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Goodrich Corporation

1. Introduction
Goodrich Corporation is a leading global supplier of systems and services to the Aerospace and Defence industry. It is into the business of aero-structures and actuation systems, landing gear, engine control systems, sensors and safety systems, etc. The products and services are principally sold to customers in North America, urope and Asia. Goodrich common stoc! is listed on the Ne" #or! $toc! %change.

2. Ownership Profile
Table & sho"s the o"nership profile of Goodrich Corporation. Table 1: Ownership Profile Shareholders Institution /utual 0und Insider
$ource2 Company "ebsite

Holders ''( (1) .1

Value !""# &),*+'.'' .,-&(.&& )-).&,

Shares &,-,-&.,--) )*,(+-,1'& &,1&-,*(+

It can be inferred from the above table that ma3ority of the o"ners of the Company are outsiders.

$. Co%pan& financial anal&sis


Table 2:'e(enue Periods /arch 8une $eptember December
$ource2 reuters.com 9 personal analysis 4In /illions of 5.$. Dollars6

2)1) &+1'.) &(&(.' &(-*., &*,+.)

2)11 &*1'.1 ),,&.),.).+ )&-'.,

* Increase &&.*-7 &+.'.7 &+.)*7 &*.(+7

Table $: +arnin,s per Share Periods /arch 8une $eptember December


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4In 5.$. Dollars6

2)1) ,.*' &.). &.)&.&'

2)11 &.'& &..* &.'( &.*'

* Chan,e ((.,(7 &&.'+7 )+.,.7 +,.*.7

& year ago analysts estimated the long term gro"th rate of :$ of the company at &,.--7. The current long term gro"th rate estimate is &..*'7. This is appreciable in vie" of the looming global economic slo"do"n. Table -: .ast / &ear Growth 'ates Particulars Co%pan& $ales :$ Capital $pending
$ource2 reuters.com Table 4In 76

Industr& (.&( 1..1 ).'&

(.&&,.*' -.'&

sho"s that the Company is having a higher capital spending ratio as

compared to the industry. Due to this the Company "as not able achieve a better dividend yield. ;o"ever, the Company<s bottom line and top line are good as reflected by the sales and :$ figures. Table /: 0inancial stren,th 1Short ter% sol(enc& Particulars Co%pan& =uic! >atio Current >atio ?T Debt to @uity Total Debt to @uity Interest Coverage
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Industr& ,.' ,.*. '-.++ +..(& 1.)*

&.)' ).+. +-.&( +-.*1 (.&'

As sho"n in the above comparative table, the Company<s short-term li@uidity has remained over a )2& ratio, "hich could be perceived as more than optimal, generally spea!ing. The @uic! ratio also has remained above &2&, "hich is considered to be the benchmar! value for this ratio. >elative to the industry,

the Company has maintained a higher than average current ratio and @uic! ratio has remained greater than its competitors. These trends indicate that the Company has been in a better position than its competition to meet its shortterm financial obligations. The "or!ing capital management of the Company is better than that of the industry. Table 2: 0inancial stren,th 1.on, ter% sol(enc& 0inancial 'atio ?ong Term Debtto-Total Assets ?ong Term Debtto- @uity
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3ec $14 2)11 )).&+7 .&(.&*7

3ec $14 2)1) )'..*7 .&(.-(7

3ec $14 2))5 )).1(7 )(+.')7

The long term debt-e@uity and total debt-e@uity ratios of the Company are considered to assess the long term solvency of the Company. The main focus of these ratios is the entity<s ability to repay long-term creditors. Aoth creditors and shareholders are e@ually interested in these ratios. These ratios indicate the entity<s ability to "ithstand relatively sour business conditions "ithout suffering net losses or insolvency. Typically, these ratios should be as lo" as possible. Typically, these ratios should be as lo" as possible. As evident from the above table, the ratios have more or less increased in the last three years. This implies that the ris! in investing in Goodrich Corporation<s stoc!s has increased. Table 6: Profitabilit& ratios Particulars 3ec $14 2)11 Gross /argin >eturn on @uity Total Asset Turnover .&.*'7 )&.1,7 ,.('

3ec $14 2)1) .,.-(7 &(.)17 ,.('

3ec $14 2))5 )1..-7 ),.-'7 ,.(+

>eturn on Asset arnings per $hare 45$D6

(.'+7 +...

