SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant to Section 13 Or 15(d) of The Securities Exchange
Act of 1934
For the quarterly period ended September 29, 1996
OR
( ) Transition Report Pursuant to Section 13 Or 15(d) of The Securities
Exchange Act of 1934
For the transition period from __________________ to __________________
Commission file number 1-7568
COLTEC INDUSTRIES INC
(Exact name of Registrant as specified in its charter
PENNSYLVANIA 13-1846375
(State or other jurisdiction of incorporation (IRS Employer
or organization) Identification No.)
3 Coliseum Centre
2550 West Tyvola Road
Charlotte, North Carolina 28217 28217
(Address of principal executive offices) (Zip code)
(704) 423-7000
(Registrant's telephone number, including area code)
430 Park Avenue, New York, N.Y. 10022
(Former name, former address and former fiscal year,
if changed since last report)
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 ( )
________________________________________
On October 27, 1996, there were outstanding 67,479,039 shares of
common stock, par value $.01 per share.
Page 1 of 19
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Sept. 29, Dec. 31,
1996 1995
--------- --------
(Unaudited)
(In thousands)
A S S E T S
Current assets -
Cash and cash equivalents $ 12,443 $ 3,864
Accounts and notes receivable - net 221,119 171,676
Inventories -
Finished goods 49,958 55,462
Work in process and finished parts 130,677 134,603
Raw materials and supplies 32,246 26,861
________ ________
212,881 216,926
Deferred income taxes 11,081 13,632
Other current assets 10,408 10,165
Current assets of discontinued operations, net - 21,584
________ ________
Total current assets 467,932 437,847
Property, plant and equipment 612,872 588,054
Less accumulated depreciation and
amortization 397,488 382,143
________ ________
215,384 205,911
Costs in excess of net assets acquired,
net of amortization 134,236 136,981
Other assets 67,309 73,724
Noncurrent assets of discontinued operations, net - 26,471
________ ________
$884,861 $880,934
======== ========
2.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
Sept. 29, Dec. 31,
1996 1995
--------- -----------
(Unaudited)
(In thousands, except
share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities -
Notes payable and current maturities
of long-term debt $ 2,237 $ 226
Accounts payable 46,616 63,290
Accrued expenses 205,951 162,415
Current portion of liabilities of
discontinued operations 16,260 3,000
___________ ___________
Total current liabilities 271,064 228,931
Long-term debt 710,885 945,606
Deferred income taxes 27,163 12,957
Other liabilities 107,118 120,670
Liabilities of discontinued operations 171,976 26,532
Shareholders' equity -
Preferred stock, $.01 par value,
2,500,000 shares authorized,
shares outstanding - none - -
Common stock, $.01 par value,
100,000,000 shares authorized, 70,398,661 and
70,077,350 shares issued at September 29, 1996
and December 31, 1995, respectively (excluding
25,000,000 shares held by a wholly owned
subsidiary) 704 701
Capital in excess of par value 643,221 639,419
Retained earnings (deficit) (1,004,352) (1,088,042)
Unearned compensation - restricted stock awards (2,778) (2,408)
Foreign currency translation adjustments (838) (1,816)
___________ ___________
(364,043) (452,146)
Less: Cost of 2,714,822 and 100,346 shares
of common stock in treasury at
September 29, 1996 and December 31, 1995,
respectively (39,302) (1,616)
___________ ___________
(403,345) (453,762)
___________ ___________
$ 884,861 $ 880,934
=========== ===========
The accompanying notes to financial statements are an integral part of this
statement.
3.
COLTEC INDUSTRIES INC and SUBSIDIARIES
Consolidated Statement of Earnings
(Unaudited)
Three Months Ended Nine Months Ended
------------------ ------------------
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands, except per share data)
Net sales $298,596 $276,265 $897,548 $862,380
Costs and expenses -
Cost of sales 210,143 187,087 636,788 581,682
Selling and administrative 44,027 46,649 145,569 143,571
Special charge - 27,000 - 27,000
________ ________ ________ ________
Total costs and expenses 254,170 260,736 782,357 752,253
________ ________ ________ ________
Operating income 44,426 15,529 115,191 110,127
Interest and debt expense, net 17,045 22,318 58,503 67,641
________ ________ ________ ________
Earnings (loss) from continuing
operations before income
taxes and extraordinary item 27,381 (6,789) 56,688 42,486
Provision for (benefit from)
income taxes 9,310 (2,303) 19,274 15,136
________ ________ ________ ________
Earnings (loss) from
continuing operations before
extraordinary item 18,071 (4,486) 37,414 27,350
Discontinued operations - 6,290 48,156 22,009
Extraordinary item (59) - (1,880) (82)
________ ________ ________ ________
Net earnings $ 18,012 $ 1,804 $ 83,690 $ 49,277
======== ======== ======== ========
Earnings (loss) per common share
Continuing operations $ .26 $ (.06) $ .54 $ .39
Discontinued operations - .09 .69 .32
Extraordinary item - - (.03) -
______ ______ ______ ______
Net earnings $ .26 $ .03 $ 1.20 $ .71
______ ______ ______ ______
Weighted average number of common
and common equivalent shares 68,997 69,791 69,835 69,851
====== ====== ====== ======
The accompanying notes to financial statements are an integral part of this
statement.
4.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)(Unaudited)
Nine Months Ended
Sept. 29, Oct. 1,
1996 1995
--------- --------
Cash flows from operating activities
Net earnings $ 83,690 $ 49,277
Adjustments to reconcile net earnings to cash
provided by operating activities
Gain on sale of Automotive Business (34,470) -
Extraordinary item 1,880 82
Special charge - 27,000
Depreciation and amortization 27,720 28,434
Deferred income taxes (8,289) (5,937)
Receivable from insurance carriers (21,728) 8,932
Payment of liabilities of discontinued operations (1,556) (2,180)
Discontinued operations 821 4,046
Other operating items (3,942) (7,254)
_________ ________
44,126 102,400
_________ ________
Changes in assets and liabilities
Accounts and notes receivable (7,604) (20,805)
Inventories 4,045 (35,689)
Deferred income taxes 2,551 3,360
Other current assets (243) 2,683
Accounts payable (16,674) (8,967)
Accrued expenses 24,225 88
Discontinued operations (2,670) (3,206)
_________ ________
Changes in assets and liabilities 3,630 (62,536)
_________ ________
Cash provided by operating activities 47,756 39,864
_________ ________
Cash flows from investing activities
Proceeds from sale of Automotive Business 258,369 -
Capital expenditures (29,662) (23,915)
Acquisition of a business - (14,000)
Discontinued operations (4,762) (3,984)
Other - net 9,813 1,698
_________ ________
Cash provided by (used in) investing activities 233,758 (40,201)
_________ ________
Cash flows from financing activities
Issuance of long-term debt 65,000 26,300
Payment of long-term debt (300,390) (19,394)
Purchase of treasury stock (37,545) -
_________ ________
Cash provided by (used in) financing activities (272,935) 6,906
_________ ________
Cash and cash equivalents -
Increase 8,579 6,569
At beginning of period 3,864 4,133
_________ ________
At end of period $ 12,443 $ 10,702
========= ========
The accompanying notes to financial statements are an integral part of this
statement. 5.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
September 29, 1996
(Unaudited)
1. SUMMARY OF ACCOUNTING POLICIES
Financial Information: The unaudited financial statements, included herein,
reflect in the opinion of Coltec Industries Inc ("Coltec") all normal
recurring adjustments necessary to present fairly the financial position
and results of operations for the periods indicated. The unaudited
financial statements have been prepared in accordance with the instructions
to Form 10-Q and do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The consolidated balance sheet as of December 31, 1995 has
been extracted from the audited financial statements as of that date. For
further information, refer to the financial statements and footnotes
included in Coltec's annual report to shareholders for the year ended
December 31, 1995.
Consolidated Statement of Cash Flows: Interest paid and federal and state
income taxes paid and refunded were as follows:
Nine Months Ended
------------------
Sept. 29, Oct. 1,
1996 1995
-------- -------
(In thousands)
Interest paid $44,577 $53,731
Income taxes:
Paid 24,008 43,432
Refunded 1,877 3,593
2. DISCONTINUED OPERATIONS
On June 17, 1996, Coltec completed the sale of its Holley Automotive,
Coltec Automotive and Performance Friction Products businesses
(collectively, the "Automotive Business") to Borg-Warner Automotive for
$283,000,000 in cash, which resulted in an after-tax gain of $34,470,000,
net of liabilities retained, transaction costs and obligations related to
the sale. The cash proceeds, net of expenses and taxes, were $258,369,000.
The sale of the Automotive Business has been recorded as a disposal of a
segment of a business. Accordingly, the financial statements of Coltec for
the three months and nine months ended October 1, 1995 have been
reclassified to account for the operations of the Automotive Business as a
discontinued operation. Net assets of the discontinued Automotive Business
at December 31, 1995 have been segregated in the Consolidated Balance
Sheet.
