UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Commission file number 1-892

GOODRICH CORPORATION

Registrant’s telephone number, including area code: (704) 423-7000

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [   ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [X] No [   ]

     The aggregate market value of the voting stock, consisting solely of common stock, held by nonaffiliates of the registrant as of June 30, 2003 was $2.5 billion.

     The number of shares of common stock outstanding as of January 31, 2004 was 117,718,853.

DOCUMENTS INCORPORATED BY REFERENCE

     Portions of the proxy statement dated March 12, 2004 are incorporated by reference into Part III (Items 10, 11, 12, 13 and 14).

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PART I

ITEM 1. BUSINESS

Overview

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

We were incorporated under the laws of the State of New York on May 2, 1912 as the successor to a business founded in 1870.

Our principal executive offices are located at Four Coliseum Centre, 2730 West Tyvola Road, Charlotte, North Carolina 28217 (telephone 704-423-7000).

We maintain an Internet site at http://www.goodrich.com. The information contained at our Internet site is not incorporated by reference in this report, and you should not consider it a part of this report. Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, are available free of charge on our Internet site as soon as reasonably practicable after they are filed with, or furnished to, the Securities and Exchange Commission. In addition, we maintain a corporate governance page on our Internet site that includes key information about our corporate governance initiatives, including our Guidelines on Governance, the charters for our standing board committees and our Business Code of Conduct. These materials are available to any shareholder who requests them.

Unless otherwise noted herein, disclosures in this Annual Report on Form 10-K relate only to our continuing operations. Our discontinued operations consist of the Performance Materials segment, which was divested in February 2001, the Engineered Industrial Products segment, which was spun-off to shareholders in May 2002, the Avionics business, which was divested in March 2003, and the Passenger Restraints business, which ceased operating during the first quarter of 2003.

Unless the context otherwise requires, the terms “we”, “our”, “us”, “Company” and “Goodrich” as used herein refer to Goodrich Corporation and its subsidiaries.

Acquisition of TRW’s Aeronautical Systems Businesses

On October 1, 2002, we completed our acquisition of TRW Inc.’s Aeronautical Systems businesses. The acquired businesses design and manufacture commercial and military aerospace systems and equipment, including engine controls, flight controls, power systems, cargo systems, hoists and winches and actuation systems. At the time of acquisition, these businesses employed approximately 6,200 employees in 22 facilities in nine countries, including manufacturing and service operations in the United Kingdom, France, Germany, Canada, the United States and several Asia/Pacific countries.

The purchase price for these businesses, after giving effect to post-closing purchase price adjustments, was approximately $1.4 billion. We financed the acquisition through a $1.5 billion, 364-day credit facility provided by some of our existing lenders. In the fourth quarter of 2002, we repaid $1.3 billion of the credit facility using proceeds from an offering of our common stock for net proceeds of $216.2 million, the issuance of $800 million of 5 and 10-year notes for net proceeds of $793.1 million, cash flow from operations and the sale of non-operating assets. During the first quarter 2003, we repaid the balance of the facility with funds generated from the sale of the Noveon International, Inc. payment-in-kind notes (Noveon PIK Notes) and a portion of the proceeds from the sale of our Avionics business.

We have submitted claims to Northrop Grumman (which acquired TRW Inc.) for reimbursement of several items related to our acquisition of the Aeronautical Systems businesses, which claims totaled approximately $30 million at December 31, 2003. The claims relate to liabilities and obligations that were retained by TRW under the purchase agreement, but which have been administered by us since the closing. Northrop has questioned the documentary and contractual support for the claims, and has withheld payment pending resolution of these questions. We are providing additional information to Northrop in order to answer these questions.

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As a result of integration activities with respect to the Aeronautical Systems businesses, we expect to realize annual cost savings of approximately $30 to $40 million, net of anticipated incremental costs, by the beginning of 2005. These cost savings are expected to result from consolidation of duplicate facilities, reduction of personnel and expenditures, expansion of procurement initiatives and the use of best practices across the combined businesses.

Discontinued Operations

Sale of the Avionics Business

On March 28, 2003, we completed the sale of our Avionics business to L-3 Communications Corporation for $188 million, or $181 million net of fees and expenses. The gain on the sale was $63.0 million after tax, which was reported as income from discontinued operations. The Avionics business marketed a variety of state-of-the art avionics instruments and systems primarily for general aviation, business jet and military aircraft. Prior period financial statements have been restated to reflect the Avionics business as a discontinued operation.

Passenger Restraint Systems

During the first quarter of 2003, our Passenger Restraint Systems (PRS) business ceased operations. Prior period financial statements have been restated to reflect the PRS business as a discontinued operation.

Spin-off of Engineered Industrial Products

On May 31, 2002, we completed the tax-free spin-off of our Engineered Industrial Products (EIP) segment. The spin-off was effected through a tax-free distribution to our shareholders of all of the capital stock of EnPro Industries, Inc. (EnPro), then a wholly owned subsidiary of Goodrich. In the spin-off, our shareholders received one share of EnPro common stock for every five shares of our common stock owned on the record date, May 28, 2002.

At the time of the spin-off, EnPro’s only material asset was all of the capital stock and certain indebtedness of Coltec Industries Inc (Coltec). Coltec and its subsidiaries owned substantially all of the assets and liabilities of the EIP segment, including the associated asbestos liabilities and related insurance.

Prior to the spin-off, Coltec also owned and operated an aerospace business. Before completing the spin-off, Coltec’s aerospace business assumed all intercompany balances outstanding between Coltec and us and Coltec then transferred to us by way of a dividend all of the assets, liabilities and operations of Coltec’s aerospace business, including these assumed balances. Following this transfer and prior to the spin-off, all of the capital stock of Coltec was contributed to EnPro, with the result that at the time of the spin-off Coltec was a wholly-owned subsidiary of EnPro.

In connection with the spin-off, we and EnPro entered into a distribution agreement, a tax matters agreement, a transition services agreement, an employee matters agreement and an indemnification agreement, which govern the relationship between us and EnPro after the spin-off and provide for the allocation of employee benefits, tax and other liabilities and obligations attributable to periods prior to the spin-off.

The spin-off was recorded as a dividend and resulted in a reduction in shareholders’ equity of $409.1 million representing the recorded value of net assets of the business distributed, including cash of $47.0 million. The distribution agreement provided for certain post-distribution adjustments relating to the amount of cash to be included in the net assets distributed, which adjustments resulted in a cash payment by EnPro to us of $0.6 million.

The $150 million of outstanding Coltec Capital Trust 5¼ percent convertible trust preferred securities (TIDES) that were reflected in liabilities of discontinued operations prior to the spin-off remained outstanding as part of the EnPro capital structure following the spin-off. At December 31, 2003, $145 million of the TIDES remained outstanding. The TIDES are convertible into shares of both Goodrich and EnPro common stock until April 15, 2028. We have guaranteed amounts owed by Coltec Capital Trust with respect to the TIDES and have guaranteed Coltec’s performance of its obligations with respect to the TIDES and the underlying Coltec convertible subordinated debentures. EnPro, Coltec and Coltec Capital Trust have agreed to indemnify us for any costs and liabilities arising under or related to the TIDES after the spin-off.

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Sale of Performance Materials Segment

On February 28, 2001, we completed the sale of our Performance Materials (PM) segment to an investor group led by AEA Investors, Inc. for approximately $1.4 billion. Total net proceeds, after anticipated tax payments and transaction costs, included approximately $1 billion in cash and $172 million in Noveon PIK Notes issued by the buyer, which is now known as Noveon International Inc. (Noveon). The transaction resulted in an after-tax gain of $93.5 million. During the second quarter 2002, a dispute over the computation of a post-closing working capital adjustment was resolved. The resolution of this matter did not have an effect on the previously reported gain.

In July 2002, we entered into an agreement with Noveon to amend certain provisions of the Noveon PIK Notes held by us to give Noveon the option to prepay the securities at a discount greater than the original discount if they were prepaid on or before February 28, 2003. In June and October 2002, Noveon prepaid a total of $62.5 million of the outstanding principal of the Noveon PIK Notes for $49.8 million in cash. Because these prepayments did not exceed the original discount recorded at the inception of the notes, no gain or loss was required to be recognized. We sold the remaining Noveon PIK Notes in March 2003 for $155.8 million, which resulted in an after-tax gain of $4.6 million.

Pursuant to the terms of the transaction, we have retained certain assets and liabilities, primarily pension, postretirement and environmental liabilities, of Performance Materials. We have also agreed to indemnify Noveon for liabilities arising from certain events as defined in the agreement. Such indemnification is not expected to be material to our financial condition, but could be material to our results of operations in a given period.

Other Dispositions

During 2002, we sold a business and a minority interest in a business, resulting in a pre-tax gain of $2.5 million, which has been reported in other income (expense) - net.

During 2001, we sold a minority interest in a business, resulting in a pre-tax gain of $7.2 million, which has been reported in other income (expense) - net.

Other Acquisition

The following acquisitions were recorded using the purchase method of accounting. Their results of operations have been included in our results since their respective dates of acquisition. Acquisitions made by businesses included within the former Performance Materials and Engineered Industrial Products segments are not discussed below.

During 2001, we acquired a manufacturer of aerospace lighting systems and related electronics, as well as the assets of a designer and manufacturer of inertial sensors used for guidance and control of unmanned vehicles and precision-guided systems. Total consideration paid by us for these acquisitions aggregated $113.8 million, of which $102.6 million represented goodwill and other intangible assets.

Business Segments

Effective January 1, 2003, we reorganized into three business segments: Airframe Systems, Engine Systems and Electronic Systems. The reorganization was designed to enhance communication and maximize synergies in a streamlined organization. Segment financial results for prior periods have been restated to reflect the new organization. For financial information about the sales, operating income and assets of our segments, see Note M to our Consolidated Financial Statements.

A summary of the products and services provided by our business segments is presented below.

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Airframe Systems

Airframe Systems provides systems and components pertaining to aircraft taxi, take-off, landing and stopping. Several business units within the segment are linked by their ability to contribute to the integration, design, manufacture and service of entire aircraft undercarriage systems, including landing gear, wheels and brakes and certain brake controls. Airframe systems also includes the aviation technical services business unit which performs comprehensive total aircraft maintenance, repair, overhaul and modification services for many commercial airlines, independent operators, aircraft leasing companies and airfreight carriers. The segment includes the actuation systems, flight controls and customer services business units that were acquired as part of Aeronautical Systems. The actuation systems business unit 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. The flight controls business unit provides actuators for primary flight control systems that operate elevators, ailerons and rudders, and secondary flight controls systems such as flaps and slats. The customer service business unit supports aftermarket products for the businesses that were acquired as part of Aeronautical Systems.

