
    673.0Total Assets
    
    $
    6,637.4
    
    
    $
    6,454.0Current LiabilitiesShort-term debt
    
    $
    28.6
    
    
    $
    22.3Accounts payable
    
    
    589.4
    
    
    
    534.1Accrued expenses
    
    
    747.6
    
    
    
    764.9Income taxes payable
    
    
    189.5
    
    
    
    284.4Deferred income taxes
    
    
    8.0
    
    
    
    7.2Current maturities of long-term debt and capital lease obligations
    
    
    1.5
    
    
    
    1.7Total Current Liabilities
    
    
    1,564.6
    
    
    
    1,614.6Long-term debt and capital lease obligations
    
    
    1,740.4
    
    
    
    1,742.1Pension obligations
    
    
    848.3
    
    
    
    844.2Postretirement benefits other than pensions
    
    
    293.4
    
    
    
    300.0Deferred income taxes
    
    
    44.3
    
    
    
    42.1Other non-current liabilities
    
    
    438.0
    
    
    
    438.0Commitments and contingent liabilities
    
    
    
    
    
    
    Shareholders EquityCommon stock  $5 par value
Authorized 200,000,000 shares; issued 137,538,824 shares at March 31,
2006 and 136,727,436 shares at December 31, 2005 (excluding
14,000,000 shares held by a wholly owned subsidiary)
    
    
    687.7
    
    
    
    683.6Additional paid-in capital
    
    
    1,243.3
    
    
    
    1,203.3Income retained in the business
    
    
    462.0
    
    
    
    285.6Accumulated other comprehensive income (loss)
    
    
    (267.6
    )
    
    
    (283.0
    )Common stock held in treasury, at cost (13,631,128 shares at
March 31, 2006 and 13,621,128 shares at December 31, 2005)
    
    
    (417.0
    )
    
    
    (416.5
    )Total Shareholders Equity
    
    
    1,708.4
    
    
    
    1,473.0Total Liabilities And Shareholders Equity
    
    $
    6,637.4
    
    
    $
    6,454.0
  4




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##### 



CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED)
 Three Months EndedMarch 31,2006
    
    
    2005(Dollars in millions)Operating ActivitiesNet income
    
    $
    201.5
    
    
    $
    57.5Adjustments to reconcile net income to net cash provided by
operating activities:Income from discontinued operations
    
    
    (0.6
    )
    
    
    (0.7
    )Cumulative effect of change in accounting
    
    
    (0.6
    )
    
    
    Restructuring and consolidation:Expenses
    
    
    1.5
    
    
    
    3.2Payments
    
    
    (1.8
    )
    
    
    (3.4
    )Asset impairments
    
    
    0.9
    
    
    
    Depreciation and amortization
    
    
    56.3
    
    
    
    54.7Excess tax benefits on equity instruments issued under share-
based payment arrangements
    
    
    (1.2
    )
    
    
    Stock-based compensation expense
    
    
    22.4
    
    
    
    11.4Deferred income taxes
    
    
    (4.2
    )
    
    
    (28.8
    )Change in assets and liabilities, net of effects of acquisitions and
dispositions of businesses:Receivables
    
    
    (96.6
    )
    
    
    (103.5
    )Change in receivables sold, net
    
    
    
    
    
    
    24.3Inventories
    
    
    (82.6
    )
    
    
    (65.7
    )Other current assets
    
    
    9.1
    
    
    
    3.4Accounts payable
    
    
    62.8
    
    
    
    20.9Accrued expenses
    
    
    (17.7
    )
    
    
    (2.5
    )Income taxes payable
    
    
    (87.7
    )
    
    
    49.8Tax benefit on non-qualified options
    
    
    
    
    
    
    4.5Pension contributions
    
    
    (7.1
    )
    
    
    (3.3
    )Other non-current assets and liabilities
    
    
    11.2
    
    
    
    (5.0
    )Net Cash Provided By Operating Activities
    
    
    65.6
    
    
    
    16.8Investing ActivitiesPurchases of property, plant and equipment
    
    
    (43.2
    )
    
    
    (26.8
    )Proceeds from sale of property, plant and equipment
    
    
    0.1
    
    
    
    0.2Payments received (payments made) in connection with
acquisitions, net of cash acquired
    
    
    
    
    
    
    (8.8
    )Net Cash Used In Investing Activities
    
    
    (43.1
    )
    
    
    (35.4
    )Financing ActivitiesIncrease (decrease) in short-term debt, net
    
    
    6.1
    
    
    
    (1.0
    )Proceeds from issuance of long-term debt
    
    
    
    
    
    
    Repayment of long-term debt and capital lease obligations
    
    
    (0.4
    )
    
    
    (0.5
    )Proceeds from issuance of common stock
    
    
    18.5
    
    
    
    34.1Purchases of treasury stock
    
    
    (0.4
    )
    
    
    (0.6
    )Dividends
    
    
    (24.6
    )
    
    
    (23.8
    )Excess tax benefits on equity instruments issued under share-
based payment arrangements
    
    
    1.2
    
    
    
    Distributions to minority interest holders
    
    
    (1.0
    )
    
    
    (2.4
    )Net Cash (Used In) Provided By Financing Activities
    
    
    (0.6
    )
    
    
    5.8Discontinued OperationsNet cash provided by (used in) operating activities
    
    
    9.1
    
    
    
    2.9Net cash provided by (used in) investing activities
    
    
    
    
    