6.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
September 29, 1996
(Unaudited)
Earnings and earnings per common share from the discontinued Automotive
Business were as follows:
Three Months Ended Nine Months Ended
------------------ ------------------
Sept.29, Oct. 1, Sept.29, Oct. 1,
1996 1995 1996 1995
-------- ------- -------- -------
(In thousands)
Earnings from discontinued
operations -
Automotive Business, net of
income taxes of $3,275 for
the three months ended
October 1, 1995, and $7,051
and $11,442 for the nine
months ended September 29,
1996 and October 1, 1995,
respectively $ - $6,290 $13,686 $22,009
Gain on sale of Automotive
Business, net of income
taxes of $18,561 - - 34,470 -
_______ ______ _______ _______
Total $ - $6,290 $48,156 $22,009
_______ ______ _______ _______
Earnings per common share from
discontinued operations -
Automotive Business $ - $ .09 $ .20 $ .32
Gain on sale of Automotive
Business - - .49 -
______ _____ _____ _____
$ - $ .09 $ .69 $ .32
______ _____ _____ _____
Net sales of the discontinued Automotive Business were $55,869,000 for the
three months ended October 1, 1995, and $128,912,000 and $187,645,000 for
the nine months ended September 29, 1996 and October 1, 1995, respectively.
3. SPECIAL CHARGE
In the third quarter of 1995, Coltec recorded a special charge of
$27,000,000, primarily to cover the costs of closing the Walbar compressor
blade facility in Canada. To a lesser extent, the charge also covered
selected work force reductions throughout the Company and writedowns of
unutilized assets.
4. EXTRAORDINARY ITEM
Coltec incurred extraordinary charges of $59,000, net of a tax benefit of
$32,000, in the three months ended September 29, 1996; and $1,880,000, net
of a tax benefit of $1,013,000; and $82,000, net of a tax benefit of
$44,000; in the nine months ended September 29, 1996 and October 1, 1995,
respectively, in connection with the early retirement of debt.
7.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
September 29, 1996
(Unaudited)
5. COMMITMENTS AND CONTINGENCIES
Coltec and certain of its subsidiaries 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 September 29, 1996, two subsidiaries of
Coltec were among a number of defendants (typically 15 to 40) in
approximately 93,500 actions (including approximately 9,800 actions, in
advanced stages of processing) filed in various states by plaintiffs
alleging injury or death as a result of exposure to asbestos fibers.
Through September 29, 1996, approximately 172,400 of the approximately
265,900 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 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 has negotiated a final agreement with
most of its excess carriers that are in the layers of coverage immediately
above its first layer. Coltec is currently receiving payments pursuant to
this agreement. Coltec believes that, with respect to the remaining
carriers, a final agreement can be achieved without litigation and on
substantially the same basis that it has resolved the issues with its other
carriers. Settlements are generally made on a group basis with payments
made to individual claimants over periods of one to four years. During the
first nine months of 1996, two subsidiaries of Coltec received
approximately 32,400 new actions, compared with approximately 30,300
actions received during the first nine months of 1995. Payments were made
with respect to asbestos liability and related costs aggregating
$53,642,000 and $42,441,000 in the first nine months of 1996 and 1995,
respectively, 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 September
29, 1996, 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 $81,234,000 and Coltec expects that this cost will be
substantially covered by insurance.
8.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
September 29, 1996
(Unaudited)
With respect to the 83,700 outstanding actions as of September 29, 1996,
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 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.
9.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
September 29, 1996
(Unaudited)
In addition to claims for personal injury, Coltec's subsidiaries have been
involved in an insignificant number of property damage claims based upon
asbestos-containing materials found in schools, public facilities and
private commercial buildings. Based upon proceedings to date, the
overwhelming majority of these claims have been resolved without a material
adverse impact on Coltec. Likewise, the insignificant number of claims
remaining to be resolved are not expected to have a material effect on
Coltec's results of operations and financial condition.
Coltec has 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 has 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:
Sept. 29, Dec. 31,
(In thousands) 1996 1995
_________________________________________________________________
Accounts and notes receivable - other $81,994 $53,677
Other assets 19,932 16,243
Accrued expenses - other 68,115 47,791
Other liabilities 13,119 11,450
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 these sites
approximate $20,000,000 at September 29, 1996, and has accrued for this
amount in the Consolidated Balance Sheet as of September 29, 1996. 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.
10.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
September 29, 1996
(Unaudited)
6. SUBSEQUENT EVENT
On August 14 and September 10, 1996, Coltec announced agreements to sell
its Farnam Sealing Systems Division to Meillor SA and its Stemco Truck
Products Division's exhaust systems and components business to Walker
Manufacturing Company, a unit of Tenneco Inc, respectively. These
transactions are expected to close in the fourth quarter of 1996 and are
not expected to have an unfavorable impact on Coltec operating results. In
1995, Farnam reported sales of $47,182,000 and Stemco's exhaust systems and
components business reported sales of $20,503,000.
11.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
September 29, 1996
Item 2 Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following table shows financial information by industry segment for the
three months and nine months ended September 29, 1996 and October 1, 1995.
Three Months Ended Nine Months Ended
------------------ -------------------
Sept. 29, Oct. 1, Sept. 29, Oct. 1,
1996 1995 1996 1995
-------- ------- -------- -------
(In millions)
Sales:
Aerospace/Government $131.4 $115.8 $386.8 $356.4
Industrial 111.1 106.0 336.6 326.4
Automotive 56.5 54.9 175.3 180.6
Intersegment elimination (.4) (.4) (1.2) (1.0)
______ ______ ______ ______
Total $298.6 $276.3 $897.5 $862.4
====== ====== ====== ======
Operating income:
Aerospace/Government $ 20.2 $ (4.9) $ 38.0 $ 27.0
Industrial 23.8 22.7 74.9 74.5
Automotive 10.6 9.5 33.0 36.7
______ ______ ______ ______
Total segments 54.6 27.3 145.9 138.2
Corporate unallocated (10.2) (11.8) (30.7) (28.1)
______ ______ ______ ______
Operating income $ 44.4 $ 15.5 $115.2 $110.1
====== ====== ====== ======
Operating income for the third quarter of 1995 included a special charge of
$27.0 million. This charge included $23.4 million in the Aerospace/
Government segment and $3.6 million in Corporate Unallocated. Excluding
this charge, third quarter and nine months of 1995 operating income for the
Aerospace/Government segment would have been $18.5 million and $50.4
million, respectively; and for the total company, $42.5 million and $137.1
million, respectively.
Results of Operations
Three Months Ended September 29, 1996 Compared With Three Months Ended
October 1, 1995.
Earnings from continuing operations before extraordinary item were $18.1
million, or 26 cents per common share, in the third quarter of 1996. This
compared with a loss of $4.5 million, or 6 cents per common share, in the
1995 third quarter, which included a special charge of $27.0 million
primarily to cover the costs of closing the Walbar compressor blade
12.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
September 29, 1996
facility in Canada. Operating results for the third quarter of 1995 have
been reclassified to exclude the results of the discontinued Automotive
Business.
Sales in the quarter ended September 29, 1996, increased 8% to $298.6
million from $276.3 million in the like quarter last year. Operating
income was $44.4 million and the operating margin was 14.9% in the 1996
third quarter compared with operating income of $15.5 million and the
operating margin of 5.6% a year ago. Excluding the $27.0 million special
charge, operating income was $42.5 million and the operating margin was
15.4% in the third quarter of 1995. The 1996 improvement in earnings from
continuing operations before income taxes resulted from improved operating
results and lower interest expense.
The Aerospace/Government segment reported operating income of $20.2 million
compared with a loss of $4.9 million last year. However, after excluding
the special charge from 1995, third quarter 1996 operating income increased
9% on a 13% sales gain. Both operating income and sales in the Industrial
segment increased 5%, and the Automotive segment reported a 12% gain in
operating income on a 3% sales increase.
In the Aerospace/Government segment, the divisions serving the aerospace
market increased operating income and sales by 27% and 20%, respectively.
Walbar, Chandler Evans Control Systems, Menasco, Delavan Gas Turbine and
Lewis Engineering reported higher sales and earnings; while Fairbanks Morse
Engine posted lower operating results. A strike at Fairbanks Morse Engine
lowered company earnings for the third quarter by two cents per share. In
the Industrial segment, sales and earnings gains were reported by Garlock
Sealing Technologies (formerly Garlock Mechanical Packing) and Garlock
Bearings; while Quincy Compressor reported lower results. The Automotive
segment benefited from sales and earnings improvements at Holley
Performance Products and Farnam Sealing Systems.
Following is a discussion of the results of operations for the three months
ended September 29, 1996 compared with the three months ended October 1,
1995.
Sales. In the Aerospace/Government segment, sales were $131.4 million
compared with $115.8 million a year ago. At Walbar, sales were up
significantly on increased shipments of turbine blades and vanes for
commercial aircraft engines, and components and assemblies for the
locomotive turbocharger market. Also contributing to the higher sales was
an increase in demand for spare parts and overhaul services reflecting the
aging of commercial aircraft fleets. At Menasco, sales were higher on
increased shipments of landing gear systems for the Boeing 777 and
McDonnell Douglas MD-80 aircraft and increased demand for overhaul and
repair services. Partially offsetting the sales improvement was the
discontinuance of shipments to Fokker, which filed for bankruptcy in the
first quarter of 1996, and completion of the production contract in 1995
for the Taiwanese fighter program. Sales were higher at Delavan Gas
Turbine Products on strong demand for fuel injectors and components from
regional airlines, as this segment of the airline industry continues to
13.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
September 29, 1996
replace large aircraft on short run trips. Chandler Evans Control Systems
reported higher sales on increased shipments of fuel controls to original
equipment manufacturers. This sales increase was offset in part by
completion of shipments in 1995 for the Taiwanese fighter program. Sales
were down at Fairbanks Morse Engine due to lower shipments of Alco engines.
Sales for the Industrial segment were $111.1 million compared with $106.0
million last year. The higher sales primarily reflected the acquisition in
December 1995 by Garlock Sealing Technologies of Furon Company's metallic
gasket business. Sales were higher at Garlock Bearings on increased demand
for the Garfil-Garmex product lines from the automotive market. Sales at
Quincy Compressor were down on lower demand for rotary screw air
compressors.