Engine Systems

Engine Systems includes the aerostructures business unit, a leading supplier of nacelles, pylons, thrust reversers and related aircraft engine housing components. The segment also produces 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 segment includes the cargo systems and engine controls business units, which were acquired as part of Aeronautical Systems. The cargo systems business unit produces fully integrated main deck and lower lobe cargo systems for wide body aircraft. The engine controls business unit 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.

Electronic Systems

Electronic Systems produces a wide array of products that provide flight performance measurements, flight management, and control and safety data. Included are a variety of sensors systems that measure and manage aircraft fuel and monitor oil debris, engine and transmission and structural health. The segment’s products also include ice detection systems, test equipment, aircraft lighting systems, landing gear cables and harnesses, satellite control, data management and payload systems, launch and missile telemetry systems, airborne surveillance and reconnaissance systems, laser warning systems, aircraft evacuation systems, de-icing systems, ejection seats and crew and attendant seating. The power systems business unit, which was acquired as part of Aeronautical Systems, provides systems that produce and control electrical power for commercial and military aircraft, including electric generators for both main and back-up electrical power, electric starters and electric starter generating systems and power management and distribution systems. Also acquired as part of Aeronautical Systems was the hoists and winches business unit, which provides airborne hoists and winches used on both helicopters and fixed wing aircraft, and a business that produces engine shafts primarily for helicopters.

Customers

We serve a diverse group of customers worldwide in the commercial, military, regional, business and general aviation markets and in the global military and space markets. We market our products, systems and services directly to our customers through an internal marketing and sales force.

In 2003, 2002 and 2001, direct and indirect sales to The Boeing Company (Boeing) totaled 17 percent, 20 percent and 23 percent, respectively, of consolidated sales. In 2003, 2002 and 2001, direct and indirect sales to Airbus S.A.S. (Airbus) totaled 14 percent, 13 percent and 13 percent, respectively, of consolidated sales.

In 2003, 2002 and 2001, direct and indirect sales to the United States government totaled 19 percent, 20 percent and 16 percent, respectively, of consolidated sales. Indirect sales to the United States government include a portion of the direct and indirect sales to Boeing referred to in the preceding paragraph.

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Competition

The aerospace industry in which we operate is highly competitive. Principal competitive factors include price, product and system performance, quality, service, design and engineering capabilities, new product innovation and timely delivery. We compete worldwide with a number of United States and foreign companies that are both larger and smaller than us in terms of resources and market share, and some of which are our customers.

The following table lists the companies that we consider to be our major competitors for each major aerospace product or system platform for which we believe we are one of the leading suppliers.

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(1)		As used in this table, “Large Commercial” means commercial aircraft with a capacity for 100 or more seats.
(2)		Excludes aircraft manufacturers, airlines and prime military contractors who, in some cases, have the capability to produce these systems internally.
(3)		Snecma refers to Société Nationale d’Études et de Construction de Moteurs d’Aviation.

Backlog

At December 31, 2003, we had a backlog of approximately $3.2 billion, of which approximately 67 percent is expected to be filled during 2004. The amount of backlog at December 31, 2002 was approximately $3.7 billion. Backlog includes fixed, firm contracts that have not been shipped and for which cancellation is not anticipated. Backlog is subject to delivery delays or program cancellations, which are beyond our control.

Raw Materials

Raw materials and components used in the manufacture of our products, including aluminum, steel and carbon fiber, are available from a number of manufacturers and are generally in adequate supply.

Environmental

We are subject to various domestic and international environmental laws and regulations, which may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. We are currently involved in the investigation and remediation of a number of sites under these laws. Based on currently available information, we do not believe that future environmental costs in excess of those accrued with respect to such sites will have a material adverse effect on our financial condition. There can be no assurance, however, that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on our results of operations or cash flows in a given period.

For additional information concerning environmental matters, see “Item 3. Legal Proceedings – Environmental.”

Research and Development

We perform research and development under company-funded programs for commercial products and under contracts with others. Research and development under contracts with others is performed on both military and commercial products. Total research and development expense from continuing operations in 2003, 2002 and 2001 was $311.6 million, $217.6 million and $174.4 million, respectively. Of these amounts, $88.4 million, $48.5 million, and $48.8 million, respectively, were funded by customers. Research and development expense in 2002 included the $12.5 million of in-process research and development expense written-off as part of the Aeronautical Systems acquisition.

Intellectual Property

We own or are licensed to use various intellectual property rights, including patents, trademarks, copyrights and trade secrets. While such intellectual property rights are important to us, we do not believe that the loss of any individual property right or group of related rights would have a material adverse effect on our overall business or on any of our operating segments.

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Human Resources

As of December 31, 2003, we had approximately 14,000 employees in the United States. Additionally, we employed approximately 6,600 people in other countries. We believe that we have good relationships with our employees. The hourly employees who are unionized are covered by collective bargaining agreements with a number of labor unions and with varying contract termination dates through January 2008. There were no material work stoppages during 2003.

Foreign Operations

We are engaged in business in foreign markets. Our manufacturing and service facilities are located in Australia, Canada, China, England, France, Germany, India, Indonesia, Mexico, Poland, Scotland and Singapore. We market our products and services through sales subsidiaries and distributors in a number of foreign countries. We also have joint venture agreements with various foreign companies.

Currency fluctuations, tariffs and similar import limitations, price controls and labor regulations can affect our foreign operations, including foreign affiliates. Other potential limitations on our foreign operations include expropriation, nationalization, restrictions on foreign investments or their transfers and additional political and economic risks. In addition, the transfer of funds from foreign operations could be impaired by the unavailability of dollar exchange or other restrictive regulations that foreign governments could enact. We do not believe that such restrictions or regulations would have a material adverse effect on our business, in the aggregate.

For financial information about U.S. and foreign sales and assets, see Note M to our Consolidated Financial Statements.

Certain Business Risks

Our business, financial condition, results of operations and cash flows can be impacted by a number of factors, including but not limited to those set forth below and elsewhere in this Annual Report on Form 10-K, any one of which could cause our actual results to vary materially from recent results or from our anticipated future results.

The market segments we serve are cyclical and sensitive to domestic and foreign economic considerations that could adversely affect our business and financial results.

The market segments in which we sell our products are, to varying degrees, cyclical and have experienced periodic downturns in demand. For example, certain of our commercial aviation products sold to aircraft manufacturers have experienced downturns during periods of slowdowns in the commercial airline industry and during periods of weak general economic conditions, as demand for new aircraft typically declines during these periods. Although we believe that aftermarket demand for many of our products may reduce our exposure to these business downturns, we have experienced these conditions in our business in the past and may experience downturns in the future.

The U.S. and other world markets have experienced an economic downturn, and many of the market segments that we serve have been affected by this downturn. As a result, our business and financial results have been adversely affected. If this economic downturn were to continue for an extended period or if conditions were to worsen, there would be a further negative impact on our business and financial results.

Further, the terrorist attacks of September 11, 2001 adversely impacted the U.S. and world economies and a wide range of industries. These terrorist attacks, the allied military response and subsequent developments may lead to future acts of terrorism and additional hostilities, including possible retaliatory attacks on sovereign nations, as well as financial, economic and political instability. While the precise effects of such instability on our industry and our business is difficult to determine, it may negatively impact our business, financial condition, results of operations and cash flows.

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Current conditions in the airline industry could adversely affect our business and financial results.

The downturn in the commercial air transport market segment, the lingering impact of the 2001 terrorist attacks, the military conflict in Iraq and the outbreak of Severe Acute Respiratory Syndrome (SARS) have adversely affected the financial condition of many commercial airlines. In response, some airlines have reduced their aircraft fleet sizes, resulting in decreased aftermarket demand for many of our products. In addition, Boeing and Airbus have both announced that new commercial aircraft deliveries for 2004 will be flat to slightly declining when compared to deliveries in 2003. We expect that this reduction in the active fleet, coupled with flat or declining commercial aircraft deliveries by Boeing and Airbus, could adversely affect our results of operations and cash flows.

Several airlines recently have declared bankruptcy or indicated that bankruptcy may be imminent. A portion of our sales are derived from the sale of products directly to airlines, and we sometimes provide sales incentives to airlines and record unamortized sales incentives as other assets. If an airline declares bankruptcy, we may be unable to collect our outstanding accounts receivable from the airline and we may be required to record a charge related to unamortized and unrecoverable sales incentives.

Our acquisition of Aeronautical Systems exposes us to risks, including the risk that we may not achieve expected cost savings and operating synergies.

Our acquisition of Aeronautical Systems from TRW Inc. involves risks that could adversely affect our operating results, including the difficulties in integrating the operations and personnel of these businesses in a manner and a timeframe that achieves the costs savings and operating synergies that we expect. In addition, difficulties in obtaining reimbursement from Northrop Grumman (which acquired TRW) for liabilities and obligations that were retained by TRW under the purchase agreement but which have been administered by us since the closing could adversely affect our operating results.

A significant decline in business with Boeing or Airbus could adversely affect our business and financial results.

For the year ended December 31, 2003, approximately 17 percent and 14 percent of our sales were made to Boeing and Airbus, respectively, for all categories of products, including original equipment and aftermarket products for commercial and military aircraft and space applications. Accordingly, a significant reduction in purchases by either of these customers could have a material adverse effect on our business, financial condition, results of operations and cash flows.

Demand for our defense and space-related products is dependent upon government spending.

Approximately 30 percent of our sales for the year ended December 31, 2003 was derived from the military and space market segments. Included in that category are direct and indirect sales to the United States government, which represented approximately 19 percent of our sales for the year ended December 31, 2003. The military and space market segments are largely dependent upon government budgets, particularly the U.S. defense budget. We cannot assure you that an increase in defense spending will be allocated to programs that would benefit our business. Moreover, we cannot assure you that new military aircraft programs in which we participate will enter full-scale production as expected. A change in levels of defense spending could curtail or enhance our prospects in these market segments, depending upon the programs affected. A change in the level of anticipated new product development costs for military aircraft could negatively impact our business.

Competitive pressures may adversely affect our business and financial results.

The aerospace industry in which we operate is highly competitive. We compete worldwide with a number of United States and foreign companies that are both larger and smaller than we are in terms of resources and market share, and some of which are our customers. While we are the market and technology leader in many of our products, in certain areas some of our competitors may have more extensive or more specialized engineering, manufacturing or marketing capabilities and lower manufacturing cost. As a result, these competitors may be able to adapt more quickly to new or emerging technologies and changes in customer requirements or may be able to devote greater resources to the development, promotion and sale of their products than we can.

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The significant consolidation occurring in the aerospace industry could adversely affect our business and financial results.

