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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7568
COLTEC INDUSTRIES INC
(Exact name of registrant as specified in its charter)
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<S> <C>
PENNSYLVANIA 13-1846375
(State of Incorporation) (I.R.S. Employer
Identification No.)
430 PARK AVENUE,
NEW YORK, N.Y. 10022
(Address of principal (Zip Code)
executive offices)
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Registrant's telephone number, including area code: (212) 940-0400
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Securities registered pursuant to Section 12(b) of the Act:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share....................... New York Stock Exchange
Pacific Stock Exchange
11- 1/4% Debentures Due December 1, 2015..................... Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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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 ______
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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 referenced in Part III of this Form 10-K or any amendment to
this Form 10-K. __X__
On March 1, 1995, there were outstanding 69,917,522 shares of the
registrant's Common Stock, par value $.01 per share. On March 1, 1995, the
aggregate market value of the registrant's voting stock (based on a closing
price of $17 per share as reported by the Composite Tape Association) held by
non-affiliates was $1,167,386,700. For purposes of the foregoing calculation,
all directors and officers of the registrant have been deemed to be affiliates,
but the registrant disclaims that any of such directors or officers is an
affiliate.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1994 Annual Report to its shareholders are
incorporated by reference into Part I (Item 1), Part II (Items 6, 7 and 8) and
Part IV (Item 14) hereof.
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PART 1
ITEM 1. BUSINESS.
Coltec Industries Inc and its consolidated subsidiaries (together referred
to as "Coltec") manufacture and sell a diversified range of highly-engineered
aerospace, automotive and industrial products in the United States and, to a
lesser extent, abroad. Coltec's operations are conducted through three principal
segments: Aerospace/Government, Automotive and Industrial. Set forth below is a
description of the business conducted by the respective divisions within
Coltec's three industry segments. The tabular five-year presentation of
financial information in respect of each industry segment under the caption
"Industry Segment Information" of Coltec's 1994 Annual Report to its
shareholders and the information in Note 11 of the Notes to Financial Statements
of Coltec's 1994 Annual Report to its shareholders are incorporated herein by
reference.
AEROSPACE/GOVERNMENT
Through its Aerospace/Government segment, Coltec is a leading manufacturer
of landing gear systems, engine fuel controls, turbine blades, fuel injectors,
nozzles and related components for commercial and military aircraft, and also
produces high-horsepower diesel engines for naval ships and diesel, gas and
dual-fuel engines for electric power plants. The operating units, principal
products and principal markets of the Aerospace/Government segment are as
follows:
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OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS
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<S> <C> <C>
Menasco Aircraft landing gear systems Aircraft manufacturers
and components, flight Domestic and foreign
control actuation systems, airlines
other aircraft components
and repair and overhaul
Chandler Evans Control Fuel pumps and control Aircraft engine manufacturers
Systems systems for aircraft engines
Walbar Blades, vanes and discs for Aircraft engine manufacturers
jet and other gas turbine
engines; protective coatings
for gas turbine engines
Delavan Gas Turbine Products Fuel injectors, spraybars and Aircraft engine manufacturers
other components for gas
turbine engines
Lewis Engineering Cockpit instrumentation and Commercial and military
sensors aircraft and engine
manufacturers
Fairbanks Morse Engine Large engines powered by U.S. Navy, electric utilities
diesel fuel or natural gas
</TABLE>
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With reductions in domestic military spending, Coltec has placed an
increasing emphasis on sales by its Aerospace/Government segment to commercial
aircraft manufacturers. In addition to producing landing gear for various
Boeing, McDonnell Douglas, Fokker and other aircraft, Coltec has been awarded a
contract to supply a completely integrated landing gear system for the Boeing
737-700 aircraft and derivatives. In addition, Coltec successfully began
deliveries of the main landing gear for the Fokker 70 and Fokker 100 aircrafts
in 1994. Coltec has also been successful in increasing its penetration of the
commercial aircraft engine market, including the commuter aircraft and general
aviation markets, through its Chandler Evans Control Systems Division, Walbar
and Delavan subsidiaries. See "Aerospace Controls", "Aircraft Engine Components"
and "Gas Turbine Products" below.
In most of the operating units in this segment, Coltec is a leading
manufacturer in the markets it services and has focused its efforts on
manufacturing quality products involving a high engineering content or
proprietary technology. In many cases in which Coltec developed components for
use in a specific aircraft, Coltec has become the primary source for replacement
parts and, in some cases, service for these products in the aftermarket. Many of
the programs for which Coltec has been awarded a contract or for which Coltec
has been selected as a manufacturer are subject to termination or modification.
See "--Contract Risks".
LANDING GEAR SYSTEMS
Coltec, through its Menasco Aerosystems Division and its Canadian
subsidiaries, Menasco Aerospace Ltd. and Menasco Aviation Services Ltd.
(collectively referred to as "Menasco"), designs, manufactures and markets
landing gear systems, parts and components for medium-to-heavy commercial
aircraft and for military aircraft and provides spare parts and overhaul
services for these products. Menasco is one of the leading suppliers of landing
gear for medium-to-heavy commercial and military aircraft. It also designs and
manufactures aircraft flight control actuation systems. Landing gear, including
components, parts, and overhaul services for landing gear, accounted for
approximately 89% of Menasco's sales and 11% of Coltec's sales during 1994. For
the years 1994, 1993 and 1992, commercial sales accounted for 64%, 62% and 73%,
respectively, of Menasco's total sales.
Menasco has been awarded contracts to supply the main and nose landing gear
for the Boeing 777 aircraft and as of December 31, 1994, 16 shipsets have been
delivered on schedule to The Boeing Company ("Boeing"). Delivery of landing gear
for the Boeing 777 aircraft commenced in 1993. Boeing has announced that 147
firm orders and options for an additional 108 of its 777 aircraft have been
placed as of December 31, 1994 and commenced with full scale production in 1994.
Menasco has been selected to replace a competitor as the supplier of the main
landing gear for the Fokker 100 aircraft as well as to supply the main landing
gear and flight controls for the Fokker 70. Menasco has supplied most of the
flight controls for the Fokker 100 since this aircraft was introduced. Other
commercial programs for which Menasco is currently producing landing gear and
flight controls include the main and nose landing gear for the Boeing 757
aircraft, the main landing gear for the existing Boeing 737 aircraft and the new
737-700 and 737-800 aircraft, the nose landing gear for the Boeing 767 aircraft,
the main landing gear for the McDonnell Douglas MD-80/90 aircraft, the flight
controls for the Canadair RJ-601 aircraft and landing gear components for the
Airbus Industrie A-330/340 aircraft.
Menasco is supplying the main and nose landing gear for the Taiwanese
Indigenous Defense Fighter being built for the Taiwanese government and is
developing the main and nose landing gear for the Lockheed F-22 Air Superiority
Fighter. In addition, Menasco is supplying the nose landing gear and drag brace
for the Bell/Boeing V-22 Osprey including engineering and test support. Other
military programs for which Menasco is currently producing landing gear and
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flight controls include the main and tail landing gear for the McDonnell Douglas
AH-64 Apache helicopter, the nose landing gear and flight controls for the
McDonnell Douglas C-17 military transport, the main and nose landing gear for
the F-16 aircraft produced by Lockheed Corp. ("Lockheed") and the Lockheed C-130
military transport.
Landing gear and flight controls are designed for specific aircraft and
produced by a single manufacturer. Menasco has been the sole production supplier
of this equipment for each program it has been awarded. The price of landing
gear constitutes approximately 2% of the total cost of an aircraft.
In addition to manufacturing and marketing aircraft landing gear and flight
controls, Menasco provides complete overhaul services on a worldwide basis for
landing gear and actuation systems through its overhaul facilities.
In view of the relatively small number of medium-to-heavy aircraft
manufacturers, Menasco's commercial sales of landing gear have historically been
concentrated among a limited number of purchasers, primarily Boeing, McDonnell
Douglas and Lockheed in the United States and Fokker in Europe.
The market for landing gear is highly competitive, with a small number of
airframe manufacturers evaluating potential suppliers based on design, price and
record of past performance. Menasco has made significant investments in
long-term marketing to promote working relationships with customers and to
enhance Menasco's engineering department's understanding of customer
requirements. Menasco believes it is this engineering expertise, together with
its record of on-time delivery, quality and price, which has made Menasco one of
the leading producers of medium-to heavy-aircraft landing gear worldwide.
Menasco's primary domestic competitors are Cleveland Pneumatic Division of The
B.F. Goodrich Company and Bendix Brake and Strut Division of AlliedSignal Inc.
("AlliedSignal"). The principal foreign competitor is Messier-Dowty of France,
England and Canada. The overhaul business has become increasingly competitive.
Menasco believes its competitive strengths in the overhaul business include its
name, which carries a reputation for quality and service.
Raw materials and finished products essential to Menasco's manufacturing
operations are available in sufficient quantity from a reliable supplier base.
AEROSPACE CONTROLS
Coltec, through its Chandler Evans Control Systems Division ("Chandler
Evans"), manufactures a variety of aircraft engine fuel control systems, fuel
pumps and engine and aircraft components for the aerospace industry. Chandler
Evans' products are highly engineered and contain proprietary technology.
Principal customers for the products include gas turbine engine manufacturers,
aircraft manufacturers, domestic and foreign airlines, commercial fleet
operators and the military services. For the years 1994, 1993 and 1992,
commercial sales accounted for 74%, 67% and 71%, respectively, of Chandler
Evans' total sales.
For sale to the commercial aircraft engine market, Chandler Evans produces
the main fuel pump for certain models of the General Electric CF-6 and CF-34
engines, both used on various commercial aircraft, and the Full Authority
Digital Electronic Fuel Control System ("FADEC") for the AlliedSignal Engines
LF507 engine used on the British Aerospace BAE 146 aircraft. Chandler Evans was
selected to develop and manufacture a FADEC for the Allison 250 engine. Delivery
of this system is scheduled to begin in early 1995. Also, Chandler Evans has
developed a
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FADEC for the LHTEC T800 helicopter engine, a joint venture of Allison Engine
Company and AlliedSignal Garrett and was selected to develop the FADEC for the
Allison LTS- 800 commercial engine.
For sale to the military aircraft engine market, Chandler Evans produces the
main and afterburner fuel pumps for the General Electric F-404 engine used on
the McDonnell Douglas F-18 aircraft. The main fuel pump for the General Electric
F-414 engine is currently in development. FADEC systems are produced for
AlliedSignal Engine's T-55 engines for the Boeing Chinook helicopters in service
with the U.S. Army, the UK Royal Air Force and the Royal Netherlands Air Force.
The Hydromechanical Fuel Control Systems for AlliedSignal Engine's T-53 engine
continues in service on the Bell UH-1, Cobra and Kaman K-MAX helicopters.
Chandler Evans is the sole source for the pumps and fuel systems described
above and supports these products with aftermarket sales of spare units, parts
and overhaul service. For the year 1994, approximately one-half of Chandler
Evans revenues were attributable to the aftermarket. Aftermarket sales are very
significant, because proprietary programs allow Chandler Evans to realize
favorable operating margins.
Chandler Evans competes with Argo-Tech and the Aviation Division of
Sundstrand Corporation in fuel pumps and with the AlliedSignal Bendix Division
of AlliedSignal and the Hamilton Standard Division of United Technologies
Corporation in fuel controls.
AIRCRAFT ENGINE COMPONENTS
Coltec, through its Walbar Inc subsidiary and its Canadian subsidiary,
Walbar Canada Inc. (together referred to as "Walbar"), manufactures turbine
components, compressor airfoils, and turbine and compressor rotating parts
primarily for aircraft gas turbine engines and, to a lesser extent, for
land-based, marine and industrial gas turbine applications, and performs
services including repairs and protective coatings for these products. During
1994, a new coating service center in South Carolina became operational for
coatings applied to land based turbine engine blades. Coltec believes that
Walbar is one of the leading independent manufacturers of blades, turbine vanes
and nozzle segments, impellers and rotating components for jet engines.
Walbar manufactures products for commercial engines including the Pratt &
Whitney 100 used on the deHavilland Dash 8, Alenia ATR 40 and Alenia ATR 72
aircraft, the Pratt & Whitney 200 used on the McDonnell Douglas Helicopter MDX,
the Pratt & Whitney 300 used on the British Aerospace BAE 1000 aircraft, the
Pratt & Whitney PT6 used on various commercial and military aircraft, the TPE
331 AlliedSignal engine used in the Jetstream Aircraft and the AlliedSignal
Auxiliary Power Units used on various commercial aircraft. Walbar's original
equipment and replacement components are also utilized in a number of other
commercial aircraft, including the Boeing 727, 737, 747, 757 and 767; the Airbus
A300, A310 and A320; and the McDonnell Douglas DC-8, DC-9, DC-10 and MD-80.
Walbar's blades, vanes and discs are employed on many of the leading models of
turboprop, business jet and commuter aircraft currently in service. Walbar
supplies a number of different compressor and turbine blades for the new Allison
3007/2100/T406 engine family. These engines are designed for use on several
business and regional commuter aircraft and also have military applications.
Targeting the commuter aircraft market is part of Walbar's strategy of
emphasizing the production of turbine engine components for commercial aircraft
applications. Turbine blades for Rolls Royce engines are produced for commercial
and military aircraft. For the years 1994, 1993 and 1992, commercial sales
accounted for approximately 78%, 85% and 74%, respectively, of Walbar's total
sales.
Walbar manufactures products for military engines, including the General
Electric F-404 used on the McDonnell Douglas F-18 aircraft, the General Electric
F-110 used on the Grumman
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F-14 aircraft, the McDonnell Douglas F-15 aircraft and the Lockheed F-16
aircraft, the GE LM 2500 used on the U.S. Navy's Spruance class destroyers,
AlliedSignal Engine's AGT 1500 used on the U.S. Army M-1 Abrams main battle
tank, the Volvo RM12 engine for the SAAB JAS39 aircraft and Turbo Union RB199
engine for the Panavia Tornado aircraft.
Walbar's market has become increasingly competitive over the past several
years as airlines have sought to limit parts inventories and defense procurement
has been reduced. Although Walbar does not typically design its own products,
management believes that its highly sophisticated applied manufacturing
technology, responsive production capabilities and focus on cost reduction have
made Walbar one of the leading independent manufacturers of blades, impellers
and rotating components for jet engines. Chromalloy American Corporation and
Howmet Turbine Components Corporation provide competition in all aspects of this
industry. In addition, Walbar's principal customers possess, in varying degrees,
integrated production capacity for producing and servicing the components that
Walbar supplies.
GAS TURBINE PRODUCTS
Coltec, through its Delavan Inc subsidiary operating as the Delavan Gas
Turbine Products Division ("Delavan"), manufactures custom engineered fuel
injectors, afterburner spraybars and other fuel distribution accessories for
commercial and military gas turbine engines. The primary market niche is
injection equipment for the commuter and regional airline engine market, and
Delavan has a sole or dual source position on all of the top ten commuter
aircraft as measured by 1993 available seat capacity.
Delavan's products are designed and developed to customer specifications
using computer-aided design and manufacturing processes and are marketed
directly to engine manufacturers pursuant to production orders. Principal
customers for this business segment include the General Electric Company,
AlliedSignal Engine, Pratt & Whitney Canada and the Allison Engine Company.
Delavan supports these products with aftermarket sales of spare parts and
overhaul services, both to the engine manufacturers and the airline users, and
this is the fastest growing segment of the business. A third business segment
involves the sale of fuel injection components and spare parts directly to
military logistics commands in support of gas turbine engines currently in the
Defense Department inventory such as the Allison T56 and the General Electric
F-404. For the years 1994, 1993 and 1992, commercial sales accounted for 78%,
69% and 58%, respectively, of Delavan's total sales.
Delavan competes worldwide with Parker-Hannifin Corporation and Fuel Systems
Textron. Competitive pressure is focused on price in the original equipment
manufacturer ("OEM") segment of the business and on price and delivery in the
aftermarket segment. While not a major factor in the large, commercial airline
engine market, Delavan has, by far, the leading market share position in the
commuter and regional airline engine fuel injection market segment. This
position is being strengthened through negotiation of long term partnering and
price agreements with the manufacturers who supply the engines for this segment
of the market.
AIRCRAFT INSTRUMENTATION
Coltec, through its Lewis Engineering Company, designs, develops and
produces electro-mechanical and electronic instrumentation for aircraft cockpits
and temperature sensors for aircraft and engine systems. The products are used
in commercial, general aviation and military markets. Lewis competes with
several manufacturers of aircraft instruments.
ENGINES
Coltec, through its Fairbanks Morse Engine Division ("Fairbanks Morse"),
manufactures and markets large, heavy-duty diesel, gas and dual-fuel engines and
parts for such engines.
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Fairbanks Morse manufactures engines in conventional "V" and in-line opposed
piston configurations which are used as power drives for compressors, large
pumps and other industrial machinery, for marine propulsion and for stationary
and marine power generation. Engines are offered from 4 to 18 cylinders, ranging
from 640 to 29,320 horsepower. Such products are sold in the domestic market
primarily through regional sales offices and field sales engineers and in
foreign markets through the domestic sales network and foreign sales
representatives. Parts are sold primarily through factory and regional sales
offices. In 1994, 73% of Fairbanks Morse's sales were for replacement parts and
service for Fairbanks Morse engines.
Large heavy-duty diesel engines are sold to shipbuilders for the U.S. Navy
and Coast Guard and to electric utilities, municipal power plants, oil and gas
producers, firms engaged in commercial marine, offshore drilling activities and
local, state and federal governments.
Under a license agreement with Societe d'Etudes de Machines Thermiques, S.A.
groupe Alsthom, a French company, Fairbanks Morse has the right to manufacture
the Colt-Pielstick PC2 and PC4 lines of large diesel engines, which operate on
oil fuel (including heavy oil) and, in the case of the PC2, dual-fuel, and range
in size from 4,400 to 29,320 horsepower. Engines manufactured under this license
are used for primary power by electric utilities, standby power for nuclear
electric generating plants and ship propulsion.
Over the last several years, Fairbanks Morse has supplied each of the ships
in the U.S. Navy Landing Ship Dock ("LSD") program with four 16-cylinder PC2.5
engines, each delivering 8,500 horsepower for main propulsion, and four
12-cylinder opposed piston engines for shipboard power generation. The LSD ships
hold amphibious craft and troops for deployment in emergencies. Engines for 11
LSD and LSD Cargo Variant ships have been delivered and engines for one
additional ship are scheduled for delivery in 1995. Fairbanks Morse has received
a firm order to produce twelve 10- cylinder PC4.2 engines for the first three
ships in the U.S. Navy's Sealift Program with options for an additional three to
five ships. Three of the four engines for the first ship are scheduled to be
delivered in 1995 with succeeding engines currently scheduled to be shipped
through 1997.
Contracts are awarded in the heavy-duty diesel engine market based on price
and successful operation in similar applications. Coltec attributes its strong
position in this market to its history as a supplier to the U.S. Navy in a
variety of propulsion and generator set applications and its ability to meet the
U.S. Navy's military specification requirements. Management believes that
Fairbanks Morse and its primary competitor, the Cooper-Bessemer Reciprocating
Products Division of Cooper Industries, Inc., lead the field of four domestic
manufacturers serving the market for heavy-duty diesel engines in power ranges
from 5,000 to 30,000 horsepower. Fairbanks Morse competes with six domestic
manufacturers in the medium speed (1,000 to 5,000 horsepower) engine market,
dominated by General Motors Corporation ("General Motors") and Caterpillar Inc.,
and with several foreign manufacturers. Numerous domestic and foreign
manufacturers compete in the under 1,500 horsepower engine market.
In the first quarter of 1994, Fairbanks Morse acquired equipment and other
assets related to the Alco engine business from General Electric Transportation
Systems ("GE Transportation"). Fairbanks Morse manufactures and sells engines
and aftermarket parts for Alco diesel engines used in power plants and marine
markets. While GE Transportation has retained the rights to sell and market Alco
engines and aftermarket parts for its locomotive markets, Fairbanks Morse has
been issued a preferred supplier contract to manufacture these engines and parts
for General Electric's locomotive needs. In 1995, Fairbanks Morse is scheduled
to deliver the first of its Alco locomotive engines to the Pakistan Railway.
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AUTOMOTIVE
Coltec's Automotive segment manufactures and markets a selected line of high
value-added products, including fuel injection system assemblies and components,
transmission controls, suspension controls, emission control air pumps, oil
pumps and seals for original equipment manufacturers and the replacement parts
market. The operating units, principal products and principal markets of the
Automotive segment are as follows:
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OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS
- ----------------------------- ----------------------------- -----------------------------
<S> <C> <C>
Holley Automotive Engine induction system Automotive manufacturers
components, transmission
controls, electronic
actuators and suspension
controls
Coltec Automotive Air pumps and oil pumps Automotive manufacturers
Holley Performance Products New, replacement, Automotive manufacturers,
remanufactured and wholesale distributors and
performance carburetors, and retailers in replacement
electronic fuel injection markets
components
Farnam Sealing Systems Gaskets and seals Automotive industry
Stemco Truck Products Oil seals, exhaust systems Fleet truck operators, truck
and hubodometers parts distributors
Performance Friction Products Transmission synchronizers Automotive and truck
manufacturers
</TABLE>
Coltec's principal automotive products have strong brand name recognition.
Coltec has targeted the development of highly-engineered components for fuel
injection systems, modulators and electronic solenoid actuators, transmission
controls, suspension controls and air and oil pumps. By forming close,
interactive relationships with the domestic automotive manufacturers, Coltec has
taken advantage of a shift by these manufacturers from internal sourcing to
procurement of components from outside suppliers.
AUTOMOTIVE PRODUCTS
Coltec, through its Holley Automotive Division, designs and manufactures
engine induction components and systems, electrohydraulic control devices for
transmissions, suspensions and steering systems, transmission modulators and
other automotive products used in passenger cars and trucks. Holley has been
recognized for its engineering excellence and has strategically changed its
structure and product line to accommodate the evolving automotive market. These
products are sold directly to original equipment manufacturers, Chrysler
Corporation ("Chrysler"), Ford Motor Company ("Ford") and General Motors.
Holley currently produces all of the multi-point throttle bodies used on
Chrysler-imported 3.0 liter engines and the Chrysler-manufactured 3.3 liter
engines. These six-cylinder engines propel vehicles including Chrysler Voyager
and Dodge Caravan minivans. Holley also is the sole source of the upper intake
module assembly for the Chrysler LH mid-size sedans (the Chrysler
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Concorde, New Yorker and LHS, Dodge Intrepid and Eagle Vision) equipped with the
3.5 liter engine. Holley supplies the throttle body assemblies for the newly
introduced four-cylinder 2.4 liter and six-cylinder 2.5 liter Chrysler Stratus
and Dodge Cirrus.
In the non-fuel area, significant business has been obtained as a result of
Holley's development of modulators and electronic solenoid actuators. Holley
currently supplies high volumes of aneroid and non-aneroid modulators to the
General Motors Powertrain Division. Applications in the transmission controls
area include Saturn vehicles equipped with automatic transmission, Ford Mondeo,
Contour and Mercury Mystique and General Motors Cadillac, Aurora, light trucks
and front-wheel drive passenger cars.
In 1994 Holley provided its first suspension solenoids for Sachs Automotive
of America and Firestone Industrial Products, suppliers of an adaptive
suspension system for Ford's Lincoln Continental vehicles. Late in the 1995
model year, Holley will also be supplying a suspension solenoid to Fichtel &
Sachs in Europe. This will be Holley's first penetration of the European market
for OEM suspension solenoids.
Coltec, through its Coltec Automotive Division, produces a mechanical air
pump that supplies additional air to the exhaust system which enhances the
oxidation process and reduces pollutants emitted into the atmosphere. This pump
currently is used mainly in truck and van applications, and to a lesser extent
in passenger car lines as part of an emission control system designed to meet
federal "clean air" regulations. Applications for this product line have been
declining since the mid-1980's as automotive manufacturers have improved fuel
delivery systems to give cleaner engine burn. Coltec Automotive is the sole
independent domestic supplier of automotive mechanical air pumps. Major
customers are Ford, Chrysler and General Motors. Coltec Automotive has also
developed an advanced electric air pump designed to cope with increasingly
stringent emission standards. This pump has been designated by Ford for use with
the new 4.6 liter modular engine in the 1995 model year Lincoln Continental.
Additional applications beginning with the 1996 model include the Lincoln Town
Car, Lincoln Mark VIII, Ford Mustang, Ford Taurus and Mercury Sable.
Coltec Automotive has also developed a line of engine oil pumps for use in
many of Ford's cars and light trucks. Applications have expanded to the modular
V-8, Zetec and Duratec V-6 engines being introduced for the 1995 model year.
Coltec, through Holley Performance Products, manufactures and markets fuel
injection components and other fuel metering devices and controls such as intake
manifolds, electric fuel pumps, emission control devices, and engine and road
speed governors, new and remanufactured automotive and marine carburetors,
remanufactured automotive air conditioning units, carburetor parts and repair
kits, mechanical fuel pumps, valve covers and related engine components under
the Holley name. Holley carburetors and components are used in domestic and
foreign vehicles and marine engines and are sold directly to OEM's, principally
Chrysler, Ford, General Motors and Outboard Marine Corporation, and, through
distributors and mass merchandisers to the parts and replacement market.
In the domestic market, these Divisions compete principally with Ford,
General Motors and several independent manufacturers. To date, Coltec has not
been a significant supplier to foreign vehicle manufacturers.
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TRUCK PRODUCTS AND SEALING SYSTEMS
Coltec, through its Stemco Inc subsidiary operating as the Stemco Truck
Products Division ("Stemco"), is one of the leading domestic manufacturers of
wheel lubrication systems for heavy-duty trucks. Stemco also produces mileage
recording devices (hubodometers) and exhaust systems for the heavy-duty truck,
medium-duty truck and school bus markets and manufactures moisture ejectors and
other related products for vehicle and stationary air systems. Approximately 80%
of Stemco revenues are derived from replacement parts. Stemco, through its
Performance Friction Products Operation, manufactures a line of fluorocarbon
friction materials, a line of carbon-based friction materials and synchronizers
and clutch plates for transmissions, transfer cases and wet brakes for use in
trucks, off highway equipment and passenger cars. Coltec, through its Farnam
Sealing Systems Division, manufactures and markets automotive and industrial
gaskets, seals and other sealing system products for engines, fuel systems and
transmissions. Stemco's truck products and Coltec's sealing systems include
highly-engineered proprietary products.
INDUSTRIAL
In the Industrial segment, Coltec, through its Garlock Inc subsidiary
("Garlock"), is a leading manufacturer of industrial seals, gaskets, packing
products and self-lubricating bearings and, through its Delavan-Delta, Inc.
subsidiary, is a producer of technologically advanced spray nozzles for
agricultural, home heating and industrial applications. Coltec also produces air
compressors for manufacturers. The operating units, principal products and
principal markets of the Industrial segment are as follows:
<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS
- ---------------------------------- ---------------------------------- ----------------------------------
<S> <C> <C>
Garlock Mechanical Packing Seals, gaskets, packings and Chemical, pulp and paper,
expansion joints utilities and industrial
manufacturers
Garlock Valves & Industrial Valves, PTFE sheet and tape Chemical and industrial
Plastics manufacturers
France Compressor Products Compressor valves and seals Compressor manufacturers and users
Garlock Bearings Self-lubricating metal-backed Industrial and automotive
bearings and materials manufacturers
Delavan Commercial Products Industrial, agricultural, and Agricultural operations, oil
heating unit spray nozzles burner manufacturers and
replacement market
Ortman Fluid Power Hydraulic and pneumatic cylinders Industrial manufacturers
Haber and Sterling Cold-forming dies and Fastener and automotive
thread-rolling dies manufacturers
FMD Electronics Electronic ignition systems and Industrial manufacturers
level control instruments
Quincy Compressor Helical screw and reciprocating Manufacturing and oil and gas
air compressors industries
</TABLE>
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Coltec's Industrial segment manufactures and markets a wide range of
products for use in various industries. In this segment, Coltec's strategy has
involved developing high quality products, capitalizing on brand name
recognition, targeting specific, well-defined markets and building good
distribution systems.
In January 1994, Coltec sold its Central Moloney Transformer Division.
SEALS, PACKINGS AND GASKETING MATERIAL
Coltec, through its Garlock Inc subsidiary ("Garlock"), is a leading
manufacturer of industrial seals, gasketing material and gasket assemblies and
packing products. Through its France Compressor Products Division of Garlock
("France"), Coltec manufactures and markets rod packings, piston rings, valves
and components for reciprocating gas and air compressors used primarily in the
hydrocarbon processing industry. These products withstand high temperature,
corrosive environments, prevent leakage and exclude contaminants from rotating
and reciprocating machinery and seal joints.
Manufacturing processes involve plastics, rubbers, metals, textiles,
chemicals, aramid fibers, carbon fibers, or a combination of the same. Garlock
has been a leader in using advanced technology to develop new products,
including its GYLON line of products, and in converting to asbestos-free
products. Approximately 95% of the gasketing and packing materials currently
manufactured by Garlock worldwide are asbestos-free. Because the raw materials
for Garlock's products are widely available, the seals, gasketing materials and
packings business of Garlock is not dependent on a limited number of suppliers.