In the Automotive segment, sales were $56.5 million compared with $54.9
million last year. At Farnam Sealing Systems, sales of gaskets were higher
to the automotive aftermarket. Holley Performance Products and Stemco
Truck Products also reported third quarter sales increases.
Cost of Sales. Cost of sales increased 12% in the third quarter of 1996.
This increase is related to the increased volume of business, costs
incurred in connection with the strike at Fairbanks Morse Engine and costs
at the metallic gasket business acquired by Garlock Sealing Technologies.
As a percent of sales, cost of sales increased to 70.4% from 67.7% last
year.
Selling and Administrative Expense. Selling and administrative expense,
including other income and expense, declined 6% and, as a percent of sales,
selling and administrative expense was 14.7% in the third quarter compared
with 16.9% in 1995.
Interest and Debt Expense, Net. Interest and debt expense, net declined 24%
due to debt repayments with the proceeds received from the sale of the
Automotive Business, lower interest rates and the substitution in the first
quarter of bank debt at a lower interest rate for 11-1/4% debentures.
Provision for Income Taxes. The provision for income taxes for the third
quarter of 1996 resulted in an effective income tax rate of 34.0%. This
compared with a benefit from income taxes, at a rate of 33.9%, on the
pretax loss in the third quarter of 1995.
Extraordinary Item. The extraordinary charge for the three months ended
September 29, 1996 resulted from early extinguishment of debt.
14.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
September 29, 1996
Nine Months Ended September 29, 1996 Compared With Nine Months Ended
October 1, 1995.
Earnings from continuing operations before extraordinary item for the nine
months ended September 29, 1996 were $37.4 million, equal to 54 cents per
common share, and included a charge of $14.2 million resulting from the
Fokker bankruptcy. For the nine months of 1995, earnings from continuing
operations before extraordinary item were $27.4 million, or 39 cents per
common share, and included a special charge of $27.0 million. Operating
results for the nine months ended October 1, 1995 have been reclassified to
exclude the results of the discontinued Automotive Business.
Sales for the nine months of 1996 were $897.5 million compared with $862.4
million in the like period a year ago. Operating income was $115.2 million
and the operating margin was 12.8%. Excluding the $14.2 million charge,
operating income was $129.4 million with an operating margin of 14.4%. For
the nine months of 1995, operating income was $110.1 million and the
operating margin was 12.8%. Excluding the $27.0 million special charge,
operating income was $137.1 million and the operating margin was 15.9%.
The Aerospace/Government segment reported a 41% increase in operating
income in the nine months of 1996. However, excluding the charge resulting
from the Fokker bankruptcy from 1996 and the special charge from 1995,
operating income increased 4% over 1995 on a sales increase of 9%.
Operating income in the Industrial segment was up slightly on a 3% increase
in sales; and in the Automotive segment, operating income was down 10% and
sales were down 3%.
In the Aerospace/Government segment, higher sales and earnings were
reported by Walbar, Chandler Evans Control Systems and Delavan Gas Turbine
Products; while Menasco and Fairbanks Morse Engine reported lower results.
Walbar's results benefited from the phaseout of its unprofitable compressor
blade facility in Canada. Walbar's remaining operations posted strong
gains. In the Industrial segment, Garlock Sealing Technologies, Garlock
Bearings, Plastomer Products and Haber Tool reported improved operating
income on higher sales; which were partially offset by lower results
reported by Quincy Compressor and Delavan Commercial Products. The
Automotive segment was affected by lower sales and earnings at Stemco Truck
Products and Farnam Sealing Systems.
Following is a discussion of the results of operations for the nine months
ended September 29, 1996 compared with the nine months ended October 1,
1995.
Sales. In the Aerospace/Government segment, sales were $386.8 million
compared with $356.4 million a year ago. At Walbar, sales were up
significantly on increased shipments of turbine blades and vanes for
commercial aircraft engines, and components and assemblies for the
locomotive turbocharger market. Also contributing to the higher sales was
an increase in demand for spare parts and overhaul services reflecting the
aging of commercial aircraft fleets. Sales were higher at Delavan Gas
15.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
September 29, 1996
Turbine Products on strong demand for fuel injectors and components from
regional airlines. Chandler Evans Control Systems reported higher sales on
increased shipments of fuel controls to original equipment manufacturers
and on increased demand for spare parts. This sales increase was offset in
part by completion of shipments in 1995 for the Taiwanese fighter program.
Sales were down at Menasco due to lower shipments to Fokker and completion
of the production contract in 1995 for the Taiwanese fighter program.
Partially offsetting the sales decline at Menasco were increased shipments
of landing gear systems for the Boeing 777 and McDonnell Douglas MD-80
aircraft and increased demand for overhaul and repair services.
Sales for the Industrial segment were $336.6 million compared with $326.4
million last year. The higher sales primarily reflected the acquisition by
Garlock Sealing Technologies of Furon Company's metallic gasket business.
Sales were higher at Plastomer Products and Garlock Bearings, while Quincy
Compressor and Delavan Commercial Products reported lower sales.
In the Automotive segment, sales were $175.3 million compared with $180.6
million last year. Demand was down for Stemco's hub oil seals from both
the truck and trailer original equipment and aftermarket.
Cost of Sales. Cost of sales increased 9% in the nine months ended
September 29, 1996. This increase was attributable to a $12.8 million
charge resulting from the filing for bankruptcy by Fokker. Also
contributing to the increase were higher sales, a provision for that
portion of asbestos product liability claims and related litigation costs
not covered by insurance, cost incurred in connection with the strike at
Fairbanks Morse Engine, and costs related to the acquired metallic gasket
business. The $12.8 million charge for the Fokker bankruptcy covers
nonrecurring development costs, vendor claims, losses on foreign exchange
contracts and write-off of inventories related to the Fokker 70 and 100
aircraft programs. As a percentage of sales, cost of sales increased to
70.9% from 67.5% last year.
Selling and Administrative Expense. Selling and administrative expense,
including other income and expense, increased 1% due to a $1.4 million
charge for the Fokker bankruptcy covering the write-off of receivables
related to the Fokker 70 and 100 aircraft programs, and to costs related to
the acquired metallic gasket business. As a percent of sales, selling and
administrative expense was 16.2% in 1996 compared with 16.6% in 1995.
Interest and Debt Expense, Net. Interest and debt expense, net declined
14% due to debt repayments with the proceeds received from the sale of the
Automotive Business, lower interest rates and the substitution in the first
quarter of bank debt at a lower interest rate for 11-1/4% debentures.
Provision for Income Taxes. The provision for income taxes for the nine
months ended September 29, 1996 resulted in an effective income tax rate of
34% compared with 35.6% for last year.
16.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
September 29, 1996
Discontinued Operations. On June 17, 1996, Coltec completed the sale of its
Automotive Business to Borg-Warner Automotive for $283.0 million in cash,
which resulted in an after-tax gain of $34.5 million, or 49 cents per
common share, net of liabilities retained, transaction costs and
obligations related to the sale. Net sales of the discontinued Automotive
Business were $55.9 million for the three months ended October 1, 1995, and
$128.9 million and $187.6 million for the nine months ended September 29,
1996 and October 1, 1995, respectively. Reference is made to Note 2 of the
Notes to Financial Statements.
Extraordinary Item. The extraordinary charges for both the nine months of
1996 and 1995 resulted from early extinguishment of debt.
Liquidity and Financial Position
At September 29, 1996, total debt was $713.1 million compared with $945.8
million at year-end 1995. The negative balance in shareholders' equity of
$403.3 million compares with a negative balance of $453.8 million at
December 31, 1995. Cash and cash equivalents were $12.4 million compared
with $3.9 million at year-end 1995. Working capital was $196.9 million and
the current ratio was 1.73. This compares with working capital of $208.9
million and a current ratio of 1.91 at December 31, 1995.
In the first nine months of 1996, Coltec generated $47.8 million of cash
from operating activities compared with $39.9 million last year. The
higher cash generated from operations in 1996 was due to lower working
capital requirements, offset in part by the net payment of $21.7 million
for asbestos-related matters compared with net receipts of $8.9 million
last year. Included in receivables at September 29, 1996 and December 31,
1995 were $82.0 million and $53.7 million, respectively, of receivables due
from insurance carriers for asbestos product liability claims and related
litigation costs. Excluding these amounts, receivables increased 18% to
$139.1 million and receivables days outstanding were 41 days at September
29, 1996, compared with 40 days at year-end 1995.
In addition to the $47.8 million of cash generated from operating
activities in the first nine months of 1996, Coltec received $258.4 million
of cash, net of expenses and taxes, from the sale of the Automotive
Business. These funds were used to reduce indebtedness, primarily bank
debt, by $235.4 million, invest $29.7 million in capital expenditures and
purchase 2,603,900 shares of Coltec's common stock for $37.5 million. With
borrowings under its credit agreement, Coltec expects to purchase some
portion of high-yield debt and up to an additional $52.5 million of its
common shares.
The liabilities of discontinued operations, including the current portion,
were $188.2 million at September 29, 1996 compared with $29.5 million at
year-end 1995. This increase covers liabilities and obligations related to
the sale of the Automotive Business.
17.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
September 29, 1996
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Coltec and certain of its subsidiaries are defendants in various
lawsuits involving asbestos-containing products. In addition, Coltec
has been notified that it is among the Potentially Responsible Parties
under the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended, or similar state laws, for the costs
of investigating and in some cases remediating contamination by
hazardous materials at several sites. See Note 5 of the Notes to
Financial Statements.