The aerospace industry in which we operate has been experiencing significant consolidation among suppliers, including us and our competitors, and the customers we serve. Commercial airlines have increasingly been merging and creating global alliances to achieve greater economies of scale and enhance their geographic reach. Aircraft manufacturers have made acquisitions to expand their product portfolios to better compete in the global marketplace. In addition, aviation suppliers have been consolidating and forming alliances to broaden their product and integrated system offerings and achieve critical mass. This supplier consolidation is in part attributable to aircraft manufacturers and airlines more frequently awarding long-term sole source or preferred supplier contracts to the most capable suppliers, thus reducing the total number of suppliers from whom components and systems are purchased. We cannot assure you that our business and financial results will not be adversely impacted as a result of consolidation by our competitors or customers.

Expenses related to employee and retiree medical and pension benefits may continue to rise.

Over the last few years, we have experienced significant increases in expenses related to our employee and retiree medical and pension benefits. Although we have taken action seeking to contain these cost increases, including making material changes to some of these plans, there are risks that our expenses will rise as a result of continued increases in medical costs due to increased usage of medical benefits and medical cost inflation in the United States. Pension expense may increase if investment returns on our pension plan assets do not meet our long-term return assumption, if there are further reductions in the discount rate used to determine the present value of our benefit obligation, or if other actuarial assumptions are not realized.

The aerospace industry is highly regulated.

The aerospace industry is highly regulated in the United States by the Federal Aviation Administration and in other countries by similar regulatory agencies. We must be certified by these agencies and, in some cases, by individual original equipment manufacturers in order to engineer and service systems and components used in specific aircraft models. If material authorizations or approvals were revoked or suspended, our operations would be adversely affected. New or more stringent governmental regulations may be adopted, or industry oversight heightened, in the future, and we may incur significant expenses to comply with any new regulations or any heightened industry oversight.

We may have liabilities relating to environmental laws and regulations that could adversely affect our financial results.

We are subject to various domestic and international environmental laws and regulations which may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations. We are currently involved in the investigation and remediation of a number of sites under these laws. Based on currently available information, we do not believe that future environmental costs in excess of those accrued with respect to such sites will have a material adverse effect on our financial condition. There can be no assurance, however, that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on our results of operations or cash flows in a given period.

Third parties may not satisfy their contractual obligations to indemnify us for environmental and other claims arising out of our divested businesses.

In connection with the divestiture of our tire, vinyl and other businesses, we received contractual rights of indemnification from third parties for environmental and other claims arising out of the divested businesses. If these third parties do not honor their indemnification obligations to us, it could have a material adverse effect on our financial condition, results of operations and cash flow.

Any product liability claims in excess of insurance may adversely affect our financial condition.

Our operations expose us to potential liability for personal injury or death as a result of the failure of an aircraft component that has been serviced by us, the failure of an aircraft component designed or manufactured by us, or the irregularity of products processed or distributed by us. While we believe that our liability insurance is adequate to protect us from these liabilities, our insurance may not cover all liabilities. Additionally, insurance coverage may not be available in the future at a cost acceptable to us. Any material liability not covered by insurance or for which third-party indemnification is not available could have a material adverse effect on our financial condition, results of operations and cash flows.

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Our operations depend on our production facilities throughout the world. These production facilities are subject to physical and other risks that could disrupt production.

Our production facilities could be damaged or disrupted by a natural disaster, labor strike, war, political unrest or terrorist activity. Although we have obtained property damage and business interruption insurance, a major catastrophe such as an earthquake or other natural disaster at any of our sites, or significant labor strikes, work stoppages, political unrest, war or terrorist activities in any of the areas where we conduct operations, could result in a prolonged interruption of our business. Any disruption resulting from these events could cause significant delays in shipments of products and the loss of sales and customers. We cannot assure you that we will have insurance to adequately compensate us for any of these events.

We have significant international operations and assets and are therefore subject to additional financial and regulatory risks.

We have operations and assets throughout the world. In addition, we sell our products and services in foreign countries and seek to increase our level of international business activity. Accordingly, we are subject to various risks, including: U.S.-imposed embargoes of sales to specific countries; foreign import controls (which may be arbitrarily imposed or enforced); price and currency controls; exchange rate fluctuations; dividend remittance restrictions; expropriation of assets; war, civil uprisings and riots; government instability; the necessity of obtaining governmental approval for new and continuing products and operations; legal systems of decrees, laws, taxes, regulations, interpretations and court decisions that are not always fully developed and that may be retroactively or arbitrarily applied; and difficulties in managing a global enterprise. We may also be subject to unanticipated income taxes, excise duties, import taxes, export taxes or other governmental assessments. Any of these events could result in a loss of business or other unexpected costs that could reduce sales or profits and have a material adverse effect on our financial condition, results of operations and cash flows.

We are exposed to foreign currency risks that arise from normal business operations. These risks include the translation of local currency balances of our foreign subsidiaries, intercompany loans with foreign subsidiaries and transactions denominated in foreign currencies. Our international operations also expose us to translation risk when the local currency financial statements are translated to U.S. dollars, our parent company’s functional currency. As currency exchange rates fluctuate, translation of the statements of income of international businesses into U.S. dollars will affect comparability of revenues and expenses between years.

Creditors may seek to recover from us if the businesses that we spun off are unable to meet their obligations in the future, including obligations to asbestos claimants.

On May 31, 2002, we completed the spin-off of our wholly owned subsidiary, EnPro Industries, Inc. (EnPro). Prior to the spin-off, we contributed the capital stock of Coltec Industries Inc to EnPro. At the time of the spin-off, two subsidiaries of Coltec were defendants in a significant number of personal injury claims relating to alleged asbestos-containing products sold by those subsidiaries. It is possible that asbestos-related claims might be asserted against us on the theory that we have some responsibility for the asbestos-related liabilities of EnPro, Coltec or its subsidiaries, even though the activities that led to those claims occurred prior to our ownership of any of those subsidiaries. Also, it is possible that a claim might be asserted against us that Coltec’s dividend of its aerospace business to us prior to the spin-off was made at a time when Coltec was insolvent or caused Coltec to become insolvent. Such a claim could seek recovery from us on behalf of Coltec of the fair market value of the dividend.

A limited number of asbestos-related claims have been asserted against us as “successor” to Coltec or one of its subsidiaries. We believe that we have substantial legal defenses against these claims, as well as against any other claims that may be asserted against us on the theories described above. In addition, the agreement between EnPro and us that was used to effectuate the spin-off provides us with an indemnification from EnPro covering, among other things, these liabilities. The success of any such asbestos-related claims would likely require, as a practical matter, that Coltec’s subsidiaries were unable to satisfy their asbestos-related liabilities and that Coltec was found to be responsible for these liabilities and was unable to meet its financial obligations. We believe any such claims would be without merit and that Coltec was solvent both before and after the dividend of its aerospace business to us. If we are ultimately found to be responsible for the asbestos-related liabilities of Coltec’s subsidiaries, we believe it would not have a material adverse effect on our financial condition, but could have a material adverse effect on our results of operations and cash flows in a particular period. However, because of the uncertainty as to the number, timing and payments related to future asbestos-related claims, there can be no assurance that any such claims will not have a material adverse effect on our financial condition, results of operations and cash flows. If a claim related to the dividend of Coltec’s aerospace business were successful, it could have a material adverse impact on our financial condition, results of operations and cash flows.

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ITEM 2. PROPERTIES

We operate manufacturing plants and service and other facilities throughout the world.

Information with respect to our significant facilities that are owned or leased is set forth below:

Our headquarters operation is in Charlotte, North Carolina. In May 2000, we leased approximately 110,000 square feet for an initial term of ten years, with two five-year options to 2020. The offices provide space for the corporate headquarters as well as the headquarters of our Engine Systems and Electronic Systems segments.

We and our subsidiaries are lessees under a number of cancelable and non-cancelable leases for real properties, used primarily for administrative, retail, maintenance, repair and overhaul of aircraft, aircraft wheels and brakes and evacuation systems and warehouse operations and for certain equipment.

In the opinion of management, our principal properties, whether owned or leased, are suitable and adequate for the purposes for which they are used and are suitably maintained for such purposes. See Item 3, “Legal Proceedings-Environmental” for a description of proceedings under applicable environmental laws regarding some of our properties.

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ITEM 3. LEGAL PROCEEDINGS

General

There are pending or threatened against us or our subsidiaries various claims, lawsuits and administrative proceedings, all arising from the ordinary course of business with respect to commercial, product liability, asbestos and environmental matters, which seek remedies or damages. We believe that any liability that may finally be determined with respect to commercial and non-asbestos product liability claims should not have a material effect on our consolidated financial position or results of operations. From time to time, we are also involved in legal proceedings as a plaintiff involving tax, contract, patent protection, environmental and other matters. Gain contingencies, if any, are recognized when they are realized.

Environmental

We are subject to various domestic and international environmental laws and regulations which may require that we investigate and remediate the effects of the release or disposal of materials at sites associated with past and present operations, including sites at which we have been identified as a potentially responsible party under the federal Superfund laws and comparable state laws. We are currently involved in the investigation and remediation of a number of sites under these laws.

The measurement of environmental liabilities by us is based on currently available facts, present laws and regulations and current technology. Such estimates take into consideration our prior experience in site investigation and remediation, the data concerning cleanup costs available from other companies and regulatory authorities and the professional judgment of our environmental specialists in consultation with outside environmental specialists, when necessary. Estimates of our liability are further subject to uncertainties regarding the nature and extent of site contamination, the range of remediation alternatives available, evolving remediation standards, imprecise engineering evaluations and estimates of appropriate cleanup technology, methodology and cost, the extent of corrective actions that may be required and the number and financial condition of other potentially responsible parties, as well as the extent of their responsibility for the remediation.

Accordingly, as investigation and remediation of these sites proceed, it is likely that adjustments in our accruals will be necessary to reflect new information. The amounts of any such adjustments could have a material adverse effect on our results of operations in a given period, but the amounts, and the possible range of loss in excess of the amounts accrued, are not reasonably estimable. Based on currently available information, however, we do not believe that future environmental costs in excess of those accrued with respect to sites with which we have been identified as a potentially responsible party are likely to have a material adverse effect on our financial condition. There can be no assurance, however, that additional future developments, administrative actions or liabilities relating to environmental matters will not have a material adverse effect on our results of operations or cash flows in a given period.

Environmental liabilities are recorded when our liability is probable and the costs are reasonably estimable, which generally is not later than at completion of a feasibility study or when we have recommended a remedy or have committed to an appropriate plan of action. The liabilities are reviewed periodically and, as investigations and remediation proceed, adjustments are made as necessary. Liabilities for losses from environmental remediation obligations do not consider the effects of inflation, and anticipated expenditures are not discounted to their present value. The liabilities are not reduced by possible recoveries from insurance carriers or other third parties, but do reflect anticipated allocations among potentially responsible parties at federal Superfund sites or similar state-managed sites and an assessment of the likelihood that such parties will fulfill their obligations at such sites.