+.)-7 -.'+

+.*.7 -.*&

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:rofitability ratios are used in an effort to evaluate management<s ability to monitor and control e%penses and to earn a profit on resources committed to the business. The ratios assess the Company<s strengths and "ea!nesses, operating results and gro"th potential. These ratios are used to measure ho" efficiently the assets are being used to generate net income and sales. The higher the ratio, the more effectively the company is using its assets. The ratios also allo" comparison of the profitability of the Company to that of similar companies "ithin the industry. Gross profit percentage is used to assess "hether the profits "ill cover operating e%penses. The gross profit rate has increased steadily in the last . years. >eturn on stoc!holder<s e@uity assesses the effective use of resources provided by stoc!holders. This measure of performance is one of the !ey profitability ratios. Although the '-year return on e@uity average is belo" the industry average, the Company had a significant increase last fiscal year. The higher the ratio for asset turnover, the more effective the company is using its assets to produce sales. The Company<s asset turnover is above the '-year industry average of ,.--B this implies that the Company is reasonably using its assets. It appears that Goodrich Corporation has remained relatively stable over the past . years.

The most popular profitability ratio is arnings per $hare 4 :$6. This is one of the easier ratios to use "hen comparing companies because many firms include this ratio on their Income $tatement. arning per share gives a picture

of the current net income in a particular period to the number of outstanding shares. Goodrich<s earnings per share have steadily increased over the past . years. The ),&&. Table 7: "ar8et Price and 3i(idend 'atios Particulars 3ec $14 2)11 3ec $14 2)1) :rice- arnings Dividend #ield Dividend :ayout &1.',.1-7 &*...7 &1.-. &.)+7 )..+*7 arning per $hare increased at a CAG> of &-.()7 from ),,1 to

3ec $14 2))5 &..+( &.'17 )&.)&7

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Table 5: Valuation 'atios 1 Industr& Co%parison Particulars Co%pan& :C ;igh - ?ast ' &1.'* #rs. :C ?o" - ?ast ' +.11 #rs. Aeta :rice to $ales
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Industr& '-... &,.1) &.,* ).)*

,.1& &.1'

Table 1): 3i(idend 1 Industr& Co%parison Particulars Dividend #ield Dividend #ield - ' #ear Avg. Dividend ' #ear Gro"th >ate :ayout >atio
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Co%pan& ,.1-7 &..&7 (.(&7 &*.&(7

Industr& &.1.7 &.++7 *.,'7 )..*+7

:rice- arnings >atio measures ho" confident the public is in the ability of the Company to increase their revenue. Goodrich Corporation has a ratio belo" the

industry average, indicating that the public feels that the net income of the company "ill gro" at a slo"er pace than its competitors Dividend #ield measures the returns on stoc! purchased. The dividend-yield for Goodrich Corporation is lo", indicating that the company has reinvested its profit in the future e%pansion of the company. Dividend-:ayout measures the percentage a company pays out to its investors in dividends. As "e can see, Goodrich Corporation has lo"er dividend-payout ratio compared to the industry average, once again indicating that most of its profit is being reinvested into the gro"th of the company. Table 11: +fficienc& Particulars >evenueC mploye e Net IncomeC mployee >eceivable Turnover Inventory Turnover Asset Turnover
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Co%pan& )**.*1

Industr& .&')'.)

)1).) +.+ ).,( ,.*&

&+1()& ..(& ).++ ,.--

The Company<s efficiency figures are better than the industry standards. The management has to improve indirect e%pense management to improve profitability ratios.

0i,ure 1: Goodrich Vs S9P /)) : last / &ear perfor%ance

Goodrich

S&P 500

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Although the Company has not performed as good as other player<s in the industry, it has out performed the mar!et in the last five years.

-. Corporate Go(ernance ;nal&sis a# The <oard


/r. /arshall D. ?arsen is the Chairman, :resident and Chief %ecutive Dfficer 4C D6 of Goodrich Corporation. During ),&&, In addition to /r. ?arsen, the Aoard consisted of eight independent directors. Thus, the Aoard has a ma3ority of independent directors. The Aoard has no policy "ith respect to the separation of the offices of Chairman and C D. /r. ?arsen holding both the positions may lead to conflict of interests. Therefore, it is ad(ised to desi,nate two separate persons for these two positions.

The Aoard members are from diversified fields, "ell e%perienced and have the re@uired @ualifications to ma!e the Company capable for facing the challenges that it faces.

The company "ebsiteCannual reportsCpro%y statements do not disclose details about the directors. It is ad(ised to ,i(e %ore infor%ation li8e the na%es of the other co%panies to which the directors are related either wor8in, as independent=non independent directors#4 outside co%pan& boards where independent directors are sittin, to,ether.

The Aoard is responsible for nominating members of the Aoard and for filling vacancies on the Aoard that may e%ist bet"een annual meetings of shareholders. The Aoard has delegated the screening process for ne" directors to the Committee on Governance. The Committee on Governance see!s out appropriate candidates from various sources, "hich may include other directors, as "ell as consultants and search firms to "hich the Company pays fees for their assistance in identifying and evaluating candidates. Aoard /embers are elected in the annual meeting.

The company has fi%ed the retirement age of the directors at () years. ;o"ever, it has no policy on deciding the tenure of an independent director. ?ong term relationship of an independent director "ith a particular company may create an emotional attachment on the directors< part. Therefore, it is ad(ised that the co%pan& should fi> ser(ice tenure for the independent directors.

The Company is not engaged in outside business relationships "ith the management or Aoard /embers, or individuals associated "ith them, for goods and services on behalf of the Company.

The directors meet regularly to revie" the Company<s functioning. ;o"ever, it is ad(ised that the independent director?s should also conduct a %eetin, to appraise the chair%an?s perfor%ance at least once in a year. This "ill bring more transparency in the functioning of the Aoard and "ill increase the accountability of the chairman.

The Aoard has established five standing committees2 o Executive Committee - acts bet"een regularly scheduled Aoard meetings. The %ecutive Committee meets only "hen formal

action is necessary and it is not feasible to convene a special meeting, in person or by telephone, of the full Aoard. o Audit Review Committee - assists the Aoard in its oversight of the integrity of the Company<s financial statements, the performance of the internal audit function and independent registered public accounting firm, and compliance "ith legal and regulatory re@uirements. This committee has direct responsibility for the selection and appointment of independent registered public accounting firm. o Compensation Committee - revie"s, analyEes and, in some cases, approves and, in other cases, ma!es recommendations to the Aoard regarding employee and e%ecutive compensation,

incentive, e@uity-based benefit programs, including compensation for the C D. o Committee on Governance - assists the Aoard in identifying and recommending individuals to the Aoard for nomination as Aoard members, Aoard assessment and administration, management assessment, revie"ing and assessing corporate governance guidelines and principles, and recommends director

compensation. o Financial Policy Committee - assists the Aoard in revie"ing and monitoring financial planning, financial structure, ma3or financing activities, ris! management and insurance programs,

investments, dividend policy and retirement plan funding and investment management.

b# <usiness +thics
thical matters in the Company are regulated by a published business code of conduct. The company has an F thics and Ausiness Conduct DfficeG. mployees can call this office for advice or assistance on issues of business conduct. Concerns about potential violations of the la", company policy or the guidelines set forth in this boo!let can be e%pressed through this office or by contacting the on-site ethics and business conduct representative. The Aoard has access to relevant corporate information in a timely and comprehensive manner. The code of conduct of the Company is in compliance "ith the corporate governance code of N#$ .

The Company also has a published anti-corruption policy to be follo"ed by all its employees, management and the Aoard.

The Company<s Corporate $te"ardship >eport, published every year, and highlights ho" the company is ma!ing a difference in the "orld in "hich it operates. The >eport focuses on si% strategic areas2 continuous improvement, technological innovation, employee health and safety, environmental ste"ardship, Halues and culture, and community involvement.

c# ;udit Co%%ittee
The audit committee assists the Aoard in its oversight of 4&6 the integrity of the financial statements of the Company, 4)6 the independent accountantsI @ualifications and independence, 4.6 the performance of the CompanyIs internal audit function and independent auditors, and 4-6 the compliance by the Company "ith legal and regulatory re@uirements. All members of the Committee are independent directors and is in compliance "ith $ C re@uirements. The committee is chaired by /r. ;arris . De?oach, 8r. The committee has the sole authority to select annually and replace the independent auditor of the Company. The $ C mandate re@uires establishment of formal procedures for receiving and handling complaints to facilitate disclosures, encourage proper individual conduct and alert the audit committee to potential problems before they have serious conse@uences. Accordingly, each audit committee must establish procedures for -

o The receipt, retention and treatment of complaints received by the issuer regarding accounting, internal accounting controls or auditing matters, and o The confidential, anonymous submission by employees of the issuer of concerns regarding @uestionable accounting or auditing matters. Although the company has an F thics and Ausiness Conduct DfficeG, it is not clear "hether this office reports to the audit committee. @ecessar& steps should be ta8en so that the concerned office solel& reports to the audit co%%ittee. The Committee has the authority, to the e%tent it deems

necessaryCappropriate, to retain independent legal, accounting or other advisors. In accordance "ith the $ C norms, the Company provides for appropriate funding, as determined by the Committee, for payment of compensation to the independent auditor for the purpose of renderingC issuing an audit report and to any advisors employed by the Committee.

d# 3irectors? and +>ecuti(e officers? 'e%uneration


According to the Company<s policies, each independent director receives an annual grant of specified number of phantom shares. Dividend e@uivalents accrued on all phantom shares are credited to a Director<s account. All phantom shares are fully vested on the date of grant. 0ollo"ing termination of service as a Director, the cash value of the phantom shares is paid to each Director in a single lump sum, five annual instalments or ten annual instalments. The value of each

phantom share is determined on the relevant date by the fair mar!et value of the common stoc! of the Company on such date. I have some serious reservations about this policy. Allotting phantom shares to the directors and and ma!ing them mar!ed-to-mar!et might motivate the directors to support the management in its @uest to ma%imiEe shareholder<s value. This is in star! contrast to the responsibilities of the directors. This issue needs serious analysis. In my opinion, instead of issuing phantom shares, the directors may be paid a fi%ed amount as sitting fees. As per the Company<s ),&& pro%y statement, each director of the company is holding less than &7 of the company<s common shares. All the directors and e%ecutive officers of the Company together hold &.&'7 of the Company<s outstanding shares. The Company has not fi%ed any limit of the amount of shares that can be held by a single independent director. It is advised to fi% the ma%imum amount of phantom shares that can be allotted to a director. $ C guidelines specifies that the Company must disclose, on an annual basis, detailed information regarding the remuneration of all directors as "ell as the Chief %ecutive Dfficer, Chief 0inancial Dfficer and the three other most highly paid officers. The Company has filed its annual report on 0orm &,-J for the year ended December .&, ),&& sho"ing the remuneration of the re@uired authorities in the specified format. The components of e%ecutive compensation currently include annual salary, annual incentive Compensation and long-term incentive compensation. The pro%y statement for the year ),&& is available in the Company<s

"ebsite and includes the compensation discussion and analysis section "hich is satisfactory.

e# Stoc8 options policies


Compensation, regardless of "hether it is paid in cash, shares or share options, involves payment for services received and should appear as an e%pense on the income statement. International 0inancial >eporting $tandards 4I0>$6 and 5.$. Generally Accepted Accounting :rinciples both re@uire Companies to e%pense stoc! option grants. %amination of the terms of this type of remuneration program, including the total shares offered to !ey e%ecutives and other employees, alerts investors to ho" the program can affect shares outstanding, dilution of $hareo"ner interests, and share values. The Company has an established e@uity compensation :lan as part of its long-term incentive compensation program. The :lan is approved by the Company<s shareholders and permits the Company to issue stoc! options, performance units, restricted stoc! a"ards, restricted stoc! units and other e@uity-based compensation a"ards. Currently, the :lan "hich e%pires on April &(, ),&&, ma!es &-,',,,,,, shares of common stoc! of the Company available for grant. The Company issues shares upon e%ercise of options or vesting of certain other share-based compensation a"ards. During ),&,, the Company repurchased shares under the plan to the e%tent re@uired to meet the minimum statutory ta% "ithholding re@uirements. The Company submitted the FGoodrich Corporation ),&& @uity Compensation :lanG to shareholders at the ),&& annual meeting of shareholders and got it approved.

f# Pension fund
In order to provide investors "ith a clearer and more complete picture of the compensation earned by a company<s principal e%ecutive officer, principal financial officer and highest paid e%ecutive officers, $ C guidelines have laid do"n specific formats to e%plain the pension benefits and deferred compensations earned by them. Goodrich Corporation complies fully "ith the stipulated norms and discloses the said benefits in its pro%y statement.

Appendix A: Graphs for Goodrich Corporation

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a6 > :D>T$ &. Goodrich Corporation Annual reports K ),&, and ),&&

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