Item 6. Exhibits and Reports on Form 8-K.
(a)10.1 Amendment No. 2 to the Benefits Equalization Plan.
10.2 Amendment No. 1 to the Supplemental Retirement Savings Plan.
10.3 Form of Employment Agreement between Coltec and David Harrison
dated July 11, 1996.
27.1 Financial Data Schedule.
(b) No reports on Form 8-K were filed during the quarter ended
September 29, 1996 by Coltec.
18.
S I G N A T U R E
Pursuant to the requirements of the Securities 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)
by David D. Harrison
_____________________________
David D. Harrison
Executive Vice President,
Finance and Treasurer
Date: November 11, 1996
19.
EXHIBIT 10.1
AMENDMENT NO. 2
TO THE
BENEFITS EQUALIZATION PLAN
OF COLTEC INDUSTRIES INC
Pursuant to a resolution duly adopted by the Board of Directors of
Coltec Industries Inc, the Benefits Equalization Plan of Coltec
Industries Inc is hereby amended as follows, effective as of the
date of adoption of this amendment:
1. Section 4.1 is amended by the addition of a new paragraph at
the end thereof, to read as follows:
"Notwithstanding the foregoing, in the case of any Employee
who (i) begins retirement on or after January 1, 1997 or (ii)
began retirement prior to January 1, 1997, was a director of
the Corporation at retirement, continued to serve as a
director of the Corporation thereafter, is presently a
director of the Corporation and ceases to be a director after
January 1, 1997, payment of any supplemental benefit under
Article II of the Plan shall be made in a lump sum as soon as
administratively feasible after the Employee's retirement or
after ceasing to be a director of the Corporation; provided,
however, that if the Employees gives a written notification to
the Corporation not less than 90 days prior to his Annuity
Starting Date under the Retirement Plan that he elects not to
receive payment of any supplemental benefit under Article II
of the Plan in a lump sum, such payment shall instead be made
at the same time in the same form and to the same person or
persons as payment of allowances under the Retirement Plan.
The amount of such lump sum distribution shall be determined
using the factors that would be used for valuing a single sum
distribution under the Retirement Plan as of the date of
valuation. Such lump sum shall be in lieu of all supplemental
benefits under Article II of the Plan, but shall have no
effect on the form, timing, or amount of any distribution made
under the Retirement Plan.
2. A new Article VII is added immediately following Article VI,
to read in its entirety as follows:
ARTICLE VII
7.1 Notwithstanding anything to the contrary contained in this
Plan, the provisions of this Article VII shall apply in the
event of a Change in Control or a Potential Change in Control,
as defined below.
(a) A "Change in Control" shall be deemed to occur:
(1) upon the acquisition, other than from the
Corporation, by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d) of
the Securities Exchange Act of 1934 (the "Exchange
Act") of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20 percent or more of either the
then outstanding shares of common stock of the
Corporation or the combined voting securities of
the Corporation entitled to vote generally in the
election of directors; provided, however, that for
any individual, entity or group that has a
beneficial ownership in shares of common stock or
voting securities as of the date of adoption of
this Article VII, a Change in Control shall occur
only upon the acquisition of an additional 20
percent or more of the total outstanding shares of
common stock or voting securities; or
(2) when individuals who, as of the date of the
adoption of this Article VII, constitute the Board
(the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board,
provided that any individual becoming a director
subsequent to the date hereof whose election, or
nomination for election by the Corporation's
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office is in
connections with an actual or threatened election
contest relating to the election of the directors
of the Corporation (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the
Exchange Act); or
(3) upon the approval by the shareholders of the
Corporation of (i) a reorganization, merger or
consolidation, in each case, with respect to which
the individuals and entities who were the
respective beneficial owners of the common stock
and voting securities of the Corporation
immediately prior to such reorganization, merger or
consolidation do not, following such
reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than
50 percent of, respectively, the then outstanding
shares of common stock, and the combined voting
power of the then outstanding voting securities
entitled to vote generally in the election of
directors, as the case may be, of the corporation
resulting from such reorganization, merger or
consolidation; (ii) a complete liquidation or
dissolution of the Corporation; or (iii) the sale
or other disposition of all or substantially all of
the assets of the Corporation.
(b) A "Potential Change in Control" shall be deemed to occur:
(1) at the time the Corporation enters into an
agreement, the consummation of which would result
in the occurrence of a Change in Control; or
(2) at the time the Corporation or any individual,
entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act publicly
announces an intention to take actions which, if
consummated, would constitute a Change in Control;
or
(3) if the Board in its discretion determines, based on
facts and circumstances, that there is a possible
Change in Control.
7.2 Upon the occurrence of Potential Change in Control, the
Corporation shall set aside in a grantor trust, either
existing or to be established, an amount equal to the
outstanding benefit obligations under the Plan as of the date
of the Potential Change in Control, less any amounts
previously set aside in a grantor trust to provide benefits
under the Plan.
If a Change in Control does not occur within a reasonable time
from the date such funds are set aside, the funds, adjusted
for any gains or losses, shall revert to the Corporation.
7.3 Upon the occurrence of a Change in Control, each Employee who
has accrued or been allocated a benefit under the Plan as of
the date of the Change in Control or the related Potential
Change in Control shall become fully vested in his benefit
under the Plan.
7.4 As soon as administratively practicable after the later of the
adoption of this Article VII or the date an Employee first
accrues or is allocated a benefit under the Plan, the
Committee shall provide each such Employee with an opportunity
to make an irrevocable election to receive an immediate lump
sum distribution of his entire vested benefit under the Plan
as of the date of a Change in Control, or to receive his
benefit in the manner otherwise provided under the Plan as if
no Change in Control had occurred. The receipt of such a lump
sum benefit upon a Change in Control shall in no way affect
the right of the Employee to continue to participate in the
Plan following such distribution.
7.5 As soon as administratively practicable after the adoption of
this Article VII, the Committee shall provide each participant
then in receipt of periodic benefits under the Plan or who
terminated service with a right to a benefit under the Plan
with an opportunity to make an irrevocable election to
receive, upon a Change in Control, an immediate lump sum
distribution of his remaining benefit under the Plan or to
continue to receive benefit payments as if no Change in
Control had occurred.
7.6 Within the 30 day period following a Change in Control, any
Employee who did not elect to receive a lump sum distribution
under Section 7.4, may elect to receive a lump sum
distribution in an amount equal to his total benefit under the
Plan reduced by a percentage equal to the LIBOR rate as of the
date of the Change in Control plus one percent. Such
distribution shall be in lieu of all remaining benefits under
the Plan.
7.7 For purposes of valuing any lump sum distribution of a
supplemental benefit under Article II of the Plan under
Sections 7.4, 7.5 or 7.6, the mortality factor shall be that
used under the Retirement Plan as of the Change in Control
date, and the interest rate shall be the annual 30-year U.S.
treasury rate published by the Board of Governors of the
Federal Reserve System for the month preceding the month
containing the Change in Control date.
EXHIBIT 10.2
AMENDMENT NO. 1
TO THE
SUPPLEMENTAL RETIREMENT SAVINGS PLAN
OF COLTEC INDUSTRIES INC
Pursuant to a resolution duly adopted by the Board of Directors of
Coltec Industries Inc, the Supplemental Retirement Savings Plan of
Coltec Industries Inc is hereby amended as follows, effective as of
the date of adoption of this amendment:
1. Section 4.1 is amended by the addition of a new paragraph at
the end thereof, to read as follows:
"Notwithstanding the foregoing, in the case of any Employee
who (i) begins retirement on or after January 1, 1997 or (ii)
began retirement prior to January 1, 1997, was a director of
the Corporation at retirement, continued to serve as a
director of the Corporation thereafter, is presently a
director of the Corporation and ceases to be a director after
January 1, 1997, payment of any supplemental benefit under
Article II of the Plan shall be made in a lump sum as soon as
administratively feasible after the Employee's retirement or
after ceasing to be a director of the Corporation; provided,
however, that if the Employees gives a written notification to
the Corporation not less than 90 days prior to his Annuity
Starting Date under the Retirement Plan that he elects not to
receive payment of any supplemental benefit under Article II
of the Plan in a lump sum, such payment shall instead be made
at the same time in the same form and to the same person or
persons as payment of allowances under the Retirement Plan.
The amount of such lump sum distribution shall be determined
using the factors that would be used for valuing a single sum
distribution under the Retirement Plan as of the date of
valuation. Such lump sum shall be in lieu of all supplemental
benefits under Article II of the Plan, but shall have no
effect on the form, timing, or amount of any distribution made
under the Retirement Plan.
2. A new Article VII is added immediately following Article VI,
to read in its entirety as follows:
ARTICLE VII
7.1 Notwithstanding anything to the contrary contained in this
Plan, the provisions of this Article VII shall apply in the
event of a Change in Control or a Potential Change in Control,
as defined below.