At December 31, 2003, our Consolidated Balance Sheet included an accrued liability for environmental remediation obligations of $87.8 million, of which $17.6 million was included in current liabilities as Accrued Liabilities. Of the $87.8 million, $24.9 million was associated with ongoing operations and $62.9 million was associated with businesses previously disposed of or discontinued.

The timing of expenditures depends on a number of factors that vary by site, including the nature and extent of contamination, the number of potentially responsible parties, the timing of regulatory approvals, the complexity of the investigation and remediation, and the standards for remediation. We expect that we will expend present accruals over many years, and will complete remediation of all sites with which we have been identified in up to 30 years. This period includes operation and monitoring costs that are generally incurred over 15 to 25 years.

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Asbestos

We, as well as a number of our subsidiaries, have been named as defendants in various actions by plaintiffs alleging injury or death as a result of exposure to asbestos fibres in products, or which may have been present in our facilities. A number of these cases involve maritime claims, which have been and are expected to continue to be administratively dismissed by the court. These actions primarily relate to previously owned businesses. We believe that pending and reasonably anticipated future actions, net of anticipated insurance recoveries, are not likely to have a material adverse effect on our financial condition, results of operations or cash flows.

We believe that we have substantial insurance coverage available to us related to any remaining claims. However, a major portion of the primary layer of insurance coverage for these claims is provided by the Kemper Insurance Companies (Kemper). Kemper has indicated that, due to capital constraints and downgrades from various rating agencies, it has ceased underwriting new business and now focuses on administering policy commitments from prior years. We cannot predict the long-term impact of these actions on the availability of the Kemper insurance.

Tax Litigation

In 2000, Coltec made a $113.7 million payment to the Internal Revenue Service (IRS) for an income tax assessment and the related accrued interest arising out of certain capital loss deductions and tax credits taken in 1996. On February 13, 2001, Coltec filed suit against the IRS in the U.S. Court of Claims seeking a refund of this payment. Trial is scheduled for May 2004. Coltec has agreed to pay to us an amount equal to any refunds or credits of taxes and interest received by it as a result of the litigation. If the IRS prevails in this case, Coltec will not owe any additional interest or taxes with respect to 1996. However, we may be required by the IRS to pay up to $32.7 million plus accrued interest with respect to the same items claimed by Coltec in its tax returns for 1997 through 2000. The potential tax liability for 1997 through 2000 has been fully reserved. A reasonable estimation of the potential refund for 1996, if any, cannot be made at this time; accordingly, no receivable has been recorded.

In 2000, the IRS issued a statutory notice of deficiency asserting that Rohr, Inc. (Rohr), our subsidiary, was liable for $85.3 million of additional income taxes for the fiscal years ended July 31, 1986 through 1989. In 2003, the IRS issued an additional statutory notice of deficiency asserting that Rohr was liable for $23 million of additional income taxes for the fiscal years ended July 31, 1990 through 1993. The proposed assessments relate primarily to the timing of certain tax deductions and tax credits. Rohr has filed petitions in the U.S. Tax Court opposing the proposed assessments. Rohr expects that these cases will go to trial in late 2004 or in 2005 and that it will ultimately be successful in these cases. However, if Rohr is not successful in these cases, we believe that the net cost to Rohr at the time of the final determination by the court would not exceed $100 million, including interest, as the court will take into account the timing benefit of the disallowed tax deductions at that time. We believe that our best estimate of the liability resulting from these cases has been fully reserved.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     Not applicable.

EXECUTIVE OFFICERS OF THE REGISTRANT

Marshall O. Larsen, age 55, Chairman, President and Chief Executive Officer

Mr. Larsen joined the Company in 1977 as an Operations Analyst. In 1981, he became Director of Planning and Analysis and subsequently Director of Product Marketing. In 1986, he became Assistant to the President and later served as General Manager of several divisions of the Company’s aerospace business. He was elected a Vice President of the Company and named a Group Vice President of Goodrich Aerospace in 1994 and was elected an Executive Vice President of the Company and President and Chief Operating Officer of Goodrich Aerospace in 1995. He was elected President and Chief Operating Officer and a director of the Company in February 2002, Chief Executive Officer in April 2003 and Chairman in October 2003. Mr. Larsen received a B.S. in engineering from the U.S. Military Academy and an M.S. in industrial management from the Krannert Graduate School of Management at Purdue University.

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Terrence G. Linnert, age 57, Executive Vice President, Human Resources and Administration, General Counsel

Mr. Linnert joined Goodrich in 1997 as Senior Vice President and General Counsel. In 1999, he was elected to the additional positions of Senior Vice President, Human Resources and Administration, and Secretary. He was elected Executive Vice President, Human Resources and Administration, General Counsel in 2002. Prior to joining Goodrich, Mr. Linnert was Senior Vice President of Corporate Administration, Chief Financial Officer and General Counsel of Centerior Energy Corporation. Mr. Linnert received a B.S. in electrical engineering from the University of Notre Dame and a J.D. from the Cleveland-Marshall School of Law at Cleveland State University.

Ulrich Schmidt, age 54, Executive Vice President and Chief Financial Officer

Mr. Schmidt joined the Company in 1994 as Vice President of Finance for Goodrich Aerospace and served in that capacity until 1999, when he was named Vice President of Finance and Business Development for Goodrich Aerospace. In 2000, Mr. Schmidt was elected Senior Vice President and Chief Financial Officer of the Company. He was elected Executive Vice President and Chief Financial Officer in 2002. Mr. Schmidt received a B.A. in business administration and an M.B.A. in finance from Michigan State University.

Stephen R. Huggins, age 60, Senior Vice President, Strategy and Business Development

Mr. Huggins joined the Company in 1988 as Group Vice President, Specialty Products. He later served as Group Vice President, Engine and Fuel Systems from 1991 to 1995 and as Vice President — Business Development, Aerospace from 1995 to 1999. In 1999, he was elected Vice President, Strategic Planning and Chief Knowledge Officer. In 2000, Mr. Huggins was elected Senior Vice President, Strategic Resources and Information Technology. In 2003, Mr. Huggins was elected Senior Vice President, Strategy and Business Development. Mr. Huggins received a B.S. in aerospace engineering from Virginia Polytechnic Institute.

Jerry S. Lee, Age 62, Senior Vice President, Technology and Innovation

Mr. Lee joined the Company in 1979 as Manager of Engineering Science, Engineered Products Group. He later served as Director of R&D, Goodrich Aerospace from 1983 to 1988, Vice President — Technology from 1989 — 1998 and Vice President — Technology and Innovation from 1998 to 2000. In 2000, Mr. Lee was elected Senior Vice President — Technology and Innovation. Mr. Lee received a B.S. in mechanical engineering and Ph.D. in mechanical engineering from North Carolina State University.

John J. Carmola, Age 48, Vice President and Segment President, Engine Systems

Mr. Carmola joined the Company in 1996 as President of the Landing Gear Division. He served in that position until 2000, when he was appointed President of the Engine Systems Division. Later in 2000, Mr. Carmola was elected a Vice President of the Company and Group President, Engine and Safety Systems. In 2002, he was elected Vice President and Group President, Electronic Systems. In 2003, he was elected Vice President and Segment President, Engine Systems. Prior to joining the Company, Mr. Carmola served in various management positions with General Electric Company. Mr. Carmola received a B.S. in mechanical and aerospace engineering from the University of Rochester and an M.B.A. in finance from Xavier University.

Cynthia M. Egnotovich, age 46, Vice President and Segment President, Electronic Systems

Ms. Egnotovich joined the Company in 1986 and served in various positions with the Ice Protection Systems Division, including Controller from 1993 to 1996, Director of Operations from 1996 to 1998 and Vice President and General Manager from 1998 to 2000. Ms. Egnotovich was appointed as Vice President and General Manager of Commercial Wheels and Brakes in 2000. She was elected a Vice President of the Company and Group President, Engine and Safety Systems in 2002. In 2003, she was elected Vice President and Segment President, Electronic Systems. Ms. Egnotovich received a B.B.A. in accounting from Kent State University and a B.S. in biology from Immaculata College.

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John J. Grisik, age 57, Vice President and Segment President, Airframe Systems

Mr. Grisik joined Goodrich in 1991 as General Manager of the De-Icing Systems Division. He served in that position until 1993, when he was appointed General Manager of the Landing Gear Division. In 1995, he was appointed Group Vice President of Safety Systems and served in that position until 1996 when he was appointed Group Vice President of Sensors and Integrated Systems. In 2000, Mr. Grisik was elected a Vice President of the Company and Group President, Landing Systems. He was elected Vice President and Segment President, Airframe Systems, in 2003. Prior to joining the Company, Mr. Grisik served in various management positions with General Electric Company and United States Steel Company. Mr. Grisik received a B.S., M.S. and D.S. in engineering from the University of Cincinnati and an M.S. in management from Stanford University.

Robert D. Koney, Jr., age 47, Vice President and Controller

Mr. Koney joined the Company in 1986 as a financial accounting manager. He became Assistant Controller for Goodrich Aerospace in 1992 before being appointed Vice President and Controller for the Commercial Wheels and Brakes business in 1994. He was elected Vice President and Controller in 1998. Prior to joining the Company, he held management positions with Picker International and Arthur Andersen & Co. Mr. Koney received a B.A. in accounting from the University of Notre Dame and an M.B.A. from Case Western Reserve University.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock (symbol GR) is listed on the New York Stock Exchange. The following table sets forth on a per share basis the high and low sale prices for our common stock for the periods indicated as reported on the New York Stock Exchange composite transactions reporting system, as well as the cash dividends declared on our common stock for these periods.

As of December 31, 2003, there were 10,406 holders of record of our common stock.

On May 17, 2002, our board of directors reduced our quarterly cash dividend rate from $0.275 per share to $0.20 per share to achieve, over time, a net income payout ratio that we believe is consistent with other leading aerospace companies. Our board of directors will continue to consider appropriate dividend policies and practices relating to future dividends on our common stock.

On May 31, 2002, we completed the tax-free spin-off of our Engineered Industrial Products segment. The spin-off was made through a tax-free distribution to our shareholders of all the capital stock of EnPro Industries, Inc., a subsidiary that we formed in connection with the spin-off. In the spin-off, our shareholders received one share of EnPro common stock for every five shares of our common stock owned on the record date, May 28, 2002.

Our debt agreements contain various restrictive covenants that, among other things, place limitations on the payment of cash dividends and our ability to repurchase our capital stock. Under the most restrictive of these agreements, $469.5 million of income retained in the business and additional capital was free from such limitations at December 31, 2003. In addition, under the agreement for the BFGoodrich Capital 8.3% Cumulative Quarterly Income Preferred Securities, Series A, if we defer any distributions due to the holders of these securities, we may not, among other things, pay any dividends on our capital stock until all distributions in arrears are paid in full.