    
    (0.2
    )Net cash provided by (used in) financing activities
    
    
    
    
    
    
    Net cash provided by discontinued operations
    
    
    9.1
    
    
    
    2.7Effect of exchange rate changes on cash and cash equivalents
    
    
    0.7
    
    
    
    (1.4
    )Net increase (decrease) in cash and cash equivalents
    
    
    31.7
    
    
    
    (11.5
    )Cash and cash equivalents at beginning of year
    
    
    251.3
    
    
    
    297.9Cash and cash equivalents at end of period
    
    $
    283.0
    
    
    $
    286.4
  5




---



##### 



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Note 1. Basis of Interim Financial Statement Preparation
  Note 2. New Accounting Standards
 Accounting Changes and Error Corrections
  Inventory Costs
  6




---



##### 



Accounting for Certain Hybrid Financial Instruments
  Accounting for Servicing of Financial Assets
  Note 3. Restructuring and Consolidation Costs
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in millions)Engine Systems
    
    $
    0.2
    
    
    $
    0.2Airframe Systems
    
    
    0.4
    
    
    
    2.2Electronic Systems
    
    
    0.9
    
    
    
    0.8$
    1.5
    
    
    $
    3.2Personnel-related costs
    
    $
    0.7
    
    
    $
    2.5Facility closure and other costs
    
    
    0.8
    
    
    
    0.7$
    1.5
    
    
    $
    3.2Cost of sales
    
    $
    0.9
    
    
    $
    3.0Selling and administrative costs
    
    
    0.6
    
    
    
    0.2$
    1.5
    
    
    $
    3.2
 7




---



##### 



(Dollars in millions)Reserve
balance  December 31, 2005
    
    $
    6.5Restructuring charges
    
    
    1.5Used as intended
    
    
    (1.8
    )Return to profit
    
    
    Foreign exchange adjustments
    
    
    0.1Reserve balance at March 31, 2006
    
    $
    6.3
 Future Restructuring and Consolidation Costs for Programs Announced and Initiated
   Personnel-
    
    
    FacilityRelated
    
    
    ClosureCosts
    
    
    Costs
    
    
    Total(Dollars in millions)Engine Systems
    
    $
    0.4
    
    
    $
    
    
    
    $
    0.4Airframe Systems
    
    
    
    
    
    
    
    
    
    
    Electronic Systems
    
    
    5.8
    
    
    
    4.2
    
    
    
    10.0Total
    
    $
    6.2
    
    
    $
    4.2
    
    
    $
    10.4
 Note 4. Other Income (Expense)  Net
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in millions)Retiree health care expenses related to divested businesses
    
    $
    (4.8
    )
    
    $
    (4.7
    )Expenses related to divested businesses
    
    
    (1.4
    )
    
    
    (1.4
    )Minority interest and equity in affiliated companies
    
    
    (3.8
    )
    
    
    (2.8
    )Other  net
    
    
    (0.6
    )
    
    
    (1.2
    )Other income (expense)  net
    
    $
    (10.6
    )
    
    $
    (10.1
    )
 8




---



##### 



Note 5. Earnings Per Share
  Three Months EndedMarch 31,2006
    
    
    2005(In millions, exceptper share amounts)Numerator:Numerator for basic and diluted earnings
per share  income from continuing
operations
    
    $
    200.3
    
    
    $
    56.8Denominator:Denominator for basic earnings per share 
weighted- average shares
    
    
    123.5
    
    
    
    119.8Effect of dilutive securities:Stock options, employee stock purchase
plan, restricted shares and restricted
share units
    
    
    2.0
    
    
    
    2.2Other deferred compensation shares
    
    
    0.1
    
    
    
    0.12.1
    
    
    
    2.3Denominator for diluted earnings per share
 adjusted weighted- average shares and
assumed conversion
    
    
    125.6
    
    
    
    122.1Per share income from continuing operations:Basic
    
    $
    1.62
    
    
    $
    0.47Diluted
    
    $
    1.59
    
    
    $
    0.46
   Note 6. Inventories
  March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)FIFO or average cost (which approximates current costs):Finished products
    
    $
    312.1
    
    
    $
    218.1In process
    
    
    842.7
    
    
    
    908.7Raw materials and supplies
    
    
    329.1
    
    
    
    280.31,483.9
    
    
    
    1,407.1Less:Reserve to reduce certain inventories to LIFO basis
    
    
    (43.8
    )
    
    
    (43.5
    )Progress payments and advances
    
    
    (46.5
    )
    
    
    (55.2
    )Total
    
    $
    1,393.6
    
    
    $
    1,308.4
  9




---



##### 



Note 7. Goodwill
  BusinessBalance
    
    
    Combinations
    
    
    Foreign
    
    
    BalanceDecember 31,
    
    
    Completed or
    
    
    Currency
    
    
    March 31,2005
    
    
    Finalized
    
    
    Translation
    
    
    2006(Dollars in millions)Engine Systems
    
    $
    483.1
    
    
    $
    
    
    
    $
    3.0
    
    
    $
    486.1Airframe Systems
    
    
    239.6
    
    
    
    
    
    
    
    2.3
    
    
    
    241.9Electronic Systems
    
    
    595.7
    
    
    
    (2.8
    ) (a)
    
    
    (1.2
    )
    
    
    591.7$
    1,318.4
    
    
    $
    (2.8
    )
    