(a) A "Change in Control" shall be deemed to occur:
(1) upon the acquisition, other than from the
Corporation, by any individual, entity or group
(within the meaning of Section 13(d)(3) or 14(d) of
the Securities Exchange Act of 1934 (the "Exchange
Act") of the beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the
Exchange Act) of 20 percent or more of either the
then outstanding shares of common stock of the
Corporation or the combined voting securities of
the Corporation entitled to vote generally in the
election of directors; provided, however, that for
any individual, entity or group that has a
beneficial ownership in shares of common stock or
voting securities as of the date of adoption of
this Article VII, a Change in Control shall occur
only upon the acquisition of an additional 20
percent or more of the total outstanding shares of
common stock or voting securities; or
(2) when individuals who, as of the date of the
adoption of this Article VII, constitute the Board
(the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board,
provided that any individual becoming a director
subsequent to the date hereof whose election, or
nomination for election by the Corporation's
shareholders, was approved by a vote of at least a
majority of the directors then comprising the
Incumbent Board shall be considered as though such
individual was a member of the Incumbent Board, but
excluding, for this purpose, any such individual
whose initial assumption of office is in
connections with an actual or threatened election
contest relating to the election of the directors
of the Corporation (as such terms are used in Rule
14a-11 of Regulation 14A promulgated under the
Exchange Act); or
(3) upon the approval by the shareholders of the
Corporation of (i) a reorganization, merger or
consolidation, in each case, with respect to which
the individuals and entities who were the
respective beneficial owners of the common stock
and voting securities of the Corporation
immediately prior to such reorganization, merger or
consolidation do not, following such
reorganization, merger or consolidation,
beneficially own, directly or indirectly, more than
50 percent of, respectively, the then outstanding
shares of common stock, and the combined voting
power of the then outstanding voting securities
entitled to vote generally in the election of
directors, as the case may be, of the corporation
resulting from such reorganization, merger or
consolidation; (ii) a complete liquidation or
dissolution of the Corporation; or (iii) the sale
or other disposition of all or substantially all of
the assets of the Corporation.
(b) A "Potential Change in Control" shall be deemed to occur:
(1) at the time the Corporation enters into an
agreement, the consummation of which would result
in the occurrence of a Change in Control; or
(2) at the time the Corporation or any individual,
entity or group (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act publicly
announces an intention to take actions which, if
consummated, would constitute a Change in Control;
or
(3) if the Board in its discretion determines, based on
facts and circumstances, that there is a possible
Change in Control.
7.2 Upon the occurrence of Potential Change in Control, the
Corporation shall set aside in a grantor trust, either
existing or to be established, an amount equal to the
outstanding benefit obligations under the Plan as of the date
of the Potential Change in Control, less any amounts
previously set aside in a grantor trust to provide benefits
under the Plan.
If a Change in Control does not occur within a reasonable time
from the date such funds are set aside, the funds, adjusted
for any gains or losses, shall revert to the Corporation.
7.3 Upon the occurrence of a Change in Control, each Employee who
has accrued or been allocated a benefit under the Plan as of
the date of the Change in Control or the related Potential
Change in Control shall become fully vested in his benefit
under the Plan.
7.4 As soon as administratively practicable after the later of the
adoption of this Article VII or the date an Employee first
accrues or is allocated a benefit under the Plan, the
Committee shall provide each such Employee with an opportunity
to make an irrevocable election to receive an immediate lump
sum distribution of his entire vested benefit under the Plan
as of the date of a Change in Control, or to receive his
benefit in the manner otherwise provided under the Plan as if
no Change in Control had occurred. The receipt of such a lump
sum benefit upon a Change in Control shall in no way affect
the right of the Employee to continue to participate in the
Plan following such distribution.
7.5 As soon as administratively practicable after the adoption of
this Article VII, the Committee shall provide each participant
then in receipt of periodic benefits under the Plan or who
terminated service with a right to a benefit under the Plan
with an opportunity to make an irrevocable election to
receive, upon a Change in Control, an immediate lump sum
distribution of his remaining benefit under the Plan or to
continue to receive benefit payments as if no Change in
Control had occurred.
7.6 Within the 30 day period following a Change in Control, any
Employee who did not elect to receive a lump sum distribution
under Section 7.4, may elect to receive a lump sum
distribution in an amount equal to his total benefit under the
Plan reduced by a percentage equal to the LIBOR rate as of the
date of the Change in Control plus one percent. Such
distribution shall be in lieu of all remaining benefits under
the Plan.
7.7 For purposes of valuing any lump sum distribution of a
supplemental benefit under Article II of the Plan under
Sections 7.4, 7.5 or 7.6, the mortality factor shall be that
used under the Retirement Plan as of the Change in Control
date, and the interest rate shall be the annual 30-year U.S.
treasury rate published by the Board of Governors of the
Federal Reserve System for the month preceding the month
containing the Change in Control date.
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
Agreement dated July 11, 1996, between David Harrison (the
"Executive") and Coltec Industries Inc, a Pennsylvania corporation
(the "Corporation").
WHEREAS, the Executive and the Corporation desire to set forth
the terms and conditions upon which the Executive shall be employed
by the Corporation.
NOW, THEREFORE, in consideration of the foregoing and the
mutual promises herein contained, the parties agree as follows:
1. Employment Term
The Corporation agrees to employ the Executive and the
Executive agrees to be employed by the Corporation, upon the
terms and conditions contained in this Agreement, for a period
of four years commencing on August 1, 1996 and terminating on
July 31, 2000 (the "Contract Period"). The Contract Period
shall be subject to earlier termination in accordance with the
provisions set forth in Section 5 below.
2. Duties
2.1 The Executive shall serve, subject to the supervision and
control of the Corporation's Chief Executive Officer, as
Executive Vice President, Finance and Chief Financial Officer
of the Corporation with the responsibilities and authority,
and status and perquisites which have consistent with past
practice, been delegated or granted by the Corporation to an
employee holding such position(s) or which are customarily
delegated or granted by similarly situated corporations to an
employee holding these position(s). If Executive is appointed
to additional offices by the Corporation during the Contract
Period, the Executive shall have the responsibilities and
authority, and status and perquisites consistent with the past
practices of the Corporation or which are customarily
delegated or granted by similarly situated corporations to an
employee holding such position(s). Executive shall also
perform any additional lawful services and assume any
reasonable additional responsibilities, not inconsistent with
his position, as shall from time to time be assigned to him by
the Board of Directors of the Corporation (the "Board") or the
Chief Executive Officer.
2.2 Executive agrees that during the Contract Period, he shall
devote substantially all of his full working time and
attention and give his best effort, skill and abilities
exclusively to the business and interests of the Corporation;
provided, however, that the foregoing shall not be construed
to prohibit Executive's service as a (i) director or officer
of any trade association, civic, educational or charitable
organization or governmental entity or, subject to approval by
the Board, as (ii) a director of any corporation which is not
a competitor of the Corporation, provided that such service by
Executive does not materially interfere with the performance
by Executive of the responsibilities delegated under Section
2.1 above.
2.3 Executive shall carry out all responsibilities delegated in
Section 2.1 above at the Company's headquarters at 430 Park
Avenue, New York, New York, until such headquarters location
is changed to Charlotte, North Carolina, which is scheduled to
occur on or about October 1, 1996, or at such other office or
location within the continental United States as the Board
may, from time to time, deem appropriate after consultation
with Executive, except for travel reasonably required in the
performance of Executive's responsibilities.
3. Compensation and Benefits
Throughout the term hereof, unless otherwise specifically
provided elsewhere herein:
3.1 Executive shall (i) receive an annual salary of $370,000 and
shall have the opportunity for periodic increases in
accordance with the Corporation's regular practices, (ii) be
granted 12,000 Performance Units under the Corporation's 1994
Long-Term Incentive Plan for the 1996 Performance Cycle under
said plan and (iii) be granted stock options under the
Corporation's 1992 Stock Option and Incentive Plan covering an
aggregate of 250,000 shares exercisable in five equal annual
installments commencing one year from the date of grant (in
accordance with the provisions of said plan, the option price
will be the Fair Market Value on the date of grant by the
committee administering the plan).
3.2 Executive shall be entitled to participate, to the extent
determined by the Board, in all currently existing and future
incentive compensation plans of the Corporation including, but
not limited to: the Annual Incentive Plan for Certain
Employees of Coltec Industries Inc and Its Subsidiaries, the
1994 Long-Term Incentive Plan of Coltec Industries Inc and the
Coltec Industries Inc 1992 Stock Option and Incentive Plan
(the "Incentive Compensation Plans"), provided, however, that
the Executive's participation in all incentive compensation
plans shall be at a level customarily approved by the Board
for an employee with Executive's responsibilities. Any
payment to Executive under an Incentive Compensation Plan
shall be calculated and made in accordance with the provisions
of the respective plan, except as elsewhere provided for in
this Agreement.
3.3 Executive shall be entitled to receive all employee benefits,
fringe benefits and perquisites (including but not limited to
the use of company cars, club memberships and financial
planning services ("Company Perquisites")) customarily made
available to an employee with Executive's responsibilities,
and Executive shall be entitled to participate in all
applicable group, life, health, disability and accident
insurance plans and programs including, and not limited to,
the Retirement Savings Plan, the Retirement Program, Benefits
Equalization Plan (the "BE Plan") and Family Protection Plan
as well as any other applicable Corporation benefit plans and
programs maintained currently upon terms and at levels no less
favorable than now exist or that shall be established or
maintained in the future for employees generally or for the
Corporation's executives.
3.4 Executive shall be entitled to annual vacation and holidays in
accordance with the Corporation's established practice for its
employees.
3.5 The Executive shall be entitled to receive reimbursement for
all reasonable out-of-pocket expenses incurred in performing
his responsibilities delegated in Section 2.1 above, provided
that the Executive properly accounts for such expenses in
accordance with the Corporation's established policies and the
requirements of the Internal Revenue Code of 1986, as amended.
4. Indemnification
The Executive shall be entitled to indemnification by the
Corporation to the fullest extent permitted by law in respect
of any actions or omissions which Executive has taken or has
failed to take as an employee, officer or director of the
Corporation while carrying out the responsibilities delegated
under Section 2.1 above.