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ITEM 6. SELECTED FINANCIAL DATA

SELECTED FINANCIAL DATA (1)

(1)		Except as otherwise indicated, the historical amounts presented above have been restated to present our former Performance Materials, Engineered Industrial Products, Avionics, and Passenger Restraints Systems businesses as discontinued operations.
(2)		Includes employees of our former Performance Materials (through 2000) and Engineered Industrial Products (through 2001) segments and the Avionics and Passenger Restraints Systems (through 2002) businesses, rounded to the nearest hundred.
(3)		Only required financial data is shown as restatement for other financial data is not readily available.
(4)		Effective October 1, 2003, the Company adopted Financial Accounting Standards Board Interpretation No. 46, “Consolidation of Variables Interest Entities, an Interpretation of Accounting Research Bulletin No. 51” and deconsolidated BFGoodrich Capital. As a result, the Company’s 8.3 percent Junior Subordinated Debentures, Series A, held by BFGoodrich Capital were reported as debt beginning in October 2003 and the corresponding interest payments on such debentures were reported as interest expense. Prior periods have not been restated.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

YOU SHOULD READ THE FOLLOWING DISCUSSION AND ANALYSIS IN CONJUNCTION WITH OUR AUDITED CONSOLIDATED FINANCIAL STATEMENTS INCLUDED ELSEWHERE IN THIS DOCUMENT.

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

OUR FORMER PERFORMANCE MATERIALS SEGMENT, ENGINEERED INDUSTRIAL PRODUCTS SEGMENT, AVIONICS BUSINESS AND PASSENGER RESTRAINT SYSTEMS BUSINESS (PRS) HAVE BEEN ACCOUNTED FOR AS DISCONTINUED OPERATIONS. UNLESS OTHERWISE NOTED HEREIN, DISCLOSURES PERTAIN ONLY TO OUR CONTINUING OPERATIONS.

OVERVIEW

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

For 2003, we reported net income of $100 million, or $0.85 per diluted share. Sales for 2003 were $4,383 million. For 2002, we reported net income of $118 million, or $1.14 per diluted share. Sales for 2002 were $3,809 million. The increase in sales of $574 million from 2002 to 2003 resulted primarily from incremental sales of approximately $755 million in 2003 from the acquisition of the TRW Aeronautical Systems businesses on October 1, 2002. The increase in sales was offset in part by reduced sales for products associated with commercial aircraft original equipment production and aftermarket parts and services. Net income for both years included certain charges as described in the “Results of Operations” and “Business Segment Performance” sections. During the first quarter of 2003, we completed the sale of our Avionics business for $181 million of proceeds net of fees and expenses that resulted in a gain of $63 million reported as income from discontinued operations.

Cash flow from operating activities was $553 million in 2003 and $524 million in 2002. Cash flow from operating activities included tax refunds of $107 million in 2003 and $50 million in 2002. Worldwide pension contributions increased from $47 million in 2002 to $63 million in 2003. Cash flow from operating activities in 2003 also was reduced by approximately $30 million for several cash disbursements related to the acquisition of Aeronautical Systems for which we have submitted claims to Northrop Grumman. Included in cash flow from operating activities in 2002 was approximately $29 million resulting from the sale of an interest rate swap and $31 million from the sale of hedges acquired in the acquisition of Aeronautical Systems. Net cash from investing activities was $57 million in 2003 and a use of cash of $1.5 billion in 2002, primarily as a result of the acquisition of Aeronautical Systems.

Long-term debt and capital lease obligations, including current maturities of long-term debt and capital lease obligations, at December 31, 2003 were $2,212 million, including QUIPS Debentures of $63.5 million. Long-term debt and capital lease obligations, including current maturities of long-term debt and capital lease obligations, at December 31, 2002 was $2,133 million, which excluded $126.5 million of QUIPS Debentures. At December 31, 2003 we had cash and marketable securities of $378 million as compared to $150 million at December 31, 2002. The reduction in debt and increase in cash and marketable securities from 2002 levels resulted from cash flow from operating activities, the proceeds from the sale of the Noveon PIK Notes and the proceeds from the sale of our Avionics business.

We maintain a committed syndicated revolving credit facility expiring in August 2006 that permits borrowing, including letters of credit, up to a maximum of $500 million. At December 31, 2003 there were no borrowings and $17.1 million in outstanding letters of credit under this facility. In addition, at December 31, 2003, we had borrowing capacity under this facility of $302.1 million, after reductions for outstanding letters of credit. We also maintain $75 million of uncommitted domestic money market facilities and $31 million of uncommitted foreign working capital facilities with various banks to meet short-term borrowing requirements. At December 31, 2003, there were no borrowings under these facilities. We maintain a shelf registration that allows us to issue up to $1.4 billion of debt securities, series preferred stock, common stock, stock purchase contracts and stock purchase units.

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Based upon our current expectations, our 2004 sales are expected to grow in the low single-digit percent range compared to 2003. The outlook for operating income and earnings per share (EPS) is based upon many external and internal factors that may have a material impact on operating income and EPS. See “Outlook” for a list of certain of these factors. We expect fully diluted EPS to be in the range of $1.20 to $1.35. We expect cash flow from operations, minus capital expenditures, to approximate net income in 2004. We expect capital expenditures in 2004 to be approximately $150 to 170 million.

Our business balance across the aerospace and defense markets continues to be an important strategic aspect of our business. The three major market areas for our products and services each represent around one-third of total sales, and we believe that trends in these markets will have an important impact on future sales. Looking at our 2003 sales by market channel, military and space sales represented 30 percent of sales, total commercial aircraft original equipment sales, including regional, business and general aviation original equipment sales, represented 29 percent of our sales and total commercial aircraft aftermarket sales for these same aircraft and for heavy maintenance represented 35 percent of sales. Other areas, including industrial gas turbine components, made up the remaining 6 percent. Overall, our aftermarket sales for both commercial aircraft and in the military and space markets represented about 45 percent of total sales.

Comparing the full year sales for 2002 and 2003, including a comparable full year contribution of Aeronautical Systems in 2002, sales to the military and space market increased about 10 percent, sales to the large commercial aircraft and regional, business and general aviation original equipment markets were down by about 11 percent, and sales to the large commercial aircraft aftermarket decreased by about three percent.

We believe that we may have seen the bottom of the downturn in the commercial aerospace market during 2003. Important to the direction of trends in these market channels is the sequential trends by quarter. When the market channel data is looked at sequentially, comparing fourth quarter 2003 to third quarter 2003, we see some positive signs in all market channels. Large commercial aircraft original equipment sales increased by about three percent, and original equipment sales for the regional, business and general aviation market increased almost six percent. With respect to the large commercial aircraft aftermarket, those sales increased more than four percent, while military and space sales continued to be strong with a sequential increase of more than five percent. We used these trends to help determine the market assumptions contained in the “Outlook.”

In 2004, we remain focused on improving our operational and financial performance and on specific enterprise-wide goals, including margin improvement and strong cash flow. We continue to invest in new products and systems that are expected to fuel our future growth.

OUTLOOK

Our 2004 outlook is based on the following market assumptions:

	•		Deliveries of Boeing and Airbus large commercial aircraft are expected to be flat to slightly declining when compared to the 586 deliveries in 2003.
	•		Capacity in the global airline system, as measured by available seat miles (ASMs), is expected to grow for the first time since 2000. We continue to expect modest ASM growth in the three to five percent range. Our sales to airlines for large commercial and regional aircraft aftermarket parts and service are expected to grow approximately in line with increases in capacity.
	•		Regional and business new aircraft production is expected to increase by about eight to 10 percent.
	•		Military sales (OE and aftermarket) should increase roughly in line with global military budgets, in the seven to 10 percent range.

Based on current expectations for these key market trends, our 2004 sales are expected to grow in the low single-digit percent range, compared to 2003.

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The outlook for operating income and earnings per share (EPS) is based on many external and internal factors that may have a material impact on operating income and EPS. These factors include, but are not limited to:

	•		Certain expenses included in Corporate General and Administrative Costs, Other Income (Expense) and segment operating results are expected to increase by approximately $30 million, in the aggregate, in 2004 compared to 2003. The increase, compared to the prior outlook of a $20 to $25 million increase in these expenses, is primarily due to a change in our incentive compensation plan, which replaced a portion of the annual stock option grant with restricted stock.
	•		Stock-based compensation – we will begin expensing stock options during 2004. For the full year 2004, we expect that stock option expense will be approximately $16 million pre-tax (about $0.09 per diluted share).
	•		Pension expense – we expect pension costs to be approximately $7 million (pre-tax) lower than 2003, due to higher than previously anticipated pension plan asset levels driven by strong equity markets in the fourth quarter 2003.
	•		Foreign exchange – for 2004, we are currently hedged on about 75 percent of our estimated foreign exchange exposure. The recent weakening of the U.S. dollar, especially against the Canadian dollar, the Euro and the Great Britain Pound Sterling, is expected to negatively impact 2004 income by approximately $15 to $20 million pre-tax, compared to 2003, based on current exchange rates.
	•		7E7 and A380 spending – combined spending on these two programs is expected to be relatively flat in 2004 compared to 2003 as the reductions in spending on the Airbus A380 program are expected to be largely offset by increased spending on the Boeing 7E7 program.
	•		Change in contract accounting – we changed certain elements of the contract accounting methodology utilized at our Aerostructures business, effective January 1, 2004, to better align with industry practices. We expect a one-time increase to income, which will be recorded as a cumulative effect of change in accounting, of approximately $24 million pre-tax (about $0.13 per diluted share). The application of this method should result in approximately $8 million (about $0.05 per diluted share) of lower operating income in 2004 which would have been recognized as products under these contracts ship throughout the year. This change has no impact on cash flow from operations.

Taking these items into account, we expect 2004 fully diluted EPS to be in the range of $1.20 to $1.35. EPS from continuing operations, which excludes the one-time gain from the cumulative effect of accounting change but includes the ongoing negative impact of this accounting change and stock option expensing, is expected to be between $1.07 to $1.22.

We expect cash flow from operations, minus capital expenditures, to approximate net income in 2004. We expect capital expenditures in 2004 to be approximately $150 to $170 million.

The current earnings and cash flow outlook assumes that there will not be any premiums associated with early retirement of debt, material developments with respect to the pending Rohr and Coltec tax litigation or contractual disputes with Northrop Grumman related to the purchase of the Aeronautical Systems business.