    $
    4.1
    
    
    $
    1,319.7
 
 (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 in
the Electronic Systems segment. Note 8. Financing Arrangements
 Credit Facilities
    10




---



##### 



Note 9. Off Balance Sheet Arrangements
 Lease Commitments
  Sale of Receivables
   11




---



##### 



Note 10. Pensions and Postretirement Benefits
 Pensions
  U.S. Plans
    
    
    U.K. Plans
    
    
    Other Non-U.S. PlansThree Months
    
    
    Three Months
    
    
    Three MonthsEnded
    
    
    Ended
    
    
    EndedMarch 31,
    
    
    March 31,
    
    
    March 31,2006
    
    
    2005
    
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005(Dollars in millions)Service cost
    
    $
    13.7
    
    
    $
    10.8
    
    
    $
    7.2
    
    
    $
    6.1
    
    
    $
    1.1
    
    
    $
    0.8Interest cost
    
    
    38.3
    
    
    
    36.4
    
    
    
    8.1
    
    
    
    7.7
    
    
    
    1.2
    
    
    
    1.1Expected rate of return on plan assets
    
    
    (45.9
    )
    
    
    (42.6
    )
    
    
    (11.8
    )
    
    
    (10.9
    )
    
    
    (1.4
    )
    
    
    (0.9
    )Amortization of transition obligation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of prior service cost
    
    
    2.2
    
    
    
    2.2
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Amortization of actuarial (gain) loss
    
    
    16.0
    
    
    
    11.2
    
    
    
    0.3
    
    
    
    
    
    
    
    0.3
    
    
    
    Periodic benefit cost (income)
    
    
    24.3
    
    
    
    18.0
    
    
    
    3.8
    
    
    
    2.9
    
    
    
    1.2
    
    
    
    1.0Settlements and curtailments (gain) loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Special termination benefit charge (credit)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    24.3
    
    
    $
    18.0
    
    
    $
    3.8
    
    
    $
    2.9
    
    
    $
    1.2
    
    
    $
    1.0
  U.S. Plans
    
    U.K. Plans
    
    Other Non-U.S. PlansThree Months Ended
    
    Three Months Ended
    
    Three Months EndedMarch 31,
    
    March 31,
    
    March 31,2006
    
    2005
    
    2006
    
    2005
    
    2006
    
    2005Discount rate
    
    
    5.64
    %
    
    
    5.875
    %
    
    
    4.75
    %
    
    
    5.50
    %
    
    
    4.76
    %
    
    
    5.75
    %Expected long-term
return on 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
    %
 12




---



##### 



U.S Retirement Plan Changes in 2006
   Postretirement Benefits Other Than Pensions
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in millions)Service cost
    
    $
    
    
    
    $
    0.3Interest cost
    
    
    4.6
    
    
    
    6.3Amortization of prior service cost
    
    
    (0.1
    )
    
    
    Amortization of actuarial (gain) loss
    
    
    (0.2
    )
    
    
    0.5Periodic benefit cost (income)
    
    
    4.3
    
    
    
    7.1Settlements and curtailments (gain) loss
    
    
    
    
    
    
    Special termination benefit charge (credit)
    
    
    
    
    
    
    Net benefit cost (income)
    
    $
    4.3
    
    
    $
    7.1
   Three Months EndedMarch 31,2006
    
    2005Discount rate
    
    5.55%
    
    
    5.875%Healthcare trend rate
    
    9% in 2006 to 5% in 2010
    
    9% in 2005 to 5% in 2008
 13




---



##### 



Note 11. Comprehensive Income/(Loss)
  Three Months EndedMarch 31,2006
    
    
    2005(Dollars in millions)Comprehensive Income/(Loss)Net income
    
    $
    201.5
    
    
    $
    57.5Other comprehensive income/(loss):Unrealized foreign currency translation gains (losses) during period
    
    
    11.8
    
    
    
    0.7Gains (losses) on cash flow hedges
    
    
    3.6
    
    
    
    (18.2
    )Total
    
    $
    216.9
    
    
    $
    40.0
 14




---



##### 



March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)Accumulated Other Comprehensive Income/(Loss)Cumulative unrealized foreign currency translation gains (losses)
    
    $
    147.0
    
    
    $
    135.2Minimum pension liability adjustments
    
    
    (424.1
    )
    
    
    (424.1
    )Accumulated gains (losses) on cash flow hedges
    
    
    9.5
    
    
    
    5.9Total
    
    $
    (267.6
    )
    
    $
    (283.0
    )
  Note 12. Income Taxes
   15




---



##### 



Note 13. Business Segment Information
  Engine Systems
  
    
    Nacelles;
    
    Pylons;
    
    Thrust reversers and related aircraft engine housing components;
    
    Engine and fuel controls;
    
    Pumps;
    
    Fuel delivery systems; and
    
    Structural and rotating components (such as discs, blisks, shafts and airfoils) for
both aerospace and industrial gas turbine applications.
  
    
    The aerostructures business manufactures nacelle systems, pylons, thrust
reversers, related engine housing components and cargo systems. This business also sells
aftermarket parts to airlines and performs maintenance repair and overhaul services.
    
    The engine controls business provides engine control systems and components for jet
engines used on commercial and military aircraft, including:
 -
    
    Fuel metering controls;-
    
    Fuel pumping systems;-
    
    Electronic control software and hardware;-
    
    Variable geometry actuation controls;-
    
    Afterburner fuel pump and metering unit nozzles; and-
    
    Engine health monitoring systems.
 