5. Termination of Employment
The Contract Period shall terminate prior to its term on the
Date of Termination as defined in Sections 5.2 or 5.3 below
following receipt by the Executive or the Corporation, as the
case may be, of a Notice of Termination as defined in Section
5.1 below.
5.1 "Notice of Termination" shall mean any purported termination
of Executive's employment by the Corporation or by Executive
which shall be communicated by written notice to the other
party hereto in accordance with Section 8 of this Agreement,
and which shall (1) indicate the specific termination
provision in this Agreement relied upon, (2) set forth in
reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment
under the provision so indicated, and (3) set forth the date
on which the Executive's employment with the Corporation shall
terminate.
5.2 "Date of Termination" shall mean:
(a) thirty (30) days after Notice of Termination is given for
termination of employment due to Disability; provided
that Executive shall not have returned to the full-time
performance of his duties during such thirty (30) day
period;
(b) the date of death in the event of Executive's death;
(c) at least thirty days (30) but not more than sixty (60)
days after Notice of Termination is given for termination
of employment for Good Reason in respect of a termination
covered by Sections 6.6 or 6.7 below;
(d) at least fifteen days (15) after Notice of Termination is
given for termination of employment for Cause;
(e) at least fifteen days (15) after Notice of Termination is
given for retirement after the age of 55 years but before
the age of 65 years to the extent such retirement is
permitted under the Retirement Savings Plan, the
Retirement Program or the BE Plan ("Early Retirement");
or
(f) the date specified in the Notice of Termination for
termination of employment for any other reason.
5.3 This Agreement shall automatically terminate upon the earlier
of Executive's 65th birthday or the receipt by the Corporation
of a Notice of Termination for Early Retirement as provided in
Paragraph 5.2(e) above ("Retirement Termination").
6. Compensation Upon Termination or During Disability
6.1 For purposes of this Agreement, "Disability", "Cause", "Good
Reason" and "Change-in-Control" shall have the meanings set
forth below:
(a) Disability - If, as a result of Executive's incapacity
due to physical or mental illness, Executive shall have
become eligible for benefits under the applicable long-term
disability plan or policy of the Corporation,
Executive's employment may be terminated by the
Corporation for "Disability".
(b) Cause - Termination by the Corporation of Executive's
employment for "Cause" shall mean termination upon:
(i) the prolonged or repeated absence from duty without
the consent of the Board for reasons other than the
Executive's incapacity due to physical or mental
illness;
(ii) the acceptance by Executive of a position with
another employer which conflicts with his duties as
an employee of the Corporation without the consent
of the Board;
(iii) the willful engaging by Executive in conduct
relating to the Corporation which is demonstrably
and materially injurious to the Corporation after a
written demand for cessation of such conduct is
delivered to Executive by the Board, which demand
specifically identifies the manner in which the
Board believes the Executive has engaged in such
conduct and the injury to the Corporation;
(iv) a willful material breach of an established written
policy or procedure of the Corporation;
(v) Executive's conviction for a crime involving moral
turpitude; or
(vi) the breach of Executive's Agreement set forth in
Section 10.1 below.
For purposes of this Paragraph, no act, or failure to
act, on Executive's part shall be deemed "willful" unless
knowingly done, or omitted to be done, by Executive not
in good faith and without reasonable belief that
Executive's action or omission was in the best interests
of the Corporation.
(c) Good Reason - Executive shall be entitled to terminate
his employment for Good Reason. For purposes of this
Agreement, "Good Reason" shall mean the occurrence,
without Executive's express written consent, of any of
the following circumstances unless such circumstances are
fully corrected prior to the Date of Termination (as
defined in Section 5.2 above), specified in the Notice of
Termination:
(i) the terms of this Agreement are materially
adversely altered by action of the Corporation or
the Corporation breaches in any material respect
any of its agreements set forth herein;
(ii) the failure of the Corporation to obtain a
satisfactory agreement, required in Section 8
below, from any successor to assume and perform
this Agreement (a copy of the agreement evidencing
such assumption shall be provided by the
Corporation to Executive);
(iii) any purported termination of Executive's employment
which is not effected pursuant to a Notice of
Termination satisfying the requirements set forth
in Section 5 above; for purposes of this Agreement,
no such purported termination shall be effective;
or
(iv) Executive makes a determination in good faith that
the cumulative effect of actions by one or more of
the members of the Board or their agents or
associates constitutes harassment or unreasonable
interference with the performance of Executive's
day-to-day duties under this Agreement (after a
written demand for cessation of such actions is
delivered by Executive to the Chief Executive
Officer and to the Board which demand specifically
identifies the manner in which Executive believes
that such Chief Executive Officer or Board members
(or their agents or associates) have harassed
Executive or unreasonably interfered with
Executive's ability to perform his day-to-day
duties); provided, however, that appropriate
involvement of the Chief Executive Officer or the
Board members in regular reviews of those items
which have, consistent with the Corporation's past
practices, been normally within the purview of the
Chief Executive Officer or Board's responsibilities
as well as any bona fide business disagreements
between the Executive and the Corporation shall not
be taken into account by Executive in making his
determination under this Agreement.
(v) Relocation of the Executive's place of employment
to a location outside the continental United States
or relocation of the Executive's place of
employment within the continental United States
without reimbursing Executive his cost of
relocation at a level at least as favorable as that
provided under the Corporation's policy and
practice in effect on the date of this Agreement.
Executive's right to terminate his employment pursuant to
this Paragraph shall not be affected by his incapacity
due to physical illness. In addition, Executive's
continued employment with the Corporation shall not
constitute waiver of Executive's rights under this
Paragraph (c) nor constitute consent to any act or
omission by the Corporation constituting Good Reason.
(d) Change-in-Control - A Change-in-Control shall be deemed
to occur as of the date on which any of the following
occur:
(i) the acquisition, other than from the Corporation,
by any individual, entity or group (within the
meaning of Section 13(d)(3) or 14(d)(2) of the
Securities and Exchange Act of 1934, as amended
(the "Exchange Act") of beneficial ownership
(within the meaning of Rule 13d-3 promulgated under
the Exchange Act) of 20 percent or more of either
the then outstanding shares of common stock of the
Corporation or the combined voting power of the
then outstanding voting securities of the
Corporation entitled to vote generally in the
election of directors; provided, however, that for
any individual, entity or group that has a
beneficial ownership in shares of common stock as
of the date hereof, a Change in Control shall only
occur upon the acquisition of an additional 20
percent or more of the total outstanding shares of
common stock; or
(ii) Individuals who, as of the date of this Agreement,
constitute the Board (the "Incumbent Board") cease
for any reason to constitute at least a majority of
the Board, provided that any individual becoming a
director subsequent to the date hereof whose
election, or nomination for election by the
Corporation's shareholders, was approved by a vote
of at least a majority of the directors then
comprising the Incumbent Board shall be considered
as though such individual was a member of the
Incumbent Board, but excluding, for this purpose,
any such individual whose initial assumption of
office is in connection with an actual or
threatened election contest relating to the
election of the directors of the Corporation (as
such terms are used in Rule 14a-11 of Regulation
14A promulgated under the Exchange Act); or
(iii) Approval by the shareholders of the Corporation of
(1) a reorganization, merger or consolidation, in
each case, with respect to which the individuals
and entities who were the respective beneficial
owners of the common stock and voting securities of
the Corporation immediately prior to such
reorganization, merger or consolidation do not,
following such reorganization, merger or
consolidation, beneficially own, directly or
indirectly, more than 50 percent of, respectively,
the then outstanding shares of common stock, and
the combined voting power of the then outstanding
voting securities entitled to vote generally in the
election of directors, as the case may be, of the
corporation resulting from such reorganization,
merger or consolidation; (2) a complete liquidation
or dissolution of the Corporation; or of (3) the
sale or other disposition of all or substantially
all of the assets of the Corporation.
6.2 During any period of Disability and until the earlier of the
end of the Contract Period or Executive's death, Executive
shall receive all accrued but unpaid salary plus all amounts
or benefits payable or due to him (including a pro rata share
under Incentive Compensation Plans earned during the year in
which the Disability occurs) under the Corporation's
compensation and benefit plans and programs in which Executive
is participating at the commencement of any such period, plus
an additional payment from the Corporation (if necessary) such
that the aggregate amount received by Executive in the nature
of salary continuation from all sources equals Executive's
base salary at the rate in effect at the commencement of any
such period. Thereafter, Executive shall be entitled to
participate in all applicable group, life, Family Protection
Plan, health, disability and accident insurance plans and
programs as well as any other applicable Corporation benefit
plans and programs (including, but not limited to the 1992
Stock Option and Incentive Plan) in accordance with the terms
of such plans and programs; provided that such terms shall not
be less advantageous to Executive than the terms in effect as
of the date hereof.
6.3 If Executive's employment shall be terminated by reason of
Executive's death, the Executive shall be entitled to the
benefits provided below:
(a) The Corporation shall pay to Executive's estate as soon
as practicable after the date of Executive's death,
Executive's full base salary through the date of
Executive's death, at the rate in effect at the time of
Executive's death, plus all other amounts to which
Executive is entitled under any benefit or compensation
plan of the Corporation including, but not limited to, a
pro rata share under Incentive Compensation Plans earned
during the year in which Employee's death occurs.
(b) After Executive's death, Executive's beneficiaries shall
be entitled to participate in all applicable group, life,
health, disability and accident insurance plans and
programs as well as any other applicable Corporation
benefit plans and programs including, but not limited to,
the 1992 Stock Option and Incentive Plan, in accordance
with the terms of such plans and programs.
6.4 If Executive's employment shall be terminated as a result of
a Retirement Termination or as a result of a voluntary
resignation for other than Good Reason ("Resignation"), then
Executive shall receive all accrued but unpaid salary plus all
amounts payable to him under the Corporation's compensation
(including, but not limited to a pro rata share under
Incentive Compensation Plans earned during the year the
Retirement Termination or Resignation occurs) and benefit
plans and programs in which Executive is participating at the
time the Retirement Termination or Resignation becomes
effective. In the event of a Retirement Termination,
Executive shall be entitled to participate in all retirement
and other plans and programs effective on the Date of
Termination to which he is eligible in accordance with their
terms.
6.5 If Executive's employment shall be terminated by the
Corporation for Cause, then Executive shall be entitled to the
following benefits:
(a) The Corporation shall pay Executive's full base salary
through the Date of Termination at the rate in effect at
the time Notice of Termination is given plus all other
amounts to which Executive is entitled under any benefit
or compensation plan of the Corporation, excluding any
bonus, other incentive compensation and vacation pay, if
any, otherwise payable to Executive pursuant to the terms
of the applicable plan or program of the Corporation, at
the time such payments are due.
(b) Executive shall be entitled to participate in all
applicable group, life, health, disability and accident
insurance plans and programs, only to the extent required
by the terms of such plans, or only to the extent
required by Federal or state law.
6.6 If Executive's employment shall be terminated (1) by the
Corporation for other than Cause, (2) by Executive for Good
Reason other than Good Reason as specified in Section 6.7
below ("Section 6.7 Good Reason") then Executive shall be
entitled to the following benefits:
(a) The Corporation shall pay Executive, as soon as
practicable following the Date of Termination a sum equal
to Executive's full base salary through the Date of
Termination at the rate in effect at the time Notice of
Termination is given plus all other amounts to which
Executive is entitled under any benefit or compensation
plan of the Corporation (including but not limited to a
pro rata share under Incentive Compensation Plans earned
during the year in which employment is terminated).
(b) The Corporation shall pay Executive as soon as
practicable following the Date of Termination an
additional payment equal to the sum of Executive's full
base salary plus the highest annual bonus received by the
Executive or by any individual serving as Executive Vice
President, Administration of the Corporation during any
of the three previous years multiplied by the higher of
two (2) or the number of years (including fractions
thereof) remaining under the Contract Period.
(c) At Executive's option and as soon as practicable after
his request, the Corporation shall pay to Executive a sum
of money equal to the value of Executive's accrued
balance of the BE Plan.
(d) For the longer of two years from the Date of Termination
or until the end of the Contract Period the Corporation
shall continue to make available to Executive all Company
Perquisites, or, in the alternative, the Corporation
shall pay to Executive as soon as practicable after Date
of Termination a sum of money reasonably approximating
the cash value of the Company Perquisites. Additionally,
for such period of time Executive shall, subject to
Section 6.9, be allowed to participate in all applicable
group, life, health, disability and accident insurance
plans and programs as well as any other applicable
Corporation benefit plans and programs (including but not
limited to the 1992 Stock Option and Incentive Plan) as
if he were an active employee (limited, in the case of
coverage under life insurance plans, to the level of
coverage that the Corporation is able to obtain on
Executive's behalf based upon the annual premium cost of
providing Executive with life insurance during
Executive's last twelve months of employment with the
Corporation), in which Executive was participating 30
days prior to the time Notice of Termination is given or
comparable plans substituted therefor; provided, however,
that if Executive is ineligible (e.g., by operation of
law or the terms of the applicable plan) to continue to
participate in any such plan, the Corporation will
provide Executive with a comparable level of compensation
or benefit.
6.7 If Executive's employment by the Corporation shall be
terminated by Executive for Good Reason where Executive has
given Notice of Termination to the Corporation within two
years from the occurrence of an event constituting a Change-of-Control,
then Executive shall be entitled to the benefits provided below.
(a) The Corporation shall pay Executive his full base salary
through the Date of Termination at the rate in effect at
the time Notice of Termination is given, plus all other
amounts to which Executive is entitled under any benefit
or compensation plan of the Corporation (including but
not limited to a pro rata share under Incentive
Compensation Plans earned during the year in which
employment is terminated).
(b) In lieu of any further base salary payments to Executive
for period subsequent to the Date of Termination, the
Corporation shall pay to Executive as severance pay a
lump sum equal to four times (4x) the sum of Executive's
full base salary for one calendar year at the rate in
effect immediately prior to the time Notice of
Termination is given plus the highest annual bonus
received by the Executive or any individual serving as
Executive Vice President, Finance of the Corporation
during any of the three preceding calendar years.
(c) In lieu of any further participation by Executive in the
Family Protection Plan, the Corporation shall transfer to
Executive a fully paid up insurance policy or policies
then insuring the life of the Executive pursuant to the
terms of the Family Protection Plan, plus an amount of
money (the "Tax Adjustment") calculated to reimburse
Executive for any local, state or Federal income or other
taxes which he may be liable as a result of receiving the
insurance policy or policies and the Tax Adjustment
amount.
(d) At Executive's option and as soon as practicable after
his request, the Corporation shall pay Executive a sum of
money equal to the value of Executive's accrued balance
of the BE Plan.
(e) For four years from the Date of Termination the
Corporation shall continue to make available to Executive
all Company Perquisites, or, in the alternative, the
Corporation shall pay to Executive as soon as practicable
after the Date of Termination a sum of money reasonably
approximating the cash value of the Company Perquisites.
Additionally, Executive shall, subject to Section 6.9, be
allowed to participate in all applicable group, life,
health, disability and accident insurance plans and
programs as well as any other applicable Corporation
benefit plans and programs (including, but not limited to
the 1992 Stock Option and Incentive Plan) as if he were
an active employee (limited, in the case of coverage
under life insurance plans, to the level of coverage that
the Corporation is able to obtain on Executive's behalf
based upon the annual premium cost of providing Executive
with life insurance during Executive's last twelve months
of employment with the Corporation), in which Executive
was participating 30 days prior to the time Notice of
Termination is given or comparable plans substituted
therefor; provided, however, that if Executive is
ineligible (e.g., by operation of law or the terms of the
applicable plan) to continue to participate in any such
plan, the Corporation will provide Executive with a
comparable level of compensation or benefit.
6.8 In addition to the benefits set forth in Sections 6.6 and 6.7,
in the event that Executive's employment shall be terminated
(1) by the Corporation for other than Cause, (2) by Executive
for Good Reason other than Section 6.7 Good Reason, or (3) by
Executive for Section 6.7 Good Reason then:
(a) The Company shall also pay to Executive all reasonable
legal fees and expenses incurred by Executive as a result
of such termination (including all such fees and
expenses, if any, incurred in contesting or disputing any
such termination (including cost associated with legal
consultation even if no actual contest or dispute
results) or in seeking to obtain or enforce any right or
benefit provided by this Agreement or in connection with
any tax audit or proceeding to the extent attributable to
the application of Section 4999 of the Internal Revenue
Code of 1986, as amended (the "Code"), to any payment or
benefit provided hereunder), except any such fees or
expenses incurred by Executive in seeking to enforce a
claim which is determined by an arbitrator, pursuant to
Section 14 below, to have been frivolous in nature or not
brought or pursued in good faith.
(b) In the event that Executive becomes entitled to payments
under the provisions of either Section 6.6 or 6.7 (the
"Severance Payments"), if Executive will be subject to
the tax (the "Excise Tax") imposed by Section 4999 of the
Code, the Corporation shall pay to Executive at the time
or times specified in Paragraph (h) below, an additional
amount (the "Gross-Up Payment") such that the net amount
retained by Executive, after deduction of (i) any
additional Excise Tax payable by Executive as a result of
Executive's receipt of the Severance Payments and (ii)
any additional federal, state and local income tax and
Excise tax payable by Executive as a result of
Executive's receipt of the Gross-Up Payments shall be
equal to the Severance Payments. For purposes of
determining whether any of the Severance Payments will be
subject to the Excise Tax and the amount of such Excise
Tax, (i) the Severance Payments, payments provided for in
this paragraph and any other payments or benefits
received or to be received by Executive in connection
with a Change-in-Control of the Corporation or
Executive's termination of employment (whether pursuant
to the terms of this Agreement or any other plan,
arrangement or agreement with the Corporation, any person
whose actions result in a Change-in-Control or any person
affiliated with the Corporation or such person) shall be
treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code, and all "excess parachute
payments" within the meaning of Section 280G(b)(1) shall
be treated as subject to the Excise Tax, unless and to
the extent that in the opinion of tax counsel selected by
the Corporation's independent auditors and acceptable to
Executive, such other payments or benefits (in whole or
in part) do not constitute parachute payments, or such
excess parachute payments (in whole or in part) and
represent reasonable compensation for services actually
rendered within the meaning of Section 280G(b)(4) of the
Code in excess of the base amount within the meaning of
Section 280G(b)(3) of the Code, or are otherwise not
subject to the Excise Tax, (ii) the amount of the
Severance Payments which shall be treated as subject to
the Excise Tax shall be equal to the lesser of (A) the
total amount of the Severance Payments or (B) the amount
of excess parachute payments within the meaning of
Section 280G(b)(1) (after applying clause (i) above),
(iii) any payment pursuant to this Paragraph shall be
treated as subject to the Excise Tax in its entirety and
(iv) the value of any non-cash benefits or any deferred
payment of benefit shall be determined by the
Corporation's independent auditors in accordance with the
principles of Sections 280G(d)(3) and (4) of the Code.