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RESULTS OF OPERATIONS

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

Included in the results from continuing operations for 2003 was increased pension expense, from $35 million in 2002 to $88 million in 2003. The increase in pension expense was primarily due to the weak performance of the U.S. and international equity markets in 2002, in which approximately 50 percent of the U.S. qualified defined benefit pension plans trust funds assets were invested. Approximately 89 percent of pension expense in 2003 related to the business segments. Foreign exchange also negatively impacted the financial results in our business segments. Approximately 10 percent of our revenues and 25 percent of our costs are denominated in currencies other than the U.S. Dollar. Over 95 percent of these net costs are in Euros, Great Britain Pounds Sterling and Canadian Dollars. We hedge a portion of our exposure on an ongoing basis. When the U.S. Dollar weakens, our unhedged net costs rise in U.S. Dollar terms. On a weighted basis, the U.S. Dollar declined about 12.5 percent against these currencies in 2003.

Changes in sales and segment operating income are discussed within the “Business Segment Performance” section below.

Corporate general and administrative costs of $71.4 million for the year ended December 31, 2003 increased $10.8 million, or 17.8 percent, from $60.6 million for the year ended December 31, 2002 primarily due to higher non-qualified pension costs and higher incentive compensation costs. Corporate general and administrative costs as a percentage of sales were 1.6 percent in the year ended December 31, 2003 and December 31, 2002.

Net interest expense increased $75.9 million, or 103.1 percent, primarily due to interest of $58.4 million on the $800 million of long-term debt issued in the fourth quarter of 2002 to partially finance the acquisition of Aeronautical Systems. Net interest expense also increased due to lower interest income of $26.6 million, primarily due to the sale of the Noveon PIK Notes in the first quarter of 2003. Lower short-term debt in 2003 as compared to 2002 somewhat mitigated interest expense by approximately $10.0 million.

Other income (expense) — net increased by $8.2 million, or 45.3 percent, to expense of $26.3 million in the year ended December 31, 2003 from expense of $18.1 million in the year ended December 31, 2002. The increase in expense resulted from the impairment of our equity investment in Cordiem LLC of $11.7 million in 2003 and the absence in 2003 of an $11.8 million gain on the sale of an intangible asset and a $2.4 million gain from the sale of a portion of an investment in a subsidiary sold in 2002. These items were offset in part by several favorable 2003 items, including a gain on the sale of the Noveon PIK Notes of $6.9 million, favorable foreign exchange of $4.8 million, affiliate income of $4.0 million and favorable employee benefit and divested operations costs of $3.1 million.

Our effective tax rate from continuing operations was 33.0 percent during the year ended December 31, 2003 and 34.5 percent during the year ended December 31, 2002. The higher effective tax rate in 2002 compared to 2003 was due to lower tax benefits from export sales, a higher incremental U.S. tax on the deemed repatriation of foreign earnings and the write-off of in-process research and development with no tax benefit in 2002.

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Income (loss) from discontinued operations, after tax, was $62.4 million during the year ended December 31, 2003 primarily representing the $63 million gain on the sale of the Avionics business in the first quarter of 2003. Income (loss) from discontinued operations for the Avionics and PRS operating results was a loss of $0.6 million in the year ended December 31, 2003 and income of $1.7 million in the year ended December 31, 2002. Our PRS business ceased operations in the first quarter of 2003. Also included in income (loss) from discontinued operations was a loss of $12 million in the year ended December 31, 2002 for the Engineered Industrial Products segment which was spun-off to shareholders on May 31, 2002. A charge of $7.4 million for a court ruling related to an employee benefit matter of a discontinued business and fees and expenses related to the spin-off of the segment contributed to the loss.

The cumulative effect of an accounting change for the year ended December 31, 2003 of a loss of $0.5 million, after tax, represents the adoption of Statement of Financial Accounting Standards No. 143 “Accounting for Asset Retirement Obligations.” We established a liability for contractual obligations for the retirement of long-lived assets. The cumulative effect of an accounting change for the year ended December 31, 2002 of a loss of $36.1 million, after tax, represents the adoption of Statement of Financial Accounting Standards No. 142 “Goodwill and Other Intangible Assets.” Based upon the impairment test of goodwill and indefinite lived intangible assets, we determined that goodwill relating to the Aviation Technical Services (ATS) reporting unit, reported in the Airframe Systems segment, had been impaired. As a result, we recognized an impairment charge, representing total goodwill of the Aviation Technical Services reporting unit. The goodwill write-off was non-deductible for tax purposes.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Changes in sales and segment operating income are discussed within the “Business Segment Performance” section below.

Corporate general and administrative costs of $60.6 million for the year ended December 31, 2002 decreased $1.1 million, or 1.8 percent, from $61.7 million for the year ended December 31, 2001. Corporate general and administrative costs, as a percent of sales, slightly increased in 2002. Such costs, as a percent of sales, were 1.6 percent and 1.5 percent in 2002 and 2001, respectively, primarily due to lower incentive compensation costs in 2001 due to our lower stock price at the end of the year, partially offset by costs incurred during 2001 associated with the Goodrich name change.

Net interest expense decreased $10.0 million, or 12.0 percent, from $83.6 million in 2001 to $73.6 million in 2002. The decrease was due to an increase in interest income from the Noveon PIK Notes resulting from 12 months of interest income in 2002 compared to 10 months of interest income in 2001. In addition, interest income in 2002 included $5.4 million relating to the settlement of a contract dispute on the F-14 program. The impact of increased borrowings to finance the acquisition of the Aeronautical Systems businesses in October 2002 was offset by declines in the average interest rates on short-term financings. We also had higher short-term debt prior to the Performance Materials sale during the first quarter of 2001 when interest rates were at significantly higher levels than later in 2001 and 2002.

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Other income (expense)-net decreased $1.2 million, or 6.2 percent, to expense of $18.1 million in 2002 from expense of $19.3 million in 2001. The decrease resulted from the gain on the sale of an intangible asset of $11.8 million and the gain on the sale of a minority interest in a business of $2.5 million, offset in part by the settlement of litigation and legal fees of $3.5 million, increased minority interest expense of $1.4 million and lower income from a captive insurance company of $1.4 million. Other income (expense)-net in 2001 included a gain of $7.2 million for the sale of a minority interest in a business.

Our effective tax rate from continuing operations was 34.5 percent and 33.5 percent 2002 and 2001, respectively. The increase in the effective tax rate from 2001 to 2002 was due to a lower tax benefits from export sales which was due to the lower sales volume in 2002, higher incremental U.S. tax on the deemed repatriation of foreign earnings and the write-off of in-process research and development with no tax benefit in 2002.

Income (loss) from discontinued operations, after tax, was a $10.2 million loss during the year ended December 31, 2002 and $116.3 million of income during the year ended December 31, 2001. Income (loss) from discontinued operations for the Avionics and PRS operating results was income of $1.7 million in the year ended December 31, 2002. Our PRS business ceased operations in the first quarter of 2003. Also included in income (loss) from discontinued operations was a loss of $12.0 million in the year ended December 31, 2002 for the EIP segment which was spun-off to shareholders on May 31, 2002. A charge of $7.4 million for a court ruling related to an employee benefit matter of a discontinued business and fees and expenses related to the spin-off of the segment contributed to the loss. Discontinued operations for the year ended December 31, 2001 included $91.4 million of income for the Performance Materials segment for two months including a gain on the sale of the segment of $93.5 million. Operating income was $20.9 million for EIP and $4.0 million for Avionics and PRS.

The cumulative effect of an accounting change was $36.1 million, after tax, for the year ended December 31, 2002. During the second quarter of 2002, we performed the first of the required impairment tests of goodwill and indefinite lived intangible assets. Based on those results, we determined that it was likely that goodwill relating to the ATS reporting unit, reported in the Airframe Systems segment, had been impaired. During the third quarter of 2002, we completed our measurement of the goodwill impairment and recognized an impairment charge of $36.1 million (representing total goodwill of this reporting unit), which was nondeductible for income tax purposes and was reported as a cumulative effect of an accounting change retroactively to January 1, 2002.

BUSINESS SEGMENT PERFORMANCE

Our operations are reported as three business segments: Airframe Systems, Engine Systems and Electronic Systems.

An expanded analysis of Net Customer Sales and Operating Income by business segment follows.

In the following tables, segment operating income is total segment revenue reduced by operating expenses directly identifiable with that business segment.

Year Ended December 31, 2003 Compared with Year Ended December 31, 2002

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Airframe Systems: Airframe Systems segment sales of $1,784.4 million in the year ended December 31, 2003 increased $332.8 million, or 22.9 percent, from $1,451.6 million in the year ended December 31, 2002. The increase was due to sales associated with the acquisition of Aeronautical Systems businesses included in this segment, which represented about $470 million in sales for the first nine months of 2003. Excluding the effect of the acquisition, sales decreased approximately $137.2 million from last year primarily due to lower volume for landing gear original equipment (OE), wheel and brake repair services and heavy airframe maintenance.

Airframe Systems segment operating income decreased $21.9 million, or 21.8 percent, from $100.6 million in the year ended December 31, 2002 to $78.7 million in the year ended December 31, 2003. The decrease in operating income for the year ended December 31, 2003 as compared to the year ended December 31, 2002 was primarily due to decreased sales for landing gear, wheel and brake repair services and heavy airframe maintenance, increased pension expense, unfavorable foreign exchange, an impairment charge related to the Boeing 767 program in 2003 and a favorable insurance settlement in the second quarter 2002. These items impacting reductions in operating income were partially offset by increased sales for aftermarket wheels and brakes in 2003 and a charge for inventory, capitalized sales incentives and supplier termination costs relating to the Fairchild Dornier 728 and 928 programs in the second quarter 2002. Operating income for the Aeronautical Systems businesses in the Airframe Systems segment resulted in a slight loss for the year ended December 31, 2003.

Asset impairments in 2003, including rotable landing gear, facility closure and headcount reduction charges, were $3.6 million in the year ended December 31, 2002 compared to $17.6 million in the year ended December 31, 2003. In the fourth quarter 2002, we recorded a $26.8 million inventory step-up adjustment related to the acquisition of Aeronautical Systems. The inventory for Aeronautical Systems’ business in the Airframe Systems segment was increased to record the inventory at its fair market value at the time of acquisition. Subsequent sale of the acquired inventory increased cost of sales and reduced our profit margins. In addition, in the fourth quarter of 2002, we recorded a $12.5 million charge for in-process research and development. The charge reflects the valuation of the actuation and flight controls business in-process research and development projects that had not reached technical feasibility and had no alternative future use.

Engine Systems: Engine Systems segment sales in the year ended December 31, 2003 of $1,557.8 million increased $135.2 million, or 9.5 percent, from $1,422.6 million in the year ended December 31, 2002. The increase was due to sales associated with the acquisition of Aeronautical Systems businesses included in this segment, which represented approximately $176 million in sales for the first nine months of 2003. Excluding the effect of the acquisition, sales decreased approximately $40.8 million from the year-ago period. Lower aerostructures OE and aftermarket spares sales and a decline in the demand for industrial gas turbine components, resulting in lower sales of engine components and fuel delivery systems, were offset partially by higher sales of aerostructures military and maintenance, repair and overhaul (MRO) businesses.