    
    The customer services business primarily supports aftermarket products and sales.
    
    The fuel delivery business provides fuel nozzles, injectors, valves and
manifolds for aerospace, industrial gas turbine engines and non-aerospace applications that
require liquid atomization.
 16




---



##### 



Airframe Systems
  
    
    Taxi;
    
    Take-off;
    
    Flight control;
    
    Landing; and
    
    Stopping.
  
    
    Landing gear;
    
    Wheels and brakes; and
    
    Certain brake controls.
  
    
    Aviation technical services business, which performs:
 -
    
    Comprehensive total aircraft maintenance, repair, overhaul; and-
    
    Modification services for many commercial airlines, independent
operators, aircraft leasing companies and airfreight carriers.
 
    
    Actuation systems business, which provides:
 -
    
    Systems that control the movement of steering systems for missiles and
electro-mechanical systems that are characterized by high power, low weight, low
maintenance, resistance to extreme temperatures and vibrations and high reliability;
and-
    
    Actuators for primary flight control systems that operate elevators,
ailerons and rudders, and secondary flight controls systems such as flaps and slats.
 
    
    Engineered polymer products business, which provides:
 -
    
    Large-scale marine composite structures and acoustic materials;-
    
    Acoustic/vibration damping structures; and-
    
    Fireproof composites.
 17




---



##### 



Electronic Systems
  
    
    Flight performance measurements;
    
    Flight management; and
    
    Control and safety data.
  
    
    Aircraft fuel and monitor oil debris;
    
    Engine and transmission; and
    
    Structural health.
  
    
    Ice detection systems;
    
    Interior and exterior aircraft lighting systems;
    
    Landing gear cables and harnesses;
    
    Satellite control;
    
    Data management;
    
    Payload systems;
    
    Launch and missile telemetry systems;
    
    Airborne surveillance and reconnaissance systems;
    
    Laser warning systems;
    
    Aircraft evacuation systems;
    
    De-icing systems;
    
    Ejection seats;
    
    Crew and attendant seating;
    
    Engine shafts primarily for helicopters;
    
    Electronic flight bags;
    
    Air data probes;
    
    Reduced vertical separation minimums (RVSM) sensors;
    
    Specialty heated products;
    
    Potable water systems;
    
    Drain masts;
    
    Proximity sensors;
    
    Laser perimeter awareness systems (LPAS); and
    
    Cockpit video systems.
 18




---



##### 




    
    Electric generators for both main and back-up electrical power;
    
    Electric starters and electric starter generating systems; and
    
    Power management and distribution systems.
   Three Months EndedMarch 31,2006
    
    
    2005(Dollars in millions)Net customer sales:Engine Systems
    
    $
    610.5
    
    
    $
    528.1Airframe Systems
    
    
    470.3
    
    
    
    442.7Electronic Systems
    
    
    343.0
    
    
    
    304.7$
    1,423.8
    
    
    $
    1,275.5Intersegment sales:Engine Systems
    
    $
    4.9
    
    
    $
    9.1Airframe Systems
    
    
    12.1
    
    
    
    12.9Electronic Systems
    
    
    13.0
    
    
    
    7.9$
    30.0
    
    
    $
    29.9Segment operating income:Engine Systems
    
    $
    118.7
    
    
    $
    90.5Airframe Systems
    
    
    14.3
    
    
    
    27.8Electronic Systems
    
    
    36.9
    
    
    
    32.3169.9
    
    
    
    150.6Corporate general and administrative expenses
    
    
    (27.2
    )
    
    
    (20.5
    )Total operating income
    
    $
    142.7
    
    
    $
    130.1
 Note 14. Derivatives and Hedging Activities
 Cash Flow Hedges
  19




---



##### 




    
    $20.9 million recorded as a current asset in Prepaid Expenses and
    
    $5.4 million recorded as a non-current asset in Other Assets; partially offset by,
    
    $11.1 million recorded as a current liability in Accrued Expenses and
    
    $1 million recorded as a non-current liability in Other Non-Current Liabilities.
  Fair Value Hedges
  
    
    A $50 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
  20




---



##### 



Other Forward Contracts
  Note 15. Contingencies
 General
  Environmental
   21




---



##### 



Asbestos
  22




---



##### 



Liabilities of Divested Businesses
 Asbestos
   23




---



##### 



24




---



##### 



Other
  Guarantees
  Commercial Airline Customers
  Aerostructures Long-Term Contracts
  Compliance with Specialty Metals Clause in U.S. Defense Contracts and Subcontracts
 at any tier
 25




---



##### 



Tax
   26




---



##### 



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)
   27




---



##### 



Note 16. Guarantees
  Maximum
    
    CarryingPotential
    
    Amount ofPayment
    
    Liability(Dollars in millions)Environmental remediation indemnification (Note 15, Contingencies)
    
    No limit
    
    $
    15.4Financial Guarantees:Debt and lease payments
    
    $
    2.3
    
    
    $
    Residual value on leases
    
    $
    24.8
    
    
    $
    
  Debt and Lease Payments
  Residual Value on Leases
  28




---



##### 



Service and Product Warranties
   (Dollars in millions)Balance at
December 31, 2005
    
    $
    162.4Service and product warranty provision
    
    
    13.8Return to profit
    
    
    (0.7
    )Used as intended
    
    
    (14.4
    )Foreign currency translation
    
    
    1.5Balance at March 31, 2006
    
    $
    162.6
  March 31,
    
    
    December 31,2006
    
    
    2005(Dollars in millions)Short-term liabilities
    
    $
    62.4
    
    
    $
    61.0Long-term liabilities
    
    
    100.2
    
    
    