For purposes of determining the amount of the Gross-Up
Payment, Executive shall be deemed to pay federal income
taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up
Payment is to be made and state and local income taxes at
the highest marginal rate of taxation in the state and
locality of Executive residence on the Date of
Termination, not of the maximum reduction in federal
income taxes which could be obtained from deduction of
such state and local taxes. In the event that the Excise
Tax is subsequently determined to be less than the amount
taken into account hereunder at the time of termination
of Executive's employment, Executive shall repay to the
Corporation at the time that the amount of such reduction
in Excise Tax is finally determined, the portion of the
Gross-Up Payment attributable to such reduction (plus the
portion of the Gross-Up Payment attributable to the
Excise Tax and federal and state and local income tax
imposed on the Gross-Up Payment being repaid by
Executive) plus interest accrued from the date such
Gross-Up Payment is made to Executive to the date of such
repayment on the amount of such repayment at the rate
provided in Section 1274(b)(2)(B) of the Code. In the
event that the Excise Tax is determined to exceed the
amount taken into account hereunder at the time of the
termination of Executive's employment (including by
reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up
Payment), the Corporation shall make an additional gross-up payment
in respect of such excess (plus any interest
payable with respect to such excess) at the time that the
amount of such excess is finally determined.
(c) The payments provided for in Paragraph (b) above shall be
made at any time during the 90-day period preceding each
due date for making payment of such Excise Taxes;
provided, however, that if the amounts of such payments
cannot be finally determined on or before each such date,
the Corporation shall pay to Executive on such date an
estimate, as determined in good faith by the Corporation,
of the minimum amount of such payments and shall pay the
remainder of such payments then due as soon as the amount
thereof can be determined. In the event that the amount
of the estimated payments exceeds the amount subsequently
determined to have been due, such excess shall constitute
a loan by the Corporation to Executive on the fifth day
after demand by the Corporation (together with interest
at the rate provided in Section 1274(b)(2)(B) of the
Code).
6.9 Executive shall be required immediately after the Date of
Termination to take reasonable steps to seek appropriate
employment elsewhere; provided, however, that if Executive
obtains employment that would result in a violation of the
noncompetition provisions of Section 10 of this Agreement and
if Executive is unable to accept such employment because the
Corporation will not release Executive from Executive's
noncompetition obligation, Executive shall nevertheless be
deemed to have satisfied the requirement of this Section to
seek other employment. Upon receipt of written notice from
Executive that Executive has been reemployed by another
company or entity on a full-time basis (or would have been
reemployed but for the noncompetition provisions of Section 10
of this Agreement) benefits otherwise receivable by Executive
pursuant to Subsections 6.6(d) or 6.7(e) shall be reduced to
the extent comparable benefits are made available to Executive
at his new employment and any such benefits actually received
by Executive shall be reported to the Corporation. Nothing
herein contained shall obligate Executive to accept employment
elsewhere, where the duties, status, responsibilities,
compensation and benefits are not at least equal to that of
his current position.
7. Successors; Binding Agreement
The Corporation will require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to
all or substantially all of the business and/or assets of the
Corporation to expressly assume and agree to perform this
Agreement in the same manner and to the same extent that the
Corporation would be required to perform it if no such
succession had taken place. Failure of the Corporation to
obtain such assumption and agreement prior to the
effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to terminate this
Agreement for Good Reason. As used in this Agreement,
"Corporation" shall mean the Corporation and any successor to
its business and or assets as aforesaid which assumes and
agrees to perform this Agreement by operation of law, or
otherwise.
8. Notice
For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in
writing and shall be deemed to have been duly given when
delivered or mailed by United States registered mail, return
receipt requested, postage prepaid, addressed to the Executive
at an address to be provided by the Executive to the
Corporation on or before September 1, 1996, and to the
Corporation at 430 Park Avenue, New York, New York 10022 to
the attention of the Board with a copy to the Secretary of the
Corporation or to such other address as either party may have
furnished to the other in writing in accordance herewith,
except that notice of change of address shall be effective
only upon receipt.
9. Modification; Waiver
No provision of this Agreement may be modified, waived or
discharged unless such waiver, modification or discharge is
agreed to in writing and signed by Executive and such officer
of the Corporation as may be specifically designated by the
Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by
such other party shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any
prior or subsequent time.
10. Noncompetition
10.1 Until the Date of Termination, Executive agrees not to enter
into competitive endeavors and not to undertake any commercial
activity which is contrary to the best interests of the
Corporation or its affiliates, including becoming an employee,
owner (except for passive investments of not more than three
percent of the outstanding shares of, or any other equity
interest in, any company or entity listed or traded on a
national securities exchange or in an over-the-counter
securities market), officer, agent or director of (a) any firm
or person engaged in the operation of a business engaged in
the acquisition of industrial businesses or (b) any firm or
person which either directly competes with a line or lines of
business of the Corporation accounting for ten percent (10%)
or more of the Corporation's gross revenues or earnings before
taxes or derives ten percent (10%) or more of such firm's or
person's gross revenues or earnings before taxes from a line
or lines of business which directly compete with the
Corporation. Notwithstanding any provision of this Agreement
to the contrary, Executive agrees that his breach of the
provisions of this Section 10.1 shall permit the Corporation
to terminate Executive's employment for Cause in accordance
with Section 5.1(b) hereof.
10.2 After the Date of Termination and for a period of time equal
in years to the multiple of annual salary received by
Executive pursuant to Sections 6.6(b) and 6.7(b) (the "Non-Competition
Period"), Executive agrees not to become an
employee, owner (except for passive investments of not more
than three percent of the outstanding shares of, or any other
equity interest in, any company or entity listed or traded on
a national securities exchange or in an over-the-counter
securities market), officer, agent or director of any firm or
person which directly and substantially competes with a
business of the Corporation accounting for ten percent (10%)
or more of the Corporation's gross revenues or earnings before
taxes. During the Non-Competition Period, Executive will be
available to answer questions and provide advice to the
Corporation; provided, however, that such requirement shall
not unreasonably interfere with any other of Executive's
activities which Executive is then pursuing and which are not
otherwise prohibited by this Section 10. Also, during the
Non-Competition Period, Executive will retain in confidence
any and all confidential information known to him concerning
the Corporation and its business and shall not use or disclose
such information without the approval of the Corporation
except to the extent such information becomes public or as may
be required by law.
10.3 Executive acknowledges and agrees that damages for breach of
the covenant not to compete in this Section 10 will be
difficult to determine and will not afford a full and adequate
remedy, and therefore Executive agrees that the Corporation,
in addition to seeking actual damages pursuant to the
procedures set forth in Section 13 below, may seek specific
enforcement of the covenant not to compete in any court of
competent jurisdiction, including, without limitation, by the
issuance of a temporary or permanent injunction, without the
necessity of a bond. Executive and the Corporation agree that
the provisions of this covenant not to compete are reasonable.
However, should any court or arbitrator determine that any
provision of this covenant not to compete is unreasonable,
either in period of time, geographical area, or otherwise, the
parties agree that this covenant not to compete should be
interpreted and enforced to the maximum extent which such
court or arbitrator deems reasonable.
11. Validity
The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, which shall remain in
full force and effect.
12. Counterparts
This Agreement may be executed in several counterparts, each
of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
13. Arbitration
Except as contemplated by Section 10.3 of this Agreement, any
dispute or controversy arising under or in connection with
this Agreement shall be settled exclusively by arbitration in
New York, New York, or other location mutually agreed upon by
the parties to the arbitration, in accordance with rules of
the American Arbitration Association, and judgment upon such
award rendered by the arbitrator may be entered in any court
having jurisdiction over such proceeding.
14. Governing Law
This Agreement shall be governed by and construed and enforced
in accordance with the laws of the State of New York.
15. Entire Agreement; Survival of Certain Provisions
This Agreement constitutes the whole agreement of the
Corporation and the Executive. No agreements or
representations, oral or otherwise, express or implied, with
respect to the subject matter of this Agreement have been made
by either party which are not expressly set forth in this
Agreement, other than such matters as are set forth in the
letter dated July l1, 1996 from John W. Guffey, Jr. to the
Executive.
The obligations of the Corporation under Section 6 above and
the Executive's obligations under Section 10 above shall
survive the expiration of the term of this Agreement.
16. Withholding
Any payments made to Executive under this Agreement shall be
paid net of any applicable withholding required under Federal,
state or local law.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
COLTEC INDUSTRIES INC
By /s/ John W. Guffey, Jr.
/s/ David Harrison
EXECUTIVE
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 29, 1996 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED SEPTEMBER 29, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-29-1996
<CASH> 12,443
<SECURITIES> 0
<RECEIVABLES> 225,306
<ALLOWANCES> 4,187
<INVENTORY> 212,881
<CURRENT-ASSETS> 467,932
<PP&E> 612,872
<DEPRECIATION> 397,488
<TOTAL-ASSETS> 884,861
<CURRENT-LIABILITIES> 271,064
<BONDS> 710,885
0
0
<COMMON> 704
<OTHER-SE> (404,049)
<TOTAL-LIABILITY-AND-EQUITY> 884,861
<SALES> 897,548
<TOTAL-REVENUES> 897,548
<CGS> 636,788
<TOTAL-COSTS> 782,357
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,503
<INCOME-PRETAX> 56,688
<INCOME-TAX> 19,274
<INCOME-CONTINUING> 37,414
<DISCONTINUED> 48,156
<EXTRAORDINARY> (1,880)
<CHANGES> 0
<NET-INCOME> 83,690
<EPS-PRIMARY> .54
<EPS-DILUTED> .54
</TABLE>