Garlock's seals, gasketing material and packings are marketed through sales
personnel, sales representatives, agents and distributors to numerous industrial
customers involved principally in the petroleum, steel, chemical, food
processing, power generation and pulp and paper industries.
Most seals, gasketing material and packings wear out during the life of the
product in which they are incorporated. Accordingly, the service and replacement
market for these products is significant. In 1994, the service and replacement
market accounted for approximately 80% of Garlock's sales of seals, gasketing
material and packings.
Manufacturers in this market compete on the basis of price and aftermarket
services. Garlock's extensive distribution network, and its leadership in
product development, have contributed to the establishment of what Coltec
believes to be its leading position in the market for seals, gasketing products
and packings. France believes it is a leading supplier of premium components in
the aftermarket, where it competes primarily with C. Lee Cook and Cook Manley,
subsidiaries of Dover Corporation, and Hoerbinger Corporation of America Inc.
BEARINGS, VALVES, PLASTICS, NOZZLES, CYLINDERS,
FORMING TOOLS, IGNITION SYSTEMS AND LEVEL CONTROLS
Coltec, through its 80% owned subsidiary Garlock Bearings Inc, is a leading
manufacturer of steel-backed and fiberglass-backed self-lubricating bearings and
bearing materials primarily for the automotive, truck, agricultural and
construction markets. Garlock also manufactures polytetrafluoroethylene ("PTFE")
lined butterfly and plug valves and components and PTFE tapes.
Coltec, through its Delavan-Delta, Inc. subsidiary operating as the Delavan
Commercial Products Division, manufactures and markets spray nozzles and
accessories for the agricultural,
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industrial and home heating markets. These products are sold to OEM's,
distributors and other end-users throughout the world. Coltec believes that
Delavan Commercial Products Division is one of the leading manufacturers of
spray nozzles for residential oil-fired burners.
Coltec, through Garlock's Ortman Fluid Power operation, manufactures
hydraulic and pneumatic cylinders in bore diameter sizes from 1 1/2 to 24
inches. Coltec, under the Sterling and Haber names, manufactures and markets a
wide variety of metal cutting and metal forming tools. Sales of these products
are primarily made directly to consumers. Competition for such products is
provided by numerous companies.
Coltec, through its FMD Electronics Operation, manufactures magnetos,
ignition systems and level control instruments. These products are sold to OEM's
and through factory and regional sales forces to various accounts for resale.
AIR COMPRESSORS
Coltec, through its Quincy Compressor Division ("Quincy"), manufactures and
markets reciprocating and helical screw air compressors and vacuum pumps.
Helical screw air compressors are manufactured and sold under a non-exclusive
license and technical assistance agreement with Svenska Rotor Maskiner
Aktiebolag, a Swedish licensor.
Reciprocating and helical screw air compressors have a wide range of
industrial applications, providing compressed air for general plant services,
pneumatic climate and instrument control, dry-type sprinkler systems, air loom
weaving, paint spray processes, diesel and gas engine starting, pressurization,
pneumatic tools and other air-actuated equipment. Engine-driven skid-mounted
models of helical screw air compressors are used in energy related services,
such as air-assisted deep-hole drilling, both on offshore drilling platforms and
in tertiary recovery schemes involving on-site combustion approaches. Quincy air
compressors are marketed through a well-developed distribution network
consisting of field sales personnel and distributors to OEM's located in major
industrial centers throughout the United States, Canada, Mexico and the Pacific
Rim.
In the domestic market for small, industrial, reciprocating air compressors,
management believes that Ingersoll-Rand is the major competitor, with Champion
Pneumatic Machinery Co., Inc. and the Campbell-Hausfeld division of Scott Fetzer
as other competitors. In the domestic market for helical screw air compressors,
management believes that Ingersoll-Rand and Sullair are the dominant
competitors, with Gardner-Denver Division of Cooper Industries, Inc. and Atlas
Copco Corporation as other competitors.
INTERNATIONAL OPERATIONS
Coltec's international operations, mainly in Canada, are conducted through
foreign-based manufacturing or sales subsidiaries, or both, and by export sales
of domestic divisions to unrelated foreign customers. Export sales of products
of the Automotive segment and diesel engines are made either directly or through
foreign representatives. Compressors are sold through foreign distributors.
Certain products of the Industrial segment are sold in foreign countries through
salesmen and sales representatives or sales agents.
Coltec's manufacturing and marketing activities in Canada are carried on
through subsidiaries. Menasco Aerospace Ltd., an indirect wholly owned
subsidiary of Coltec, manufactures landing gear systems and aircraft flight
controls and, through its Menasco Aviation Services Ltd. subsidiary, provides
overhaul service for Canadian and other customers. Walbar Canada Inc., a wholly
owned subsidiary of Walbar, manufactures jet engine compressor blades, vanes and
turbine components in Canada. Garlock of Canada Ltd., a wholly owned subsidiary
of Garlock,
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manufactures and markets seals, gasketing material, packings and truck products.
It also markets parts for Fairbanks Morse diesel engines and accessories as well
as other products for use in Canada and for export to other countries.
Through wholly owned or majority controlled foreign subsidiaries, Coltec
operates 16 plants in Canada, Mexico, France, the United Kingdom, Australia and
Germany. In addition, Coltec occupies leased office and warehouse space in
various foreign countries.
Devaluations or fluctuations relative to the United States dollar in the
exchange rates of the currency of any country where Coltec has foreign
operations could adversely affect the profitability of such operations in the
future.
For financial information on operations by geographic segments, see Note 11
of the Notes to Financial Statements of Coltec's 1994 Annual Report to its
shareholders incorporated herein by reference.
Coltec's contracts with foreign nations for delivery of military equipment,
including components, are subject to deferral or cancellation by United States
Government regulation or orders regulating sales of military equipment abroad.
Any such action on the part of the United States Government could have an
adverse effect on Coltec.
SALES TO THE MILITARY AND BY CLASS OF PRODUCTS
Sales to the military and other branches of the United States Government,
primarily in the Aerospace/Government segment, were 11%, 14% and 15% of total
Coltec sales in 1994, 1993 and 1992, respectively. During the last three fiscal
years, landing gear systems was the only class of similar products that
accounted for at least 10% of total Coltec sales. In 1994, 1993 and 1992, sales
of landing gear systems constituted 11%, 11% and 12%, respectively, of total
Coltec sales.
BACKLOG
At December 31, 1994, Coltec's backlog of firm unfilled orders was $668.8
million compared with $669.7 million at December 31, 1993. Of the $668.8 million
backlog at December 31, 1994, approximately $250.8 million is scheduled to be
shipped after 1995.
CONTRACT RISKS
Coltec, through its various operating units, primarily Menasco, Chandler
Evans, Walbar and Delavan Gas Turbine Products, produces products for
manufacturers of commercial aircraft pursuant to contracts that generally call
for deliveries at predetermined prices over varying periods of time and that
provide for termination payments intended to compensate for certain costs
incurred in the event of cancellation. In addition, certain commercial aviation
contracts contain provisions for termination for convenience similar to those
contained in United States Government contracts described below. Longer-term
agreements normally provide for price adjustments intended to compensate for
deferral of delivery depending upon market conditions.
A significant portion of the business of Coltec's Menasco, Chandler Evans,
Walbar and Delavan Gas Turbine Products divisions has been as a subcontractor
and as a prime contractor in supplying products in connection with military
programs. Substantially all of Coltec's government contracts are firm
fixed-price contracts. Under firm fixed-price contracts, Coltec agrees to
perform certain work for a fixed price and, accordingly, realizes all the
benefit or detriment occasioned by decreased or increased costs of performing
the contracts. From time to time, Coltec accepts fixed-price contracts for
products that have not been previously developed. In such cases, Coltec is
subject to the risk of delays and cost over-runs. Under United States Government
regulations, certain costs, including certain financing costs, portions of
research and development costs, and certain marketing expenses related to the
preparation of competitive bids and
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proposals, are not allowable. The Government also regulates the methods under
which costs are allocated to Government contracts. With respect to Government
contracts that are obtained pursuant to an open bid process and therefore result
in a firm fixed price, the Government has no right to renegotiate any profits
earned thereunder. In Government contracts where the price is negotiated at a
fixed price rather than on a cost-plus basis, as long as the financial and
pricing information supplied to the Government is current, accurate and
complete, the Government similarly has no right to renegotiate any profits
earned thereunder. If the Government later conducts an audit of the contractor
and determines that such data were inaccurate or incomplete and that the
contractor thereby made an excessive profit, the Government may take action to
recoup the amount of such excessive profit, plus treble damages, and take other
enforcement actions.
United States Government contracts are, by their terms, subject to
termination by the Government either for its convenience or for default of the
contractor. Fixed-price-type contracts provide for payment upon termination for
items delivered to and accepted by the Government, and, if the termination is
for convenience, for payment of the contractor's costs incurred plus the costs
of settling and paying claims by terminated subcontractors, other settlement
expenses, and a reasonable profit on its costs incurred. However, if a contract
termination is for default, (a) the contractor is paid such amount as may be
agreed upon for completed and partially-completed products and services accepted
by the Government, (b) the Government is not liable for the contractor's costs
with respect to unaccepted items, and is entitled for repayment of advance
payments and progress payments, if any, related to the terminated portions of
the contracts, and (c) the contractor may be liable for excess costs incurred by
the Government in procuring undelivered items from another source.
In addition to the right of the Government to terminate, Government
contracts are conditioned upon the continuing availability of Congressional
appropriations. Congress usually appropriates funds on a fiscal-year basis even
though contract performance may take many years. Consequently, at the outset of
a major program, the contract is usually partially funded, and additional monies
are normally committed to the contract by the procuring agency only as
appropriations are made by Congress for future fiscal years.
A substantial portion of Coltec's automotive products are sold pursuant to
the terms and conditions (including termination for convenience provisions) of
the major domestic automotive manufacturers' purchase orders, and deliveries are
subject to periodic authorizations which are based upon the production schedules
of such automotive manufacturers.
RESEARCH AND PATENTS
Most divisions of Coltec maintain staffs of manufacturing and product
engineers whose activities are directed at improving the products and processes
of Coltec's operations. Manufactured and development products are subject to
extensive tests at various divisional plants. Total research and development
cost, including product development, was $23.8 million for 1994, $22.1 million
for 1993 and $22.9 million for 1992. Coltec presently has approximately 370
employees engaged in research, development and engineering activities.
Coltec owns a number of United States and other patents and trademarks and
has granted licenses under some of such trademarks. Management does not consider
the business of Coltec as a whole to be materially dependent upon any patent,
patent right or trademark.
EMPLOYEE RELATIONS
As of December 31, 1994, Coltec had approximately 9,800 employees, of whom
approximately 4,000 were salaried. Approximately 40% of the hourly employees are
represented by
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unions for collective bargaining purposes. Union agreements relate, among other
things, to wages, hours and conditions of employment, and the wages and benefits
furnished are generally comparable to industry and area practices.
Four collective bargaining agreements covering approximately 450 hourly
employees which expired in 1994 have been renegotiated. In 1995, one collective
bargaining agreement covering approximately 170 hourly employees is due to
expire. Coltec considers the labor relations of Coltec to be satisfactory,
although Coltec does experience work stoppages from time to time.
Coltec is subject to extensive Government regulations with respect to many
aspects of its employee relations, including increasingly important occupational
health and safety and equal employment opportunity matters. Failure to comply
with certain of these requirements could result in ineligibility to receive
Government contracts. These conditions are common to the various industries in
which Coltec participates and entail the risk of financial and other exposure.
For litigation relating to labor and other matters, see Item 3. "Legal
Proceedings.--Other Litigation."
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EXECUTIVE OFFICERS OF THE REGISTRANT
Because the Proxy Statement for Coltec's Annual Meeting of Shareholders will
not contain information with respect to all executive officers of Coltec, set
forth below is the information with respect to the executive officers of Coltec
required by Item 401 of Regulation S-K. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with
Coltec.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
EMPLOYMENT/MATERIAL POSITIONS HELD
NAME AND AGE DURING PAST FIVE YEARS
- ---------------------------- ------------------------------------------------------------------------------
<S> <C>
John M. Cybulski (58) Senior Vice President, Aerospace since May 1991. Group President from prior to
1990 to May 1991. President of Menasco Aerospace Ltd. from prior to 1990 to
June 1991.
Richard L. Dashnaw (58) Senior Vice President, Group Operations and President of the Fairbanks Morse
Engine Division since January 1994. Group President and President of the
Fairbanks Morse Engine Division from February 1991 to December 1993. President
of the Fairbanks Morse Engine Division from prior to 1990 to February 1991.
Anthony J. diBuono (64) Executive Vice President, Chief Legal Officer and Secretary since January
1994. Senior Vice President, General Counsel and Secretary from prior to 1990
to January 1994.
John W. Guffey, Jr. (57) Chairman of the Board of Directors, Chief Executive Officer and President
since February 1995. President and Chief Operating Officer from May 1991 to
January 1995. President of the Mechanical Packing Division of Garlock Inc from
prior to 1990 to May 1991. Group President from prior to 1990 to May 1991.
Laurence H. Polsky (51) Executive Viec President, Administration since January 1994. Senior Vice
President, Administration from April 1992 to December 1993. Vice President,
Personnel for Cooper Industries, Inc., a diversified manufacturing company,
from prior to 1990 to April 1992.
Paul G. Schoen (50) Executive Vice President, Finance; Treasurer and Chief Financial Officer since
January 1994. Senior Vice President, Finance; Treasurer and Chief Financial
Officer from May 1991 to December 1993. Senior Vice President and Controller
from January 1991 to May 1991. Vice President, Accounting from prior to 1990
to December 1990.
Robert J. Tubbs (47) Senior Vice President and General Counsel since March 1995. General
Counsel--Operations of Olin Corporation ("Olin"), a chemical and metals
manufacturing company, from May 1993 to February 1995. Deputy General Counsel
of Olin from prior to 1990 to May 1993.
</TABLE>
All officers serve at the pleasure of the Board. None of the executive
officers or directors of Coltec is related to any other executive officer or
director by blood, marriage or adoption.
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ITEM 2. PROPERTIES.
Coltec operates 59 manufacturing plants in 21 states and in Canada, Mexico,
France, the United Kingdom, Australia and Germany. In addition, Coltec has other
facilities throughout the United States and in various foreign countries, which
include sales offices, repair and service shops, light manufacturing and
assembly facilities, administrative offices and warehouses.
Certain information with respect to Coltec's principal manufacturing plants
that are owned in fee, all of which (other than Palmyra, New York) are
encumbered pursuant to the 1994 Credit Agreement between Coltec and certain
banks and related security documents, is set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF APPROXIMATE
SEGMENT LOCATION SQUARE FEET ACREAGE
- --------------- ----------------------------------- ------------ ---------------
<S> <C> <C> <C>
Aerospace/ West Hartford, Connecticut(a) 1,200,000 111
Government Beloit, Wisconsin 856,000 73
Ft. Worth, Texas 394,000 43
Oakville, Ontario 239,000 14
Mississauga, Ontario 141,000 7
Automotive Bowling Green, Kentucky 480,000 60
Longview, Texas 265,000 52
Sallisaw, Oklahoma 220,000 53
Industrial Palmyra, New York 691,000 139
<FN>
- ---------
(a) Approximately 238,000 square feet are utilized by the Aerospace/Government
segment with the balance leased, available for lease or available for sale.
</TABLE>
In addition to above facilities, certain manufacturing activities of some
industry segments are conducted within leased premises, the largest of which is
approximately 173,000 square feet. The Automotive segment has significant
manufacturing facilities on leased premises in Water Valley, Mississippi and
Longview, Texas. The Industrial segment has leased facilities located in Quincy,
Illinois. Some of these leases provide for options to purchase or to renew the
lease with respect to the leased premises.
Coltec's total manufacturing facilities presently being utilized aggregate
approximately 6,100,000 square feet of floor area of which approximately
5,300,000 square feet of area are owned in fee and the balance is leased.
Coltec leases approximately 39,000 square feet at 430 Park Avenue, New York,
New York, for its executive offices, and has renewal options under such lease
through 2001.
In the opinion of management, Coltec's 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 Regulations" for a description of proceedings under applicable
environmental laws regarding certain of Coltec's properties.
ITEM 3. LEGAL PROCEEDINGS.
ASBESTOS LITIGATION
As of December 31, 1994 and 1993, two subsidiaries of Coltec were among a
number of defendants (typically 15 to 40) in approximately 76,700 and 68,500
actions, respectively, (including approximately 3,300 and 6,100 actions,
respectively, in advanced stages of processing) filed in various states by
plaintiffs alleging injury or death as a result of asbestos fibers. Through
December 31, 1994, approximately 110,200 of the approximately 186,900 total
actions brought have been settled or otherwise disposed.
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The damages claimed for personal injury or death vary from case to case and
in many cases plaintiffs seek $1 million or more in compensatory damages and $2
million or more in punitive damages. Although the law in each state differs to
some extent, it appears, based on advice of counsel, that liability for
compensatory damages would be shared among all responsible defendants, thus
limiting the potential monetary impact of such judgments on any individual
defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither Coltec nor any of its subsidiaries were parties, that held insurance
carriers are obligated to cover asbestos-related bodily injury actions if any
injury or disease process, from first exposure through manifestation, occurred
during a covered policy period (the "continuous trigger theory of coverage"),
Coltec settled litigation with its primary and most of its first-level excess
insurance carriers, substantially on the basis of the Court's ruling. Coltec is
currently negotiating with its remaining excess carriers to determine, on behalf
of its subsidiaries, how payments will be made with respect to such insurance
coverage for asbestos claims. Coltec is currently receiving payments pursuant to
an interim agreement with certain of its excess carriers. Coltec believes that a
final agreement can be achieved without litigation, and on substantially the
same basis that it has resolved the issues with its primary and first-level
carriers.
Settlements are generally made on a group basis with payments made to
individual claimants over periods of one to four years. During 1994 and 1993,
two subsidiaries of Coltec received approximately 29,800 and 27,400 new actions,
respectively, with a comparable number of actions received in 1992. Payments
were made with respect to asbestos liability and related costs aggregating $46.4
million in 1994, $38.7 million in 1993 and $39.8 million in 1992, substantially
all of which were covered by insurance. In accordance with Coltec's internal
procedures for the processing of asbestos product liability actions and due to
the proximity to trial or settlement, certain outstanding actions have
progressed to a stage where Coltec can reasonably estimate the cost to dispose
of these actions. As of December 31, 1994, Coltec estimates that the aggregate
remaining cost of the disposition of the settled actions for which payments
remain to be made and actions in advanced stages of processing, including
associated legal costs, is approximately $42.3 million and Coltec expects that
this cost will be substantially covered by insurance.
With respect to the 73,400 outstanding actions as of December 31, 1994 which
are in preliminary procedural stages, Coltec lacks sufficient information upon
which judgments can be made as to the validity or ultimate disposition of such
actions, thereby making it difficult to estimate with reasonable certainty the
potential liability or costs to Coltec. When asbestos actions are received they
are typically forwarded to local counsel to ensure that the appropriate
preliminary procedural response is taken. The complaints typically do not
contain sufficient information to permit a reasonable evaluation as to their
merits at the time of receipt, and in jurisdictions encompassing a majority of
the outstanding actions, the practice has been that little or no discovery or
other action is taken until several months prior to the date set for trial.
Accordingly, Coltec generally does not have the information necessary to analyze
the actions in sufficient detail to estimate the ultimate liability or costs to
Coltec, if any, until the actions appear on a trial calendar. A determination to
seek dismissal, to attempt to settle or to proceed to trial is typically not
made prior to the receipt of such information.
It is also difficult to predict the number of asbestos lawsuits that
Coltec's subsidiaries will receive in the future. Coltec has noted that, with
respect to recently settled actions or actions in advanced stages of processing,
the mix of the injuries alleged and the mix of the occupations of the plaintiffs
have been changing from those traditionally associated with Coltec's asbestos-
related actions. Coltec is not able to determine with reasonable certainty
whether this trend will
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continue. Based upon the foregoing, and due to the unique factors inherent in
each of the actions, including the nature of the disease, the occupation of the
plaintiff, the presence or absence of other possible causes of a plaintiff's
illness, the availability of legal defenses, such as the statute of limitations
or state of the art, and whether the lawsuit is an individual one or part of a
group, management is unable to estimate with reasonable certainty the cost of
disposing of outstanding actions in preliminary procedural stages or of actions
that may be filed in the future. However, Coltec believes that its subsidiaries
are in a favorable position compared to many other defendants because, among
other things, the asbestos fibers in its asbestos-containing products were
encapsulated. Considering the foregoing, as well as the experience of Coltec's
subsidiaries and other defendants in asbestos litigation, the likely sharing of
judgments among multiple responsible defendants, and the significant amount of
insurance coverage that Coltec expects to be available from its solvent
carriers, Coltec believes that pending and reasonably anticipated future actions
are not likely to have a material effect on Coltec's results of operations and
financial condition.
Although the insurance coverage which Coltec has is substantial, it should
be noted that insurance coverage for asbestos claims is not available to cover
exposures initially occurring on and after July 1, 1984. Coltec's subsidiaries
continue to be named as defendants in new cases, some of which allege initial
exposure after July 1, 1984.
In addition to claims for personal injury, Coltec's subsidiaries were among
40 or more defendants in 34 cases involving property damage claims based upon
asbestos-containing materials found in schools, public facilities and private
commercial buildings. The subsidiaries have been dismissed without payment in 31
of these cases. One school case was settled for an amount that is not material
and two cases remain unresolved as against one subsidiary only. However, based
upon the proceedings to date in these cases, it appears that the subsidiary has
no liability in those two cases.
ENVIRONMENTAL REGULATIONS
Coltec and its subsidiaries are subject to numerous federal, state and local
environmental laws, many of which are becoming increasingly stringent, giving
rise to increased compliance costs. For example, the Clean Air Amendments will
regulate emissions at certain of Coltec's facilities that were previously
unregulated. Most significantly, certain existing and many newly constructed or
modified facilities will be required to obtain air emission permits that were
not previously required. Although many of the standards under the Clean Air
Amendments have not yet been promulgated, Coltec has made a preliminary
determination of their impact on its operations. Based upon this determination,
Coltec believes that it will not be at a competitive disadvantage in complying
with the Clean Air Amendments and that any costs to comply with the Clean Air
Amendments will not have a material effect on Coltec's results of operations and
financial condition.
Coltec and its subsidiaries are also subject to the federal Resource
Conservation and Recovery Act of 1976 ("RCRA"), and its analogous state
statutes. Although the costs under RCRA for the treatment, storage and disposal
of hazardous materials generated at Coltec's facilities are increasing, Coltec
does not believe that such costs will have a material effect on Coltec's results
of operations and financial condition.
Coltec has been notified that it is among the Potentially Responsible
Parties ("PRPs") under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or similar state
laws, for the costs of investigating and in some cases remediating contamination
by hazardous materials at several sites. CERCLA imposes joint and
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several liability for the costs of investigating and remediating properties
contaminated by hazardous materials. Liability for these costs can be imposed on
present and former owners or operators of the properties or on parties who
generated the wastes that contributed to the contamination. The process of
investigating and remediating contaminated properties can be lengthy and
expensive. The process is also subject to the uncertainties occasioned by
changing legal requirements, developing technological applications and liability
allocations among PRPs. Among the sites where Coltec or its subsidiaries have
been designated a PRP are: Clare Municipal Well Fields, Clare, Michigan; Quincy
Municipal Landfills #2 and #3, Quincy, Illinois; Byron Barrel and Drum, Byron,
New York; Operating Industries, Inc., Monterey Park, California; San Fernando
Valley Site, Glendale, California; and Hardage Landfill, Criner, Oklahoma.
Coltec is also working with various state authorities to investigate and
remediate certain properties that are or were the site of Coltec's operations.
Among such sites are the following: Holley Automotive property, Water Valley,
Mississippi; Fairbanks Morse Engine property, Beloit, Wisconsin; Walbar Inc
property, Peabody, Massachusetts; former Precision Seals property, Gastonia,
North Carolina; and former Central Moloney properties in Arcadia, Florida, and
Pine Bluff, Arkansas. Based on the progress to date in the investigation,
cleanup and allocation of responsibility for these sites, Coltec has estimated
that its costs in connection with all except one of these sites approximates
$20.0 million at December 31, 1994, and has accrued for this amount in the
Consolidated Balance Sheet as of December 31, 1994. Although Coltec is pursuing
insurance recovery in connection with certain of these matters, Coltec has not
recorded a receivable with respect to any potential recovery of costs in
connection with any environmental matter. While progress toward the
investigation, cleanup and responsibility allocation at the Liberty Industrial
Finishing site, Farmingdale, New York has not been sufficient to allow Coltec at
this time to determine the extent of its potential financial responsibility at
this site, Coltec does not believe that its costs in connection with Liberty
Industrial Finishing will have a material effect on Coltec's results of
operations and financial condition.
OTHER LITIGATION
In September 1983, the local employees' union at Menasco Canada Ltee. (now
Menasco Aerospace Ltd.) ("Menasco Canada"), a federation of trade unions and
several member-employees filed a complaint in the Province of Quebec Superior
Court against Menasco Canada, alleging, among other things, an illegal lock-out,
failure to negotiate in good faith, interference with the affairs of the union
and various violations of local law. The plaintiffs are collectively seeking
approximately Cdn. $14.0 million in damages, and Menasco Canada has filed a
cross-claim for Cdn. $21.0 million and has closed its operations in Quebec
Province. Coltec does not believe that this action will have a material effect
on Coltec's results of operations and financial condition.
On September 24, 1986, approximately 150 former salaried employees of
Crucible Inc (a former subsidiary of Coltec) commenced an action claiming
benefits under a plant shutdown plan that had been created in 1969 (George
Henglein v. Colt Industries Operating Corporation Informal Plan for Plant
Shutdown Benefits for Salaried Employees, U.S. District Court for the Western
District of Pennsylvania, 86-cv-02021). Future eligibility of any employee for
such Plan was eliminated by Crucible Inc in November 1972. Plaintiffs claim that
they did not receive notice of such termination and therefore were entitled to
benefits in 1982 when the Midland steel-making facility closed. Following a
non-jury trial in the U.S. District Court for the Western District of
Pennsylvania, defendant's motion to dismiss was granted and the plaintiffs
appealed. The Court of Appeals for the Third Circuit remanded the case to the
District Court directing it to make specific findings of fact and conclusions of
law and also found for the defendant on the jurisdiction of the District Court.
The defendants' motion to dismiss was granted by the District Court, appealed to
the Third Circuit Court of Appeals and remanded to the District Court for
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additional findings of fact. On February 10, 1994, the District Court dismissed
the plaintiffs' complaint and the plaintiffs appealed to the Third Circuit Court
of Appeals. On September 26, 1994, the Third Circuit Court of Appeals remanded
the case to the District Court and on November 4, 1994 denied the defendant's
request for a rehearing. Coltec has petitioned to the U.S. Supreme Court for a
writ of certiorari. Coltec does not believe that this action will have a
material effect on Coltec's results of operations and financial condition.
In an alleged class action filed in June 1984, a group of former salaried
employees whose employment had been terminated due to the closing of the Midland
steelmaking facility have asserted claims for damages in amounts equal to the
present value of the collective bargaining unit's pension plan, insurance and
unemployment benefits (Donald A. Nobers v. Crucible Inc, Court of Common Pleas
of Beaver County, Pennsylvania, Civil Action No. 843-1984). The case was
dismissed by the Common Pleas Court due to the preemptive provisions of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). The
Pennsylvania Superior Court reversed the lower court and held that the
plaintiffs' claim was based upon an alleged contract. The Pennsylvania Supreme
Court refused to hear the appeal and reinstated the case in the Court of Common
Pleas. On February 16, 1993, the Court of Common Pleas granted defendants'
motion for summary judgment concluding that it lacked jurisdiction of the
subject matter, which decision was affirmed by the Superior Court of
Pennsylvania. The plaintiffs' appeal to the Supreme Court of Pennsylvania was
denied on June 7, 1994. Plaintiffs' petition to the U.S. Supreme Court for a
writ of certiorari is being held in that court pending compliance with rules of
the U.S. Supreme Court. Coltec does not believe that this action will have a
material effect on Coltec's results of operations and financial condition.
In addition to the litigation described above, there are various pending
legal proceedings involving Coltec which are routine in nature and incidental to
the business of Coltec. Coltec does not believe that these proceedings will have
a material effect on Coltec's results of operations and financial condition.
The United States Government conducts investigations into procurement of
defense contracts as a part of a continuing process. Under current federal law,
if such investigations establish such improper activities, among other matters,
debarment or suspension of a company from participating in the procurement of
defense contracts could result. These conditions are common to the aerospace and
government industries in which Coltec participates and entail the risk of
financial and other exposure. Coltec is not aware of any such investigation, nor
is Coltec aware of any facts which, if known to investigators, might prompt any
investigation.
PRODUCT LIABILITY INSURANCE
Coltec has product liability insurance coverage for liabilities arising from
aircraft products which Coltec believes to be in adequate amounts. In addition,
with respect to other products, (exclusive of liability for exposure to asbestos
products) Coltec has product liability insurance in amounts exceeding $2.5
million per occurrence, which Coltec believes to be adequate.