Engine Systems operating income decreased $73.1 million, or 42.7 percent, from $171.2 million in the year ended December 31, 2002 to $98.1 million in the year ended December 31, 2003. Operating profit was lower due to reduced volume, higher initial costs for the next generation 747 cargo system introduced in the first quarter of 2003 and higher pension expense. In addition, operating profit was lower due to a contract termination in February 2004 as described in the “Subsequent Event” section below which resulted in a charge of $15.1 million for the impairment of excess over average inventory of $7.0 million and $8.1 million for forward losses relating to the reduction in forecasted contract revenue and the increase in costs. The lower profit was mitigated by better cost controls in the aerostructures and engine components businesses as we now benefit from prior downsizings. The Aeronautical Systems businesses included in the Engine Systems segment contributed a modest operating profit to the segment’s operating income.

Included in the year ended December 31, 2003 were write-downs of inventory and long-term receivables relating to the Super 27 re-engining program of $79.9 million and an impairment of a facility that is now held for sale of $24.4 million. The write-down of the Super 27 re-engining program is described in detail at “Contingencies – Super 27 Program.” During 2002, $26.8 million of contract loss provisions on five contracts were recorded in the aerostructures businesses and were partially offset by approximately $7 million of favorable reserve adjustment related to the implementation of new SAP systems. The loss provisions resulted from increased overhead rates due, in part, to a lower manufacturing base as volume declined consistent with the lower level of aircraft production rates. In the fourth quarter 2002, we recorded a $24.1 million inventory step-up adjustment related to the acquisition of Aeronautical Systems. The inventory for Aeronautical Systems’ business in the Engine Systems segment was increased to record the inventory at its fair market value at the time of acquisition. Subsequent sale of the acquired inventory increased cost of sales and reduced our profit margins. Restructuring and consolidation and other asset impairment costs in the year ended December 31, 2003 were $6.5 million compared to $26.1 million in the year ended December 31, 2002.

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Electronic Systems: Sales of the Electronic Systems segment of $1,040.7 million in the year ended December 31, 2003 increased $106.4 million, or 11.4 percent, from $934.3 million in the year ended December 31, 2002. The increase was primarily due to sales associated with the acquisition of the Aeronautical Systems businesses included in this segment, which represented $109 million in sales for the first nine months of 2003. Excluding the effect of the acquisition, sales decreased approximately $2.6 million. The slight decrease in sales was due to weaker demand for our aircraft evacuation slides and seats, fuel monitoring systems and optical & space systems businesses partially offset by stronger sales in propulsion products, sensor systems and lighting systems.

Electronic Systems segment operating income decreased $7.8 million, or 5.3 percent, from $147.4 million in the year ended December 31, 2002 to $139.6 million in the year ended December 31, 2003. Operating income was unfavorably affected by lower sales in optical & space systems, new program investments, primarily at aircraft electrical power systems and aircraft evacuation slides and seats businesses, unfavorable foreign currency exchange and higher pension expense. The Aeronautical Systems businesses included in the Electronic Systems segment contributed a profit in the year ended December 31, 2003.

Restructuring and consolidation costs included in operating income were $9.0 million and $7.4 million in the year ended December 31, 2003 and December 31, 2002, respectively. In the fourth quarter 2002, we recorded a $7.9 million inventory step-up adjustment related to the acquisition of Aeronautical Systems. The inventory for Aeronautical Systems’ business in the Electronic Systems segment was increased to record the inventory at its fair market value at the time of acquisition. Subsequent sale of the acquired inventory increased cost of sales and reduced our profit margins.

Year Ended December 31, 2002 Compared with Year Ended December 31, 2001

Airframe Systems: Airframe Systems segment sales of $1,451.6 million in the year ended December 31, 2002 increased $51.4 million, or 3.7 percent, from $1,400.2 million in the year ended December 31, 2001. The increase was due to sales associated with the Aeronautical Systems businesses included in this segment that represented about $168.6 million in sales in the year ended December 31, 2002. Excluding these businesses, sales decreased approximately $117.2 million from the year-ago period primarily due to lower demand for commercial landing gear original equipment, aftermarket wheels and brakes and heavy airframe maintenance and landing gear services.

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Airframe Systems segment operating income increased $18.4 million, or 22.3 percent, from $82.2 million in the year ended December 31, 2001 to $100.6 million in the year ended December 31, 2002. Asset impairments including rotable landing gear, facility closure and headcount reduction charges were $3.6 million in the year ended December 31, 2002 compared to $50.0 million in the year ended December 31, 2001. In the fourth quarter 2002, we recorded a $26.8 million inventory step-up adjustment related to the acquisition of Aeronautical Systems. The inventory for Aeronautical Systems’ business in the Airframe Systems segment was increased to record the inventory at its fair market value at the time of acquisition. Subsequent sale of the acquired inventory increased cost of sales and reduced our profit margins. In addition, in the fourth quarter of 2002, we recorded a $12.5 million charge for in-process research and development. The charge reflects the valuation of the actuation and flight controls business for in-process research and development projects that had not reached technical feasibility and had no alternative future use. In 2001, we recorded a $7.8 million inventory adjustment that resulted from decreased demand due to September 11, 2001.

After consideration of the effects of the above items, the decrease in operating income for the year ended December 31, 2002 as compared to the year ended December 31, 2001 was primarily due to decreased sales for landing gear, wheel and brake repair services and heavy airframe maintenance and a favorable insurance settlement in the second quarter 2002. These items impacting reductions in operating income were partially offset by a charge for inventory, capitalized sales incentives and supplier termination costs relating to the Fairchild Dornier 728 and 928 programs in the second quarter 2002. Operating income for the Aeronautical Systems businesses in the Airframe Systems segment resulted in a slight loss for the year ended December 31, 2002.

Engine Systems: Engine Systems segment sales in the year ended December 31, 2002 of $1,422.6 million decreased $314.9 million, or 18.1 percent, from $1,737.5 million in the year ended December 31, 2001. Sales associated with the Aeronautical Systems businesses included in this segment approximated $63 million in sales in the year ended December 31, 2002. Excluding these businesses, sales decreased approximately $378 million from the year-ago period. The decrease resulted from our aerostructures, engine components and fuel delivery systems businesses. The aerostructures sales decline resulted from lower production volumes on most Boeing and Airbus programs and a substantial decline in the sale of spare parts for out-of-production aircraft. These sales declines were largely due to the reduction of older aircraft by airlines subsequent to September 11, 2001. Sales of spare parts for in-production aircraft increased in 2002 from 2001; however, sales were partially offset by a decline in sales on the Super 27 re-engining program. Sales at our aerostructures maintenance repair and overhaul facilities declined slightly from 2001. Our engine components and fuel delivery systems volume was reduced by excess capacity in the power generation market in 2002.

Engine Systems operating income decreased $21.9 million, or 11.3 percent, from $193.1 million in the year ended December 31, 2001 to $171.2 million in the year ended December 31, 2002. Operating profits overall were lower in 2002 from lower sales volume.

During 2002, $26.8 million of contract loss provisions on five contracts were recorded in our aerostructures businesses and were partially offset by approximately $7 million of favorable reserve adjustment related to the implementation of new SAP systems in 2001. The loss provisions resulted from increased overhead rates due, in part, to a lower manufacturing base as volume declined consistent with the lower level of aircraft production rates. In the fourth quarter 2002, we recorded a $24.1 million inventory step-up adjustment related to the acquisition of Aeronautical Systems. The inventory for Aeronautical Systems’ business in the Engine Systems segment was increased to record the inventory at its fair market value at the time of acquisition. Subsequent sale of the acquired inventory increased cost of sales and reduced our profit margins. Restructuring costs, including severance and consolidation costs, were $26.1 million in 2002. In the year ended December 31, 2001, aerostructures recorded an inventory write-down for $85.7 million for our investment in the Boeing 717 and Super 27 re-engining programs due to reduced expectations for these programs. The reduced expectation for the Boeing 717 program relates to Boeing’s announced production schedule reduction for this program during the fourth quarter of 2001. The reduction in expectations for the Super 27 program was primarily due to deteriorating economic conditions and September 11, 2001. In addition, the segment recorded $34.0 million in restructuring and consolidation costs in 2001. These costs were incurred in response to the decline in volume resulting from reduced OE build rates and lower spare parts sales resulting from the general industry economic decline subsequent to September 11, 2001.

Electronic Systems: Sales of the Electronic Systems segment of $934.3 million in the year ended December 31, 2002 increased $9.8 million, or 1.1 percent, from $924.5 million in the year ended December 31, 2001. The increase was primarily due to sales associated with the Aeronautical Systems businesses included in this segment and the acquisition of Hella Lighting Systems in the second quarter 2001, which represented $66.8 million in sales. Higher sales were also reported for our optical & space systems business primarily due to awards of classified cost type contracts. Sales declined in the aircraft evacuation slides and seats, de-icing & specialty systems, sensors and fuel monitoring systems businesses mainly due to lower demand for original equipment and aftermarket products in all of the commercial, regional and business aircraft subsequent to September 11, 2001.

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Electronic Systems segment operating income decreased $17.8 million, or 10.8 percent, from $165.2 million in the year ended December 31, 2001 to $147.4 million in the year ended December 31, 2002. Operating income was lower due to reduced volume as noted above, higher investments in new program awards, weaker product mix with less sales in aftermarket and unfavorable operating inefficiencies as a result of not fully realizing cost reduction benefits associated with the restructuring programs that has been initiated. Restructuring costs were $17.3 million in the year ended December 31, 2001 and $7.4 million in the year ended December 31, 2002. In the fourth quarter 2002, we recorded a $7.9 million inventory step-up adjustment related to the acquisition of Aeronautical Systems. The inventory for Aeronautical Systems’ business in the Electronic Systems segment was increased to record the inventory at its fair market value at the time of acquisition. Subsequent sale of the acquired inventory increased cost of sales and reduced our profit margins.

SUBSEQUENT EVENT

On February 16, 2004 we were notified by Pratt & Whitney, a United Technologies Company, that it will not have requirements for original equipment PW4000 engine nacelle components after we complete delivery of 45 shipsets (2 units per shipset) through early 2005. We had originally forecasted 90 shipsets to be delivered through 2009. As a result of this action, our total estimated revenue associated with this contract has been significantly reduced and anticipated cost reductions related to future deliveries under this contract will not occur.