    101.4Total
    
    $
    162.6
    
    
    $
    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
 29




---



##### 



made a policy election to apply the straight-line method to all share-based awards that are
subject to graded vesting. If the straight-line method had always been applied to restricted
stock unit grants, before tax compensation expense during the three months ended March 31,
2005 would have been lower by approximately $0.8 million ($0.5 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 it would have been 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 that would have been 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 that would have been
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 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 $1.2 million excess pro
forma tax benefit classified as a financing cash inflow during the three months ended March
31, 2006 would have been classified net cash provided by operating activities prior to the
adoption of SFAS 123(R).
    
    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
$11 million ($7 million after tax, or $0.06 per diluted share) was recognized during the
three months ended March 31, 2006 as compared to approximately $1 million that would have
been recorded under the previous method. If this provision would have been applied to all
awards granted subsequent to December 31, 1994 (the effective date of SFAS 123), before tax
compensation cost during the three months ended March 31, 2005 would have been higher by
approximately $8 million. For the year ending December 31, 2006, the Company expects that
before tax compensation cost will be approximately $9 million higher than it would have
been under the previous method.
  30




---



##### 



Stock Options
   31




---



##### 



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
    
    
    696.3
    
    
    
    40.43Exercised
    
    
    (522.3
    )
    
    
    29.33Forfeited or expired
    
    
    (6.8
    )
    
    
    38.52Outstanding at March 31, 2006
    
    
    7,118.9
    
    
    $
    31.89
    
    
    5.5 years
    
    $
    83.1Vested or
expected to vest (1)
    
    
    7,073.3
    
    
    $
    31.85
    
    
    5.5 years
    
    $
    82.8Exercisable at March 31, 2006
    
    
    5,759.3
    
    
    $
    30.86
    
    
    4.6 years
    
    $
    61.9
    Restricted Stock Units
  32




---



##### 



Weighted-AverageGrant dateShares
    
    
    Fair Value(in thousands)Nonvested at January 1, 2006
    
    
    1,095.1
    
    
    $
    31.55Granted
    
    
    586.4
    
    
    
    40.44Vested
    
    
    (53.0
    )
    
    
    32.45Forfeited
    
    
    (15.7
    )
    
    
    34.57Nonvested at March 31, 2006
    
    
    1,612.8
    
    
    $
    34.72
  Restricted Stock Awards
  Performance Units
  33




---



##### 



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
    
    
    315.7
    
    
    
    45.18Converted and paid out
    
    
    (313.7
    )
    
    
    32.20Forfeited
    
    
    (36.6
    )
    
    
    46.95Outstanding at March 31, 2006
    
    
    648.9
    
    
    $
    45.90
    
    
    1.8 years
    
    $
    29.8Vested or
expected to vest (1)
    
    
    569.1
    
    
    $
    45.69
    
    
    1.8 years
    
    $
    26.0
   Employee Stock Purchase Plan
  34




---



##### 



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
  Outside Director Phantom Share Plan
   Outside Director Deferral Plan
  35




---



##### 



Note 18. Discontinued Operations
    Three Months EndedMarch 31,2006
    
    
    2005(Dollars in millions)Sales
    
    $
    
    
    
    $
    6.5Operating income
    
    $
    1.0
    
    
    $
    1.1Income tax expense
    
    
    (0.4
    )
    
    
    (0.4
    )Income from discontinued operations
    
    $
    0.6
    
    
    $
    0.7
 Note 19. Subsequent Events
   36




---



##### 



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 Industry and our Highlights
  Commercial and General Aviation Airplane OE
    37




---



##### 



Commercial and General Aviation Airplane Aftermarket
     Defense and Space
    38




---



##### 



Long-term Sustainable Growth
  
    
    Awards for key products on important new programs, including the Airbus A380
and A350, the Boeing 787 and 747-8, the Embraer 190, the Dassault Falcon 7X and the
Lockheed Martin F-35 JSF 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.
 First Quarter 2006 Sales Content by Market Channel
  Quarter EndedMarch 31, 2006Airbus Commercial OE
    
    
    18
    %Boeing Commercial OE
    
    
    9
    %Regional and General Aviation Airplane OE
    
    
    8
    %Total Commercial and General Aviation Airplane OE
    
    
    35
    %Large Commercial Airplane Aftermarket
    
    
    27
    %Regional and General Aviation Airplane Aftermarket
    
    
    6
    %Heavy Airplane Maintenance
    
    
    3
    %Total Commercial and General Aviation Airplane Aftermarket
    
    
    36
    %Total Defense and Space
    
    
    24
    %Other
    
    
    5
    %Total
    
    
    100
    %
 39




---



##### 



First Quarter 2006 Summary Performance
 First Quarter2006
    
    2005
    
    % Change(Dollars in millions, except diluted EPS)Sales
    
    $
    1,423.8
    
    
    $
    1,275.5
    
    
    
    11.6
    %Segment Operating Income
    
    $
    169.9
    
    
    $
    150.6
    
    
    
    12.8
    %% of Sales
    
    
    11.9
    %
    
    
    11.8
    %Income from Continuing Operations
    
    $
    200.3
    
    
    $
    56.8
    
    
    
    252.6
    %Net Income
    
    $
    201.5
    
    
    $
    57.5
    
    
    
    250.4
    %Capital Expenditures
    
    $
    43.2
    
    
    $
    26.8
    
    
    
    61.2
    %Net Cash Provided by Operating Activities
    
    $
    65.6
    
    
    $
    16.8
    
    
    
    290.5
    %Diluted EPS:Continuing Operations
    
    $
    1.59
    
    
    $
    0.46
    
    
    
    245.6
    %Net Income
    
    $
    1.60
    
    
    $
    0.47
    
    
    
    240.4
    %
  
    
    Large commercial airplane original equipment sales increased 27 percent;
    
    Regional, business and general aviation airplane original equipment sales increased 25
percent, led by strong sales growth for our aerostructures products;
    
    Commercial and general aviation airplane aftermarket sales increased by 16 percent,
with continued strong sales of our aerostructures products and services; and
    
    Defense and space sales of both original equipment and aftermarket products and
services decreased, as anticipated, by less than 3 percent. Strong military and space sales
growth in the Electronic Systems segment was offset by a decrease in sales associated with
certain of our aerostructures contracts that concluded in 2005.
  
    
    Stock-based compensation  We implemented SFAS 123, on a modified prospective basis,
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 SFAS 123(R), beginning in 2006, we have recognized the
value of stock options and restricted stock units granted to all employees who are, or who
become, eligible for retirement on an accelerated basis. In total, these items resulted in
an increase in stock-based compensation expense, for 2006 compared to 2005, of
approximately $11 million before tax ($7 million after tax, or $0.05 per diluted share).
    
    Our effective tax rate from continuing operations was a (97.9) percent benefit during
the quarter ended March 31, 2006 as compared to 34.7 percent expense during the quarter
ended March 31, 2005. The change in our effective tax rate resulted primarily from the
reversal of reserves in connection with favorable tax settlements related to the IRS
examinations of Rohr, Inc. and subsidiaries (for the period from July, 1986 through
December, 1997) and Coltec Industries Inc and subsidiaries (for the period from December,
1997 through July, 1999), which changed the effective tax rate by approximately 130
percentage points. Our effective income tax rate was also decreased by a smaller valuation
allowance
 40




---



##### 



recorded against certain losses in foreign jurisdictions offset in part by growth in before
tax book income relative to our significant permanent items. Our effective
tax rate during the quarter ended March 31, 2006 was not
reduced for the benefit of U.S. Research and Development (R&D)
Credits because the federal statute authorizing the R&D Credit
has not been extended beyond December 31, 2005. We
estimate that the effective tax rate as of March 31, 2006 would
have been approximately 1 percentage point lower had the Company been
able to consider the tax benefits associated with the R&D Credit.
   2006 Outlook
     41




---



##### 




    
    We expect deliveries of Airbus and Boeing large commercial aircraft to increase by more
than 20 percent in 2006, and by a somewhat lesser amount in 2007. Our sales of large
commercial aircraft original equipment products are projected to increase by 10 to 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 at about 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 more than 7 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 content of our
products, are expected to enable us to increase our original equipment sales in this market
channel for the full year 2006 by approximately 5 percent, compared to 2005.
    
    Defense and space sales (original equipment 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 as the
program transitions from research and development to production in 2007 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 military and space products in our optical and space systems business.
  
    
    Pension expense  We set the discount rate, actuarial assumptions and expected
long-term rate of return for 2006 on January 1, 2006. Based on actuarial assumptions and
interest rates and asset values as of January 1, 2006, we expect to incur additional
pension expense of approximately $19 million before tax ($12 million after tax, or $0.10
per diluted share) during 2006, compared to 2005. This expectation is based on a discount
rate assumption of 5.64 percent for the U.S. plans and includes the benefit of our
voluntary contributions to our U.S. plans during 2005. This assumption excludes any impact
from a remeasurement of our U.S. pension plan assumptions as may be required as a result of
the disposition of TmP or the retirement changes discussed within the Critical Accounting
Policies  Pension and Postretirement Benefits Other than Pensions section.
 42




---



##### 




    
    Foreign exchange  We are currently about 90 percent hedged for our expected 2006
foreign exchange exposure. Based on these hedges and current market conditions, it is
expected 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 SFAS 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 SFAS 123(R), beginning in 2006, we have recognized the value of
stock options and restricted stock units granted to all employees who are, or who become,
eligible for retirement on an accelerated basis. In total, these items resulted in an
increase in stock-based compensation expense, for 2006 compared to 2005, of approximately
$12 million before tax ($8 million after tax, or $0.06 per diluted share).
 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
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. If the straight-line method had
always been applied to restricted stock unit grants, before tax compensation expense during
the quarter ended March 31, 2005 would have been
 43




---



##### 



lower by approximately $0.8 million ($0.4 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 that
would have been 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
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 that would have been
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 $1.2 million excess tax
benefit classified as a financing cash inflow during the quarter ended March 31, 2006 would
have been classified as an operating cash inflow prior to the adoption of SFAS 123(R).
    
    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 $11
million ($7 million after tax, or $0.06 per diluted share) was recognized during the first
quarter of 2006 as compared to approximately $1 million that would have been recorded under
the previous method. If this provision would have been applied to all awards granted
subsequent to December 31, 1994 (the effective date of SFAS 123), before tax compensation
cost during the three months ended March 31, 2005 would have been higher by approximately
$8 million. For the year ending December 31, 2006, we expect that before tax compensation
cost will be approximately $9 million higher than it would have been under the previous
method.
  44




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##### 



Quarter Ended March 31, 2006 Compared with Quarter Ended March 31, 2005
 Quarter EndedMarch 31,2006
    
    
    2005(Dollars in millions)Sales
    
    $
    1,423.8
    
    
    $
    1,275.5Segment Operating Income
    
    $
    169.9
    
    
    $
    150.6Corporate General and Administrative Costs
    
    
    (27.2
    )
    
    
    (20.5
    )Total Operating Income
    
    
    142.7
    
    
    
    130.1Net Interest Expense
    
    
    (30.9
    )
    
    
    (33.0
    )Other Income (Expense)  Net
    
    
    (10.6
    )
    
    
    (10.1
    )Income Tax Benefit (Expense)
    
    
    99.1
    
    
    
    (30.2
    )Income from Continuing Operations
    
    
    200.3
    
    
    
    56.8Income from Discontinued Operations
    
    
    0.6
    
    
    
    0.7Cumulative Effect of Change in Accounting
    
    
    0.6
    
    
    
    Net Income
    
    $
    201.5
    
    
    $
    57.5
   
    
    Higher incentive compensation, including the adoption of SFAS 123(R), of approximately $2
million;
    
    Higher salary and benefits resulting from inflationary increases of approximately $3 million; and
    
    Higher professional services of approximately $2 million.
     45




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##### 



BUSINESS SEGMENT PERFORMANCE
   Quarter Ended March 31, 2006 Compared with the Quarter Ended March 31, 2005
 Quarter Ended March 31,%
    
    
    % of Sales2006
    
    
    2005
    
    
    Change
    
    
    2006
    
    
    2005(Dollars in millions)NET CUSTOMER SALESEngine Systems
    
    $
    610.5
    
    
    $
    528.1
    
    
    
    15.6Airframe Systems
    
    
    470.3
    
    
    
    442.7
    
    
    
    6.2Electronic Systems
    
    
    343.0
    
    
    
    304.7
    
    
    
    12.6Total Sales
    
    $
    1,423.8
    
    
    $
    1,275.5
    
    
    
    11.6SEGMENT OPERATING INCOMEEngine Systems
    
    $
    118.7
    
    
    $
    90.5
    
    
    
    31.2
    
    
    
    19.4
    
    
    
    17.1Airframe Systems
    
    
    14.3
    
    
    
    27.8
    
    
    
    (48.6
    )
    
    
    3.0
    
    
    
    6.3Electronic Systems
    
    
    36.9
    
    
    
    32.3
    
    
    
    14.2
    
    
    
    10.8
    
    
    
    10.6Segment Operating Income
    
    $
    169.9
    
    
    $
    150.6
    
    
    
    12.8
    
    
    
    11.9
    
    
    
    11.8
 Engine Systems
 
    
    Higher commercial and general aviation airplane OE, aftermarket and maintenance, repair
and overhaul (MRO) sales volume of approximately $88 million primarily in our
aerostructures, cargo and engine controls businesses; and
    
    Higher sales volume of approximately $15 million of regional and business OE and
aftermarket products primarily from our aerostructures business.
 46




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##### 




    
    Higher sales volume as described above generating operating income of approximately $40
million; and
    
    Lower net cumulative catch-up charges of approximately $4 million in the quarter ended
March 31, 2006 than in prior years quarter on several long-term contracts in our
aerostructures business.
  Airframe Systems
 
    
    Higher volume of approximately $33 million of landing gear commercial OE,
aftermarket and military products; and
    
    Higher volume of actuation systems of approximately $15 million.
   
    
    Higher costs of approximately $16 million, primarily in the wheel and brake and
landing gear businesses, including raw material cost inflation, restructuring expenses, a
charge associated with the planned sale of a closed facility, stock-based compensation,
pension and foreign exchange translation expenses; and
    
    Unfavorable product sales mix of approximately $3 million primarily in the
wheel and brake business.
  47




---



##### 



Electronic Systems:
 
    
    Higher sales volume of approximately $18 million of defense and space OE
primarily in our optical and space systems, fuel and utility systems, sensor systems and
power systems business units, partially offset by a decline in sales volume in our
propulsion systems business unit;
    
    Higher sales volume of approximately $8 million of regional and general
aviation airplane OE products in our de-icing and specialty systems, sensors and lighting
systems businesses;
    
    Higher sales volume of $11 million of large commercial OE and aftermarket
products in virtually all of our business units; and
    
    Higher sales volume of approximately $5 million from SUI, which was acquired
during the fourth quarter 2005.
  
    
    Higher sales volume as described above generating operating income of
approximately $13 million;
    
    Revision of an assumption used in the actuarial valuation of other
postretirement benefits related to the acquisition of the aeronautical systems business of
approximately $3 million.
  
    
    Increased operating costs of approximately $8 million, primarily stock-based
compensation, pension and warranty expenses; and
    
    Increased investments of approximately $6 million in research and development
and new product introduction costs in our optical and space systems, fuel and utility
systems and power systems businesses to support new programs.
 Future Restructuring and Consolidation Costs for Programs Announced and Initiated
  48




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##### 



Subsequent Event-Sale of Turbomachinery Products Business
  Subsequent Event-Tax Settlement
  LIQUIDITY AND CAPITAL RESOURCES
  Cash
  Credit Facilities
  49




---



##### 



Long-Term Financing
  Off-Balance Sheet Arrangements
  UndiscountedMinimumFuture Lease
    
    
    ReceivablesPayments
    
    
    Sold(Dollars in millions)Tax Advantaged Operating Leases
    
    $
    19.6Standard Operating Leases
    
    
    133.3$
    152.9Short-term Receivables Securitization Program
    
    
    
    
    
    $
    97.1
 50




---



##### 



Lease Agreements
    Sale of Receivables
  Cash Flow Hedges
   51




---



##### 




    
    $20.9 million recorded as a current asset in Prepaid Expenses, and
    
    $5.4 million recorded as a non-current asset in Other Assets; partially offset by,
    
    $11.1 million recorded as a current liability in Accrued Expenses, and
    
    $1 million recorded as a non-current liability in Other Non-Current Liabilities.
  Fair Value Hedges
  
    
    A $50 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
  52




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##### 



CASH FLOW
  Quarter Ended March 31,Net Cash Provided by (Used by):
    
    2006
    
    2005(Dollars in millions)Operating activities of continuing operations
    
    $
    65.6
    
    
    $
    16.8Investing activities of continuing operations
    
    $
    (43.1
    )
    
    $
    (35.4
    )Financing activities of continuing operations
    
    $
    (0.6
    )
    
    $
    5.8Discontinued operations
    
    $
    9.1
    
    
    $
    2.7
 Quarter Ended March 31, 2006 as Compared to Quarter Ended March 31, 2005
 Operating Activities of Continuing Operations
   Investing Activities of Continuing Operations
   Segment
    
    PercentEngines
    
    
    41
    %Airframe
    
    
    31
    %Electronics
    
    
    20
    %Corporate
    
    
    8
    %100
    %
 53




---



##### 



Financing Activities of Continuing Operations
  Discontinued Operations
  CONTINGENCIES
 General
  Environmental
   54




---



##### 



Asbestos
  55




---



##### 



Liabilities of Divested Businesses
 Asbestos
   56




---



##### 



57




---



##### 



Other
  Guarantees
  Commercial Airline Customers
  Aerostructures Long-Term Contracts
  Compliance with Specialty Metals Clause in U.S. Defense Contracts and Subcontracts
 at any tier
 58




---



##### 



Tax
    59




---



##### 



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)
   60




---



##### 



NEW ACCOUNTING STANDARDS
 Accounting Changes and Error Corrections
  Inventory Costs
  Accounting for Certain Hybrid Financial Instruments
  61




---



##### 



Accounting for Servicing of Financial Assets
  CRITICAL ACCOUNTING POLICIES
   Revenue Recognition
  62




---



##### 



Contract Accounting-Percentage of Completion
 Revenue Recognition
     63




---



##### 




    
    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
   64




---



##### 



Income Taxes
    Identifiable Intangible Assets
   65




---



##### 



Participation Payments
  Entry Fees
   
    
    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.
 66




---



##### 



Sales Incentives
  Flight Certification Costs
  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.
 67




---



##### 



Pension and Postretirement Benefits Other Than Pensions
  U.S Retirement Plan Changes in 2006
   68




---



##### 



FORWARD-LOOKING INFORMATION IS SUBJECT TO RISK AND UNCERTAINTY
   
    
    demand for and market acceptance of new and existing products, such as the
Airbus A350 and A380, the Boeing 787 Dreamliner, the EMBRAER 190, the Dassault Falcon 7X
and the Lockheed Martin F-35 JSF 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;
    
    our ability to complete the sale of our Turbomachinery Products business, which
is conditioned on, among other things, financing satisfactory to the buyer, receipt of
certain customer and government consents, and the reaction of significant customers of this
business to the proposed transaction;
    
    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 tax litigation involving Coltec Industries Inc., and 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, including
the current situation in Iraq;
    
    the extent to which expenses relating to employee and retiree medical and
pension benefits continue to rise;
    
    the level of participation of employees in new retirement plan alternatives;
    
    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;
 69




---



##### 




    
    delay in deliveries of defense and space products requiring certain compliance
under 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.
  Item 4. Controls and Procedures.
   70




---



##### 



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)January 2006
    
    
    
    
    
    $
    
    
    
    
    N/A
    
    
    
    N/AFebruary 2006
    
    
    2,973
    
    
    
    42.31
    
    
    
    N/A
    
    
    
    N/AMarch 2006
    
    
    7,027
    
    
    
    42.02
    
    
    
    N/A
    
    
    
    N/ATotal
    
    
    10,000
    
    
    $
    42.10
    
    
    
    N/A
    
    
    
    N/A
 71




---



##### 



(1)
    
    The issuer purchases during the period covered by this report represent shares delivered to
us by employees to pay withholding taxes due upon the vesting of restricted stock units and to
pay the exercise price of employee stock options.(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 the exercise price of employee stock options or
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. 72




---



##### 



Item 3. 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.Exhibit 10.1
    
    Goodrich Corporation Severance
Plan, amended and restated effective February 21, 2006.Exhibit 15
    
    Letter Re: Unaudited Interim Financial Information.Exhibit 31
    
    Rule 13a-14(a)/15d-14(a) Certifications.Exhibit 32
    
    Section 1350 Certifications.
 73




---



##### 



SIGNATURE
  May 5, 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)
 74




---



##### 



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.Exhibit 10.1
    
    Goodrich Corporation Severance Plan, amended and restated effective February 21, 2006.*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. 75