Coltec has been self-insured with respect to liability for exposure to
asbestos products since third party insurance became unavailable in July 1984.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
20
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Coltec's Common Stock (symbol COT) is listed on the New York and Pacific
Stock Exchanges. The high and low prices of the stock for each quarter during
1994 and 1993, based on the Composite Tape, were as follows:
<TABLE>
<CAPTION>
1994 1993
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First quarter........................... 21 7/8 18 3/4 19 1/4 16 1/4
Second quarter.......................... 20 1/2 18 1/4 17 1/2 14 7/8
Third quarter........................... 19 7/8 18 1/8 18 15 1/4
Fourth quarter.......................... 19 16 19 3/8 16
</TABLE>
At December 31, 1994, there were 523 shareholders of record. No dividends
were paid in 1994 and 1993, and no dividends are expected to be paid in 1995.
ITEM 6. SELECTED FINANCIAL DATA.
The five year tabular presentation under the caption "Selected Financial
Data" of Coltec's 1994 Annual Report to its shareholders is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The information under the caption "Financial Review" of Coltec's 1994 Annual
Report to its shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The "Quarterly Sales and Earnings" information in Note 14 of the Notes to
Financial Statements of Coltec's 1994 Annual Report to its shareholders and the
Consolidated Balance Sheet, the Consolidated Statement of Earnings, the
Consolidated Statement of Cash Flows, the Consolidated Statement of
Shareholders' Equity, the Notes to Financial Statements, Report of Management
and the Report of Independent Public Accountants of Coltec's 1994 Annual Report
to its shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
21
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the caption "Election of Directors" in Coltec's Proxy
Statement for its 1995 Annual Meeting of Shareholders is herein incorporated by
reference. In respect of information as to Coltec's executive officers, see the
information under the caption "Executive Officers of the Registrant" under Item
1 of Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The text and tabular information under the caption "Executive Compensation
and Other Information" in Coltec's Proxy Statement for its 1995 Annual Meeting
of Shareholders is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Management" in Coltec's Proxy Statement for
its 1995 Annual Meeting of Shareholders is herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Compensation Committee Interlocks and
Insider Participation" in Coltec's Proxy Statement for its 1995 Annual Meeting
of Shareholders is herein incorporated by reference.
22
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
<TABLE>
<S> <C>
(1) Financial Statements (incorporated by reference from the 1994 Annual Report to
Shareholders):
Consolidated Balance Sheet at December 31, 1994 and 1993
Consolidated Statement of Earnings for the Three Years ended December 31, 1994
Consolidated Statement of Cash Flows for the Three Years ended December 31,
1994
Consolidated Statement of Shareholders' Equity for the Three Years Ended
December 31, 1994
Notes to Financial Statements
Report of Management
Report of Independent Public Accountants
(2) Financial Statement Schedules listed in the Index to Financial Statement
Schedules on page S-1 hereof.
(3) The exhibits required by Item 601 of Regulation S-K as listed in the
accompanying exhibit index commencing on page I-1 hereof.
</TABLE>
(b) No reports on Form 8-K were filed by Coltec during the last quarter of
the period ending December 31, 1994.
(c) Exhibits 3.2, 4.15, 10.9, 12.1, 13.1, 21.1, 23.1 and 27.1 are filed
herewith.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Coltec Industries Inc
(Registrant)
Date: March 15, 1995 By: ________/s/_PAUL G. SCHOEN_______
Paul G. Schoen
Executive Vice President Finance
and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities noted on March , 1995.
<TABLE>
<CAPTION>
NAME AND TITLE NAME AND TITLE
- ---------------------------------------------------- ----------------------------------------------------
<S> <C>
/s/ JOSEPH R. COPPOLA /s/ JOEL MOSES
----------------------------------------- -----------------------------------------
Joseph R. Coppola Joel Moses
Director Director
/s/ JOHN W. GUFFEY, JR. /s/ PAUL G. SCHOEN
----------------------------------------- -----------------------------------------
John W. Guffey, Jr. Paul G. Schoen
Director, Chairman of the Board, Director, Executive Vice
Chief Executive Officer Finance and Treasurer
and President (Principal Financial and Accounting Officer)
/s/ DAVID I. MARGOLIS /s/ RICHARD A. STUCKEY
----------------------------------------- -----------------------------------------
David I. Margolis Richard A. Stuckey
Director Director
/s/ J. BRADFORD MOONEY, JR.
-----------------------------------------
J. Bradford Mooney, Jr.
Director
</TABLE>
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
FINANCIAL STATEMENT SCHEDULES NUMBER
- ----------------------------------------------------- -----
<S> <C> <C> <C>
II -- Valuation and Qualifying Accounts for the
three years ended December 31, 1994...... S-2
</TABLE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF COLTEC INDUSTRIES INC:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Coltec Industries Inc and
subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 23, 1995. Our audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statement schedules is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
January 23, 1995
S-1
<PAGE>
SCHEDULE II
1994, 1993 AND 1992
COLTEC INDUSTRIES INC AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------
<CAPTION>
ADDITIONS
--------------------------
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) OF PERIOD
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994
Valuation accounts deducted from assets--
Allowance for doubtful accounts...... $ 4,170 $ 229 $ -- $ 275 $ 4,124
-------------------------------------------------------------------
-------------------------------------------------------------------
Reserve for potential losses from
excess and slow-moving
inventories........................ $ 18,086 $ 4,595 $ -- $ 7,105 $ 15,576
-------------------------------------------------------------------
-------------------------------------------------------------------
1993
Valuation accounts deducted from assets--
Allowance for doubtful accounts...... $ 4,614 $ 335 $ -- $ 779 $ 4,170
-------------------------------------------------------------------
-------------------------------------------------------------------
Reserve for potential losses from
excess and slow-moving
inventories........................ $ 16,789 $ 6,379 $ -- $ 5,082 $ 18,086
-------------------------------------------------------------------
-------------------------------------------------------------------
1992
Valuation accounts deducted from assets--
Allowance for doubtful accounts...... $ 4,624 $ 206 $ -- $ 216 $ 4,614
-------------------------------------------------------------------
-------------------------------------------------------------------
Reserve for potential losses from
excess and slow-moving
inventories........................ $ 16,569 $ 5,252 $ -- $ 5,032 $ 16,789
-------------------------------------------------------------------
-------------------------------------------------------------------
<FN>
- ---------
Notes:
(1) Deductions are for the purposes for which the valuation accounts were
created.
</TABLE>
S-2
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<C> <C> <S>
3.1 -- Amended and Restated Articles of Incorporation of Coltec, filed as Exhibit
3.1 to Coltec's Registration Statement on Form S-2 (No. 33-44846) (the "Form
S-2 Registration Statement") and incorporated herein by reference.
3.2 -- By-laws of Coltec.
4.1 -- Form of Senior Securities Indenture, dated as of December 1, 1985, between
Coltec and Mellon Bank, N.A., as Trustee, filed as Exhibit 4.1 to Coltec's
Registration Statement on Form S-3 (No. 33-1811) and incorporated herein by
reference.
4.2 -- Agreement of Resignation, Appointment and Acceptance, dated as of May 10,
1991, by and among Coltec, Mellon Bank, N.A. and The Bank of New York, filed
as Exhibit 4.3 to the Form S-2 Registration Statement and incorporated herein
by reference.
4.3 -- Specmien certificate for 11 1/4% Debentures Due December 1, 2015, filed as
Exhibit 4.14 to Coltec's Registration Statement on Form S-2 and S-3 (Nos.
33-8585 and 33-1811) the ("Form S-2/S-3 Registration Statement") and
incorporated herein by reference.
4.4 -- Supplemental Indenture, dated as of April 1, 1992, between Coltec and The
Bank of New York, as Trustee, relating to the Senior Securities Indenture,
dated as of December 1, 1985, between Coltec and Mellon Bank, N.A., as the
original Trustee, filed as Exhibit 6 to Coltec's Current Report on Form 8-K
dated April 1, 1992 (the "Form 8-K") and incorporated herein by reference.
4.5 -- Credit Agreement, dated as of March 24, 1992 (the "Credit Agreement") among
Coltec and the financial institutions party thereto, Bankers Trust Company,
Manufacturers Hanover Trust Company, Barclays Bank PLC, New York Branch and
Credit Lyonnais New York Branch, as Agents, and Bankers Trust Company, as
Administrative Agent, filed as Exhibit 4.13 to Coltec Holdings Inc.'s Annual
Report on Form 10-K for the fiscal year ended December 31, 1991 and
incorporated herein by reference.
4.6 -- First Amendment, dated as of April 1, 1992, to the Credit Agreement, dated as
of March 24, 1992, filed as Exhibit 3 to the Form 8-K and incorporated herein
by reference.
4.7 -- Second Amendment, dated as of April 8, 1992, to the Credit Agreement, filed
as Exhibit 4.7 to Coltec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference.
4.8 -- Third Amendment and Waiver, dated as of September 3, 1992, to the Credit
Agreement, filed as Exhibit 4.8 to Coltec's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein by reference.
4.9 -- Fourth Amendment and Consent, dated as of September 25, 1992, to the Credit
Agreement, filed as Exhibit 4.9 to Coltec's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein by reference.
4.10 -- Fifth Amendment, dated as of May 26, 1993, to the Credit Agreement, filed as
Exhibit 4.10 to Coltec's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
</TABLE>
I-1
<PAGE>
<TABLE>
<C> <C> <S>
4.11 -- Sixth Waiver, dated as of August 3, 1993, to the Credit Agreement, filed as
Exhibit 4.11 to Coltec's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
4.12 -- Seventh Consent, dated as of October 27, 1993, to the Credit Agreement, filed
as Exhibit 4.12 to Coltec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference.
4.13 -- Eighth Waiver, dated as of December 23, 1993, to the Credit Agreement, filed
as Exhibit 4.13 to Coltec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference.
4.14 -- Credit Agreement among Coltec, Various Banks, The Co- Agents and Bankers
Trust Company, as Administrative Agent dated as of March 24, 1992 and Amended
and Restated as of January 11, 1994 (the "Amended Credit Agreement"), filed
as Exhibit 4.14 to Coltec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference.
4.15 -- First Waiver dated as of December 15, 1994 to the Amended Credit Agreement.
4.16 -- Form of Indenture, dated as of October 26, 1992, between Coltec and United
States Trust Company of New York, as Trustee, relating to Coltec's 9 3/4%
Senior Notes Due 1999 (including the form of 9 3/4% Senior Note Due 1999),
filed as Exhibit 4.1 to Coltec's Registration Statement on Form S-3 (No.
33-52414) and incorporated herein by reference.
4.17 -- Indenture, dated as of April 1, 1992, between Coltec and United States Trust
Company of New York, as Trustee, relating to Coltec's 9 3/4% Senior Notes Due
2000 (including the form of 9 3/4% Senior Note Due 2000), filed as Exhibit 4
to the Form 8-K and incorporated herein by reference.
4.18 -- Indenture, dated as of April 1, 1992, between Coltec and Norwest Bank
Minnesota, National Association, as Trustee, relating to Coltec's 10 1/4%
Senior Subordinated Notes Due 2002 (including the form of 10 1/4% Senior
Subordinated Note Due 2002), filed as Exhibit 5 to the Form 8-K and
incorporated herein by reference.
Pursuant to paragraph (4)(iii) of Item 601(b) of Regulation S-K, there are
omitted certain agreements, which the registrant hereby agrees to furnish to
the Commission upon request.
</TABLE>
<TABLE>
<C> <C> <S>
10.1* -- Form of Family Protection Agreement used in connection with Coltec's Family
Protection Program, filed as Exhibit 3.5.1 to Coltec's Registration Statement
on Form 8-B, filed with the Securities and Exchange Commission on June 25,
1976 and incorporated herein by reference.
10.2* -- Benefits Equalization Plan of Coltec, filed as Exhibit 10.2 to Coltec's
Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and
incorporated herein by reference.
10.3* -- Amendment No. 1 to the Benefits Equalization Plan, filed as Exhibit 10.3 to
Coltec's Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.
10.4* -- Supplemental Retirement Savings Plan of Coltec, filed as Exhibit 10.3 to
Coltec's Annual Report on Form 10-K for the fiscal year ended December 31,
1988 and incorporated herein by reference.
</TABLE>
I-2
<PAGE>
<TABLE>
<C> <C> <S>
10.5* -- Coltec's 1977 Long-Term Performance Plan, filed as Exhibit 10.5 to the Form
S-2/S-3 Registration Statement and incorporated herein by reference.
10.6* -- Amendment to Coltec's 1977 Long-Term Performance Plan described in Proposal 2
of Coltec's Proxy Statement for its 1981 Annual Meeting of Shareholders,
filed as Exhibit 10.6 to the Form S-2/S-3 Registration Statement and
incorporated herein by reference.
10.7* -- Amendment No. 2 to Coltec's 1977 Long-Term Performance Plan, filed as Exhibit
10.7 to the Form S-2/S-3 Registration Statement and incorporated herein by
reference.
10.8* -- Form of Employment Agreements between Coltec and John W. Guffey, Jr., Paul G.
Schoen and Anthony J. diBuono, filed as Exhibit 10.13 to the Form S-2
Registration Statement and incorporated herein by reference.
10.9* -- Employment Agreement dated as of April 13, 1992 between Coltec and Laurence
H. Polsky.
10.10* -- Employment Letter Agreement, dated August 1, 1990, between Coltec and John M.
Cybulski, filed as Exhibit 10.14 to the Form S-2 Registration Statement and
incorporated herein by reference.
10.11* -- Resolutions adopted by the Board of Directors of Coltec on July 14, 1982
establishing a pension program for directors who are not otherwise entitled
to a pension from Coltec, filed as Exhibit 10.16 to the Form S-2/S-3
Registration Statement and incorporated herein by reference.
10.12* -- The Incentive Plan for Certain Employees of Coltec and Subsidiaries (the
"Incentive Plan"), filed as Exhibit 10.22 to the Form S-2 Registration
Statement and incorporated herein by reference.
10.13* -- Amendments to the Incentive Plan, filed as Exhibit 10.13 to Coltec's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.
10.14* -- Coltec's 1992 Stock Option and Incentive Plan, filed as Exhibit 10.24 to
Coltec's Annual Report on Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference.
10.15* -- Amendment No. 1 to the Coltec 1992 Stock Option and Incentive Plan, filed as
Exhibit 10.15 to Coltec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference.
10.16* -- 1994 Long-Term Incentive Plan of Coltec, filed as Exhibit 10.16 to Coltec's
Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.
10.17* -- Annual Incentive Plan For Certain Employees of Coltec Industries Inc and Its
Subsidiaries, filed as Exhibit 10.17 to Coltec's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993 and incorporated herein by
reference.
10.18 -- 1994 Stock Option Plan for Outside Directors, filed as Exhibit 10.18 to
Coltec's Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.
</TABLE>
I-3
<PAGE>
<TABLE>
<C> <C> <S>
12.1 -- Computation of Ratio of Earnings to Fixed Charges.
13.1 -- Portions of Coltec's 1994 Annual Report to Shareholders.
21.1 -- List of Subsidiaries of Coltec.
23.1 -- Consent of Arthur Andersen LLP.
27.1 -- Financial Data Schedule.
<FN>
- ---------
* These exhibits are management contracts or compensatory plans or arrangements
required to be filed as an exhibit to this Form 10-K pursuant to item 14(c) of
Form 10-K.
</TABLE>
I-4
<PAGE>
EXHIBIT 3.2
COLTEC INDUSTRIES INC
BY-LAWS
ARTICLE I
OFFICES
Section 1. REGISTERED OFFICE. The registered office of Coltec
Industries Inc (hereinafter called the "Corporation") in the Commonwealth of
Pennsylvania shall be in care of CT Corporation System, Oliver Building, Mellon
Square, Pittsburgh, Pennsylvania 15222.
Section 2. OTHER OFFICES. The Corporation may also have offices at
such other places both within and without the Commonwealth of Pennsylvania as
the Board of Directors may from time to time determine or the business of the
Corporation may require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. All meetings of the shareholders for
the election of directors shall be held in the City of New York, State of New
York, at such place as may be fixed from time to time by the Board of Directors,
or at such other place either within or without the Commonwealth of Pennsylvania
as shall be designated from time to time by the Board of Directors and specified
in the notice of the meeting. Meetings of shareholders for any other purpose
may be held at such time and place, within or without the Commonwealth of
Pennsylvania, as shall be specified in the notice of the meeting.
Section 2. ANNUAL MEETINGS. Annual meetings of shareholders shall be
held on the first Thursday of May of each year, if not a legal holiday, and, if
a legal holiday, then on the next business day following, at 10:00 a.m., or at
such other date and time as shall be designated from time to time by the Board
of Directors and specified in the notice of the meeting. At the annual meeting,
the shareholders shall elect in the manner herein
<PAGE>
provided a Board of Directors and transact such other business as may properly
be brought before the meeting. At the annual meeting, the shareholders shall
elect by a plurality vote a Board of Directors and transact other business that
may be properly brought before the meeting.
Section 3. NOTICE OF ANNUAL MEETING. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given not less
than ten days before the date of the meeting to each shareholder entitled to
vote at such meeting.
Section 4. SHAREHOLDERS LIST. The officer who has charge of the
transfer books for shares of the Corporation shall prepare and make a complete
list of the shareholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each shareholder and the number
of shares registered in the name of each shareholder. The list shall be
produced and kept open at the time and place of the meeting during the whole
time thereof, and may be inspected by any shareholder who is present. In lieu
of making such list, the Corporation may make the information therein available
by any other means permitted by statute.
Section 5. ACTION AT MEETINGS. As provided in Article Sixth of the
Amended and Restated Articles of Incorporation of the Corporation (the
"Articles") (i) any action required or permitted to be taken at any annual or
special meeting of shareholders may be taken only upon the vote of the
shareholders at an annual or special meeting duly noticed and called, as
provided in these By-laws, and may not be taken by a written consent of the
shareholders and (ii) special meetings of the shareholders of the Corporation
for any purpose or purposes may be called at any time by the Chairman of the
Board of Directors or by a majority of the members of the Board of Directors.
Special meetings of shareholders of the Corporation may not be called by any
other person or persons.
Section 6. NOTICE OF SPECIAL MEETING. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called shall be given not less than ten days
before the date of the meeting to each shareholder entitled to vote at such
meeting.
Section 7. ORGANIZATION OF SHAREHOLDERS MEETING. At
2
<PAGE>
each meeting of the shareholders the Chairman of the Board of Directors, or, in
the absence of the Chairman of the Board of Directors, the President, or in the
absence of the President, a chairman chosen by a majority vote of the
shareholders present in person or by proxy and entitled to vote thereat, shall
act as chairman; and the Secretary, or, in his absence, an Assistant Secretary,
or, in the absence of the Secretary and all Assistant Secretaries, a person whom
the chairman of such meeting shall appoint, shall act as Secretary of such
meeting and keep the minutes thereof.
Section 8. QUORUM. The presence, in person or represented by proxy,
of shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast on the particular matter shall constitute a
quorum for the purpose of considering such matter at a meeting of the
shareholders, except as otherwise provided by statute or by the Articles and in
this Section 8. If, however, a meeting of shareholders cannot be organized
because a quorum has not attended, the shareholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the meeting
at which the adjournment is taken of the time and place of the adjourned
meeting, until a quorum shall be present or represented. In case of a meeting
for the election of directors, such meeting may be adjourned only from day to
day or for such longer periods, not exceeding fifteen days each, until such
directors have been elected. At such adjourned meeting at which a quorum shall
be present or represented, any business may be transacted which might have been
transacted at the meeting as originally specified in the notice thereof. If the
adjournment is for more than thirty days, or if after the adjournment a new
record date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each shareholder of record entitled to vote at the meeting.
Section 9. VOTE REQUIRED. When a quorum is present at any meeting,
the vote of a majority of the votes cast by all shareholders entitled to vote on
the particular matter shall decide any question brought before such meetings,
unless the question is one upon which, by express provision of the laws of the
Commonwealth of Pennsylvania or of the Articles, a different vote is required,
in which case such express provision shall govern and control the decision of
such question, as in the case of the
3
<PAGE>
election of directors as provided in Section 2 hereof and in the Articles.
Section 10. PROXIES; APPOINTMENT AND REVOCATION. As provided in
Article Fourth of the Articles, and in accordance with the provisions of Section
1763 of the Pennsylvania Business Corporation Law of 1988 (the "BCL"), each
shareholder of record shall at every meeting of the shareholders be entitled to
one vote for each share of the capital stock having voting power held by such
shareholder in person or by proxy appointed by an instrument in writing,
executed by such shareholder or by his attorney, thereunto authorized, or by a
telegram, cable or radiogram, filed with the Secretary of the Corporation; in no
event shall a proxy, unless coupled with an interest, be voted on after three
years from the date of its execution. A proxy, unless coupled with an interest,
shall be revocable at will, notwithstanding any other agreement or any provision
in the proxy to the contrary, but the revocation of a proxy shall not be
effective until notice thereof has been given to the Secretary of the
Corporation. A proxy shall not be revoked by the death or incapacity of the
maker unless, before the vote is counted or the authority is exercised, written
notice of such death or incapacity is given to the Secretary of the Corporation.
Section 11. JUDGES OF ELECTION. In advance of any meeting of
shareholders, the Board of Directors may appoint judges of election, who need
not be shareholders, to act at such meeting or any adjournment thereof. If
judges of election be not so appointed, the chairman of any such meeting may,
and on the request of any shareholder of his proxy shall, make such appointment
at the meeting. The number of judges shall be one or three as shall be
determined by the Board of Directors, except that, if appointed at the meeting
on the request of one or more shareholders or proxies, the holders of a majority
of the shares of the Corporation present and entitled to vote shall determine
whether one or three judges are to be appointed. No person who is a candidate
for office shall act as a judge.
In case any person appointed as a judge fails to appear or fails or
refuses to act, the vacancy may be filled by appointment made by the Board of
Directors in advance of the convening of the meeting, or at the meeting by the
officer or person acting as chairman.
4
<PAGE>
The judges of election shall determine the number of shares
outstanding and the voting power of each, the shares represented at the meeting,
the existence of a quorum, the authenticity, validity and effect of proxies,
receive votes or ballots, hear and determine all challenges and questions in any
way arising in connection with the right to vote, count and tabulate all votes,
determine the result, and do such other acts as may be proper to conduct the
election or vote with fairness to all shareholders. The judges of election
shall perform their duties impartially, in good faith, to the best of their
ability, and as expeditiously, as is practical. If there be three judges of
election, the decision, act or certificate of a majority shall be effective in
all respects as the decision, act or certificate of all.
On request of the chairman of the meeting, or of any shareholder or
his proxy, the judges shall make a report in writing of any challenge or
question or matter determined by them, and execute a certificate of any fact
found by them. Any report or certificate made by them shall be PRIMA FACIE
evidence of the facts stated therein.
Section 12. ADVANCE NOTIFICATION OF BUSINESS TO BE TRANSACTED AT
SHAREHOLDER MEETINGS. To be properly brought before the annual meeting of
shareholders, or any special meeting of shareholder, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors (or any duly authorized committee
thereof), (b) otherwise properly brought before the annual meeting by or at the
direction of the Board of Directors (or any duly authorized committee thereof)
or (c) otherwise properly brought before the annual or special meeting by any
shareholder of the Corporation (i) who is a shareholder of record on the date of
the giving of the notice provided for in this Section 12 and on the record date
for the determination of shareholders entitled to vote at such annual or special
meeting and (ii) who complies with the notice procedures set forth in this
Section 12.
In addition to any other applicable requirements, for business to be
properly brought before an annual or special meeting by a shareholder, such
shareholder must have given timely notice thereto in proper written form to the
Secretary of the Corporation.
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To be timely, a shareholder's notice to the Secretary must be
delivered to or mailed and received at the principal executive offices of the
Corporation (a) in the case of an annual meeting, not less than sixty (60) days
nor more than ninety (90) days prior to the anniversary date of the immediately
preceding annual meeting of shareholders; PROVIDED, HOWEVER, that in the event
that the annual meeting is called for a date that is not within thirty (30) days
before or after such anniversary date, notice by the shareholder in order to be
timely must be so received not later than the close of business on the tenth
(10th) day following the day on which such notice of the date of the annual
meeting was mailed or such public disclosure of the date of the annual meeting
was made, whichever first occurs; and (b) in the case of a special meeting of
shareholders, not later than the close of business on the tenth (10th) day
following the day on which notice of the date of the special meeting was mailed
or public disclosure of the date of the special meeting was made, whichever
first occurs.
To be in proper written form, a shareholder's notice to the Secretary
must set forth as to each matter such shareholder proposes to bring before the
annual or special meeting (i) a brief description of the business desired to be
brought before the meeting and the reasons for conducting such business at the
meeting, (ii) the name and record address of such shareholder, (iii) the class
or series and number of shares of capital stock of the Corporation which are
owned beneficially or of record by such shareholder, (iv) a description of all
arrangements or understandings between such shareholder and any other person or
persons (including their names) in connection with the proposal of such business
by such shareholder and any material interest of such shareholder in such
business and (v) a representation that such shareholder intends to appear in
person or by proxy at the meeting to bring such business before the meeting.
Notwithstanding anything in these By-laws to the contrary, no business
shall be conducted at the annual meeting of shareholders or any special meeting
of shareholders except business brought before such meeting in accordance with
the procedures set forth in this Section 12; PROVIDED, HOWEVER, that, nothing in
this Section 12 shall be deemed to preclude discussion by any shareholder of any
business properly brought before the meeting. The Chairman or other officer of
the Corporation presiding at the
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meeting shall, if the facts warrant, determine and declare to the meeting that
business was not properly brought before the meeting in accordance with the
foregoing procedures, and if he should so determine, the Chairman or other
officer of the Corporation presiding at the meeting shall so declare to the
meeting that the business was not properly brought before the meeting and such
business shall not be transacted.
ARTICLE III
DIRECTORS
Section 1. NUMBER OF DIRECTORS. The number of directors which shall
constitute the whole board shall be not less than three nor more than fifteen.
Within the limit above specified, the number of directors shall be determined by
resolution of the Board of Directors. Except as provided in Section 2 of this
Article, the directors shall be elected at the annual meeting of shareholders in
the manner provided in Article II, Section 2, of these By-laws and in the
Articles, and each director elected shall hold office until his successor is
elected and qualified or until his death, resignation or removal. Directors
need not be shareholders.
Section 2. VACANCIES; NEW DIRECTORSHIP. Vacancies and newly created
directorships resulting from any increase in the authorized number of directors
may be filled (subject to the provisions of Article III, Section 14, of these
By-laws in the case of removal) by a majority of the directors then in office,
though less than a quorum, or by a sole remaining director, and each director so
chosen shall hold office until the next annual election and until his successor
is duly elected and shall qualify or until his death, resignation, removal or
disqualification. If there are no directors in office, than an election of
directors may be held in the manner provided by statute. When one or more
directors shall resign from the board effective at a future date, a majority of
the directors then in office including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective; and each such director
so chosen shall hold office as provided in this Section in the filling of other
vacancies.
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Section 3. MANAGEMENT OF CORPORATION. The business and affairs of
the Corporation shall be managed under the direction of its Board of Directors
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not by statute or by the Articles or by these By-laws
directed or required to be exercised or done by the shareholders.
Section 4. PLACE OF MEETINGS OF THE BOARD OF DIRECTORS. The Board of
Directors of the Corporation may hold meetings, both regular and special, either
within or without the Commonwealth of Pennsylvania.
Section 5. ANNUAL MEETINGS OF BOARD OF DIRECTORS. After each annual
election of directors and on the same day, the Board of Directors shall meet for
the purpose of organization, the election of officers and the transaction of
other business, at the place where such annual election is held. Notice of such
meeting need not be given. Such meetings may be called and held at any other
time and place which shall be specified in a notice or waiver of notice thereof
as in the case of a special meeting of the Board of Directors.
Section 6. REGULAR MEETINGS OF THE BOARD OF DIRECTORS. The regular
meetings of the Board of Directors shall be held quarterly at such time and
place as shall be designated by the Board of Directors from time to time or at
such other time and place as shall be set forth in a written notice given at
least five days prior to the meeting date. Notice of regular meetings of the
Board shall not be required to be given, except as otherwise expressly required
herein or by law, except that whenever the time or place of regular meetings
shall be initially fixed or changed, notice of such action shall be given
promptly by telephone or otherwise to each director not participating in such
action.
Section 7. SPECIAL MEETINGS OF THE BOARD OF DIRECTORS. Special
meetings of the Board of Directors may be called by the Chairman of the Board of
Directors, the President or by a majority of the Board of Directors on two days'
notice to each director, either personally or by mail, telegram, cable or
radiogram. Special meetings shall be called by the Chairman of the Board of
Directors, by the President or by the Secretary in like manner and on like
notice on the written request of a majority of directors and the place and time
of such special meeting shall be designated
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in the notice of such meetings.
Section 8. QUORUM. At all meetings of the Board of Directors one-
third of the directors in office shall constitute a quorum for the transaction
of business and the act of a majority of the directors present and voting at any
meeting at which there is a quorum shall be the act of the Board of Directors,
except as may be otherwise specifically provided by statute or by the Articles
or by these By-laws. If a quorum shall not be present at any meeting of the
Board of Directors, the directors present thereat may adjourn the meeting from
time to time, without notice other than announcement at the meeting, until a
quorum shall be present. The directors at a duly organized meeting can continue
to do business until adjournment notwithstanding the withdrawal of enough
directors to leave less than a quorum.
Section 9. ORGANIZATION OF MEETINGS OF BOARD OF DIRECTORS. At each
meeting of the Board of Directors the Chairman of the Board of Directors or, in
his absence, the President, or in the absence of the President, a director
chosen by a majority of the directors present shall act as chairman. The
Secretary or, in his absence, an Assistant Secretary of the Corporation or, in
the absence of the Secretary and all Assistant Secretaries, a person whom the
chairman of such meeting shall appoint, shall act as secretary of such meeting
and keep the minutes thereof.
Section 10. MEETINGS BY TELEPHONE CONFERENCE. One or more directors
of the Corporation may participate in any meeting of the Board of Directors or
of any committee thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other.
Section 11. ACTION BY WRITTEN REQUEST. Unless otherwise restricted
by the Articles or these By-laws, any action required or permitted to be taken
at any meeting of the Board of Directors or of any committee thereof may be
taken without a meeting, if, prior or subsequent to the action so taken, all
members of the Board or committee, as the case may be, sign a consent or
consents in writing setting forth the action so taken, and the writing or
writings are filed with the Secretary of the Corporation and the minutes of
proceedings of the Board or committee.
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Section 12. COMMITTEES OF DIRECTORS. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more directors of the
Corporation, and to have all of the power and authority of the Board of
Directors except as limited by statute, and to perform such duties, as the
resolution designating the committee shall prescribe. The Board of Directors
may designate one or more directors as alternate members of any committee, who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of any member and alternate of such committee
or committees, the member or members thereof present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Such committee
shall have such name or names as may be determined from time to time by
resolution adopted by the Board of Directors.
Section 13. MINUTES OF COMMITTEE MEETINGS. Each committee shall keep
regular minutes of its meetings and report the same to the Board of Directors
when required.
Section 14. REMOVAL OF DIRECTORS. Any director or directors may be
removed, either with or without cause, at any time, by the affirmative vote of
the shareholders entitled to cast at least a majority of the votes which all
shareholders would be entitled to cast at any annual election of directors of
the Corporation, at a special meeting of the shareholders called and held for
that purpose; and the vacancy in the Board of Directors caused by any such
removal may be filled, by such shareholders at such meeting, or, if the
shareholders shall fail to fill such vacancy, as provided in these By-laws.
Section 15. COMPENSATION OF DIRECTORS. The directors shall receive
such compensation for their services as the Board of Directors may from time to
time determine; PROVIDED, HOWEVER, that directors who are also officers or
employees of the Corporation or a subsidiary of the Corporation shall not be
entitled to any such compensation as a director; and all directors shall be
reimbursed for their expenses of attendance at each regular or special meeting
of the Board of Directors. Members of any committee of directors may be allowed
like compensation and reimbursement for expenses for
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serving as members of any such committee and for attending committee meetings.
Section 16. RESIGNATION. Any director of the Corporation may resign
at any time by giving written notice of his resignation of the Chairman of the
Board of Directors, to the President or to the Secretary. Such resignation
shall take effect at the date of receipt of such notice by the Chairman of the
Board of Directors, the President or the Secretary, or at any later time
specified therein; and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 17. CHAIRMAN OF THE BOARD EMERITUS AND DIRECTORS EMERITI.
The Board of Directors from time to time may name, for such period as the Board
may determine, a former Chairman of the Board of Directors to fill the honorary
position of Chairman of the Board emeritus and one or more former directors to
fill the honorary position of director emeritus. The positions of Chairman of
the Board emeritus and director emeritus are honorary and persons named to such
positions shall not be deemed officers or directors of the Corporation. The
persons holding such honorary positions shall not attend meetings of the Board
of Directors except as specifically invited by the Chairman of the Board. When
attending meetings at the request of the Chairman of the Board, they may advise
the Board of Directors of their views on such matters coming before the Board of
Directors, but shall not be entitled to vote on any business coming before the
Board of Directors or to exercise any of the other responsibilities of
directors. Notice of meetings of the Board of Directors shall not be required
to be given to the Chairman of the Board emeritus or directors emeriti under the
provisions of the Articles of Incorporation or these By-laws nor shall the
Chairman of the Board emeritus or directors emeriti be counted as directors of
the Corporation for the purpose of determining a quorum of the Board of
Directors. Chairman of the Board emeritus or directors emeriti shall be
reimbursed for their reasonable expenses for attendance at meetings of the Board
of Directors to which they have specifically been invited.
Section 18. INTERESTED DIRECTORS. No contract or transaction between
the Corporation and one or more of its directors or officers, or between the
Corporation and any other
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corporation, partnership, association, or other organization in which one or
more of its directors or officers are directors or officers, or have a financial
interest, shall be void or voidable solely for this reason, or solely because
the director or officer is present at or participates in the meeting of the
Board of Directors or committee thereof which authorizes the contract or
transaction, or solely because his or their votes are counted for such purpose
if (i) the material facts as to his or their relationship or interest and as to
the contract or transaction are disclosed or are known to the Board of Directors
or the committee, and the Board of Directors or committee in good faith
authorizes the contract or transaction by the affirmative votes of a majority of
the disinterested directors, even though the disinterested directors be less
than a quorum; or (ii) the material facts as to his or their relationship or
interest and as to the contract or transaction is specifically approved in good
faith by vote of the shareholders; or (iii) the contract or transaction is fair
as to the Corporation as of the time it is authorized, approved or ratified, by
the Board of Directors, a committee thereof or the shareholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IV
NOTICES
Section 1. METHOD OF GIVING NOTICE. Whenever, under the provisions
of the statutes or of the Articles or of these By-laws, notice is required to be
given to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given either personally or by mail, or by
telegram (with messenger service specified), telex or TWX (with answer-back
received), cable or radiogram or courier service, charges prepaid or by
facsimile transmission, addressed to such director or shareholder, to his
address as it appears on the books of the Corporation or supplied by him to the
Corporation for the purpose of notice, and such notice shall be deemed to be
given at the time when the same shall be deposited in the United States mail or
with a telegraph office or courier service for transmission to such person.
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Section 2. WAIVER OF NOTICE. Whenever any notice is required to be
given under the provisions of any statute, the Articles or these By-laws, a
waiver thereof in writing, signed by the person or persons entitled to said
notice, whether given before or after the time stated therein, shall be deemed
equivalent thereto. Attendance of a person at a meeting of shareholders, in
person or by proxy, or at a meeting of the Board of Directors, shall constitute
a waiver of notice of such meeting, except when a person attends such meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. Except in the case of a special
meeting of shareholders, neither the business to be transacted at, nor the
purpose of, any meeting need be specified in any written waiver of notice unless
so required by the Articles of these By-laws.
ARTICLE V
OFFICERS
Section 1. ELECTION. The officers of the Corporation shall be chosen
by the Board of Directors at its first meeting after each annual meeting of
shareholders and shall consist of a Chairman of the Board of Directors, a
President, one or more Executive Vice Presidents, one or more Senior Vice
Presidents, one or more Vice Presidents, a Secretary and a Treasurer. Any
number of offices may be held by the same person, unless the Articles or these
By-laws otherwise provide. Any Vice President may carry such further title as
may be designated by the Board of Directors or by the President.
Section 2. TERM OF OFFICER; REMOVAL, VACANCIES. The officers of the
Corporation shall hold office until their successors are chosen and qualify or
until their death, resignation or removal. Any officer elected or appointed by
the Board of Directors may be removed at any time by the affirmative vote of a
majority of the Board of Directors. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
Section 3. CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors shall preside at all meetings of the Board of Directors.
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Section 4. PRESIDENT. The President shall be the chief executive
officer of the Corporation and, subject to the authority of the Board of
Directors, shall have the general control and management of the business and
affairs of the Corporation.
Section 5. EXECUTIVE VICE PRESIDENTS AND SENIOR VICE PRESIDENTS. The
Executive Vice Presidents and Senior Vice Presidents shall perform such duties
and have such powers relating to general control and management of the business
and affairs of the Corporation as the President, subject to the authority of the
Board of Directors, shall determine.
Section 6. VICE PRESIDENTS. The Vice Presidents shall perform such
duties and have such powers relating to general control and management of the
business and affairs of the Corporation as the President, subject to the
authority of the Board of Directors, shall determine.
Section 7. SECRETARY. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees of the Board of Directors, when required. He shall give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or by the Chairman of the Board as to
matters relating to the Board of Directors. He shall have custody of the
corporate seal of the Corporation and he, or an Assistant Secretary, shall have
authority to affix the same to any instrument requiring it and, when so affixed,
it may be attested by his signature or by the signature of such Assistant
Secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature. The Secretary shall also have such other powers and perform such
other duties as from time to time may be assigned to him by the President.
Section 8. TREASURER. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other
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valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors. He shall disburse
the funds of the Corporation as may be ordered by the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Board of
Directors, at its regular meetings or when the Board of Directors so requires,
and to the Chairman of the Board and the President, an account of all his
transactions as Treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, he shall give the Corporation a bond (which
shall be renewed every six years) in such sum and with such surety or sureties
as shall be satisfactory to the Board of Directors for the faithful performance
of the duties in his office and for the restoration to the Corporation, in case
of his death, resignation, retirement or removal from office, of all books,
papers, vouchers, money and other property or whatever kind in his possession or
under his control belonging to the Corporation.
Section 9. SUBORDINATE OFFICER. In addition to the officers
enumerated in this Article V, the Corporation may have such other officers,
agents and employees as the Board of Directors may determine, including one or
more Assistant Secretaries and one or more Assistant Treasurers, each of whom
shall hold office for such period, have such authority and perform such duties
as the Board of Directors may from time to time determine. The Board of
Directors may delegate to any principal officer (that is, an officer whose
office is enumerated in Sections 3, 4, 5, 6, 7 or 8 or this Article V) the power
to appoint or remove any such subordinate officers, agents or employees.
Section 10. REMOVAL. Any officer may be removed, either with or
without cause, by the vote of a majority of the directors then in office at a
meeting called for the purpose or, except in case of any officer elected by the
Board of Directors, by the officer upon whom the powers of removal may be
conferred by the Board of Directors.
Section 11. RESIGNATION. Any officer may resign at any time by
giving written notice to the Board of Directors or to the Chairman of the Board
of Directors, the President or the Secretary of the Corporation. Such
resignation shall take effect on the date of receipt of such notice or at any
later time specified therein; and unless specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
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Section 12. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled for
the unexpired portion of the term in the manner prescribed in these By-laws for
regular election or appointment to such office.
Section 13. OFFICERS' SALARIES. The salaries of the officers shall
be fixed from time to time by the Board of Directors, and none of such officers
shall be prevented from receiving a salary by reason of the fact that he is also
a director of the Corporation. The provisions of this Section 13 are subject to
the provisions of Section 15 of Article III of these By-laws in the case of
officers who are also directors.
Section 14. STAFF AND GROUP OFFICERS. In addition to the corporate
officers enumerated in this Article V (that is, officers whose offices are
enumerated in Sections 3, 4, 5, 6, 7, 8 or 9 of this Article V), the Corporation
may have such staff and group officers as the President may appoint including,
but not by way of limitation, one or more group presidents and staff vice
presidents. Each such staff and group officer appointed may carry such exact
title as may be designated by the President and shall hold office for such
period, have such executive authority as to a specific area designated by the
President and perform such duties as the President may from time to time
determine.
ARTICLE VI
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
Section 1. AUTHORITY OF OFFICERS. The Board of Directors, except as
otherwise provided in these By-laws, may authorize any officer or officers,
agent or agents, or employee or employees of the Corporation to enter into any
contract or execute and deliver any instrument in the name and on behalf of the
Corporation, and such authority may be general or confined to specific
instances; and, unless so authorized by the Board of Directors, no officer,
agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to render it liable
pecuniarily for any purpose or to any amount.
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Section 2. AUTHORIZED LOAN; SECURITY. No loan shall be contracted on
behalf of the Corporation, and no negotiable paper shall be issued, endorsed or
accepted in its name, unless authorized by the Board of Directors. Such
authority may be general or confined to specific instances. When so authorized,
the officer or officers thereunto authorized may effect loans and advances at
any time for the Corporation from any bank, trust company or other institution,
or from any firm, corporation or individual, and for such loans and advances
may, execute and deliver promissory notes or other evidences of indebtedness of
the Corporation; and, when authorized as aforesaid, as security for the payment
of any and all loans, advances, indebtedness and liabilities of the Corporation,
such officers may mortgage, pledge, hypothecate or transfer any real or personal
property at any time owned or held by the Corporation, and to that end execute
instruments of mortgage or pledge or otherwise transfer such property.
Section 3. ENDORSEMENT OF CHECKS, ETC. All checks, drafts, bills of
exchange or other orders for the payment of money, obligations, notes or other
evidences of indebtedness, bills of lading, warehouse receipts and insurance
certificates of the Corporation shall be signed or endorsed by such officer or
officers, agent or agents, attorney or attorneys or employee or employees of the
Corporation as shall from time to time be determined by resolution of the Board
of Directors. Each of such officers and employees shall give such bond, if any,
as the Board of Directors may require.
Section 4. DEPOSIT OF FUNDS. All funds of the Corporation not
otherwise employed shall be deposited from time to time to the credit of the
Corporation in such banks, trust companies or other depositaries as the Board of
Directors may from time to time designate, or as may be designated by any
officer or officers, agent or agents, attorney or attorneys or employee or
employees of the Corporation to whom such power may be delegated by the Board of
Directors.
Section 5. BANK ACCOUNTS. The Board of Directors may from time to
time authorize the opening and keeping of general and special bank accounts with
such banks, trust companies or other depositaries as it may designate or as may
be designated by any officer or officers, agent or agents, attorney or attorneys
or employee or employees of the Corporation to whom power in that
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respect shall have been delegated by the Board of Directors. The Board may make
such special rules and regulations with respect to such bank accounts, not
inconsistent with the provisions of these By-laws, as it may deem expedient.
Section 6. RIGHTS OF CORPORATION AS STOCKHOLDER. Unless otherwise
provided by resolution adopted by the Board of Directors, the Chairman of the
Board of Directors, the President or any Vice President may from time to time
appoint an attorney or attorneys, agent or agents, to exercise in the name and
on behalf of the Corporation the powers and rights which the Corporation may
have as the holder of stock or other securities in any other corporation, to
vote or to consent in respect of such stock or other securities; the Chairman of
the Board of Directors, the President or any Vice President may instruct the
person or persons so appointed as to the manner of exercising such powers and
rights and may execute or cause to be executed in the name and on behalf of the
Corporation and under its corporate seal, or otherwise, all such written
proxies, powers of attorney or other written instruments as he may deem
necessary in order that the Corporation may exercise such powers and rights.
ARTICLE VII
CERTIFICATES OF STOCK
Section 1. SHAREHOLDER ENTITLED TO CERTIFICATES. Every holder of
stock in the Corporation shall be entitled to have a certificate, signed by, or
in the name of the Corporation by, the Chairman of the Board of Directors, the
President and the Treasurer or an Assistant Treasurer, or the Secretary or an
Assistant Secretary of the Corporation, certifying the number of shares owned by
him in the Corporation. Each such certificate shall be sealed with the
corporate seal, which may be facsimile, engraved or printed. If the Corporation
shall be authorized to issue more than one class or series of stock, every
certificate representing shares shall set forth upon the face or back of the
certificate, or shall state that the Corporation will furnish to any shareholder
upon request and without charge, a full or summary statement of the
designations, voting rights, preferences, limitations and relative rights of the
shares of each class authorized to be issued and, if the Corporation is
authorized to issue any preferred or special
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class in series, the variations in the relative rights and preferences between
the shares of each such series so far as the same have been fixed and determined
and the authority of the Board of Directors to fix and determine designations,
voting rights, preferences, limitations, and special rights of the classes and
series of shares of the Corporation.
Section 2. FACSIMILE SIGNATURES. Where a certificate is
countersigned (1) by a transfer agent other than the Corporation or its employee
or (2) by a registrar other than the Corporation or its employee, any other
signature on the certificate may be facsimile, engraved or printed. In case any
officer, transfer agent or registrar who has signed or whose facsimile signature
has been placed upon a certificate, shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, it may be issued
by the Corporation with the same effect as if he were such officer, transfer
agent or registrar at the date of issue.
Section 3. LOST CERTIFICATES. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or his legal representative, to advertise the same in such manner
as it shall require and/or to give the Corporation a bond in such sum as it may
direct as indemnify against any claim that may be made against the Corporation
with respect to the certificate alleged to have been lost, stolen or destroyed.
Section 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent or agents of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment or
authority to transfer, it shall be the duty of the Corporation to issue a new
certificate to the person entitled thereto, cancel the old certificate and
record the transaction upon its books.
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Section 5. FIXING RECORD DATE. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than ninety days before the date
of such meeting or any other action. If no record date is fixed, then (a) the
record date for determining shareholders shall be at the close of business on
the day next preceding the day on which notice is given or, if notice is waived,
at the close of business on the day next preceding the day on which the meeting
is held and (b) the record date for determining shareholders for any other
purpose shall be at the close of business on the day on which the Board of
Directors adopts the resolution relating hereto. A determination of
shareholders of record entitled to notice of, or to vote at, a meeting of
shareholders shall apply to any adjournment of the meeting; PROVIDED, HOWEVER,
that the Board of Directors may fix a new record date for the adjourned meeting
in which case notice of the adjourned meeting shall be given to each shareholder
of record entitled to vote at the meeting.
Section 6. REGISTERED SHAREHOLDERS. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books as
the owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of Pennsylvania.
ARTICLE VIII
GENERAL PROVISIONS
Section 1. DIVIDENDS. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Articles, if any, may be declared
by the Board of Directors at any regular or special meeting, pursuant to law.
Dividends may be paid in cash,
20
<PAGE>
in property, or in shares of the capital stock, subject to the provisions of the
Articles.
Section 2. RESERVES. Before payment of any dividend, there may be
set aside out of any funds of the Corporation available for dividends such sum
or sums as the directors from time to time in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purpose as the directors shall think conductive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
Section 3. FISCAL YEAR. The fiscal year of the Corporation shall end
on the thirty-first day of December in each year.
Section 4. SEAL. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the words "Corporate
Seal, Pennsylvania". The seal may be issued by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.
ARTICLE IX
AMENDMENTS
These By-laws may be altered, amended or repealed and new By-laws may
be adopted by the vote of shareholders entitled to cast at least a majority of
the votes which all shareholders are entitled to cast thereon or by the majority
vote of the members of the Board of Directors at any regular or special meeting
of the shareholders or the Board of Directors duly convened after notice to the
shareholders or directors of the purpose.
ARTICLE X
APPLICABILITY OF CERTAIN PENNSYLVANIA STATUTES
Subchapter 25E and Subchapters 25G through 25J of the BCL shall not be
applicable to the Corporation.
21
<PAGE>
Subchapter 25F and all other provisions of the BCL which have not been
rendered inapplicable to the Corporation by the first paragraph of this Article
X shall be applicable to the Corporation.
22
<PAGE>
EXHIBIT 4.15
[CONFORMED COPY]
FIRST WAIVER
FIRST WAIVER (the "Waiver"), dated as of December 15, 1994, among
COLTEC INDUSTRIES INC (the "Company") and the financial institutions party to
the Credit Agreement referred to below (the "Banks"). All capitalized terms
used herein and not otherwise defined shall have the respective meanings
provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Company, the Banks, the Co-Agents and Bankers Trust
Company, as Administrative Agent, are parties to a Credit Agreement, dated as of
March 24, 1992 and amended and restated as of January 11, 1994, as amended,
modified or supplemented through the date hereof (as so amended, modified or
supplemented, the "Credit Agreement");
WHEREAS, Menasco Aviation Services Ltd. ("MAS"), a corporation
incorporated under the laws of Ontario and a Wholly-Owned Subsidiary of Menasco
Aerospace Ltd. ("Menasco"), intends to establish a new facility which will
provide landing gear overhaul and repair services to airlines in the City of
Burlington, Ontario (the "Project");
WHEREAS, in order to assist MAS in the financing of the Project, the
Province of Ontario has agreed to provide a loan to MAS in an aggregate amount
equal to CDN$3,000,000 pursuant to an agreement between MAS and the Province of
Ontario (the "MAS Loan Agreement");
WHEREAS, the Company and Menasco have agreed to guarantee the payment
when due of all obligations and liabilities of MAS under or with respect to the
MAS Loan Agreement;
WHEREAS, pursuant to Article 10.1 of the MAS Loan Agreement, MAS has
agreed to certain restrictions on its ability to (i) pay dividends and make
other distributions on its capital
<PAGE>
stock, (ii) make loans or advances to the Company or any Subsidiary of the
Company and (iii) transfer any of its property or assets to the Company;
WHEREAS, the parties hereto wish to waive certain provisions of the
Credit Agreement as herein provided;
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in Section
9.04(l) of the Credit Agreement or in the definition of Canadian Government
Financing, the Required Banks hereby waive compliance by MAS with the
requirement that Canadian Government Financing shall not be guaranteed by the
Company or any of its Subsidiaries, solely to the extent necessary to permit the
Indebtedness incurred by MAS under the MAS Loan Agreement to satisfy the
provisions of Section 9.04(l) of the Credit Agreement;
2. Notwithstanding anything to the contrary contained in Section 9.04
of the Credit Agreement, the Required Banks hereby agree that the Company and
Menasco shall be permitted to guarantee the Indebtedness incurred by MAS
pursuant to the MAS Loan Agreement, so long as such Indebtedness does not exceed
CDN$3,000,000 in the aggregate at any time.
3. Notwithstanding anything to the contrary contained in Section 9.11
of the Credit Agreement, the Required Banks hereby waive compliance by MAS with
the restrictions contained in Section 9.11 of the Credit Agreement, solely to
the extent necessary to permit MAS to comply with the provisions of Article 10.1
of the MAS Loan Agreement.
4. In order to induce the Banks to enter into this Waiver, the
Company hereby (i) makes each of the representations, warranties and agreements
contained in Section 7 of the Credit Agreement and (ii) represents and warrants
that there exists no Default or Event of Default, in each case on the Waiver
Effective Date (as defined herein) both before and after giving effect to this
Waiver.
-2-
<PAGE>
5. This Waiver is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
6. This Waiver may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and the Administrative Agent.
7. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
8. This Waiver shall become effective on the date (the "Waiver
Effective Date") when the Company and the Required Banks shall have signed a
copy hereof (whether the same or different copies) and shall have delivered
(including by way of facsimile) the same to the Administrative Agent at the
Notice Office.
9. From and after the Waiver Effective Date, all references in the
Credit Agreement and the other Credit Documents to the Credit Agreement shall be
deemed to be references to such Credit Agreement as modified hereby.
-3-
<PAGE>
IN WITNESSES WHEREOF, each of the parties hereto has caused a
counterpart of this Waiver to be duly executed and delivered as of the date
first above written.
COLTEC INDUSTRIES INC
By /s/ Paul Schoen
----------------------------
Title: Executive Vice
President-Finance and
Treasurer
BANKERS TRUST COMPANY,
Individually, and as
Administrative Agent
By /s/ Mary Kay Coyle
----------------------------
Title: Vice President
THE BANK OF MONTREAL,
Individually and as Co-Agent
By /s/ Glen A. Pole
----------------------------
Title: Director
THE BANK OF NOVA SCOTIA,
Individually, and as Co-Agent
By /s/ Stephen E. Lockhart
----------------------------
Title: Senior Manager
-4-
<PAGE>
CREDIT LYONNAIS NEW YORK
BRANCH, Individually and as
Co-Agent
By /s/ Mark Campellone
----------------------------
Title: Vice President
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, New York Branch,
Individually, and as
Co-Agent
By /s/ Junri Oda
----------------------------
Title: Senior Vice President
and Senior Manager
CIBC, INC.
By /s/ Timothy E. Doyle
----------------------------
Title: Vice President
ABN AMRO BANK N.V.
By /s/ Nancy F. Hawkins
----------------------------
Title: Group Vice President
By /s/ David A. Mandell
----------------------------
Title: Vice President
-5-
<PAGE>
COMERICA BANK
By /s/ Martin G. Ellis
----------------------------
Title: Assistant Vice
President
THE SUMITOMO BANK, LIMITED
By /s/ Yoshinori Kawamura
----------------------------
Title: Joint General Manager
BANK OF AMERICA ILLINOIS
By /s/ George Poon
----------------------------
Title: Vice President
SOCIETY NATIONAL BANK
By /s/ Peter D. Moore
----------------------------
Title: Vice President
CHEMICAL BANK
By
----------------------------
Title:
-6-
<PAGE>
BARCLAYS BANK PLC, NEW YORK
BRANCH
By
----------------------------
Title:
ROYAL BANK OF SCOTLAND
By /s/ David Dougan
----------------------------
Title: Vice President
THE BANK OF NEW YORK
By /s/ William Kerr
----------------------------
Title: Vice President
THE BANK OF TOKYO TRUST
COMPANY
By /s/ Neal Hoffson
----------------------------
Title: Vice President
-7-
<PAGE>
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By /s/ David Kopp
----------------------------
Title: Vice President
By /s/ Peter Harris
----------------------------
Title: Vice President
BANQUE PARIBAS
By
----------------------------
Title:
By
----------------------------
Title:
THE CHASE MANHATTAN BANK, N.A.
By
----------------------------
Title:
COMMONWEALTH BANK OF AUSTRALIA
By
----------------------------
Title:
-8-
<PAGE>
EATON VANCE PRIME RATE
RESERVES
By
----------------------------
Title:
THE FUJI BANK, LIMITED,
New York Branch
By
----------------------------
Title:
GIROCREDIT BANK, New York
Branch
By____________________________
Title:
-9-
<PAGE>
THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED, NEW
YORK BRANCH
By /s/ Rene O. LeBlanc
----------------------------
Title: Deputy General
Manager
THE MITSUBISHI TRUST AND
BANKING CORPORATION
By
----------------------------
Title:
THE NIPPON CREDIT BANK, LTD.,
New York Branch
By /s/ Evan Klein
----------------------------
Title: Assistant Vice
President
-10-
<PAGE>
UNION BANK OF FINLAND LIMITED,
Grand Cayman Branch
By /s/ Pentti Mansukoski
----------------------------
Title: Senior Vice President
By /s/ Eric I. Mann
----------------------------
Title: Vice President
VAN KAMPEN MERRITT PRIME
RATE INCOME TRUST
By
----------------------------
Title:
ARAB BANKING CORP.
By /s/ Louise Bilbro
----------------------------
Title: Vice President
-11-
<PAGE>
BAHRAIN MIDDLE EAST BANK E.C.
New York Agency
By
----------------------------
Title:
By
----------------------------
Title:
BANK OF IRELAND
By /s/ Randolph Ross
----------------------------
Title: Vice President
BANK OF SCOTLAND
By /s/ Catherine M. Oniffey
----------------------------
Title: Vice President
MERRILL LYNCH PRIME FUND INC.
By
----------------------------
Title:
-12-
<PAGE>
MERRILL LYNCH PRIME RATE
PORTFOLIO BY MERRILL LYNCH
INVESTMENT MANAGEMENT, INC., as
investment advisor
By
----------------------------
Title:
RYOSHIN LEASING (USA) INC.
By
----------------------------
Title:
STICHTING RESTRUCTURED
OBLIGATIONS BACKED BY SENIOR
ASSETS 2 (ROSA2)
(Chancellor)
By
----------------------------
Title:
TOKYO CITY FINANCE (ASIA)
LIMITED
By
----------------------------
Title:
-13--
<PAGE>
TOKYO TRUST AND BANKING
COMPANY, LTD. New York Branch
By
----------------------------
Title:
TRAVELERS INSURANCE COMPANY
By
----------------------------
Title:
-14-
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT dated as of April 13, 1992, between
COLTEC INDUSTRIES INC, a Pennsylvania corporation (the "Company")
and LAURENCE H. POLSKY (the "Executive").
W I T N E S S E T H :
In consideration of the mutual promises hereinafter set forth, the
parties hereto, intending to be legally bound, agree as follows:
1. EMPLOYMENT. (a) During the Employment Period (as hereinafter
defined), the Company shall employ the Executive, and the Executive shall serve,
with such functions, duties and responsibilities as shall be assigned to him by
the Company. If at any time during the Employment Period a Change of Control
(as hereinafter defined) shall occur, the Company shall employ the Executive,
and the Executive shall serve, for the remainder of the Employment Period with
the same functions, duties and responsibilities as on the date such Change of
Control occurred. During the Employment Period, the Executive shall devote his
best efforts and services to his employment in substantially the same manner and
to substantially the same extent as the Executive has
<PAGE>
heretofore devoted his efforts. During the Employment Period, the Executive
shall render his services on substantially a full-time basis. The term
"Employment Period" shall mean the period commencing on the date hereof and
ending on the earlier of (i) July 1, 1996, or (ii) the date of death of the
Executive; PROVIDED, HOWEVER, that if the Executive shall notify the Company of
his election to serve for a Terminal Employment Period (as hereinafter defined)
and a Consulting Period (as hereinafter defined) pursuant to paragraph 1(b)
hereof, the Employment Period shall end.
(b) Anything to the contrary herein notwithstanding, if at any time
after a Change of Control shall have occurred the Executive shall make a
determination in good faith that any of such Executive's management functions,
duties or responsibilities or any aspect of his employment has changed adversely
(whether or not such change shall constitute a material breach of the Company's
obligations hereunder), the Executive shall have the option to serve hereunder
for a terminal employment period (the "Terminal Employment Period") followed by
a consulting period (the "Consulting Period"). The Terminal Employment Period
shall commence upon notice to the Company by the Executive of his election to
serve for such Terminal Employment Period and Consulting Period and the Terminal
Employment Period shall end on
2
<PAGE>
the earlier of two years from the date of its commencement or the date the
Executive attains the age of 65 years. During the Terminal Employment Period,
the Company shall employ the Executive with such functions, duties and
responsibilities as shall be assigned to him by the Company; PROVIDED, HOWEVER,
that such functions, duties and responsibilities shall be substantially similar
to those performed by or assigned to the Executive on the date of the Change of
Control and shall be acceptable to the Executive. The Executive shall make
himself available to the Company during normal business hours; PROVIDED,
HOWEVER, that during the Terminal Employment Period, if the Company does not
require the full-time services of the Executive, the Executive may engage in
other business activities subject to the provisions of paragraph 3 hereof.
During the Employment Period and the Terminal Employment Period, the place of
employment shall continue to be in the New York City metropolitan area unless
otherwise agreed by the Company and the Executive. During the Terminal
Employment Period the Company shall provide office space and secretarial
assistance to the Executive in the same manner as provided by the Company prior
to the Change of Control.
(c) The Consulting Period shall commence upon the expiration of the
Terminal Employment Period and shall end two
3
<PAGE>
years after its commencement. During the Consulting Period, the Executive shall
render advisory services concerning the business affairs of the Company with
which the Executive shall have had substantial familiarity in the course of his
prior management responsibilities. During the Consulting Period, the Executive
shall not be required to devote more than one day each week and three days each
calendar month to such services, and shall not be required to render any
services at a distance of more than 50 miles from his then home, it being
understood that he may move from the metropolitan area in which he presently
resides. The Executive's consulting services under this Agreement shall be
required only at times and places consistent with his other employment or with
his private activities.
(d) A "Change of Control" shall be deemed to have occurred if any
partnership, corporation or any person, group or entity, other than entities
controlled by Morgan Stanley Group Inc., shall acquire beneficial ownership of a
majority of the outstanding shares of capital stock of the Company entitled to
vote together without regard to class for the election of directors.
2. COMPENSATION. (a) (i) Subject to the terms of this paragraph 2,
during the term of this Agreement, the Executive shall be paid a salary at an
annual rate not less than the annual rate
4
<PAGE>
payable to the Executive on the date hereof and shall be entitled to participate
in such plans and other compensation arrangements as and to the extent that the
Board of Directors of the Company shall determine. Incentive compensation
awards for calendar years 1992 and 1993 shall be not less than $150,000 in each
year, provided the Executive shall be an employee at the time the award is paid.
If a Change of Control shall have occurred, in no event shall the Executive be
paid a salary at an annual rate less than his annual salary rate in effect at
the time of the Change of Control. All such compensation shall be paid in
appropriate installments to conform with the regular payroll payment dates of
the Company. Following a Change of Control and during both the Employment
Period and the Terminal Employment Period, the Executive shall be entitled, to
the same extent as he does on the date hereof or to any greater extent
determined by the Board subsequently, to (i) participate in all the Company's
employee benefit plans, including, without limitation, the Company's 1977 Long-
Term Performance Plan, Incentive Compensation Plan (determined as in prior years
and paid pro rata for any partial year with the Terminal Employment Period),
Retirement Savings Plan, Family Protection Plan, any other pension and
retirement plans, group life insurance, hospitalization and surgical and major
medical coverages, sick leave, vacations and
5
<PAGE>
holidays, long-term disability and such other related fringe benefits and
executive perquisites as are available to executive employees of the Company
(each computed in the same manner as in prior years) and (ii) such other
benefits or perquisites as he has received prior to the date of such Change of
Control; PROVIDED, HOWEVER, that if the Company is unable by operation of law or
the terms of the applicable plan to continue the participation of the Executive
in any such plan the Company will provide the Executive with a comparable level
of compensation or benefits. The Executive's election pursuant to paragraph
1(b) hereof to commence a Terminal Employment Period and Consulting Period shall
not adversely affect the Executive's right to receive any compensation accrued
prior to the date of such election.
(ii) The Company shall pay the Executive, at the time the Executive
exercises any option for shares granted to the Executive in the option agreement
dated April 13, 1992 (the "Option Agreement"), an amount equal to the amount per
share by which the option exercise price of shares granted in the Option
Agreement exceeds $15 per shares multiplied by the number of options so
exercised. Notwithstanding anything in this Agreement to the contrary, the
provisions of this paragraph 2(a)(ii) shall survive the termination or
expiration of this Agreement to the extent that
6
<PAGE>
the Executive or his estate may exercise options pursuant to the terms of the
Option Agreement.
(b) During the Consulting Period, the Executive shall receive a
consulting fee at an annual rate in no event less than the annual rate of his
salary on the date hereof. The salary equivalent portion of the consulting fee
calculated in accordance with the preceding sentence shall be paid in equal
installments on the first day of each month during the Consulting Period. The
consulting fee shall begin to accrue upon the commencement of the Consulting
Period. During the Consulting Period, the Executive shall participate in all
the Company's formal group life insurance, hospitalization and surgical and
major medical coverages and long-term disability benefits, in each case to the
same extent as would an officer of the Company receiving comparable
compensation; PROVIDED, HOWEVER, that if the Executive is ineligible (e.g., by
operation of law or the terms of the applicable plan) to continue the
participation of the Executive in any such plan the Company will provide the
Executive with a comparable level of compensation or benefits; and further
provided that participation in any of these plans shall terminate if the
Executive is eligible for similar benefits under another company's plans; and
further provided that upon attainment of age 65, the Executive's
7
<PAGE>
entitlement to participation in such benefit plans shall follow normal practice
of the Company with respect to retired executives.
(c) After a Change of Control occurs, the Company shall be obligated
hereunder to reimburse the Executive for reasonable business expenses actually
incurred or paid by him, consistent with the policies of the Company, in
rendering to the Company the services provided for herein, upon presentation of
expense statements or such other supporting information as the Company may
customarily require of its senior executives.
(d) If the Executive engages in self-employment or part-time
employment at any time during the Terminal Employment Period or the Consulting
Period, amounts payable hereunder shall be reduced by an amount equal to one-
half of all cash compensation earned by the Executive during such Terminal
Employment Period or Consulting Period, as the case may be, from such self-
employment or part-time employment.
3. OTHER ACTIVITIES. At all times during the Terminal Employment
Period and the Consulting Period the Executive shall not, without the written
consent of the Company, directly or indirectly engage in, as a director,
officer, employee or partner, any business, association, firm or corporation
(other than the Company or any parent, subsidiary or successor of it) that is
8
<PAGE>
engaged in whole or in part in a business that is in substantial and direct
competition with the business of the Company or any of its subsidiaries and at
all times will not act in any manner which could reasonably be held to be
contrary to the best interests of the Company.
4. TERMINATION. (a) The Company may terminate this Agreement and
all the Company's obligations hereunder, except for obligations accrued but
unpaid to the effective date of termination, solely for "cause". "Cause" shall
mean (i) the Executive's wilful refusal, without proper cause, to render
services hereunder on substantially a full-time basis or (ii) conviction of a
crime involving moral turpitude. Such termination shall be effected by notice
thereof hand delivered by the Company to the Executive and, except as
hereinafter provided, shall be effective as of the thirtieth day after receipt
by the Executive of such notice. If, within the 30-day period following the
date of receipt of such notice of termination for cause as defined in clause (i)
above, the Executive shall resume rendering services on substantially a full-
time basis, the termination shall not be effective.
(b) This Agreement may be terminated for any reason by the Executive
upon not less than six month's prior notice to the
9
<PAGE>
Company. After the occurrence of a Change of Control, this Agreement may be
terminated by the Executive upon not less than 10 days' prior notice to the
Company because of a breach by the Company of its obligations hereunder. In the
event the Executive terminates this Agreement because of a breach by the Company
of its obligations hereunder, although the Employment Period (or the Terminal
Employment Period or Consulting Period, as the case may be) will then be
terminated, the Executive shall continue to receive all the compensation
provided for in paragraph 2 hereof and shall be entitled to all the benefits
otherwise provided for herein for the remainder of the term of this Agreement,
notwithstanding such termination.
(c) In the event of termination of this Agreement by the Executive as
a result of the breach by the Company of any of its obligations hereunder, or in
the event of the termination of the Executive's employment by the Company in
breach of this Agreement, the Executive shall be required to seek other
employment in order to mitigate his damages hereunder, unless he has reached age
62.
(d) In the event that the Executive institutes any legal action to
enforce his rights under, or to recover damages for breach of this Agreement,
the Executive, if he is the prevailing party, shall be entitled to recover from
the Company any actual
10
<PAGE>
expenses for attorney's fees and disbursements incurred by him.
5. FULL-TIME REEMPLOYMENT. Immediately upon commencement of the
Terminal Employment Period and until the Executive attains the age of 62 years,
the Executive has the obligation to seek, vigorously and expeditiously,
appropriate employment elsewhere. During the Terminal Employment Period or the
Consulting Period, upon receipt of a written notice from the Executive that he
has been reemployed by another corporation or other entity on a full-time basis,
the obligation of the Company hereunder to pay the Executive the compensation
provided for in paragraph 2 hereof (except for obligations accrued but unpaid to
the date of such notice) shall terminate. Upon receipt of such notice the
Company shall pay the Executive, in addition to any amounts accrued hereunder
but unpaid, an amount equal to one quarter of the aggregate amount that would
otherwise have been payable to him under this Agreement during the remainder of
the Terminal Employment Period and the Consulting Period had he not become so
reemployed.
6. DISABILITY. In the event the Employment Period is terminated as a
result of Disability, until the earlier of the date on which the Employment
Period was otherwise scheduled to end at the time of such Disability, the date
of the Executive's death or
11
<PAGE>
the date on which the Executive attains the age of 65 years, or in the event the
Executive becomes unable to render services hereunder during either the Terminal
Employment Period or the Consulting Period as a result of Disability until the
end of the Consulting Period, the Executive shall be paid all compensation
payable to the Executive under the Company's long-term disability plan or
policy, for such period, plus an additional payment from the Company (if
necessary) such that the aggregate amount received by the Executive in the
nature of salary continuation from all sources equals the salary at the rate in
effect at the commencement of Disability.
7. INDEMNIFICATION. After the occurrence of a Change of Control, the
Executive shall be entitled throughout the remaining term of this Agreement and
thereafter to indemnification in respect of any actions or omissions as an
employee, officer or director of the Company (or any successor pursuant to
paragraph 12 hereof), whether occurring before or after such Change of Control,
to the fullest extent permitted by law.
8. REMEDIES. Effective upon the occurrence of a Change of Control,
the Company waives, and will not assert, any right to setoff the amount of any
claims, liabilities, damages or losses the Company may have against any amounts
payable by the Company to the Executive hereunder, and any amounts payable to or
otherwise
12
<PAGE>
accrued for the account of the Executive in respect of any period prior to the
effective termination of this Agreement shall be paid as provided in this
Agreement. After the occurrence of a Change of Control, the Company's sole
remedy for any asserted violation of any provision of this Agreement shall be to
terminate the Executive's employment in accordance with this Agreement.
9. ARBITRATION. After the occurrence of a Change of Control, any
controversy or claim arising out of or relating to this Agreement, or any breach
thereof, shall be adjudicated only by arbitration in accordance with the rules
of the American Arbitration Association, and judgment upon such award rendered
by the arbitrator may be entered in any court having jurisdiction thereof. The
arbitration shall be held in New York City, New York, or such other place as may
be agreed upon at the time by the parties to the arbitration.
10. GOVERNING LAW. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York.
11. ASSIGNABILITY. (a) In the event that the Company shall merge or
consolidate with any other corporation or all or substantially all the Company's
business or assets shall be transferred in any manner to any other person, such
successor shall
13
<PAGE>
thereupon succeed to, and be subject to, all rights, interests, duties and
obligations of, and shall thereafter be deemed for all purposes hereof to be,
the Company hereunder. This Agreement shall be binding upon and inure to the
benefit of any such successor and the legal representatives of the Executive.
(b) This Agreement is personal in nature and neither of the parties
hereto shall assign or transfer this Agreement or any rights or obligations
hereunder, except by operation of law or pursuant to the terms of this paragraph
11.
12. AMENDMENTS; WAIVERS. This Agreement may be amended, modified,
superseded, canceled, renewed or extended and the terms or covenants hereof may
be waived only by a written instrument executed by both of the parties hereto,
or, in the case of a waiver, by the party waiving compliance. The failure of
either party at any time or times to require performance of any provision hereof
shall in no manner affect the right at a later time to enforce the same. No
waiver by either party of the breach of any term or covenant contained in this
Agreement, whether by conduct or otherwise, in any one or more instances, shall
be deemed to be, or construed as, a further or continuing waiver of any such
breach, or a waiver of the breach of any other term or covenant contained in
this Agreement.
14
<PAGE>
IN WITNESS WHEREOF the parties hereto have executed this Agreement, as
of the date and year first above written.
/s/ Laurence H. Polsky
-----------------------------
COLTEC INDUSTRIES INC
By /s/ John W. Guffey, Jr.
-----------------------------
15
<PAGE>
EXHIBIT 12.1
COLTEC INDUSTRIES INC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------
1994 1993 1992 1991 1990
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings from continuing
operations before
extraordinary item . . . . . . . . . . . . $ 93,989 $ 65,226 $ 64,683 $ 2,209 $ 40,934
Add (deduct):
Income taxes:
Federal and foreign. . . . . . . . . . . 52,869 36,293 42,577 28,300 33,770
State and local. . . . . . . . . . . . . 4,931 1,877 1,886 1,538 913
Portion of rents representative
of interest factor (1) . . . . . . . . . . 3,369 4,078 4,283 4,268 4,246
Interest expense . . . . . . . . . . . . . 90,337 111,497 137,797 201,954 206,027
--------------------------------------------------------------------
Earnings from continuing
operations before
extraordinary item,
as adjusted. . . . . . . . . . . . . . . . $245,495 $218,971 $251,226 $238,269 $285,890
--------------------------------------------------------------------
--------------------------------------------------------------------
Fixed charges:
Interest expense . . . . . . . . . . . . . $ 90,337 $ 111,497 $137,797 $201,954 $206,027
Capitalized interest . . . . . . . . . . . 689 1,140 1,196 955 1,015
Portion of rents representative
of interest factor (1) . . . . . . . . . . 3,369 4,078 4,283 4,268 4,246
---------------------------------------------------------------------
Fixed charges. . . . . . . . . . . . . . . . $ 94,395 $116,715 $143,276 $207,177 $211,288
--------------------------------------------------------------------
--------------------------------------------------------------------
Ratio of earnings to
fixed charges. . . . . . . . . . . . . . . 2.6 1.9 1.8 1.2 1.4
--------------------------------------------------------------------
--------------------------------------------------------------------
<FN>
- ---------------
Note:
(1) Estimated to be 1/3 of total rent expense.
</TABLE>
<PAGE>
EXHIBIT 13.1
FINANCIAL INFORMATION
CONTENTS
Page
----
Selected Financial Data.............................................. 17
Financial Review..................................................... 18
Consolidated Balance Sheet........................................... 26
Consolidated Statement Of Earnings................................... 28
Consolidated Statement Of Cash Flows................................. 29
Consolidated Statement Of Shareholders' Equity....................... 30
Notes To Financial Statements........................................ 31
Report of Management................................................. 42
Report Of Independent Public Accountants............................. 42
<PAGE>
COLTEC INDUSTRIES INC SELECTED FINANCIAL DATA
The following table sets forth selected financial data of Coltec for the five
years ended December 31, 1994. The selected financial data, with the exception
of order backlog and employee data, were derived from the financial statements
of Coltec, certain of which statements have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included elsewhere
herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1994 1993 1992 1991 1990
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Sales $1,326.8 $1,334.8 $1,368.7 $ 1,373.0 $ 1,487.2
----------------------------------------------------------------------------
Operating income(a) 236.3 211.7 243.1 229.0 268.9
----------------------------------------------------------------------------
Earnings from continuing operations before
interest, income taxes and extraordinary item(b) 236.3 211.7 243.1 230.4 278.1
Interest and debt expense, net 89.5 110.2 135.8 199.9 203.4
Provision for income taxes 52.8 36.3 42.6 28.3 33.8
----------------------------------------------------------------------------
Earnings from continuing operations
before extraordinary item(a) 94.0 65.2 64.7 2.2 40.9
Discontinued operations(c) -- -- -- -- 17.7
Extraordinary item(d) (1.5) (17.8) (106.9) .6 (4.5)
----------------------------------------------------------------------------
Net earnings (loss) 92.5 47.4 (42.2) 2.8 54.1
----------------------------------------------------------------------------
Earnings (loss) per common share:
Continuing operations 1.35 .94 1.11 .09 1.64
Discontinued operations -- -- -- -- .70
Extraordinary item (.02) (.26) (1.83) .02 (.18)
----------------------------------------------------------------------------
Net earnings (loss) 1.33 .68 (.72) .11 2.16
----------------------------------------------------------------------------
Ratio of earnings to fixed charges(e) 2.6 1.9 1.8 1.2 1.4
----------------------------------------------------------------------------
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital 189.6 163.1 95.3 168.8 162.9
Total assets 847.5 796.5 817.9 823.2 867.2
Long-term debt (including current portion) 970.1 1,033.6 1,122.1 1,622.9 1,646.3
Shareholders' equity (525.6) (625.5) (666.6) (1,194.5) (1,188.4)
OTHER OPERATING DATA:
Operating margin(a) 17.8% 15.9% 17.8% 16.7% 18.1%
Cash provided by operating activities 98.2 105.2 119.9 149.2 155.5
Capital expenditures 38.2 38.6 25.0 26.2 23.2
Depreciation of property, plant and equipment 31.1 33.2 35.3 36.9 36.8
Order backlog (at end of period) 668.8 669.7 709.1 808.8 864.2
Number of employees (at end of period) 9,800 10,000 10,700 11,400 12,400
----------------------------------------------------------------------------
----------------------------------------------------------------------------
<FN>
(A) OPERATING INCOME FOR 1993 INCLUDED A $25.2 MILLION RESTRUCTURING CHARGE TO
COVER THE COST OF CONSOLIDATION AND REARRANGEMENT OF CERTAIN MANUFACTURING
FACILITIES AND RELATED REDUCTIONS IN WORK FORCE, PRIMARILY IN THE
AEROSPACE/GOVERNMENT SEGMENT, AS WELL AS AT CENTRAL MOLONEY TRANSFORMER
DIVISION. IF THE RESTRUCTURING CHARGE WAS EXCLUDED, OPERATING INCOME,
EARNINGS FROM CONTINUING OPERATIONS BEFORE EXTRAORDINARY ITEM AND THE
OPERATING MARGIN WOULD HAVE BEEN $236.9 MILLION, $80.5 MILLION AND 17.7%,
RESPECTIVELY, IN 1993. CENTRAL MOLONEY WAS SOLD IN JANUARY 1994.
(B) EARNINGS FROM CONTINUING OPERATIONS BEFORE INTEREST, INCOME TAXES AND
EXTRAORDINARY ITEM INCLUDE FOR 1991 AND 1990, $1.4 MILLION AND $9.2 MILLION,
RESPECTIVELY, OF DIVIDEND INCOME FROM COLTEC'S MINORITY INTEREST IN CRUCIBLE
MATERIALS CORPORATION. IF SUCH ITEM WAS EXCLUDED, EARNINGS FROM CONTINUING
OPERATIONS BEFORE INTEREST, INCOME TAXES AND EXTRAORDINARY ITEM WOULD HAVE
BEEN $229.0 MILLION AND $268.9 MILLION FOR THE YEARS ENDED DECEMBER 31, 1991
AND 1990, RESPECTIVELY.
(C) ON MARCH 22, 1990, COLTEC SOLD SUBSTANTIALLY ALL THE ASSETS OF THE COLT
FIREARMS DIVISION TO A COMPANY FORMED BY A GROUP OF PRIVATE INVESTORS
FOR TOTAL PROCEEDS OF $51.6 MILLION AND A GAIN OF $17.3 MILLION.
COLTEC HAS ACCOUNTED FOR THE SALES, EXPENSES, ASSETS AND LIABILITIES OF
COLT FIREARMS AS A DISCONTINUED OPERATION.
(D) COLTEC RECOGNIZED EXTRAORDINARY ITEMS IN EACH OF THE FIVE YEARS ENDED
DECEMBER 31, 1994 IN CONNECTION WITH DEBT REFINANCINGS AND EARLY RETIREMENT
OF DEBT AND, IN 1992 IN CONNECTION WITH THE RECAPITALIZATION.
(E) FOR PURPOSES OF CALCULATING THE RATIO OF EARNINGS TO FIXED CHARGES, EARNINGS
ARE DETERMINED BY ADDING FIXED CHARGES (EXCLUDING CAPITALIZED INTEREST) AND
INCOME TAXES TO EARNINGS FROM CONTINUING OPERATIONS. FIXED CHARGES CONSIST
OF INTEREST EXPENSE, CAPITALIZED INTEREST AND THAT PORTION OF RENTAL EXPENSE
DEEMED TO BE REPRESENTATIVE OF THE INTEREST FACTOR.
</TABLE>
17
<PAGE>
COLTEC INDUSTRIES INC FINANCIAL REVIEW
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1994, COMPARED WITH
YEAR ENDED DECEMBER 31, 1993
For 1994, earnings before extraordinary item were $94.0 million compared with
$65.2 million last year; and earnings per share before extraordinary item were
$1.35 per common share compared with 94 cents per common share in 1993.
Excluding a restructuring charge of $25.2 million that was recorded in the
second quarter of 1993, earnings before extraordinary item were $80.5 million in
1993 equal to $1.16 per common share. The higher 1994 earnings were due to a
significant reduction in interest expense which resulted from refinancing bank
debt in January 1994, as well as to strong performances by the Automotive and
Industrial segments. Sales of $1,326.8 million were slightly less than the
$1,334.8 million in 1993; however, excluding the sales of the Central Moloney
Transformer Division, sales were up 4% from $1,270.6 million last year.
Operating income was $236.3 million and the operating margin was 17.8% in 1994
compared with operating income of $211.7 million and an operating margin of
15.9% in 1993. Excluding the restructuring charge and Central Moloney
Transformer, operating income was $238.0 million and the operating margin was
18.7% in 1993. Central Moloney Transformer was sold in January 1994 at a price
approximating book value.
Aerospace/Government segment operating income was level compared with 1993 on
a 7% decline in sales and the operating margin was 16.0% compared with 15.0%
last year. Excluding the restructuring charge, operating income was down 21%
and the 1993 operating margin was 18.9%. Operating income for the
Aerospace/Government segment was $67.7 million on sales of $422.1 million,
compared with operating income of $67.8 million, $85.5 million excluding the
restructuring charge, on sales of $453.3 million in 1993. The Aerospace/
Government segment continued to be affected in 1994 by the
difficult market conditions in the aerospace industry, reflecting fewer
deliveries of commercial aircraft and the downward trend in military
spending. Also contributing to the lower segment results were a gap
in shipments for U.S. Navy programs at the Fairbanks Morse Engine Division
and production inefficiencies at Walbar that resulted from the consolidation
of facilities, which began in 1993, and the introduction of new products and
technologies. In the Automotive segment, operating income improved 12% on a
14% sales increase and the operating margin was 22.4% compared with 23.0% in
1993. Excluding the restructuring charge, operating income improved 8% and
the operating margin was 23.8% in 1993. Operating income and sales for the
Automotive segment were $114.2 million and $508.7 million, respectively, in
1994. This compared with operating income of $102.4 million, $106.2 million
excluding the restructuring charge, and sales of $445.7 million in 1993. The
operating results for the Automotive segment benefited from a strong
automotive industry and from increased applications for segment components.
Record sales and earnings performances were reported by the Stemco Truck
Products and Farnam Sealing Systems Divisions. The Industrial segment
reported a 16% improvement in operating income and a record 22.2% operating
margin in 1994, compared with 17.4% in the prior year. Sales for
the Industrial segment declined 9% in 1994; however, excluding the
restructuring charge and Central Moloney Transformer, sales were up 5%,
operating income improved 9% and the operating margin was 22.4% compared with
21.7% in 1993. Segment operating income was $88.4 million and sales were
$397.7 million compared with operating income of $75.9 million and sales of
$436.7 million in 1993. Excluding the restructuring charge and Central
Moloney Transformer, operating income and sales were $80.7 million and $372.5
million, respectively, in 1993. Record sales and earnings were reported by
the Quincy Compressor, Garlock Bearings, and Delavan Commercial Products
Divisions; and the Sterling Die and Haber Tool Operations.
Following is a discussion of the results of operations for the year ended
December 31, 1994, compared with the year ended December 31, 1993.
SALES. Sales of $1,326.8 million were slightly less than the $1,334.8 million in
1993 but 4% higher after excluding Central Moloney Transformer. Sales in the
Aerospace/Government segment were $422.1 million compared with $453.3 million
last year. The sales decline reflected the continued general weakness in the
aerospace industry and lower military sales. In 1994, sales to the military and
other branches of the United States Government accounted for $138 million, or
33%, of total sales for the Aerospace/Government segment, compared with $173
million, or 38%, in 1993 and $192 million, or 37%, in 1992. For Coltec, sales to
the military and other branches of the United States Government were $143
million, $190 million and $210 million, or 11%, 14% and 15%, in 1994, 1993 and
1992, respectively. Sales at Menasco were down in 1994 due to lower shipments of
flight controls for the Fokker 100 aircraft and landing gear systems for the
Boeing 757 and 767 aircraft. Sales of landing gear systems in total were
slightly higher in 1994 reflecting shipments on new programs for the Boeing 777
aircraft and the Fokker 70 and 100 aircraft. In 1994, Menasco delivered 13
shipsets of landing gear systems for the Boeing 777 aircraft compared to three
shipsets in 1993. Sales were lower at Fairbanks Morse Engine due to a gap in
shipments for U.S. Navy programs. The division will
18
<PAGE>
begin shipping engines for the U.S. Navy Sealift program in 1995. In the first
quarter of 1994, Fairbanks Morse Engine acquired equipment and other assets
related to the Alco engine business from GE Transportation Systems. The first
Alco engines being built by Fairbanks Morse Engine will be delivered in 1995.
Sales were down at Chandler Evans Control Systems Division due to lower demand
for fuel controls from both commercial and military markets; and at Walbar, due
to lower shipments of blades and rotating parts for gas turbine engines to
aircraft engine manufacturers. The sales decline at Walbar was offset in part by
strong demand for repair and coating services for gas turbine engine components.
Delavan Gas Turbine Products Division reported lower sales on continued
reductions in defense spending.
Sales for the Automotive segment increased 14% to $508.7 million, reflecting the
continued strong automotive industry and increased applications for segment
components. All divisions within the Automotive segment reported increased sales
in 1994. Sales were higher at Holley Automotive on strong market acceptance for
new transmission solenoid products that were introduced in 1992 and 1993 and on
increased demand for transmission modulators and manifold assemblies. Shipments
of oil pumps and both mechanical and electrical emission-control air pumps were
up at Coltec Automotive Division. The higher sales of electrical
emission-control air pumps reflected the acquisition late in 1993 of General
Motor's air pump manufacturing operation and Coltec Automotive becoming sole
source of these components to the automaker's North American operations. The
sales improvement at Farnam Sealing Systems was due to strong demand for
transmission gaskets and seals from both original equipment manufacturers and
the aftermarket. Contributing to the higher sales at Stemco Truck Products were
increased shipments of wheel lubrication systems and muffler and exhaust system
components to manufacturers of heavy trucks and trailers; and selected price
increases. Shipments were up at Holley Performance Parts Division on improved
pricing and higher shipments of performance carburetors and fuel injection
systems, reflecting increased consumer spending in 1994.
Industrial segment sales were $397.7 million in 1994 compared with $436.7
million last year; however, excluding Central Moloney Transformer, sales
increased 5% to $392.9 million from $372.5 million in 1993. The higher sales
reflected continuing improvements in the markets served by our Industrial
businesses, as well as selected price increases and new product introductions.
Quincy Compressor reported record sales of compressors on improved market
conditions, increased market penetration and higher selling prices. Shipments
were significantly higher for Quincy's QSI rotary screw compressor. At Garlock
Bearings, sales were higher as a result of new applications for DU bearings and
greater demand for bearings from all markets served. The sales improvement at
Delavan Commercial Products was due to higher shipments of oil burner nozzles to
the home heating market; and to price increases and the introduction of new
products. The increased demand for oil burner nozzles reflected the unusually
cold 1993-1994 winter in the Northeast and Midwest, as well as expanded market
share. Strong demand for metal-cutting and metal-forming tools from the
automotive industry resulted in the strong sales improvement at Sterling Die and
Haber Tool. Sales at Garlock Mechanical Packing and France Compressor Products
Divisions benefited from improving market conditions in the chemical and
petroleum industries, higher selling prices and new product introductions. The
increase in Industrial segment sales was offset in part by lower demand for
Garlock Plastomer's PTFE insulating tape from the aerospace market.
COST OF SALES. Cost of sales declined slightly in 1994; however, excluding
Central Moloney, cost of sales was 5% higher. This increase reflected the higher
sales volume in the Automotive and Industrial segments as well as production
inefficiencies at Walbar that resulted from the consolidation of facilities,
which began in 1993, and the introduction of new products and technologies. Also
contributing to the increase in cost of sales were higher manufacturing costs at
Fairbanks Morse Engine attributable to the Alco engine business, increased
spending for research and development, and higher maintenance costs. The higher
cost was offset in part by benefits realized from cost-reduction programs and
the restructuring program that was completed in 1994. As a percent of sales,
cost of sales increased to 67.2% from 66.6%, after excluding Central Moloney.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense,
including other income and expense, increased 3% in 1994 and, after excluding
Central Moloney, the increase was 6%. This increase was due mainly to
higher state and local income taxes and to the recovery in 1993 of
previously incurred engineering expense by Coltec Automotive. The higher
selling and administrative expense was offset in part by cost savings
resulting from reductions in the sales force at Garlock Mechanical
Packing. As a percent of sales, selling and administrative expense
increased to 15.0% in 1994 from 14.7% in 1993, after excluding Central
Moloney.
INTEREST AND DEBT EXPENSE, NET. Interest and debt expense, net declined $20.7
million or 19% in 1994 due to lower borrowing costs, under the $415.0 million
reducing revolving credit facility (the "1994 Credit Agreement") and to
repayments of long-term debt.
19
<PAGE>
PROVISION FOR INCOME TAXES. The effective income tax rate for 1994 was 36.0%
compared with 35.75% for 1993. During 1994, the U.S. Internal Revenue Service
completed its examination of the consolidated federal income tax returns of
Coltec and Coltec Holdings Inc. ("Holdings"), the former parent of Coltec, for
the years 1990, 1991 and 1992, and the resulting tax assessments previously
provided for were paid.
EXTRAORDINARY ITEM. Coltec incurred extraordinary charges of $1.5 million
in 1994 in connection with the early retirement of debt and $17.8 million
in 1993 in connection with debt refinancings and the early retirement of debt.
YEAR ENDED DECEMBER 31, 1993, COMPARED WITH
YEAR ENDED DECEMBER 31, 1992
Earnings before extraordinary item for 1993 were $65.2 million, equal to 94
cents per common share, or $80.5 million, equal to $1.16 per common share,
excluding the $25.2 million restructuring charge. This compared with earnings
before extraordinary item of $64.7 million, or $1.11 per common share, in
1992. Sales were $1,334.8 million in 1993 compared with $1,368.7 million in
1992. Operating income for 1993 was $211.7 million and the operating margin
was 15.9%. Excluding the restructuring charge, operating income was $236.9
million and the operating margin was 17.7%. For 1992, operating income was
$243.1 million and the operating margin was 17.8%. Although sales and
operating income declined slightly in 1993, Coltec was able to maintain its
operating margin, excluding the restructuring charge, at about the same level
as in 1992. This performance was achieved despite 1993 being a difficult year
for two of the major markets served by Coltec. The aerospace industry
continued to be impacted by declining orders for new commercial aircraft and
cuts in defense spending; and the nation's manufacturing sector, the primary
market for the Industrial segment, remained weak.
The Aerospace/Government segment reported a 34% decline in operating income in
1993 on a 13% sales decline and an operating margin of 15.0% compared with 19.5%
in 1992. Excluding the restructuring charge, operating income declined 16% in
1993 and the segment's operating margin was 18.9%. Operating income for 1993 was
$67.8 million, $85.5 million excluding the restructuring charge, on sales of
$453.3 million, compared with operating income of $102.1 million on sales of
$523.7 million in 1992. The Automotive segment achieved a record 23.0% operating
margin in 1993, compared with 21.1% in 1992, a 20% improvement in operating
income and an 11% increase in sales. Excluding the restructuring charge, the
Automotive segment's operating margin was 23.8% and operating income improved
25%. Operating income was $102.4 million, $106.2 million excluding the
restructuring charge, on sales of $445.7 million compared with operating income
of $85.1 million on sales of $402.6 million in 1992. This strong performance
reflects higher new car and truck production, increased applications for segment
components and the introduction of new automotive products. In the Industrial
segment, operating income and sales were down 10% and 2%, respectively, and
segment operating margin declined to 17.4% from 19.0% in 1992. Excluding the
restructuring charge, Industrial segment operating income was down 6% and the
operating margin for 1993 was 18.2%. Segment operating income was $75.9 million,
$79.6 million excluding the restructuring charge, and sales were $436.7 million,
compared with operating income of $84.4 million and sales of $443.8 million in
1992. Higher sales and earnings performances were reported by Quincy Compressor
and Garlock Bearings, while Garlock Mechanical Packing, France Compressor
Products and FMD Electronics reported lower results in 1993.
Following is a discussion of the results of operations for the year ended
December 31, 1993, compared with the year ended December 31, 1992.
SALES. Sales of $1,334.8 million in 1993 were 2% lower than the $1,368.7 million
in 1992. In the Aerospace/Government segment, sales were $453.3 million compared
with $523.7 million in 1992. The decline in Aerospace/Government segment sales
reflected lower demand for new commercial aircraft resulting from the excess
capacity of the world airline fleets, as well as continued declines in defense
spending. In spite of the weak economic conditions in the aerospace industry,
Menasco began shipping components for new commercial programs in 1993, including
landing gear systems for the Boeing 777 aircraft and flight controls for the
Fokker 70 aircraft. In 1993, Menasco reported lower sales of landing gear
systems for the Boeing 737, 757 and 767 aircraft and the McDonnell Douglas
MD-80 aircraft; flight controls for the Fokker 100 aircraft; and lower
military sales, primarily for spare parts. Sales of overhaul and repair
services by Menasco declined due mainly to increased competition and the
economic slowdown in Europe. The decline in sales at Fairbanks Morse Engine
was due to completion of certain government programs and lower shipments of
engines to the commercial sector. Late in 1993, Fairbanks Morse Engine was
awarded a contract to provide engines for the U.S. Navy Sealift program.
Sales at Chandler Evans Control Systems declined in 1993 on lower demand for
fuel pumps from both the commercial and military markets. Walbar reported
higher sales in 1993 on increased demand for repair and coating services, and
on increased shipments of turbine blades and vanes for commercial aircraft
engines.
For 1993, Automotive segment sales increased 11% to $445.7 million,
reflecting the recovery of the domestic automotive industry that
20
<PAGE>
began in 1992 and continued to accelerate in 1993. Also contributing to the
sales improvement were increased applications for segment components and the
introduction of new automotive products. Higher volume, including increased
applications for segment components, and new product sales contributed 7% and
4%, respectively, to the total sales increase. Sales were higher at Holley
Automotive on increased demand for manifold assemblies and transmission
solenoids, and on the introduction of new automotive products. Coltec Automotive
reported increased shipments of oil pumps into the European automotive market
and mechanical emission control air pumps for use on light trucks and vans. The
sales improvement at Stemco Truck Products was due to the continued demand for
wheel lubrication systems from original equipment manufacturers, reflecting
increased truck and trailer production, and to increased aftermarket shipments,
resulting from gains in market share. Farnam Sealing Systems reported higher
sales on increased demand from the original equipment market for engine and
transmission products. Holley Performance Products reported lower sales in 1993
reflecting the continuing decline in demand for carburetors in the aftermarket.
Sales for the Industrial segment in 1993 were $436.7 million, or 2% lower
than in 1992. Sales were higher at Quincy Compressor on increased shipments
of rotary screw air compressors, strong demand for compressor parts and
accessories, and new product introductions. Garlock Bearings reported higher
sales on new applications for DU bearings and strong demand from the truck
market for DX bearings. Sales were up at Sterling Die and Haber Tool due
primarily to increased demand from the automotive market, and at Garlock
Plastomer Products on acceptance from the aerospace industry for its new PTFE
insulating tape. At Garlock Mechanical Packing, sales of KLOZURE oil seals
and industrial seals were higher on increased demand from original equipment
manufacturers; while sales of gasketing and compressed sheet products
declined due to softness in the petrochemical market. Sales were lower in
1993 at Garlock Valves & Industrial Plastics due to the slowdown in the
European economy. Delavan Commercial Products reported lower sales due to the
foreign exchange translation impact on sales of its U.K. affiliate and to
lower demand for agricultural nozzles and pumps.
COST OF SALES. Cost of sales decreased 4% in 1993 reflecting lower sales volume
for the Aerospace/Government segment and Central Moloney Transformer, improved
manufacturing processes, lower maintenance cost and depreciation expense, and
benefits realized from the restructuring program. As a percent of sales, cost of
sales declined to 67.8% from 69.0% in 1992.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense,
including other income and expense, increased 6% in 1993. This increase
results primarily from a full year of amortization expense on restricted
stock awards granted in 1992 and from the inclusion in 1992 of a nonrecurring
reduction in insurance cost and receipt of a $8.7 million license fee by
Menasco Aerosystems. The increase in 1993 selling and administrative expense
was offset in part by recovery of previously incurred engineering expense by
Coltec Automotive. As a percent of sales, selling and administrative expense
increased to 14.4% from 13.2% in 1992.
RESTRUCTURING CHARGE. The restructuring charge of $25.2 million recorded in the
second quarter of 1993 covered the cost of consolidation and rearrangement of
certain manufacturing facilities and related reductions in work force by
approximately 570 employees, primarily in the Aerospace/Government segment, as
well as at Central Moloney Transformer. Key elements of the restructuring
program included closing a landing gear manufacturing facility and consolidation
of landing gear production at two existing Menasco facilities, closing a
turbine engine components facility and consolidating production of these
components at three existing Walbar facilities, and closing one of two Central
Moloney Transformer plants. At Chandler Evans Control Systems, the manufacturing
area was reduced; and at Holley Performance Products, administrative offices and
the distribution operation were relocated to one of the division's manufacturing
facilities. The objectives of the restructuring program were completed in 1994.
The liability for the restructuring charge, funded from operations in
approximately equal amounts in 1993 and 1994, has been fully utilized as of
December 31, 1994 and there were no revisions to the restructuring charge
subsequent to the second quarter of 1993.
INTEREST AND DEBT EXPENSE, NET. Net interest expense declined $25.7 million,
or 19%, in 1993. Included in 1992 was substantial interest expense that was
reduced significantly by the recapitalization completed on April 1, 1992.
PROVISION FOR INCOME TAXES. The effective income tax rate for 1993 was 35.75%
compared with 39.7% in 1992. The lower effective tax rate for 1993 was
principally due to the disaffiliation of Coltec from Holdings as a result of
the recapitalization and the adjustment of reserves, partially offset by the
increase in the U.S. statutory rate from 34% to 35%.
EXTRAORDINARY ITEM. In 1993, Coltec incurred extraordinary charges of $17.8
million in connection with debt refinancings and the early retirement of
debt. This included $14.7 million from a debt refinancing completed in
January 1994. In 1992, Coltec incurred extraordinary charges of $105.3
million, in connection with the recapitalization, and $1.6 million, from the
early retirement of debt.
21
<PAGE>
INDUSTRY SEGMENT INFORMATION
The following table shows financial information by industry segment for the
five years ended December 31, 1994.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
(DOLLARS IN MILLIONS) 1994 1993 1992 1991 1990
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales:
Aerospace/Government $ 422.1 $ 453.3 $ 523.7 $ 562.8 $ 581.9
Automotive 508.7 445.7 402.6 372.6 436.1
Industrial(a) 397.7 436.7 443.8 439.3 470.2
Intersegment elimination(b) (1.7) (.9) (1.4) (1.7) (1.0)
------------------------------------------------------------------------
Total $1,326.8 $1,334.8 $1,368.7 $1,373.0 $1,487.2
------------------------------------------------------------------------
Operating income(c):
Aerospace/Government $ 67.7 $ 67.8 $ 102.1 $ 109.6 $ 107.6
Automotive 114.2 102.4 85.1 59.3 93.9
Industrial(a) 88.4 75.9 84.4 80.2 96.1
------------------------------------------------------------------------
Total segments 270.3 246.1 271.6 249.1 297.6
Corporate unallocated(d) (34.0) (34.4) (28.5) (20.1) (28.7)
------------------------------------------------------------------------
Operating income $ 236.3 $ 211.7 $ 243.1 $ 229.0 $ 268.9
------------------------------------------------------------------------
Operating margin(c):
Aerospace/Government 16.0% 15.0% 19.5% 19.5% 18.5%
Automotive 22.4 23.0 21.1 15.9 21.5
Industrial(a) 22.2 17.4 19.0 18.3 20.4
------------------------------------------------------------------------
Total 17.8% 15.9% 17.8% 16.7% 18.1%
------------------------------------------------------------------------
Return on total assets(e):
Aerospace/Government 16.8% 17.6% 26.3% 26.7% 25.1%
Automotive 88.2 82.2 71.8 48.1 66.3
Industrial(a) 53.8 42.1 45.2 42.2 49.1
------------------------------------------------------------------------
Total 27.9% 26.6% 29.7% 27.8% 31.0%
------------------------------------------------------------------------
Backlog(f):
Aerospace/Government $ 547.3 $ 524.5 $ 576.9 $ 697.2 $ 738.5
Automotive 84.2 77.6 64.8 47.0 51.5
Industrial(a) 37.3 67.6 67.4 64.6 74.2
------------------------------------------------------------------------
Total $ 668.8 $ 669.7 $ 709.1 $ 808.8 $ 864.2
------------------------------------------------------------------------
------------------------------------------------------------------------
<FN>
(A) EXCLUDING THE CENTRAL MOLONEY TRANSFORMER DIVISION, WHICH WAS SOLD IN JANUARY 1994,
AND THE 1993 RESTRUCTURING CHARGE, INDUSTRIAL SEGMENT SALES,
OPERATING INCOME, OPERATING MARGIN, RETURN ON TOTAL ASSETS AND BACKLOG
WOULD HAVE BEEN AS FOLLOWS:
(DOLLARS IN MILLIONS) 1994 1993 1992 1991 1990
----------------------------------------------------------------------------------
SALES $392.9 $372.5 $365.3 $349.7 $370.7
OPERATING INCOME 88.3 80.7 81.9 75.9 86.0
OPERATING MARGIN 22.4% 21.7% 22.4% 21.7% 23.2%
RETURN ON TOTAL ASSETS 53.7% 50.2% 49.9% 46.0% 50.6%
BACKLOG 37.3 33.5 31.7 30.7 34.0
(B) REFLECTS ELIMINATION OF INTERCOMPANY SALES BETWEEN DIVISIONS IN
DIFFERENT SEGMENTS.
(C) OPERATING INCOME FOR 1993 INCLUDED A $25.2 MILLION RESTRUCTURING CHARGE
AS FOLLOWS: $17.7 MILLION IN AEROSPACE/GOVERNMENT, $3.8 MILLION IN
AUTOMOTIVE AND $3.7 MILLION IN INDUSTRIAL. EXCLUDING THE RESTRUCTURING
CHARGE, OPERATING INCOME AND THE OPERATING MARGIN FOR 1993 WOULD HAVE BEEN
$85.5 MILLION AND 18.9% FOR AEROSPACE/GOVERNMENT, $106.2 MILLION AND 23.8%
FOR AUTOMOTIVE AND $79.6 MILLION AND 18.2% FOR INDUSTRIAL.
(D) REPRESENTS CORPORATE SELLING AND ADMINISTRATIVE EXPENSE, INCLUDING
OTHER INCOME AND EXPENSE, THAT IS NOT ALLOCABLE TO INDIVIDUAL INDUSTRY
SEGMENTS.
(E) RETURN ON TOTAL ASSETS IS CALCULATED FOR EACH SEGMENT BY DIVIDING
SEGMENT OPERATING INCOME BY SEGMENT TOTAL ASSETS AT DECEMBER 31, AND FOR
TOTAL COLTEC BY DIVIDING TOTAL COLTEC OPERATING INCOME BY TOTAL ASSETS
AT DECEMBER 31.
(F) OF THE $668.8 MILLION BACKLOG AT DECEMBER 31, 1994, $250.8 MILLION WAS
SCHEDULED TO BE SHIPPED AFTER 1995.
</TABLE>
22
<PAGE>
DISCONTINUED OPERATIONS
On March 22, 1990, Coltec sold substantially all of the assets of the Colt
Firearms Division to the parent company of Colt's Manufacturing Company, Inc.
(collectively with its parent company, "Colt's Manufacturing"), a company formed
by a group of private investors, for cash and certain securities of Colt's
Manufacturing. On March 18, 1992, Colt's Manufacturing filed a petition for
bankruptcy protection under Chapter 11 of the United States Bankruptcy Code and
on January 19, 1993, the Official Committee of Unsecured Creditors of Colt's
Manufacturing Company, Inc. filed a fraudulent conveyance action against Coltec
and other defendants.
On September 30, 1994, Colt's Manufacturing's plan of reorganization was
approved by the United States Bankruptcy Court. Pursuant to this approval,
Coltec and Colt's Manufacturing entered into a settlement agreement which
included the dismissal of the fraudulent conveyance action against Coltec. All
liabilities assumed by Coltec in this settlement agreement and the previously
held securities of Colt's Manufacturing were fully reserved at the time of the
sale of the Colt Firearms Division in 1990.
LIQUIDITY AND FINANCIAL POSITION
Coltec ended 1994 with total debt of $970.1 million compared with $1,033.6
million in 1993. The negative balance in shareholders' equity of $525.6 million
compares with a negative balance of $625.5 million at year-end 1993. Cash and
cash equivalents were $4.2 million at December 31, 1994 and $5.7 million in
1993. Working capital of $189.6 million was higher by $26.5 million; and the
current ratio was 1.79 compared with 1.83 at year-end 1993.
Cash from operations continues to be the principal source of funds for meeting
Coltec's operating needs and repaying its debt. In 1994, $98.2 million was
generated from operating activities compared with $105.2 million in 1993 and
$119.9 million in 1992. The lower cash generated from operations in 1994 was due
to higher working capital requirements reflecting the build up of inventory for
new programs and a higher level of receivables. The increase in receivables was
due to higher sales in the Automotive and Industrial segments in December 1994
compared with the like period a year ago. Offsetting in part the decline in cash
from operations was the net receipt in 1994 of $10.8 million from insurance
carriers for asbestos-related matters compared with $3.1 million in 1993. The
1993 decrease in cash from operations compared with 1992 was attributable to
increased working capital requirements. The $98.2 million of cash generated in
1994 was used to reduce indebtedness by $58.4 million and invest $38.2 million
in capital expenditures. Included in receivables at December 31, 1994 and 1993
were $68.2 million and $35.8 million, respectively, of receivables due from
insurance carriers for asbestos product liability claims and related litigation
costs. Excluding these amounts, receivables increased 3% to $130.0 million and
receivables days outstanding were 36 days at both year-end 1994 and 1993.
Inventories increased 18% to $198.2 million and inventory turnover was 4.61
times in 1994 compared with 4.76 times in 1993. The increase in inventories was
due to the build up of inventory for the Boeing 777 and Fokker 70 and 100
programs at Menasco and the U.S. Navy Sealift program and Alco engine business
at Fairbanks Morse Engine; and also to reductions in contract advances. The
increase in accrued expenses is due to recording a $34.1 million liability for
asbestos-related matters in 1994 in connection with the adoption in the first
quarter of 1994 of Financial Accounting Standards Board Interpretation No. 39,
"Offsetting of Amounts Related to Certain Contracts." In accordance with
Interpretation No. 39, Coltec has recorded liabilities for asbestos-related
matters that are deemed probable and can be reasonably estimated (settled
actions and actions in advanced stages of processing), and has separately
recorded an asset equal to the amount expected to be recovered by insurance.
Total debt of $970.1 million at December 31, 1994 was $63.5 million or 6% lower
than the total balance at year-end 1993. On January 11, 1994, Coltec entered
into the 1994 Credit Agreement, with a syndicate of banks, which expires June
30, 1999. This facility has provided Coltec with greater financial flexibility
and lower borrowing costs; and has resulted in the ratio of earnings to fixed
charges improving to 2.6 to 1 in 1994 from 1.9 to 1 last year. The 1994 Credit
Agreement was used to prepay indebtedness outstanding and replace letters of
credit issued under a term and working capital facility entered into in 1992. At
December 31, 1994, $291.0 million of borrowings were outstanding and $26.4
million of letters of credit had been issued under the facility leaving $97.6
million of borrowings available for working capital and general corporate
purposes. The 1994 Credit Agreement provides up to $100.0 million for the
issuance of letters of credit and the facility will be reduced $50.0 million on
both January 11, 1997 and 1998. Coltec's loan agreements contain various
restrictions and conditions, with which Coltec is in compliance. Management
believes that cash generated from operations and borrowings available under the
1994 Credit Agreement will be adequate to meet Coltec's operating needs, planned
capital expenditures and debt service requirements
23
<PAGE>
through 1998. In 1999, $441.6 million of debt matures and it is planned that a
portion of this debt will be repaid from cash generated from operations with the
remainder to be refinanced.
During 1994, shareholders' equity increased by $99.9 million to a negative
balance of $525.6 million at the end of 1994. This increase reflects $92.5
million of net earnings, $3.2 million of amortization of unearned compensation
related to restricted shares, $1.8 million of proceeds and tax benefits from the
exercise of stock options and the expiration of restrictions on restricted stock
and elimination of a $4.2 million minimum pension liability; offset by a $1.8
million reduction in foreign currency translation adjustments.
Other assets declined $14.4 million to $63.6 million at December 31, 1994 due
mainly to a $10.6 million reduction in the noncurrent portion of the receivable
from insurance carriers. The $32.0 million in liabilities of discontinued
operations at December 31, 1994, represented reserves to cover postretirement
benefits for the former employees of the discontinued operations and other
future estimated costs of the disposition of Crucible Materials Corporation in
1985, the steelmaking facility in Midland, Pennsylvania in 1982, and Colt
Firearms in 1990. Payments covering the liabilities of discontinued operations
in 1994, 1993 and 1992 were $3.2 million, $4.4 million and $6.2 million,
respectively. Coltec expects future cash payments covering the liabilities of
discontinued operations will extend over the remaining lives of the former
employees at the discontinued operations.
CAPITAL EXPENDITURES
Capital expenditures were $38.2 million in 1994 compared with $38.6 million
in 1993 and $25.0 million in 1992, as Coltec continues to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand production and improve facilities. The level of capital expenditures
has and will vary from year to year, affected by the timing of capital
spending for production equipment for new products, periodic plant and
facility expansion as well as cost reduction and labor efficiency programs.
Capital expenditures during 1994 included a landing gear overhaul facility
and production equipment for new landing gear programs at Menasco, production
equipment to manufacture Alco diesel engines at Fairbanks Morse Engine, and
consolidation of administrative offices and the distribution operation at
Holley Performance Products. At December 31, 1994 Coltec had $16.6 million of
planned capital expenditures that included $4.9 million for production
equipment to manufacture a new engine oil pump at Coltec Automotive.
ENVIRONMENTAL
Coltec and its subsidiaries are subject to numerous federal, state and local
environmental laws, many of which are becoming increasingly stringent, giving
rise to increased compliance costs. For example, the Clean Air Amendments will
regulate emissions at certain of Coltec's facilities that were previously
unregulated. Most significantly, certain existing and many newly constructed or
modified facilities will be required to obtain air emission permits that were
not previously required. Although many of the standards under the Clean Air
Amendments have not yet been promulgated, Coltec has made a preliminary
determination of their impact on its operations. Based upon this determination,
Coltec believes that it will not be at a competitive disadvantage in complying
with the Clean Air Amendments and that any costs to comply with the Clean Air
Amendments will not have a material effect on Coltec's results of operations and
financial condition.
Coltec and its subsidiaries are also subject to the federal Resource
Conservation and Recovery Act of 1976 ("RCRA"), and its analogous state
statutes. Although the costs under RCRA for the treatment, storage and disposal
of hazardous materials generated at Coltec's facilities are increasing, Coltec
does not believe that such costs will have a material effect on Coltec's results
of operations and financial condition.
Coltec has been notified that it is among the Potentially Responsible
Parties ("PRPs") under the federal Comprehensive Environmental Response
Compensation and Liability Act of 1980, as amended ("CERCLA"), or similar
state laws, for the costs of investigating and in some cases remediating
contamination by hazardous materials at several sites. See Note 15 of the
Notes to Financial Statements for information on the impact of CERCLA on
Coltec.
Coltec's annual expenditures (including capital expenditures) relating to
environmental matters over the three years ended December 31, 1994 ranged from
$4.5 million to $7.0 million, and Coltec expects such expenditures to
approximate $14.0 million in 1995 and $10.5 million in 1996. Over the three
years ended December 31, 1994 annual expenditures for recurring environmental
matters approximated $2.0 million, annual capital expenditures approximated $1.0
million, and annual expenditures for remediation and other nonrecurring
environmental matters ranged from $1.5 million to $4.0 million. Expenditures for
recurring environmental matters are expected to approximate $2.5 million in each
of 1995 and 1996, capital expenditures are expected to approximate $5.5 million
in 1995 and $2.0
24
<PAGE>
million in 1996, and expenditures for remediation and other nonrecurring
environmental matters are expected to approximate $6.0 million in each of 1995
and 1996. Capital expenditure requirements for 1995 and 1996 include estimates
of annual expenditures pursuant to the Clean Air Amendments of $4.5 million and
$2.0 million, respectively. The estimate of annual environmental expenditures
for 1995 and 1996 is based upon the expected timing of expenditures pursuant to
currently identified environmental matters. Because environmental laws
frequently change, Coltec is unable to estimate with certainty the future costs
to comply with such laws; however, Coltec does not foresee a continuous upward
trend in annual expenditures on environmental matters, nor does it believe that
it will be at a competitive disadvantage in complying with any such laws.
ASBESTOS LITIGATION
Coltec and certain of its subsidiaries are defendants in various lawsuits
involving asbestos-containing products. See Note 15 of the Notes to Financial
Statements for information on asbestos litigation.
OTHER FINANCIAL INFORMATION
PRO FORMA RESULTS OF OPERATIONS
On April 1, 1992, Coltec completed a recapitalization which included a public
offering of its common stock, two long-term debt offerings and a new
financing arrangement. The recapitalization reduced aggregate indebtedness,
refinanced a substantial portion of remaining indebtedness on more favorable
terms and improved Coltec's operating and financial flexibility.
Giving pro forma effect to the recapitalization as if it had occurred on
January 1, 1992, Coltec would have reported earnings before extraordinary
item for the year ended December 31, 1992 as follows:
<TABLE>
<CAPTION>
(IN MILLIONS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------
- --------------------------------------------------------------------
<S> <C>
Earnings before interest, income taxes
and extraordinary item $243.1
Interest and debt expense, net 116.7
Provision for income taxes 44.0
-------
Earnings before extraordinary item $ 82.4
-------
-------
Earnings per common share
Before extraordinary item(a) $1.19
-------
-------
<FN>
(A) PRO FORMA EARNINGS PER COMMON SHARE BEFORE EXTRAORDINARY ITEM BY QUARTER
WOULD HAVE BEEN 22 CENTS, 33 CENTS, 29 CENTS AND 35 CENTS FOR THE FIRST, SECOND,
THIRD AND FOURTH QUARTERS OF 1992, RESPECTIVELY.
</TABLE>
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
Inflation and foreign currency fluctuations have not had a material impact on
the operating results and financial position of Coltec during the past three
years. Coltec generally has been able to offset the effects of inflation with
price increases, cost-reduction programs and operating efficiencies. Coltec's
foreign operations are primarily located in Canada.
DIVIDENDS
No dividends were paid in 1994 and 1993, and no dividends are expected to be
paid in 1995.
COMMON STOCK DATA
Coltec's common stock (symbol COT) is listed on the New York and Pacific
Stock Exchanges. The high and low prices of the stock for each quarter during
1994 and 1993, based on the Composite Tape, were as follows:
<TABLE>
<CAPTION>
1994 1993
---------------------------------
High Low High Low
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
<S> <C> <C> <C> <C>
First quarter 21 7/8 18 3/4 19 1/4 16 1/4
Second quarter 20 1/2 18 1/4 17 1/2 14 7/8
Third quarter 19 7/8 18 1/8 18 15 1/4
Fourth quarter 19 16 19 3/8 16
</TABLE>
At December 31, 1994, there were 523 shareholders of record.
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
ON FORM 10-K AVAILABLE
The annual report on Form 10-K, without exhibits, will be made available free
of charge to interested shareholders upon written request to the Corporate
Secretary, Coltec Industries Inc, 430 Park Avenue, New York, N.Y. 10022.
25
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
(IN THOUSANDS) 1994 1993
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Notes 1 and 7) $ 4,188 $ 5,749
Accounts and notes receivable (Notes 7 and 15)
Trade 129,790 124,640
Other 72,483 41,051
------------------------
202,273 165,691
Less allowance for doubtful accounts 4,124 4,170
------------------------
198,149 161,521
Inventories (Note 1)
Finished goods 46,316 39,206
Work in process and finished parts 126,097 103,166
Raw materials and supplies 25,790 25,405
------------------------
198,203 167,777
Deferred income taxes (Note 5) 15,222 17,036
Other current assets 13,936 8,587
------------------------
Total current assets 429,698 360,670
Property, plant and equipment, at cost (Note 1)
Land and improvements 17,973 18,202
Buildings and equipment 133,940 130,085
Machinery and equipment 474,053 479,220
Leasehold improvements 8,071 8,445
Construction in progress 18,870 21,285
------------------------
652,907 657,237
Less accumulated depreciation and amortization 429,793 431,908
------------------------
223,114 225,329
Costs in excess of net assets acquired, net of amortization (Note 1) 131,024 132,550
Other assets (Notes 7 and 15) 63,614 77,980
------------------------
$847,450 $796,529
------------------------
------------------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA) 1994 1993
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term debt (Notes 6 and 7) $ 886 $ 1,543
Accounts payable 76,648 64,791
Accrued expenses (Note 15)
Salaries, wages and employee benefits 47,746 40,946
Taxes 33,157 30,103
Interest 18,616 23,887
Other 60,009 32,272
--------------------------------
159,528 127,208
Current portion of liabilities of discontinued operations 3,000 4,000
--------------------------------
Total current liabilities 240,062 197,542
Long-term debt (Notes 6 and 7) 969,261 1,032,089
Deferred income taxes (Note 5) 10,533 27,543
Other liabilities (Note 15) 124,159 132,367
Liabilities of discontinued operations 29,036 32,478
Commitments and contingencies (Note 15)
Shareholders' equity (Notes 1, 8, 9 and 13)
Preferred stock
$.01 par value, 2,500,000 shares authorized,
shares outstanding - none - -
Common stock
$.01 par value, 100,000,000 shares authorized,
70,016,384 and 69,943,341 shares issued
at December 31, 1994 and 1993, respectively
(excluding 25,000,000 shares held by a
wholly-owned subsidiary) 700 699
Capital in excess of par value 638,407 636,846
Retained earnings (deficit) (1,158,948) (1,251,465)
Unearned compensation - restricted stock awards (3,480) (5,552)
Minimum pension liability - (4,205)
Foreign currency translation adjustments (681) 1,077
--------------------------------
(524,002) (622,600)
Less cost of 98,862 and 179,309 shares of common stock in
treasury at December 31, 1994 and 1993, respectively (1,599) (2,890)
--------------------------------
(525,601) (625,490)
--------------------------------
$ 847,450 $ 796,529
--------------------------------
--------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
STATEMENT.
27
<PAGE>
<TABLE>
<CAPTION>
COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31,
----------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $1,326,761 $1,334,829 $1,368,703
----------------------------------------
Costs and expenses
Cost of sales 891,942 905,464 944,405
Selling and administrative 198,489 192,437 181,176
Restructuring charge (Note 3) - 25,219 -
----------------------------------------
Total costs and expenses 1,090,431 1,123,120 1,125,581
----------------------------------------
Operating income 236,330 211,709 243,122
Interest and debt expense, net 89,472 110,190 135,862
----------------------------------------
Earnings before income taxes and extraordinary item 146,858 101,519 107,260
Provision for income taxes (Note 5) 52,869 36,293 42,577
----------------------------------------
Earnings before extraordinary item 93,989 65,226 64,683
Extraordinary item (Note 4) (1,472) (17,792) (106,930)
----------------------------------------
Net earnings (loss) $ 92,517 $ 47,434 $ (42,247)
----------------------------------------
----------------------------------------
Earnings (loss) per common share (Note 1)
Before extraordinary item $ 1.35 $ .94 $ 1.11
Extraordinary item (.02) (.26) (1.83)
----------------------------------------
Net earnings (loss) $ 1.33 $ .68 $ (.72)
----------------------------------------
----------------------------------------
Weighted average number of common and common equivalent shares 69,815 69,591 58,413
----------------------------------------
----------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
STATEMENT.
28
<PAGE>
<TABLE>
<CAPTION>
COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31,
---------------------------------------
(IN THOUSANDS) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings (loss) $ 92,517 $ 47,434 $ (42,247)
Adjustments to reconcile net earnings (loss) to cash
provided by operating activities
Extraordinary item 1,472 17,792 106,930
Depreciation and amortization 42,131 49,092 49,129
Deferred income taxes (19,274) (10,766) (17,829)
Receivable from insurance carriers 10,843 3,056 (15,660)
Payment of liabilities of discontinued operations (3,174) (4,444) (6,166)
Restructuring charge - 25,219 -
Noncash interest expense - - 25,180
Other operating items 3,644 (11,809) 2,032
---------------------------------------
128,159 115,574 101,369
---------------------------------------
Changes in assets and liabilities
Accounts and notes receivable (11,808) (2,007) (7,896)
Inventories (33,511) (2,871) 15,261
Deferred income taxes 1,814 3,501 (216)
Other current assets (1,961) (877) 738
Accounts payable 14,362 4,067 (4,819)
Accrued expenses 1,163 (12,169) 15,450
---------------------------------------
Changes in assets and liabilities (29,941) (10,356) 18,518
---------------------------------------
Cash provided by operating activities 98,218 105,218 119,887
---------------------------------------
Cash flows from investing activities
Capital expenditures (38,191) (38,587) (24,997)
Cash received in Holdings reorganization - 26,749 -
Proceeds from sale of an investment - - 3,733
Other - net (3,184) 1,948 (3,503)
---------------------------------------
Cash used in investing activities (41,375) (9,890) (24,767)
---------------------------------------
Cash flows from financing activities
Issuance of long-term debt 335,042 46,069 150,000
Payment of long-term debt (393,446) (138,179) (242,192)
Issuance of common stock in recapitalization - - 625,575
Payment of long-term debt in recapitalization, net - - (433,836)
Payment of premiums, fees and expenses in recapitalization
and debt refinancing - - (153,061)
Distribution to Holdings pursuant to preferred stock redemption
and tax sharing procedure - (4,624) (48,585)
---------------------------------------
Cash used in financing activities (58,404) (96,734) (102,099)
---------------------------------------
Cash and cash equivalents
Decrease (1,561) (1,406) (6,979)
At beginning of period 5,749 7,155 14,134
---------------------------------------
At end of period $ 4,188 $ 5,749 $ 7,155
---------------------------------------
---------------------------------------
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
STATEMENT.
29
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF SHAREHOLDERS'
EQUITY
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1994
-----------------------------------------------------------------------------------------
UNEARNED
COMPENSATION- FOREIGN
COMMON STOCK CAPITAL IN RETAINED RESTRICTED MINIMUM CURRENCY
--------------------- EXCESS OF EARNINGS STOCK PENSION TRANSLATION
(IN THOUSANDS, EXCEPT SHARE DATA) SHARES AMOUNT PAR VALUE (DEFICIT) AWARDS LIABILITY ADJUSTMENTS
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 25,000,000 $ 250 $ - $(1,208,067) $ - $ - $13,290
Net loss (42,247)
Issuance of stock
in recapitalization 44,275,000 443 625,132
Distribution to Holdings
pursuant to preferred
stock redemption and tax
sharing procedure (48,585)
Issuance of restricted stock, net 578,464 6 8,956 (7,221)
Foreign currency translation
adjustments (8,601)
-------------------------------------------------------------------------------------
Balance, December 31, 1992 69,853,464 699 634,088 (1,298,899) (7,221) - 4,689
Net earnings 47,434
Issuance of restricted stock, net 89,877 - 1,389 1,669
Exercise of stock options (4)
Tax benefit from stock option
and incentive plan 133
Stock exchange in the
Holdings reorganization 1,240
Minimum pension liability (4,205)
Foreign currency translation
adjustments (3,612)
--------------------------------------------------------------------------------------
Balance, December 31, 1993 69,943,341 699 636,846 (1,251,465) (5,552) (4,205) 1,077
Net earnings 92,517
Issuance of restricted stock, net 73,043 1 1,370 2,072
Exercise of stock options (114)
Tax benefit from stock option
and incentive plan 305
Minimum pension liability 4,205
Foreign currency translation
adjustments (1,758)
--------------------------------------------------------------------------------------
Balance, December 31, 1994 70,016,384 $ 700 $ 638,407 $(1,158,948) $(3,480) $ - $(681)
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1994
---------------------------------------
TREASURY STOCK
-------------------
SHARES AMOUNT TOTAL
- ----------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1992 - $ - $(1,194,527)
Net loss (42,247)
Issuance of stock
in recapitalization 625,575
Distribution to Holdings
pursuant to preferred
stock redemption and tax
sharing procedure (48,585)
Issuance of restricted stock, net 1,741
Foreign currency translation
adjustments (8,601)
---------------------------------------
Balance, December 31, 1992 - - (666,644)
Net earnings 47,434
Issuance of restricted stock, net (14,309) (229) 2,829
Exercise of stock options 5,000 79 75
Tax benefit from stock option
and incentive plan 133
Stock exchange in the
Holdings reorganization (170,000) (2,740) (1,500)
Minimum pension liability (4,205)
Foreign currency translation
adjustments (3,612)
---------------------------------------
Balance, December 31, 1993 (179,309) (2,890) (625,490)
Net earnings 92,517
Issuance of restricted stock, net (17,553) (293) 3,150
Exercise of stock options 98,000 1,584 1,470
Tax benefit from stock option
and incentive plan 305
Minimum pension liability 4,205
Foreign currency translation
adjustments (1,758)
---------------------------------------
Balance, December 31, 1994 (98,862) $ (1,599) $ (525,601)
---------------------------------------
---------------------------------------
<FN>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
STATEMENT.
</TABLE>
30
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: Investments in which Coltec Industries Inc
("Coltec") has ownership of 50% or more of the voting common stock are
consolidated in the financial statements. Intercompany accounts and transactions
are eliminated. Certain amounts for prior periods have been reclassified to
conform to the 1994 presentation.
CONSOLIDATED STATEMENT OF CASH FLOWS: Cash equivalents consist of short-term,
highly liquid investments with original maturities of three months or less.
The effect of changes in foreign exchange rates on cash balances is not
significant.
Interest paid and federal and state income taxes paid and refunded were as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid $ 92,304 $105,713 $107,236
Income taxes -
Paid 42,308 31,873 40,767
Refunded 2,262 3,913 4,417
</TABLE>
FOREIGN CURRENCY TRANSLATION: The financial statements of foreign subsidiaries
were prepared in their respective local currencies and were translated into U.S.
dollars at year-end rates for assets and liabilities and at monthly weighted
average rates for income and expenses. Translation adjustments are included in
shareholders' equity. Foreign currency transaction gains and losses are included
in net earnings. For 1994, 1993 and 1992, such gains and losses were not
significant.
INVENTORIES: Inventories, including inventories under long-term commercial and
government contracts and programs, are valued at the lower of cost or market. At
December 31, 1994 and 1993, $34,411,000 and $45,150,000, respectively, of
contract advances have been offset against inventories under long-term
commercial and government contracts and programs in the Consolidated Balance
Sheet. Losses on commercial and government contracts and programs are recognized
in full when identified. At December 31, 1994 and 1993, an accrual for loss
contracts and programs was not required. Cost elements included in inventory are
material, labor and factory overhead, primarily using standard cost, which
approximates actual cost. Cost on approximately 56% of the domestic inventory at
December 31, 1994 was determined on the last-in, first-out basis. Cost on the
remainder of the inventory is generally determined on the first-in, first-out
basis. The excess of current cost over last-in, first-out cost at December 31,
1994 and 1993 was approximately $18,800,000 and $21,800,000, respectively.
PROPERTY AND DEPRECIATION: Depreciation and amortization of plant and
equipment are provided generally by using the straight-line method, based on
estimated useful lives of the assets. For U.S. federal income tax purposes,
most assets are depreciated using allowable accelerated methods.
The ranges of estimated useful lives used in computing depreciation and
amortization for financial reporting were as follows:
Years
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
Land improvements 5 - 40
Buildings and equipment 10 - 45
Machinery and equipment 3 - 20
For leasehold improvements, the estimated useful life used in computing
amortization is the lesser of the asset life or the lease term.
Interest cost incurred during the period of construction of plant and
installation of equipment is capitalized as part of the cost of such plant
and equipment.
Renewals and betterments are capitalized by additions to the related asset
accounts, while repair and maintenance costs are charged against earnings.
Coltec generally records retirements by removing the cost and accumulated
depreciation from the asset and reserve accounts.
ENVIRONMENTAL EXPENDITURES: Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are accrued when it is probable that an obligation has been
incurred and the amount can be reasonably estimated. Expenditures incurred for
environmental compliance with respect to pollution prevention and ongoing
monitoring programs are expensed as incurred. Expenditures that increase the
value of the property are capitalized.
START-UP COSTS: Start-up costs related to new operations and new product
lines are expensed as incurred.
REVENUE RECOGNITION: Revenue, including revenue under long-term commercial
and government contracts and programs, is recorded at the time deliveries or
customer acceptances are made and Coltec has the contractual right to bill.
COSTS IN EXCESS OF NET ASSETS ACQUIRED: It is Coltec's policy to amortize the
excess costs arising from acquisitions on a straight-line basis over periods
not to exceed 40 years. In evaluating the value and future benefits of the
excess costs arising from acquisitions, the recoverability from operating
income is measured. Under this approach, the carrying value would be reduced
if it is probable that management's best estimate of future operating income
from related operations before amortization will be less than the carrying
amount of the excess costs arising from acquisitions over the remaining
amortization period. At December 31, 1994 and 1993, accumulated
31
<PAGE>
amortization related to all completed acquisitions, which are amortized on a
straight-line basis over a 40-year period, was $57,186,000 and $52,063,000,
respectively.
SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE: In November 1993, the
shareholders of Coltec Holdings Inc. ("Holdings"), the former parent company
of Coltec, exchanged their shares of common stock of Holdings for 35.5% or
24,830,000 shares of common stock of Coltec. Reference is made to Note 13 for
information relating to the Holdings Reorganization.
Earnings per common share are computed by dividing earnings by the weighted
average number of common and common equivalent shares outstanding during each
period. Common equivalent shares are shares issuable on the exercise of stock
options and shares of restricted stock, net of shares assumed to have been
purchased using the treasury stock method.
IMPACT OF NEW ACCOUNTING STANDARDS: Coltec adopted Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits", No.
115, "Accounting for Certain Investments in Debt and Equity Securities", and
No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of
Financial Instruments", effective January 1, 1994. The adoption of these
standards did not have a material effect on Coltec's results of operations
and financial condition. Based on preliminary analyses, Coltec does not
expect that the future adoption of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan", will have a material
effect on Coltec's results of operations and financial condition.
2. RECAPITALIZATION
On April 1, 1992, Coltec completed a recapitalization which included a public
offering of its common stock, two long-term debt offerings and a new
financing arrangement (the "Recapitalization"). The Recapitalization reduced
aggregate indebtedness and refinanced a substantial portion of remaining
indebtedness. In connection with the Recapitalization, Coltec incurred
extraordinary charges in the second quarter 1992 of $105,347,000, net of a
$28,000,000 tax benefit. The extraordinary charges were primarily payment of
premiums and expenses, and write-off of deferred financing costs resulting
from early retirement of debt.
Pursuant to the Recapitalization, the consolidated statement of earnings for the
first quarter 1992 reflects the interest and finance cost related to outstanding
debt of Holdings because the net proceeds from the public offering of the debt
securities and the bank refinancing were used to retire a dividend note payable
from Coltec to Holdings, the proceeds of which were used by Holdings to repay
Holdings' indebtedness.
3. RESTRUCTURING CHARGE
Coltec recorded a restructuring charge of $25,219,000 in the second quarter 1993
to cover the cost of consolidation and rearrangement of certain manufacturing
facilities and related reductions in work force, primarily in the
Aerospace/Government segment, as well as at the Central Moloney Transformer
Division.
The objectives of the restructuring program were completed in 1994.
The liability for the restructuring charge, funded from operations in
approximately equal amounts in 1993 and 1994, has been fully utilized as of
December 31, 1994 and there were no revisions to the restructuring charge
subsequent to the second quarter of 1993.
4. EXTRAORDINARY ITEM
Coltec incurred extraordinary charges of $1,472,000, net of a $792,000 tax
benefit, and $17,792,000, net of a $9,581,000 tax benefit, in 1994 and 1993,
respectively, in connection with the early retirement of debt, and in 1993 in
connection with debt refinancings.
In 1992 Coltec, in addition to the extraordinary charges referred to in
Note 2, incurred extraordinary charges of $1,583,000, net of a $816,000 tax
benefit, in connection with a debt refinancing and early retirement of debt.
5. INCOME TAXES
Effective January 1, 1993, Coltec adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes", which requires that the
deferred tax provision be determined under the liability method. Under this
method, deferred tax assets and liabilities are recognized based on differences
between the financial statement and tax bases of assets and liabilities using
presently enacted tax rates.
The significant components of deferred tax assets and liabilities at December
31, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-----------------------------------------------------
<S> <C> <C> <C> <C>
Excess tax over
book depreciation $ - $(30,076) $ - $(32,049)
Recognition of income
on contracts reported
on different methods for
tax and financial reporting - (29,003) - (30,068)
Employee benefit plans 26,184 - 31,057 -
Accrued expenses
and liabilities 13,062 - - (8,357)
Foreign tax credit
carryforwards 6,000 - 29,000 -
Other 24,522 - 28,910 -
-----------------------------------------------------
69,768 (59,079) 88,967 (70,474)
Less - Valuation allowance (6,000) - (29,000) -
-----------------------------------------------------
Total deferred taxes $ 63,768 $(59,079) $59,967 $(70,474)
-----------------------------------------------------
-----------------------------------------------------
</TABLE>
32
<PAGE>
The valuation allowance is attributable to foreign tax credit carryforwards
which expire in the years 1997 through 1999.
Domestic and foreign components of earnings before income taxes and
extraordinary item were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Domestic $ 126,254 $ 71,126 $ 67,217
Foreign 20,604 30,393 40,043
-----------------------------------
Total $ 146,858 $101,519 $ 107,260
-----------------------------------
-----------------------------------
</TABLE>
Provision for income taxes was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Current -
Domestic $ 56,812 $36,254 $ 43,026
Foreign 11,253 9,568 17,596
-----------------------------------
68,065 45,822 60,622
-----------------------------------
Deferred -
Domestic (12,503) (11,553) (14,527)
Foreign (2,693) 2,024 (3,518)
-----------------------------------
(15,196) (9,529) (18,045)
-----------------------------------
Total $ 52,869 $36,293 $ 42,577
-----------------------------------
-----------------------------------
</TABLE>
Reconciliation of tax at the U.S. statutory income tax rate, 35% in 1994 and
1993 and 34% in 1992, to the provision for income taxes was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
- -------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Tax at U.S. statutory rate $ 51,400 $35,532 $36,468
Tax cost (benefit)-
Repatriation of non-U.S. earnings 2,713 3,201 4,600
Non-U.S. rate differential 1,349 954 1,708
Adjustment of reserves (5,789) (6,692) (2,636)
Other (not individually significant) 3,196 3,298 2,437
--------------------------------------
Provision for income taxes $ 52,869 $36,293 $42,577
--------------------------------------
Effective tax rate 36.0% 35.75% 39.7%
--------------------------------------
--------------------------------------
</TABLE>
The provision, prior to the disaffiliation noted below, was determined pursuant
to the tax sharing procedure between Coltec and Holdings and would have been the
same if determined by Coltec on a separate group basis. Coltec became
disaffiliated from Holdings as a consequence of the Recapitalization. For the
first quarter of 1992, Coltec and all of its 80% or greater owned U.S.
subsidiaries ("Coltec Separate Group") joined with Holdings in the filing of a
consolidated U.S. federal income tax return with Holdings as the parent company.
For the nine month period ended December 31, 1992, Coltec Separate Group filed a
consolidated U.S. federal income tax return with Coltec as the parent company.
During the period of affiliation with Holdings, Coltec's portion of the
resulting tax liability was the lesser of (i) Coltec's tax liability determined
on a Coltec Separate Group basis, or (ii) Coltec's ratable share of Holdings'
consolidated tax liability, including part of the determined tax benefits from
Holdings' losses. The excess of Coltec's U.S. federal income tax liability on a
separate group basis, for the period of affiliation with Holdings, over Coltec's
share of the U.S. federal income tax liability determined in accordance with the
tax sharing procedure was paid to Holdings and is included as a distribution to
Holdings in the Consolidated Statement of Shareholders' Equity. Upon
consummation of the Recapitalization, the tax sharing procedure was terminated
and Coltec and Holdings entered into a Tax Disaffiliation Agreement. On November
18, 1993, Holdings became a wholly owned subsidiary of Coltec. Reference is made
to Note 13 for information relating to the Holdings Reorganization.
During 1994, the U.S. Internal Revenue Service completed its examination of
the consolidated federal income tax returns of Coltec and Holdings for the
years 1990, 1991 and 1992 and the resulting tax assessments previously
provided for were paid.
6. LONG-TERM DEBT
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<S> <C> <C>
1994 Credit Agreement - 5.3%* $291,000 $ -
1992 Credit Agreement - repaid in 1994 - 308,618
9 3/4% senior notes due 1999 150,000 150,000
9 3/4% senior notes due 2000 200,000 200,000
11 1/4% debentures due 1996-2015 67,782 91,625
10 1/4% senior subordinated notes due 2002 231,465 250,000
Other due 1995-2010 29,900 33,389
-----------------------
970,147 1,033,632
Less - Amounts due within one year 886 1,543
-----------------------
$969,261 $1,032,089
-----------------------
-----------------------
<FN>
*INDICATES AVERAGE INTEREST RATE FOR 1994.
</TABLE>
A) On January 11, 1994, Coltec entered into a $415,000,000 reducing revolving
credit facility (the "1994 Credit Agreement"), with a syndicate of banks,
which expires June 30, 1999. This facility was used to prepay indebtedness
outstanding and replace letters of credit issued under a term and working
capital facility entered into in 1992. At December 31, 1994, $291,000,000 of
borrowings were outstanding and $26,410,000 of letters of credit had been
issued under the 1994 Credit Agreement. The 1994 Credit Agreement provides up
to $100,000,000 for the issuance of letters of credit and the facility will
be reduced $50,000,000 on both January 11, 1997 and 1998. Obligations under
the facility are secured by substantially all of Coltec's assets. Borrowings
under the facility bear interest, at Coltec's option, at an annual rate equal
to the base rate or the Eurodollar rate plus 1%. The base rate is the higher
of 1/2 of 1% in excess of the Federal Reserve reported certificate of deposit
rate and the prime lending rate. Letter
33
<PAGE>
of credit fees of 1% are payable on outstanding letters of credit and a
commitment fee of 3/8 of 1% is payable on the unutilized facility.
The facility contains various restrictions and conditions. The most
restrictive of these requires that the fixed charge coverage ratio be at
least 2.25 to 1 for any period of four consecutive quarters to and including
the fourth quarter of 1994 and thereafter 2.5 to 1. The ratio of current
assets to current liabilities must be at least 1.25 to 1. In addition, the
facility limits or restricts purchases of Coltec's common stock, payment of
dividends, capital expenditures, indebtedness, liens, mergers, asset
acquisitions and dispositions, investments, prepayment of certain debt and
transactions with affiliates. At December 31, 1994, Coltec was in compliance
with the above covenants.
B) The 9 3/4% senior notes due 1999 are not redeemable prior to maturity on
November 1, 1999.
C) The 9 3/4% senior notes due 2000 are not redeemable prior to maturity on
April 1, 2000.
D) Coltec has purchased in the open market $18,535,000 of the 10 1/4% senior
subordinated notes. The remaining 10 1/4% senior subordinated notes are
redeemable at the option of Coltec on or after April 1, 1997 at 105.125% of
par, declining to 100% of par on or after April 1, 1999.
E) Coltec has purchased in the open market and redeemed $82,218,000 of its
11 1/4% debentures. The remaining 11 1/4% debentures are redeemable at the
option of Coltec at 106.188% of par, declining to 100% of par on or after
December 1, 2005. Mandatory annual sinking fund payments of $7,125,000
beginning December 1, 1996 are calculated to retire 90% of the debentures
prior to maturity. Coltec, at its option, may redeem up to an additional
$14,250,000 annually, beginning December 1, 1996 through 2014.
F) Minimum payments on long-term debt due within five years from December 31,
1994 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
- -------------------------------------------------------------------
- -------------------------------------------------------------------
<S> <C>
1995 $ 886
1996 569
1997 607
1998 652
1999 441,562
</TABLE>
7. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
Coltec's financial instruments:
CASH AND CASH EQUIVALENTS AND ACCOUNTS AND NOTES RECEIVABLE, OTHER: The
carrying amount approximates fair value due to the short-term maturity of the
investments and the short-term nature of the receivables.
LONG-TERM RECEIVABLES AND INVESTMENTS: The fair value is based on quoted
market prices for similar publicly traded securities or on the present value
of estimated future cash flows.
LONG-TERM DEBT: The fair value of Coltec's publicly traded long-term debt is
based on the quoted market prices for such debt and for non-publicly traded
long-term debt, on quoted market prices for similar publicly traded debt.
INTEREST RATE SWAP AGREEMENTS: The fair value is based on quotes from
commercial banks.
FORWARD EXCHANGE CONTRACTS: The fair value is based on quoted market prices
of similar contracts.
The estimated fair value of Coltec's financial instruments at December 31,
1994 and 1993 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
- -------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $ 4,188 $ 4,188 $ 5,749 $ 5,749
Accounts and notes
receivable, other 72,483 72,483 41,051 41,051
Long-term receivables
and investments -
Practical to estimate
fair value 36,008 39,364 41,205 47,206
Not practical to
estimate fair value 8,711 - 8,711 -
Interest rate
swap agreements - 27 - -
Liabilities:
Long-term debt 970,147 962,647 1,033,632 1,077,642
Interest rate
swap agreements - - - 4,522
Forward exchange
contracts - 21,026 - 11,479
</TABLE>
34
<PAGE>
It was not practicable to obtain an independent estimate of the fair value of
Coltec's stock investment in Crucible Materials Corporation ("Crucible"), a
private corporation. The carrying value of the investment in Crucible is
included in other assets in the Consolidated Balance Sheet.
As of December 31, 1994, Coltec has outstanding interest rate swap agreements
with major financial institutions having a total notional principal amount of
$150,000,000, an average fixed interest rate of 6.34% and an average
remaining life of three months. Interest rate swap agreements effectively
hedge interest rate exposures and, as such, the differential to be paid or
received is accrued and recognized in interest expense as market interest
rates change. Net payments or receipts under interest rate swap agreements
are recorded as adjustments to interest expense. Gains or losses on the
termination of an interest rate swap agreement which has been an effective
hedge, are deferred and amortized over the remaining original life of the
swap when the underlying debt is not extinguished, or are recognized in the
period when the underlying debt is extinguished.
It is Coltec's policy to enter into forward exchange contracts to hedge U.S.
dollar denominated sales, under long-term contracts, of certain foreign
subsidiaries. Coltec does not engage in speculation. Coltec's forward exchange
contracts do not subject Coltec to risk due to exchange rate movements because
gains and losses on these contracts offset losses and gains on the sales and
related receivables being hedged. At December 31, 1994 and 1993 Coltec had
$306,230,000 and $251,610,000, respectively, of forward exchange contracts,
denominated in Canadian dollars, which had a fair value of $285,204,000 and
$240,131,000, respectively. The contracts have varying maturities with none
exceeding five years. Gains and losses on forward exchange contracts are
deferred and recognized at the completion of the underlying long-term contract
being hedged.
Coltec has an outstanding contingent liability for guaranteed debt and lease
payments of $30,836,000, and for letters of credit of $26,410,000. It was not
practical to obtain independent estimates of the fair values for the contingent
liability for guaranteed debt and lease payments and for letters of credit
without incurring excessive costs. In the opinion of management, nonperformance
by the other parties to the contingent liabilities will not have a material
effect on Coltec's results of operations and financial condition.
8. STOCK OPTION AND INCENTIVE PLANS
Coltec stock option plans provide for the granting of incentive stock rights,
stock options, stock appreciation rights, restricted stock and dividend
equivalents to officers and key employees and stock options to directors. In
1994, shareholders approved an increase in the number of shares of common stock
that may be issued under the stock option plans to 7,468,000 shares. Stock
options outstanding under the stock option plans were granted at a price equal
to 100% of the market price on the date of grant and are exercisable in annual
installments of 20%, commencing one year from date of grant.
Information on stock options for the three years ended December 31, 1994 is
as follows:
<TABLE>
<CAPTION>
OPTION
NUMBER PRICE RANGE
OF SHARES PER SHARE
- -----------------------------------------------------------------
<S> <C> <C>
Outstanding January 1, 1992 - -
Granted 2,015,000 $15.00-18.25
Exercised - -
Canceled - -
-----------------------------
Outstanding December 31, 1992 2,015,000 15.00-18.25
Granted 290,000 16.38-18.75
Exercised (5,000) 15.00
Canceled (40,000) 15.00
-----------------------------
Outstanding December 31, 1993 2,260,000 15.00-18.75
Granted 295,000 16.25-21.25
Exercised (98,000) 15.00
Canceled (140,000) 15.00-20.25
-----------------------------
Outstanding December 31, 1994 2,317,000 15.00-21.25
-----------------------------
Exercisable December 31:
1992 - -
1993 398,000 15.00-18.25
1994 772,000 15.00-18.75
-----------------------------
-----------------------------
</TABLE>
In addition to the granting of stock options, Coltec has granted shares of
restricted stock. Restrictions on certain shares lapse in annual installments of
33 1/3% commencing one or three years from date of grant. Restrictions on the
remaining shares lapse 100% three years from the date of grant. The unearned
compensation resulting from the grant of restricted shares is reported as a
reduction to shareholders' equity in the Consolidated Balance Sheet and is being
charged to earnings over the period the restricted shares vest.
35
<PAGE>
Information on restricted stock for the three years ended December 31, 1994 is
as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
---------------------------------
1994 1993 1992
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Outstanding January 1 554,260 578,464 -
Granted 73,043 89,877 578,464
Restrictions expired (92,264) (99,772) -
Forfeited (17,553) (14,309) -
---------------------------------
Outstanding December 31 517,486 554,260 578,464
---------------------------------
---------------------------------
</TABLE>
Shares available for grant at December 31, 1994 and 1993 under the stock
option plans were 4,306,616 and 66,649, respectively.
9. PENSION AND RETIREMENT PLANS
Coltec and certain of its subsidiaries have in effect, for substantially all
U.S. employees, pension plans under which funds are deposited with
trustees. The benefits under these plans are based primarily on years of
service and either final average salary or fixed amounts for each year of
service. Coltec's funding policy is consistent with the funding requirements
of the Employee Retirement Income Security Act ("ERISA") of 1974, as amended.
Plan assets consist principally of publicly traded equity and fixed-income
securities. Pension coverage for employees of the non-U.S. subsidiaries is
provided in accordance with local requirements and customary practices.
For certain pension plans, the plan assets exceed the accumulated benefit
obligations ("overfunded plans"); and in the remainder of the plans, the
accumulated benefit obligations exceed the plan assets ("underfunded plans").
As of December 31, 1994 and 1993, the status of Coltec's pension plans was as
follows:
<TABLE>
<CAPTION>
1994 1993*
------------------------------------------------------------
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
(IN THOUSANDS) PLANS PLANS PLANS PLANS
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Actuarial present value of projected benefit obligation, based
on employment service to date and current salary levels:
Vested employees $252,924 $63,135 $286,094 $76,227
Nonvested employees 8,875 1,178 11,672 1,815
----------------------------------------------------------
Accumulated benefit obligation 261,799 64,313 297,766 78,042
Additional amounts related to
projected salary increases 22,310 2,430 21,060 436
----------------------------------------------------------
Total projected benefit obligation 284,109 66,743 318,826 78,478
----------------------------------------------------------
Assets available for benefits:
Funded assets 350,198 33,789 348,978 38,854
Accrued (prepaid) pension expense, per books (9,554) 31,552 (478) 42,161
----------------------------------------------------------
Total assets 340,644 65,341 348,500 81,015
----------------------------------------------------------
Assets in excess of (less than)
projected benefit obligation $ 56,535 $(1,402) $ 29,674 $ 2,537
----------------------------------------------------------
Consisting of:
Unamortized net asset existing
at date of adoption of FAS No. 87 $ 13,274 $ 3,005 $ 4,905 $ 16,685
Unrecognized net gain (loss) 49,590 1,836 32,745 (9,969)
Unrecognized prior service cost (6,329) (6,243) (7,976) (4,179)
----------------------------------------------------------
$ 56,535 $ (1,402) $ 29,674 $ 2,537
----------------------------------------------------------
----------------------------------------------------------
<FN>
*RESTATED TO REFLECT FUNDING CLASSIFICATION AS OF DECEMBER 31, 1994.
</TABLE>
36
<PAGE>
For U.S. plans, discount rates of 9.0% and 7.5% were used as of December 31,
1994 and 1993, respectively, for the valuation of the actuarial present value of
benefit obligations.
In accordance with the requirements of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions", Coltec recorded a
minimum pension liability for underfunded plans of $13,571,000 at December
31, 1993, which is included in other liabilities in the Consolidated Balance
Sheet. This liability was equal to the excess of the accumulated benefit
obligation over plan assets and was offset by a $7,102,000 intangible asset,
included in other assets in the Consolidated Balance Sheet, for previously
unrecognized prior service cost. The amount in excess of previously
unrecognized prior service cost, $4,205,000, was recorded as a reduction of
shareholders' equity, net of a $2,264,000 tax benefit. At December 31, 1994,
a minimum pension liability was not required.
Assumptions as of January 1 used to develop the net periodic pension cost for
U.S. plans were:
<TABLE>
<CAPTION>
1994 1993 1992
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate for benefit obligations 7.5% 8.0% 8.0%
Expected long-term rate of
return on assets 8.5% 8.5% 8.5%
Rate of increase in
compensation levels 5.0% 5.0% 6.0%
</TABLE>
For non-U.S. plans, which were not material, similar economic assumptions were
used.
The components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
- -----------------------------------------------------------------------
- -----------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned $ 9,763 $ 9,423 $ 9,947
Interest cost on projected
benefit obligation 27,793 28,496 27,993
Actual return on assets 7,353 (7,770) (233)
Amortization and deferral, net (47,687) (30,968) (38,394)
---------------------------------
Net periodic pension cost (credit) $ (2,778) $ (819) $ (687)
---------------------------------
---------------------------------
</TABLE>
For discontinued operations, Coltec's total projected benefit obligation at
December 31, 1994 and 1993 was $215,121,000 and $263,751,000, respectively, and
is fully funded. Interest accrued for 1994, 1993 and 1992 on the projected
benefit obligation was $18,684,000, $20,450,000, and $21,555,000, respectively,
and was fully offset by return on assets resulting in no net periodic cost.
10. OTHER POSTRETIREMENT BENEFITS
Coltec provides health care and life insurance benefits to its eligible
retired employees, principally in the United States. Effective January 1,
1993, Coltec adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions",
("FAS 106") using the delayed recognition transition option whereby the
transition obligation is being amortized on a straight-line basis over 20
years. FAS 106 requires that the cost of postretirement benefits be recognized
in the financial statements during the years the employees provide services.
Prior to 1993, Coltec recognized the cost of postretirement benefits on a
cash basis.
Coltec's accumulated postretirement benefit obligation, none of which is
funded, and the postretirement benefit cost liability at December 31, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of projected
accumulated postretirement
benefit obligation:
Retirees $ 16,224 $ 17,511
Fully eligible active participants 3,568 4,613
Other active participants 3,126 3,441
------------------------------
Total 22,918 25,565
Unamortized transition obligation (19,736) (22,727)
Unrecognized net loss (1,279) (1,482)
------------------------------
Postretirement benefit cost liability $ 1,903 $ 1,356
------------------------------
------------------------------
</TABLE>
The components of postretirement benefit cost were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993
- --------------------------------------------------------------------------
- --------------------------------------------------------------------------
<S> <C> <C>
Service cost - benefits earned $ 179 $ 249
Interest cost on accumulated
postretirement benefit obligation 1,810 1,838
Amortization of transition obligation 1,101 1,196
Amortization and deferral, net (127) -
Curtailment loss 427 -
------------------------------
Postretirement benefit cost $3,390 $3,283
------------------------------
------------------------------
</TABLE>
During 1994, Coltec recognized a curtailment loss in connection with a plan
amendment which accelerated the recognition of the related unamortized
transition obligation.
Discount rates of 9.0% and 7.5% were used in determining the accumulated
postretirement benefit obligation at December 31, 1994 and 1993, respectively.
The health care cost trend rates used in determining the accumulated
postretirement benefit obligation at December 31, 1994 were 10.9% in 1995,
gradually declining to 6.0% in 2005. The effect of a 1% increase in the health
care cost trend rates in each year would be to increase the total service and
interest cost components of the postretirement benefit cost for 1994 by $174,000
and to increase the accumulated postretirement benefit obligation at December
31, 1994 by $1,900,000.
37
<PAGE>
11. SEGMENT INFORMATION
Coltec's financial results are reported in three industry segments:
Aerospace/Government, Automotive, and Industrial.
Information on sales and operating income by industry segment for the years
1994, 1993 and 1992 included on page 22 in the Financial Review is
incorporated herein by reference.
Information on total assets; depreciation of property, plant and equipment;
and capital expenditures by industry segment for the three years ended
December 31, 1994 is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1993 1992
- ---------------------------------------------------------------------
- ---------------------------------------------------------------------
<S> <C> <C> <C>
Total assets:
Aerospace/Government $402.3 $386.2 $388.7
Automotive 129.5 124.6 118.6
Industrial 164.4 180.1 186.7
Corporate unallocated 151.3 105.6 123.9
-----------------------------------
Total $847.5 $796.5 $817.9
-----------------------------------
Depreciation of property,
plant and equipment:
Aerospace/Government $ 14.7 $ 16.1 $ 17.3
Automotive 7.5 7.4 7.9
Industrial 8.7 9.5 9.9
Corporate unallocated .2 .2 .2
-----------------------------------
Total $ 31.1 $ 33.2 $ 35.3
-----------------------------------
Capital expenditures:
Aerospace/Government $ 21.3 $ 21.8 $ 13.3
Automotive 7.0 9.6 6.5
Industrial 9.9 7.2 5.2
-----------------------------------
Total $ 38.2 $ 38.6 $ 25.0
-----------------------------------
-----------------------------------
</TABLE>
Information by geographic segment for the three years ended December 31, 1994
is as follows:
<TABLE>
<CAPTION>
OPERATING TOTAL
(IN MILLIONS) SALES INCOME ASSETS
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
1994
Domestic operations $1,148.3 $241.5 $ 629.2
Foreign operations 208.1 28.8 202.0
Intersegment elimination (29.6) - (135.0)
--------------------------------------
Total segments 1,326.8 270.3 696.2
Corporate unallocated - (34.0) 151.3
--------------------------------------
Total $1,326.8 $236.3 $ 847.5
--------------------------------------
1993
Domestic operations $1,155.4 $215.9 $ 619.4
Foreign operations 206.7 30.2 207.6
Intersegment elimination (27.3) - (136.1)
--------------------------------------
Total segments 1,334.8 246.1 690.9
Corporate unallocated - (34.4) 105.6
--------------------------------------
Total $1,334.8 $211.7 $ 796.5
--------------------------------------
1992
Domestic operations $1,160.8 $228.3 $ 623.7
Foreign operations 232.8 43.3 217.4
Intersegment elimination (24.9) - (147.1)
--------------------------------------
Total segments 1,368.7 271.6 694.0
Corporate unallocated - (28.5) 123.9
--------------------------------------
Total $1,368.7 $243.1 $ 817.9
--------------------------------------
--------------------------------------
</TABLE>
12. SUPPLEMENTARY EARNINGS INFORMATION
The following costs and expenses are included in the Consolidated Statement
of Earnings:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1994 1993 1992
- ---------------------------------------------------------------------------
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Maintenance $27,224 $25,363 $27,444
------------------------------------
Taxes, other than federal
income taxes
Payroll 28,205 28,700 28,764
------------------------------------
Property 4,565 4,764 4,793
------------------------------------
State and local 7,688 4,785 5,195
------------------------------------
Rent 10,106 12,235 12,849
------------------------------------
Research and development costs 23,830 22,079 22,947
------------------------------------
------------------------------------
</TABLE>
13. RELATED PARTY TRANSACTIONS
On November 18, 1993, Holdings became a wholly owned subsidiary of Coltec as
a result of the exchange by the Holdings shareholders of their shares of
common stock of Holdings for 35.5% or 24,830,000 shares of common stock of
Coltec (the "Holdings Reorganization") in a transaction accounted for as a
purchase. The net assets acquired consisted primarily of 25,000,000 shares of
common stock of Coltec and $26,700,000 of cash. Immediately before this
exchange, Holdings owned 35.7% or 25,000,000 shares of common stock of
Coltec. The 25,000,000 shares of common stock of Coltec which Holdings owned
before this exchange and continues to own after the exchange are reported in
the Consolidated Balance Sheet as a reduction of the total common shares
issued. Expenses of $1,500,000 incurred in connection with this exchange were
charged to capital in excess of par value. As a result of the exchange,
Morgan Stanley Group Inc ("Morgan Stanley Group") became a direct shareholder
of Coltec. On June 6, 1994, two investment funds affiliated with Morgan
Stanley Group made a distribution to their respective partners of the shares
of common stock of Coltec received in the Holdings Reorganization.
Immediately after the distribution, the three representatives of Morgan
Stanley Group on Coltec's Board of Directors resigned.
During 1994, Morgan Stanley & Co. Incorporated ("MS&Co."), a wholly owned
subsidiary of Morgan Stanley Group, acted as one of the brokers in the
purchase of Coltec's notes and, in 1993, received a fee of $309,000 in
connection with an industrial revenue bond refinancing.
During 1992, in connection with the Recapitalization, MS&Co. received a
portion of the total underwriting commission of $36,527,000 in connection
with the public offering of Coltec's common stock, an underwriting commission
of $11,250,000 in connection with the public offering of debt securities, and
fees of $1,049,000 as one of the dealer managers for a debt tender offer. In
addition, MS&Co. received an underwriting commission of $2,625,000 in
connection with the offering of the 9 3/4% senior notes due 1999, and acted as
a dealer in the placement of a portion of Coltec's commercial paper.
38
<PAGE>
14. QUARTERLY SALES AND EARNINGS (UNAUDITED)
The following table sets forth quarterly sales, gross profit and earnings for
the three years ended December 31, 1994.
<TABLE>
<CAPTION>
QUARTER
-------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1ST 2ND 3RD 4TH
- ---------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1994
Net sales $ 331,850 $ 337,018 $ 317,507 $ 340,386
-------------------------------------------------
Gross profit 104,209 110,206 106,248 114,156
-------------------------------------------------
Operating income 54,679 60,691 57,831 63,129
-------------------------------------------------
Earnings before extraordinary item 20,643 24,383 23,037 25,926
Extraordinary item - (1,015) (177) (280)
-------------------------------------------------
Net earnings 20,643 23,368 22,860 25,646
-------------------------------------------------
Earnings per common share
Before extraordinary item .30 .35 .33 .37
Extraordinary item - (.02) - -
-------------------------------------------------
Net earnings .30 .33 .33 .37
-------------------------------------------------
1993
Net sales $ 339,934 $ 334,591 $ 316,077 $ 344,227
-------------------------------------------------
Gross profit 107,903 107,729 104,585 109,148
-------------------------------------------------
Operating income 54,967 37,040 56,800 62,902
-------------------------------------------------
Earnings before extraordinary item 17,490 6,013 18,490 23,233
Extraordinary item (264) (375) (378) (16,775)
-------------------------------------------------
Net earnings 17,226 5,638 18,112 6,458
-------------------------------------------------
Earnings per common share
Before extraordinary item .25 .09 .27 .33
Extraordinary item - (.01) (.01) (.24)
-------------------------------------------------
Net earnings .25 .08 .26 .09
-------------------------------------------------
1992
Net sales $ 337,557 $ 359,973 $ 330,640 $ 340,533
-------------------------------------------------
Gross profit 98,867 109,122 106,447 109,862
-------------------------------------------------
Operating income 52,293 65,480 59,537 65,812
-------------------------------------------------
Earnings (loss) before extraordinary item (2,713) 23,280 19,905 24,211
Extraordinary item - (105,347) - (1,583)
-------------------------------------------------
Net earnings (loss) (2,713) (82,067) 19,905 22,628
-------------------------------------------------
Earnings (loss) per common share
Before extraordinary item (.11) .33 .29 .35
Extraordinary item - (1.51) - (.02)
-------------------------------------------------
Net earnings (loss) (.11) (1.18) .29 .33
-------------------------------------------------
-------------------------------------------------
<FN>
REFERENCE IS MADE TO NOTE 3 FOR RESTRUCTURING CHARGE, NOTE 4 FOR EXTRAORDINARY
ITEM AND NOTE 1 FOR EARNINGS PER SHARE. EARNINGS (LOSS) PER COMMON SHARE FOR THE
YEAR ENDED DECEMBER 31, 1992 DOES NOT EQUAL THE SUM OF EARNINGS (LOSS) PER
COMMON SHARE FOR EACH OF THE FOUR QUARTERS OF 1992 DUE TO THE PUBLIC OFFERING OF
COMMON STOCK.
</TABLE>
39
<PAGE>
15. COMMITMENTS AND CONTINGENCIES
Coltec and certain of its subsidiaries are liable for lease payments and are
defendants in various lawsuits, including actions involving asbestos-containing
products and certain environmental proceedings. With respect to asbestos product
liability and related litigation costs, as of December 31, 1994 and 1993, two
subsidiaries of Coltec were among a number of defendants (typically 15 to 40) in
approximately 76,700 and 68,500 actions, respectively, (including approximately
3,300 and 6,100 actions, respectively, in advanced stages of processing) filed
in various states by plaintiffs alleging injury or death as a result of exposure
to asbestos fibers. Through December 31, 1994, approximately 110,200 of the
approximately 186,900 total actions brought have been settled or otherwise
disposed of.
The damages claimed for personal injury or death vary from case to case and in
many cases plaintiffs seek $1,000,000 or more in compensatory damages and
$2,000,000 or more in punitive damages. Although the law in each state differs
to some extent, it appears, based on advice of counsel, that liability for
compensatory damages would be shared among all responsible defendants, thus
limiting the potential monetary impact of such judgments on any individual
defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither Coltec or any of its subsidiaries were parties, that held insurance
carriers are obligated to cover asbestos-related bodily injury actions if any
injury or disease process, from first exposure through manifestation, occurred
during a covered policy period (the "continuous trigger theory of coverage"),
Coltec settled litigation with its primary and most of its first-level excess
insurance carriers, substantially on the basis of the Court's ruling. Coltec is
currently negotiating with its remaining excess carriers to determine, on behalf
of its subsidiaries, how payments will be made with respect to such insurance
coverage for asbestos claims. Coltec is currently receiving payments pursuant to
an interim agreement with certain of its excess carriers. Coltec believes that a
final agreement can be achieved without litigation, and on substantially the
same basis that it has resolved the issues with its primary and first-level
excess carriers. Settlements are generally made on a group basis with payments
made to individual claimants over periods of one to four years. During 1994 and
1993, two subsidiaries of Coltec received approximately 29,800 and 27,400 new
actions, respectively, with a comparable number of actions received in 1992.
Payments were made with respect to asbestos liability and related costs
aggregating $46,374,000 in 1994, $38,677,000 in 1993 and $39,810,000 in 1992,
substantially all of which were covered by insurance. In accordance with
Coltec's internal procedures for the processing of asbestos product liability
actions and due to the proximity to trial or settlement, certain outstanding
actions have progressed to a stage where Coltec can reasonably estimate the cost
to dispose of these actions. As of December 31, 1994, Coltec estimates that the
aggregate remaining cost of the disposition of the settled actions for which
payments remain to be made and actions in advanced stages of processing,
including associated legal costs, is approximately $42,254,000 and Coltec
expects that this cost will be substantially covered by insurance.
With respect to the 73,400 outstanding actions as of December 31, 1994 which are
in preliminary procedural stages, Coltec lacks sufficient information upon which
judgments can be made as to the validity or ultimate disposition of such
actions, thereby making it difficult to estimate with reasonable certainty the
potential liability or costs to Coltec. When asbestos actions are received they
are typically forwarded to local counsel to ensure that the appropriate
preliminary procedural response is taken. The complaints typically do not
contain sufficient information to permit a reasonable evaluation as to their
merits at the time of receipt, and in jurisdictions encompassing a majority of
the outstanding actions, the practice has been that little or no discovery or
other action is taken until several months prior to the date set for trial.
Accordingly, Coltec generally does not have the information necessary to analyze
the actions in sufficient detail to estimate the ultimate liability or costs to
Coltec, if any, until the actions appear on a trial calendar. A determination to
seek dismissal, to attempt to settle or to proceed to trial is typically not
made prior to the receipt of such information.
It is also difficult to predict the number of asbestos lawsuits that Coltec's
subsidiaries will receive in the future. Coltec has noted that, with respect to
recently settled actions or actions in advanced stages of processing, the mix of
the injuries alleged and the mix of the occupations of the plaintiffs have been
changing from those traditionally associated with Coltec's asbestos-related
actions. Coltec is not able to determine with reasonable certainty whether this
trend will continue. Based upon the foregoing, and due to the unique factors
inherent in each of the actions, including the nature of the disease, the
occupation of the plaintiff, the presence or absence of other possible causes of
a plaintiff's illness, the availability of legal defenses, such as
40
<PAGE>
the statute of limitations or state of the art, and whether the lawsuit is an
individual one or part of a group, management is unable to estimate with
reasonable certainty the cost of disposing of outstanding actions in
preliminary procedural stages or of actions that may be filed in the future.
However, Coltec believes that its subsidiaries are in a favorable position
compared to many other defendants because, among other things, the asbestos
fibers in its asbestos-containing products were encapsulated. Considering the
foregoing, as well as the experience of Coltec's subsidiaries and other
defendants in asbestos litigation, the likely sharing of judgments among
multiple responsible defendants, and the significant amount of insurance
coverage that Coltec expects to be available from its solvent carriers,
Coltec believes that pending and reasonably anticipated future actions are
not likely to have a material effect on Coltec's results of operations and
financial condition.
Although the insurance coverage which Coltec has is substantial, it should be
noted that insurance coverage for asbestos claims is not available to cover
exposures initially occurring on and after July 1, 1984. Coltec's subsidiaries
continue to be named as defendants in new cases, some of which allege initial
exposure after July 1, 1984.
In addition to claims for personal injury, Coltec's subsidiaries were among 40
or more defendants in 34 cases involving property damage claims based upon
asbestos-containing materials found in schools, public facilities and private
commercial buildings. The subsidiaries have been dismissed without payment in 31
of these cases. One school case was settled for an amount that is not material
and two cases remain unresolved as against one subsidiary only. However, based
upon the proceedings to date in these cases, it appears that the subsidiary has
no liability in those two cases.
In the first quarter of 1994, Coltec adopted the requirements of Financial
Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts Related
to Certain Contracts." In accordance with Interpretation No. 39, Coltec recorded
an accrual for its liabilities for asbestos-related matters that are deemed
probable and can be reasonably estimated (settled actions and actions in
advanced stages of processing), and separately recorded an asset equal to the
amount of such liabilities that is expected to be recovered by insurance. In
addition, Coltec has recorded a receivable for that portion of payments
previously made for asbestos product liability actions and related litigation
costs that is recoverable from its insurance carriers. Liabilities for asbestos
related matters and the receivable from insurance carriers included in the
Consolidated Balance Sheet are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
(IN THOUSANDS) 1994 1993
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
<S> <C> <C>
Accounts and notes receivable - other $68,179 $35,838
Other assets 13,119 23,697
Accrued expenses - other 34,099 -
Other liabilities 8,155 -
</TABLE>
With respect to environmental proceedings, Coltec has been notified that it is
among the Potentially Responsible Parties ("PRPs") under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), or similar state laws, for the costs of investigating and in
some cases remediating contamination by hazardous materials at several sites.
CERCLA imposes joint and several liability for the costs of investigating and
remediating properties contaminated by hazardous materials. Liability for these
costs can be imposed on present and former owners or operators of the properties
or on parties who generated the wastes that contributed to the contamination.
The process of investigating and remediating contaminated properties can be
lengthy and expensive. The process is also subject to the uncertainties
occasioned by changing legal requirements, developing technological applications
and liability allocations among PRPs. Based on the progress to date in the
investigation, cleanup and allocation of responsibility for these sites, Coltec
has estimated that its costs in connection with all except one of these sites
approximates $20,000,000 at December 31, 1994, and has accrued for this amount
in the Consolidated Balance Sheet as of December 31, 1994. Although Coltec is
pursuing insurance recovery in connection with certain of these matters, Coltec
has not recorded a receivable with respect to any potential recovery of costs in
connection with any environmental matter. While progress toward the
investigation, cleanup and responsibility allocation at the remaining site has
not been sufficient to allow Coltec at this time to determine the extent of its
potential financial responsibility at this site, Coltec does not believe its
costs in connection with such site will have a material effect on Coltec's
results of operations and financial condition.
Under operating lease commitments, expiring on various dates
after December 31, 1995, Coltec and certain of its subsidiaries
are obligated as of December 31, 1994 to pay rentals totaling $30,861,000 as
follows: $6,151,000 in 1995, $5,551,000 in 1996, $4,754,000 in 1997,
$4,179,000 in 1998, $3,680,000 in 1999, and $6,546,000 in later years.
41
<PAGE>
REPORT OF MANAGEMENT
The management of Coltec Industries Inc is responsible for the preparation of
the financial statements and related financial information included in this
Annual Report and for their integrity and objectivity. The financial
statements have been prepared in conformity with generally accepted
accounting principles and contain estimates and judgments by management as
appropriate.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance that assets are safeguarded, transactions are
executed and recorded in accordance with management's authorization and
accounting records may be relied upon for preparation of financial
statements. Management is responsible for maintenance of these systems, which
is accomplished through communication of established written codes of
conduct, policies and procedures; selection of qualified personnel; and
appropriate delegation of authority and segregation of responsibilities.
Adherence to these controls, policies and procedures is monitored and
evaluated by the Company's internal auditors.
Coltec Industries Inc's financial statements have been audited by Arthur
Andersen LLP, the Company's independent public accountants. In planning and
performing their audit of the Company's financial statements, the independent
public accountants consider the internal control structure in determining their
auditing procedures. The independent public accountants also prepare
recommendations for improving policies and procedures and such recommendations
are communicated to management and the Audit Committee of the Board of
Directors.
The Audit Committee, composed solely of outside directors, meets periodically
with management, the independent public accountants and the internal
auditors, to review matters relating to the system of internal accounting
control and the Company's financial statements. Both the independent public
accountants and internal auditors have direct access to the Audit Committee,
with or without the presence of management, to discuss the scope and results
of their audits and their comments on the adequacy of the Company's internal
accounting control system.
/s/ John W. Guffey, Jr.
John W. Guffey, Jr.
Chairman, President and Chief Executive Officer
/s/ Paul G. Schoen
Paul G. Schoen
Executive Vice President, Finance;
Treasurer, and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
OF COLTEC INDUSTRIES INC:
We have audited the accompanying consolidated balance sheets of Coltec
Industries Inc (a Pennsylvania corporation) and subsidiaries as of December
31, 1994 and 1993, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of
Coltec Industries Inc and subsidiaries as of December 31, 1994 and 1993, and
the results of their operations and their cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
New York, N.Y.
January 23, 1995
42
<PAGE>
EXHIBIT 21.1
COLTEC INDUSTRIES INC AND SUBSIDIARIES
PARENTS AND SUBSIDIARIES
DECEMBER 31, 1994
Set forth below is a list of Coltec's principal subsidiaries. All such
subsidiaries are consolidated in Coltec's Consolidated Financial Statements.
Percentage of
State or Voting Securities
Jurisdiction Owned by its
Name Where Organized Immediate Parent
- ---- --------------- ----------------
CII Holdings Inc ................. Delaware 100
Coltec Holdings Inc .............. Delaware 100
Delavan-Delta, Inc................ Tennessee 100
Delavan Inc ...................... Iowa 100
Delavan Limited................... United Kingdom 100
Garlock, A.G...................... Switzerland 100
Garlock Bearings Inc. ............ Delaware 80
Garlock de Mexico, S.A. de C.V.... Mexico 65.7
Garlock GmbH ..................... Germany 100
Garlock (Great Britain) Ltd. ..... United Kingdom 100
Garlock Inc ...................... Ohio 100
Garlock of Canada Ltd. ........... Ontario, Canada 100
Garlock Overseas Corporation ..... Delaware 100
Garlock Pty. Limited ............. Australia 80
Garlock, S.A. .................... Panama 100
Liard S.A. ....................... France 100
Louis Mulas, Sucs., S.A. de C.V... Mexico 65.7
Menasco Aerospace Ltd. ........... Ontario, Canada 100
Menasco Aviation Services Ltd. ... Ontario, Canada 100
Stemco Inc ....................... Texas 100
The Anchor Packing Company ....... Delaware 100
Walbar Canada Inc. ............... Ontario, Canada 100
Walbar Inc ....................... Delaware 100
The names of certain other subsidiaries of Coltec have been omitted from
the list above because such unnamed subsidiaries considered in the aggregate as
a single subsidiary would not constitute a significant subsidiary.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Coltec Industries Inc:
As independent public accountants, we hereby consent to the incorporation of
our reports included in and incorporated by reference into this Form 10-K, into
the Company's previously filed Registration Statement File Nos. 33-45426,
33-52414, 33-1811 and 33-56139.
ARTHUR ANDERSEN LLP
New York, N.Y.
January 23, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
DECEMBER 31, 1994 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS
FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 4,188
<SECURITIES> 0
<RECEIVABLES> 202,273
<ALLOWANCES> 4,124
<INVENTORY> 198,203
<CURRENT-ASSETS> 429,698
<PP&E> 652,907
<DEPRECIATION> 429,793
<TOTAL-ASSETS> 847,450
<CURRENT-LIABILITIES> 240,062
<BONDS> 969,261
<COMMON> 700
0
0
<OTHER-SE> (526,301)
<TOTAL-LIABILITY-AND-EQUITY> 847,450
<SALES> 1,326,761
<TOTAL-REVENUES> 1,326,761
<CGS> 891,942
<TOTAL-COSTS> 1,090,431
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,472
<INCOME-PRETAX> 146,858
<INCOME-TAX> 52,869
<INCOME-CONTINUING> 93,989
<DISCONTINUED> 0
<EXTRAORDINARY> (1,472)
<CHANGES> 0
<NET-INCOME> 92,517
<EPS-PRIMARY> 1.35
<EPS-DILUTED> 1.35
</TABLE>