The notice of termination is considered a Type 1 subsequent event under generally accepted accounting principles, the effects of which must be reflected in our 2003 financial statements. As a result, we have recorded a pre-tax charge of $15.1 million, as of December 31, 2003 related to this contract. The charge includes impairment of excess over average inventory of $7.0 million and $8.1 million for forward losses relating to the reduction in forecasted contract revenue and the increase in costs.

FOREIGN OPERATIONS

We are engaged in business in foreign markets. Our manufacturing and service facilities are located in Australia, Canada, China, England, France, Germany, India, Indonesia, Mexico, Poland, Scotland and Singapore. We market our products and services through sales subsidiaries and distributors in a number of foreign countries. We also have joint venture agreements with various foreign companies.

Currency fluctuations, tariffs and similar import limitations, price controls and labor regulations can affect our foreign operations, including foreign affiliates. Other potential limitations on our foreign operations include expropriation, nationalization, restrictions on foreign investments or their transfers, and additional political and economic risks. In addition, the transfer of funds from foreign operations could be impaired by the unavailability of dollar exchange or other restrictive regulations that foreign governments could enact. We do not believe that such restrictions or regulations would have a materially adverse effect on our business, in the aggregate.

Sales to non-U.S. customers were $1,860.5 million or 42 percent of total sales, $1,423.9 million or 37 percent of total sales, and $1,519.3 million or 37 percent of total sales, for 2003, 2002 and 2001, respectively.

LIQUIDITY AND CAPITAL RESOURCES

We currently expect to fund expenditures for capital requirements as well as liquidity needs from a combination of cash, internally generated funds and financing arrangements. We believe that our internal liquidity, together with access to external capital resources, will be sufficient to satisfy existing commitments and plans and also provide adequate financial flexibility.

Cash

At December 31, 2003, we had cash and marketable securities of $378.4 million, as compared to $149.9 million at December 31, 2002.

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Credit Facilities

In August 2003, we replaced our syndicated revolving credit facilities (composed of a three-year facility expiring in December 2004 and a 364-day facility expiring in September 2003) with a new committed syndicated revolving credit facility expiring in August 2006. The new facility permits borrowing, including letters of credit, up to a maximum of $500 million (compared to $750 million under the previous facilities) and otherwise has similar terms and is with the same group of global banks as the previous facilities. At December 31, 2003, there were no borrowings and $17.1 million in outstanding letters of credit under this facility. At December 31, 2002, there were $155 million in borrowings and $9.7 million in letters of credit under the previous facilities. During the first quarter of 2003, all amounts borrowed under the previous facilities were repaid with a portion of the proceeds from the sale of our Avionics business, cash flow from operations and proceeds from the sale of certain non-operating assets.

The level of unused borrowing capacity under our committed syndicated revolving credit facility varies from time to time depending in part upon our consolidated net worth and leverage ratio levels. In addition, our ability to borrow under this facility is conditioned upon compliance with financial and other covenants set forth in the related agreement, including a consolidated net worth requirement and maximum leverage ratio. We are currently in compliance with all such covenants. As of December 31, 2003, we had borrowing capacity under this facility of $302.1 million, after reductions for outstanding letters of credit.

We also maintain $75 million of uncommitted domestic money market facilities and $31.5 million of uncommitted foreign working capital facilities with various banks to meet short-term borrowing requirements. As of December 31, 2003, there were no borrowings under these facilities. At December 31, 2002, $23.5 million was borrowed under these facilities. These uncommitted credit facilities are provided by a small number of commercial banks that also provide us with committed credit through the syndicated revolving credit facility and with various cash management, trust and other services.

In October 2002, we borrowed $1.5 billion under a committed syndicated credit agreement expiring in July 2003, to finance the acquisition of Aeronautical Systems from TRW Inc. During 2002, we repaid $1.3 billion with the proceeds from the issuance of common stock and long-term debt, operating cash flow and the proceeds from the sale of certain non-operating assets. In March 2003, we repaid the balance of $200 million with the proceeds from the sale of the Noveon PIK Notes and a portion of the proceeds from the sale of our Avionics business.

Our credit facilities do not contain any credit rating downgrade triggers that would accelerate the maturity of our indebtedness. However, a ratings downgrade would result in an increase in the interest rate and fees payable under our committed syndicated revolving credit facility. Such a downgrade also could adversely affect our ability to renew existing or obtain access to new credit facilities in the future and could increase the cost of such new facilities.

In July 2003, Standard & Poor’s reduced its rating on our long-term senior unsecured debt from “BBB” to “BBB-”. The rating change resulted in a small increase in the interest rate and fees payable under our committed syndicated revolving credit facility.

QUIPS

At December 31, 2003 and December 31, 2002, there were $63.5 million and $126.5 million, respectively, in outstanding 8.30% Cumulative Quarterly Income Preferred Securities, Series A (QUIPS) issued by BFGoodrich Capital, a Delaware business trust (Trust), all of the common equity of which is owned by us. The QUIPS are supported by our 8.30% Junior Subordinated Debentures, Series A, due 2025 (QUIPS Debentures). We have unconditionally guaranteed all distributions required to be made by the Trust, but only to the extent the Trust has funds legally available for such distributions.

On October 6, 2003, we completed the redemption of approximately $63.0 million of the QUIPS. The remaining QUIPS were called for redemption on January 19, 2004. The redemption date will be March 2, 2004.

Effective October 1, 2003, we adopted Financial Accounting Standards Board Interpretation No. 46, “ Consolidation of Variable Interest Entities, an interpretation of ARB No. 51,” and deconsolidated the Trust. At December 31, 2003, the QUIPS Debentures were reported on our Consolidated Balance Sheet as “Current Maturities of Long-Term Debt and Capital Lease Obligations.” Prior periods have not been restated.

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Long-Term Financing

At December 31, 2003, we had long-term debt and capital lease obligations of $2,136.6 million with maturities ranging from 2005 to 2046. Current maturities of long-term debt and capital lease obligations at December 31, 2003 were $75.6 million, including $63.5 million of the QUIPS Debentures. The earliest maturity of a material long-term debt obligation is December 2007. We also maintain a shelf registration statement that allows us to issue up to $1.4 billion of debt securities, series preferred stock, common stock, stock purchase contracts and stock purchase units.

In July 2003, we entered into a $100 million fixed-to-floating interest rate swap on our 6.45 percent senior notes due in 2007. In October 2003, we entered into two $50 million fixed-to-floating interest rate swaps. One $50 million swap is on our 7.50 percent senior notes due in 2008 and the other $50 million swap is on our 6.45 percent medium-term notes due in 2008. In December 2003, we entered into a $50 million fixed-to-floating interest rate swap on our 7.50 percent senior notes due in 2008. The purpose of entering into these swaps was to increase our exposure to variable interest rates. The settlement and maturity dates on each swap are the same as those on the referenced notes. In accordance with Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities,” the interest rate swaps are being accounted for as fair value hedges and the carrying value of the notes has been adjusted to reflect the fair values of the interest rate swaps.

Off-Balance Sheet Arrangements

We utilize several forms of off-balance sheet financing arrangements. At December 31, 2003, these arrangements included:

Lease Agreements

We finance our use of certain equipment, including corporate aircraft, under committed lease arrangements provided by financial institutions. Certain of these arrangements allowed us to claim a deduction for the tax depreciation on the assets, rather than the lessor, and allowed us to lease up to a maximum of $90 million at December 31, 2003. At December 31, 2003, $54.8 million of future minimum lease payments were outstanding under these arrangements. The other arrangements are standard operating leases. Future minimum lease payments under the standard operating leases approximated $139.0 million at December 31, 2003.

Sale of Receivables

At December 31, 2003, we had in place a variable rate trade receivables securitization program pursuant to which we could sell receivables up to a maximum of $140 million. Accounts receivable sold under this program were $97.3 million at December 31, 2003 and December 31, 2002. Continued availability of the securitization program is conditioned upon compliance with covenants, related primarily to operation of the securitization, set forth in the related agreements. We are currently in compliance with all such covenants. The securitization does not contain any credit rating downgrade triggers pursuant to which the program could be terminated.

Cash Flow Hedges

We have subsidiaries that conduct a substantial portion of their business in Euros, Great Britain Pounds Sterling and Canadian Dollars, but have significant sales contracts that are denominated in U.S. Dollars. Periodically, we enter into forward contracts to exchange U.S. Dollars for Euros, Great Britain Pounds Sterling and Canadian Dollars.

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The forward contracts described above are used to mitigate the potential volatility to earnings and cash flow arising from changes in currency exchange rates. The forward contracts are being accounted for as cash flow hedges. The forward contracts are recorded in our Consolidated Balance Sheet at fair value with the offset reflected in Accumulated Other Comprehensive Income, net of deferred taxes. The notional value of the forward contracts at December 31, 2003 was $598.1 million. The fair value of the forward contracts at December 31, 2003 was an asset of $96.7 million, of which $49.6 million is recorded in Prepaid Expenses and Other Assets and $47.1 million is recorded in Other Assets.

The total gross gain of $100.8 million (before deferred taxes of $31.9 million), including terminated forward contracts as discussed below, was recorded in Accumulated Other Comprehensive Income and will be reflected in income as the individual contracts mature which will offset the earnings effect of the hedged item. As of December 31, 2003, the portion of the $100.8 million gain that would be reclassified into earnings to offset the effect of the hedged item as an increase in sales in the next 12 months is a gain of $53.6 million.

In June 2003, we terminated certain forward contracts prior to their scheduled maturities in 2004 and received cash of $4.1 million. As of December 31, 2003, Accumulated Other Comprehensive Income included a gain of $4.1 million related to these terminated contracts which will be reflected in income and sales when the original contracts would have matured.

Contractual Obligations and Other Commercial Commitments

The following charts reflect our contractual obligations and commercial commitments as of December 31, 2003. Commercial commitments include lines of credit, guarantees and other potential cash outflows resulting from a contingent event that requires performance by us pursuant to a funding commitment.

(1)

As of December 31, 2003, we had in place (a) a committed syndicated revolving credit facility which expires in August 2006 and permits borrowing up to a maximum of $500 million, (b) $75 million of uncommitted domestic money market facilities and (c) $31.5 million of uncommitted foreign working capital facilities. As of December 31, 2003, we had borrowing capacity under our committed syndicated revolving credit facility of $302.1 million, after reductions for outstanding letters of credit.

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Change in Dividend Policy

On May 17, 2002, our Board of Directors approved a change in our dividend policy to achieve, over time, a net income payout ratio that we believe is consistent with other leading aerospace companies. Specifically, our quarterly cash dividend was reduced to 20 cents per share from the previous level of 27.5 cents per share on our common stock, effective with the regular quarterly cash dividend payable July 1, 2002, to shareholders of record as of June 10, 2002.

CASH FLOW

The following table summarizes our cash flow activity for 2003, 2002 and 2001: