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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
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<S> <C>
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE
REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
[NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-7568
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COLTEC INDUSTRIES INC
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
PENNSYLVANIA 13-1846375
(State of Incorporation) (I.R.S. Employer
Identification No.)
430 PARK AVENUE,
NEW YORK, N.Y. 10022
(Address of principal (Zip Code)
executive offices)
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Registrant's telephone number, including area code: (212) 940-0400
--------------------------
Securities registered pursuant to Section 12(b) of the Act:
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<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Stock, par value $.01 per share New York Stock Exchange
Pacific Stock Exchange
11 1/4% Debentures Due December 1, 2015 Pacific Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
--------------------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _X_ No ____
--------------------------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by referenced in Part III of this Form 10-K or any amendment to
this Form 10-K. _X_
On March 1, 1996, there were outstanding 70,168,963 shares of the
registrant's Common Stock, par value $.01 per share. On March 1, 1996, the
aggregate market value of the registrant's voting stock (based on a closing
price of $13.50 per share held by non-affiliates was $942,077,750. For purposes
of the foregoing calculation, all directors and officers of the registrant have
been deemed to be affiliates, but the registrant disclaims that any of such
directors or officers is an affiliate.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's 1995 Annual Report to its shareholders are
incorporated by reference into Part I (Item 1), Part II (Items 6, 7 and 8) and
Part IV (Item 14) hereof.
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PART 1
ITEM 1. BUSINESS.
Coltec Industries Inc and its consolidated subsidiaries (together referred
to as "Coltec") manufacture and sell a diversified range of highly-engineered
aerospace, automotive and industrial products in the United States and, to a
lesser extent, abroad. Coltec's operations are conducted through three principal
segments: Aerospace/Government, Automotive and Industrial. Set forth below is a
description of the business conducted by the respective divisions within
Coltec's three industry segments. The tabular five-year presentation of
financial information in respect of each industry segment under the caption
"Industry Segment Information" of Coltec's 1995 Annual Report to its
shareholders and the information in Note 10 of the Notes to Financial Statements
of Coltec's 1995 Annual Report to its shareholders are incorporated herein by
reference.
AEROSPACE/GOVERNMENT
Through its Aerospace/Government segment, Coltec is a leading manufacturer
of landing gear systems, engine fuel controls, turbine blades, fuel injectors,
nozzles and related components for commercial and military aircraft, and also
produces high-horsepower diesel engines for naval ships and diesel, gas and
dual-fuel engines for electric power plants. The operating units, principal
products and principal markets of the Aerospace/Government segment are as
follows:
<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS
- ------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Menasco Aircraft landing gear systems and Aircraft manufacturers, domestic and
components, flight control actuation foreign airlines
systems, other aircraft components
and repair and overhaul
Chandler Evans Control Systems Fuel pumps and control systems for Aircraft engine manufacturers
aircraft engines
Walbar Blades, vanes and discs for jet and Aircraft engine and stationary gas
other gas turbine engines; protec- turbine manufacturers
tive coatings for gas turbine en-
gines
Delavan Gas Turbine Products Fuel injectors, spraybars and other Aircraft engine manufacturers
components for gas turbine engines
Lewis Engineering Cockpit instrumentation and sensors Commercial and military aircraft and
engine manufacturers
Fairbanks Morse Engine Large engines powered by diesel fuel U.S. Navy, electric utilities
or natural gas
</TABLE>
With reductions in domestic military spending, Coltec has placed an
increasing emphasis on sales by its Aerospace/Government segment to commercial
aircraft manufacturers. In addition to producing landing gear and flight control
actuation systems for various Boeing, McDonnell Douglas, Lockheed Martin,
Fokker, Bombardier, and other aircraft, Coltec has been awarded contracts to
supply a completely integrated landing gear system for the Boeing 737-700
aircraft and derivatives and the Bombardier Dash 8-400 commuter aircraft. Coltec
has also been successful in increasing its penetration of the commercial
aircraft engine market, including the commuter aircraft and general aviation
markets, through its Chandler Evans Control Systems Division, Walbar and Delavan
subsidiaries. See "Aerospace Controls", "Aircraft Engine Components" and "Gas
Turbine Products" below.
In most of the operating units in this segment, Coltec is a leading
manufacturer in the markets it services and has focused its efforts on
manufacturing quality products involving a high engineering content or
proprietary technology. In many cases in which Coltec developed components for
use in a specific aircraft, Coltec has become the primary source for replacement
parts and, in some cases,
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service for these products in the aftermarket. Many of the programs for which
Coltec has been awarded a contract or for which Coltec has been selected as a
manufacturer are subject to termination or modification. See "-- Contract
Risks".
LANDING GEAR AND FLIGHT CONTROL SYSTEMS
Coltec, through its Menasco Aerosystems Division and its Menasco Aerospace
Division of its Canadian subsidiary, Coltec Aerospace Canada Ltd. (together
referred to as "Menasco"), designs, manufactures and markets landing gear
systems, parts and components for medium-to-heavy commercial aircraft and for
military aircraft and provides spare parts and overhaul services for these
products. Menasco is one of the leading suppliers of landing gear for
medium-to-heavy commercial and military aircraft. It also designs and
manufactures aircraft flight control actuation systems. Landing gear, including
components, parts, and overhaul services for landing gear, accounted for 84% of
Menasco's sales and 11% of Coltec's sales during 1995. For the years 1995, 1994
and 1993, commercial sales accounted for 77%, 64% and 62%, respectively, of
Menasco's total sales.
Menasco has been awarded contracts to supply the main and nose landing gear
for the Boeing 777 aircraft and during 1995, 20 shipsets were delivered to The
Boeing Company ("Boeing"). Delivery of landing gear for the Boeing 777 aircraft
commenced in 1993. Boeing has announced that 230 firm orders and options for an
additional 140 of its 777 aircraft have been placed as of December 31, 1995.
Menasco has been selected by Bombardier as the supplier of the complete landing
gear system for the Dash 8-400 commuter aircraft. Other commercial programs for
which Menasco is currently producing landing gear and flight controls include
the main and nose landing gear for the Boeing 757 aircraft, the main landing
gear for the existing Boeing 737 aircraft and the new 737-600/700/800 aircraft,
the nose landing gear for the Boeing 767 aircraft, the main landing gear for the
McDonnell Douglas MD-80/90 aircraft and Fokker 70/100 aircraft, and nose landing
gear components for the Airbus Industrie 330/340 aircraft. Menasco supplies
flight controls for the Canadair RJ-601 aircraft and Fokker 70/100 aircraft.
Menasco's military products include the main and nose landing gear for the
Taiwanese Indigenous Defense Fighter being built for the Taiwanese government
and it is developing the main and nose landing gear for the Lockheed F-22 Air
Superiority Fighter. In addition, Menasco is supplying the nose landing gear and
drag brace for the Bell/Boeing V-22 Osprey including engineering and test
support. Other military programs for which Menasco is currently producing
landing gear include the main and tail landing gear for the McDonnell Douglas
AH-64 Apache helicopter, the F-15 aircraft and the new F/A-18E/F Navy fighter
aircraft currently under development for the U.S. Navy. The latter two programs
were part of the 1995 acquisition of the AlliedSignal landing gear business.
Other programs include the flight controls for the McDonnell Douglas C-17
military transport and the main and nose landing gear for the F-16 and C-130
aircraft produced by Lockheed Martin Corp.
Landing gear and flight controls are designed for specific aircraft and
produced by a single manufacturer. Menasco has been the sole production supplier
of this equipment for each program it has been awarded. The price of a landing
gear system constitutes approximately 2% of the total cost of an aircraft.
In addition to manufacturing and marketing aircraft landing gear and flight
controls, Menasco provides complete overhaul services on a worldwide basis for
landing gear and actuation systems through its overhaul facilities.
The market for landing gear is highly competitive, with a small number of
airframe manufacturers evaluating potential suppliers based on design, price and
record of past performance. Menasco has made significant investments in
long-term marketing to promote working relationships with customers and to
enhance Menasco's engineering department's understanding of customer
requirements. Menasco believes it is this engineering expertise, together with
its record of on-time delivery, quality and price, which has made Menasco one of
the leading producers of medium-to heavy-aircraft landing gear worldwide.
Menasco's primary domestic competitor is Cleveland Pneumatic Division of The
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B.F. Goodrich Company and the principal foreign competitor is Messier-Dowty of
France, England and Canada. The overhaul business has become increasingly
competitive. Menasco believes its competitive strengths in the overhaul business
include its name, which carries a reputation for quality and service.
Raw materials and finished products essential to Menasco's manufacturing
operations are available in sufficient quantity from a reliable supplier base.
AEROSPACE CONTROLS
Coltec, through its Chandler Evans Control Systems Division ("Chandler
Evans"), manufactures a variety of aircraft engine fuel control systems, fuel
pumps and engine and aircraft components for the aerospace industry. Chandler
Evans' products are highly engineered and contain proprietary technology.
Principal customers for the products include gas turbine engine manufacturers,
aircraft manufacturers, domestic and foreign airlines, commercial fleet
operators and the military services. For the years 1995, 1994 and 1993,
commercial sales accounted for 80%, 74% and 67%, respectively, of Chandler
Evans' total sales.
For the commercial aircraft engine market, Chandler Evans produces the main
fuel pump for certain models of the General Electric CF-6 and CF-34 engines,
both used on various commercial aircraft, and the Full Authority Digital
Electronic Fuel Control System ("FADEC") for the AlliedSignal Engines LF507
engine used on the British Aerospace BAE 146 aircraft. Chandler Evans has
developed a FADEC for the Allison 250 engine and deliveries began in mid-1995.
Also, Chandler Evans has developed a FADEC for the LHTEC T800 helicopter engine,
a joint venture of Allison Engine Company and AlliedSignal Garrett and was
selected to develop the FADEC for the Allison LTS-800 commercial engine.
For the military aircraft engine market, Chandler Evans produces the main
and afterburner fuel pumps for the General Electric F-404 engine used on the
McDonnell Douglas F-18 aircraft and the main fuel pump for the General Electric
F-414 engine. FADEC systems are produced for AlliedSignal Engine's T-55 engines
for the Boeing Chinook helicopters in service with the U.S. Army, the UK Royal
Air Force and the Royal Netherlands Air Force. The hydromechanical fuel control
systems for AlliedSignal Engine's T-53 engine continues in service on the Bell
UH-1, Cobra and Kaman K-MAX helicopters.
Chandler Evans is the sole source for the pumps and fuel systems described
above and supports these products with aftermarket sales of spare units, parts
and overhaul service. For the year 1995, 43% of Chandler Evans revenues were
attributable to the aftermarket. Aftermarket sales are very significant, because
proprietary programs allow Chandler Evans to realize favorable operating
margins.
Chandler Evans competes with Argo-Tech and the Aviation Division of
Sundstrand Corporation in fuel pumps and with the AlliedSignal Bendix Division
of AlliedSignal Inc. ("AlliedSignal") and the Hamilton Standard Division of
United Technologies Corporation in fuel controls.
AIRCRAFT ENGINE COMPONENTS
Coltec, through its Walbar Inc subsidiary and Walbar Canada Division of
Coltec Aerospace Canada Ltd. (together referred to as "Walbar"), manufactures
turbine components and turbine and compressor rotating parts primarily for
aircraft gas turbine engines and for land-based, marine and industrial gas
turbine applications, and performs services including repairs and protective
coatings for these products. Coltec believes that Walbar is one of the leading
independent manufacturers of blades, turbine vanes and nozzle segments,
impellers and rotating components for jet engines.
Walbar manufactures products for various commercial engines used on
commercial and military aircraft manufactured by Boeing, Airbus Industrie,
McDonnell Douglas, Bombardier, Cessna, Beech, Lear Jet and others. Walbar's
blades, vanes and discs are employed on many of the leading models of turboprop,
business jet and commuter aircraft currently in service. Walbar supplies a
number of different turbine blades for most of the Pratt & Whitney Canada,
AlliedSignal and General Electric
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Company ("General Electric") engine families. These engines are designed for use
on several business and regional commuter aircraft and also have military
applications. Targeting the commuter aircraft market is part of Walbar's
strategy of emphasizing the production of turbine engine components for
commercial aircraft applications. For the years 1995, 1994 and 1993, commercial
sales accounted for approximately 84%, 78% and 85%, respectively, of Walbar's
total sales.
Following the reduction in military aircraft engine funding, Walbar has
focused on non-aerospace applications and has significant market share in the
locomotive turbo charger and gas turbine power generation markets.
Chromalloy American Corporation and Howmet Turbine Components Corporation
provide competition in all aspects of this industry. In addition, Walbar's
principal customers possess, in varying degrees, integrated production capacity
for producing and servicing the components that Walbar supplies. In the
aftermarket, Walbar is providing repair and overhaul services of various gas
turbine components to the airlines. Walbar's proprietary protective coating
technology are used by most gas turbine manufacturers.
GAS TURBINE PRODUCTS
Coltec, through its Delavan Inc subsidiary operating as the Delavan Gas
Turbine Products Division ("Delavan"), manufactures custom engineered fuel
injectors, afterburner spraybars and other fuel distribution accessories for
commercial and military gas turbine engines. The primary market niche is
injection equipment for the commuter and regional airline engine market.
Delavan's products are designed and developed to customer specifications
using computer-aided design and manufacturing processes and are marketed
directly to engine manufacturers pursuant to production orders. Principal
customers for this business segment include General Electric, AlliedSignal
Engine, Pratt & Whitney Canada and Rolls Royce's Allison Engine Division.
Delavan supports these products with aftermarket sales of spare parts and
overhaul services, both to the engine manufacturers and the airline users, and
this is the fastest growing segment of the business. Another business segment
involves the sale of fuel injection components and spare parts directly to
military logistics commands in support of gas turbine engines currently in the
Defense Department inventory. For the years 1995, 1994 and 1993, commercial
sales accounted for 75%, 78% and 69%, respectively, of Delavan's total sales.
Delavan competes worldwide with Parker-Hannifin Corporation and Fuel Systems
Textron. Competitive pressure is focused on price in the original equipment
manufacturer ("OEM") segment of the business and on price and delivery in the
aftermarket segment. While not a major factor in the large, commercial airline
engine market, Delavan has, by far, the leading market share position in the
commuter, business jet and regional airline engine fuel injection market
segment.
AIRCRAFT INSTRUMENTATION
Coltec, through its Lewis Engineering Company, designs, develops and
produces electro-mechanical and electronic instrumentation for aircraft cockpits
and temperature sensors for aircraft and engine systems. Lewis competes with
several manufacturers of aircraft instruments.
ENGINES
Coltec, through its Fairbanks Morse Engine Division ("Fairbanks Morse"),
manufactures and markets large, heavy-duty diesel, gas and dual-fuel engines and
parts for such engines. Fairbanks Morse manufactures engines in conventional "V"
and in-line opposed piston configurations which are used as power drives for
compressors, large pumps and other industrial machinery, for marine propulsion
and for stationary and marine power generation. Engines are offered from 4 to 18
cylinders, ranging from 640 to 29,320 horsepower. Such products are sold in the
domestic market primarily through regional sales offices and field sales
engineers and in foreign markets through the domestic sales network and foreign
sales representatives. Parts are sold primarily through factory and regional
sales offices. In 1995, 59% of Fairbanks Morse's sales were for replacement
parts and service for Fairbanks Morse engines.
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Large heavy-duty diesel engines are sold to shipbuilders for the U.S. Navy
and Coast Guard and to electric utilities, municipal power plants, oil and gas
producers, firms engaged in commercial marine, offshore drilling activities and
local, state and federal governments.
Under a license agreement with Societe d'Etudes de Machines Thermiques, S.A.
groupe Alsthom, a French company, Fairbanks Morse has the right to manufacture
the Colt-Pielstick PC2 and PC4 lines of large diesel engines, which operate on
oil fuel (including heavy oil) and, in the case of the PC2, dual-fuel, and range
in size from 4,400 to 29,320 horsepower. Engines manufactured under this license
are used for primary power by electric utilities, standby power for nuclear
electric generating plants and ship propulsion.
Under the U.S. Navy Sealift program, Fairbanks Morse has received orders
valued at approximately $80 million to produce sixteen PC4.2 engines and related
equipment that will propel four ships with options to produce engines for two to
four additional ships. Two of these engines were shipped in 1995 and the
remaining engines are scheduled to be delivered through 1998.
In 1994, Fairbanks Morse acquired the Alco engine business from General
Electric Transportation Systems to provide parts and service for approximately
8,000 existing engines worldwide and obtained a preferred supplier agreement to
manufacture these engines and parts for General Electric's locomotive needs. In
1995, 22 Alco locomotive engines built by Fairbanks Morse were delivered to the
Pakistan Railway.
Contracts are awarded in the heavy-duty diesel engine market based on price
and successful operation in similar applications. Coltec attributes its strong
position in this market to its history as a supplier to the U.S. Navy in a
variety of propulsion and generator set applications and its ability to meet the
U.S. Navy's military specification requirements. Management believes that
Fairbanks Morse and its primary competitor, the Cooper-Bessemer Reciprocating
Products Division of Cooper Industries, Inc., lead the field of four domestic
manufacturers serving the market for heavy-duty diesel engines in power ranges
from 5,000 to 30,000 horsepower. Fairbanks Morse competes with six domestic
manufacturers in the medium speed (1,000 to 5,000 horsepower) engine market,
dominated by General Motors Corporation ("General Motors") and Caterpillar Inc.,
and with several foreign manufacturers. Numerous domestic and foreign
manufacturers compete in the under 1,500 horsepower engine market.
AUTOMOTIVE
Coltec's Automotive segment manufactures and markets fuel injection
assemblies and components, transmission controls, engine induction systems and
components, steering controls, suspension controls, emission control air pumps,
oil pumps and seals for original equipment manufacturers and the replacement
parts market. The operating units, principal products and principal markets of
the Automotive segment are as follows:
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<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS
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<S> <C> <C>
Holley Automotive Engine induction system components, Automotive manufacturers
transmission controls, electronic
actuators, suspension controls,
steering controls and air and oil
pumps
Holley Performance Products New, replacement, remanufactured and Automotive manufacturers, wholesale
performance carburetors, and distributors and retailers in
electronic fuel injection components replacement markets
Farnam Sealing Systems Gaskets and seals Automotive industry
Stemco Truck Products Oil seals, exhaust systems and Fleet truck operators, truck parts
hubodometers distributors
Performance Friction Products Transmission synchronizers Automotive and truck manufacturers
</TABLE>
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Coltec's principal automotive products have strong brand name recognition.
Coltec has targeted the development of highly-engineered components for fuel
injection systems, modulators and electronic solenoid actuators, transmission
controls, suspension controls and air and oil pumps. By forming close,
interactive relationships with the domestic automotive manufacturers, Coltec has
taken advantage of a shift by these manufacturers from internal sourcing to
procurement of components from outside suppliers.
AUTOMOTIVE PRODUCTS
Coltec, through its Holley Automotive Inc and Coltec Automotive Inc
subsidiaries operating as the Holley Automotive Division ("Holley"), designs and
manufactures engine induction components and systems, electrohydraulic control
devices for transmissions, suspensions and steering systems, transmission
modulators, air and oil pumps and other automotive products used on passenger
cars and trucks. These products are sold directly to original equipment
manufacturers, Chrysler Corporation ("Chrysler"), Ford Motor Company ("Ford")
and General Motors.
Holley currently produces all of the multi-point throttle bodies used on
Chrysler's 2.4L, 3.0L and 3.3L engines. These six-cylinder engines propel
vehicles including Plymouth Voyager, Chrysler Town and Country and Dodge Caravan
minivans. Holley also is the sole source of the upper intake module assembly for
the Chrysler LH mid-size sedans (the Chrysler Concorde and LHS, Dodge Intrepid
and Eagle Vision) equipped with the 3.5L engine. Holley supplies the throttle
body assemblies for the four-cylinder 2.4L and six-cylinder 2.5L Chrysler
Stratus and Dodge Cirrus.
Holley is the sole supplier of two-bore throttle body assemblies for
Chrysler's Dodge Ram pick-up truck and large vans for the 3.9L, 5.2L, 5.9L and
8.0L engines. Holley also manufactures the 5.2L throttle body assembly for the
Jeep Grand Cherokee.
In the non-fuel area, Holley currently supplies aneroid and non-aneroid
modulators to the General Motors Powertrain Division. Applications in the
transmission controls area include Saturn vehicles equipped with automatic
transmission, Ford Mondeo, Contour and Mercury Mystique and General Motors
Cadillac, Aurora, light trucks and front-wheel drive passenger cars.
Holley produces mechanical and electric air pumps that supply additional air
to the exhaust system which enhances the oxidation process and reduces
pollutants emitted into the atmosphere designed to meet federal clean air
regulations. The mechanical air pump is presently used in full size truck and
van applications. The electric air pump is presently used on the Ford Taurus,
Mercury Sable, Ford Mustang, Lincoln Continental and Mark VIII.
Holley is a supplier of oil pumps to Ford. Current sourcing includes modular
V-8 pumps used on vans and medium and light trucks. Car applications include all
large Ford and Mercury/Lincoln vehicles as well as the Lincoln Continental and
Mark VIII. Holley oil pumps are also used on the Contour/Mystique, Taurus/Sable
and Escort. In addition, Holley provides the oil pump that is used on the Zetec
engine in Mexico, Germany and the United Kingdom.
Coltec, through its Holley Performance Products Inc subsidiary operating as
the Holley Performance Products Division, manufactures and markets fuel
injection components and other fuel metering devices and controls such as intake
manifolds, electric fuel pumps, emission control devices, and engine and road
speed governors, new and remanufactured automotive and marine carburetors,
remanufactured automotive air conditioning units, carburetor parts and repair
kits, mechanical fuel pumps, valve covers and related engine components under
the Holley name. Holley carburetors and components are used in domestic and
foreign vehicles and marine engines and are sold directly to OEM's, principally
Chrysler, Ford, General Motors and Outboard Marine Corporation, and, through
distributors and mass merchandisers to the parts and replacement market.
In the domestic market, these Divisions compete principally with Ford,
General Motors and several independent manufacturers. To date, Coltec has not
been a significant supplier to foreign vehicle manufacturers.
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TRUCK PRODUCTS AND SEALING SYSTEMS
Coltec, through its Stemco Inc subsidiary operating as the Stemco Truck
Products Division ("Stemco"), is one of the leading domestic manufacturers of
wheel lubrication systems for heavy-duty trucks. Stemco also produces mileage
recording devices (hubodometers) and exhaust systems for the heavy-duty truck,
medium-duty truck and school bus markets and manufactures moisture ejectors and
other related products for vehicle and stationary air systems. Approximately 80%
of Stemco revenues are derived from replacement parts. Stemco, through its
Performance Friction Products Operation, manufactures a line of fluorocarbon
friction materials, a line of carbon-based friction materials and synchronizers
and clutch plates for transmissions, transfer cases and wet brakes for use in
trucks, off highway equipment and passenger cars. Coltec, through its Farnam
Sealing Systems Inc subsidiary operating as the Farnam Sealing Systems Division,
manufactures and markets automotive and industrial gaskets, seals and other
sealing system products for engines, fuel systems and transmissions. Stemco's
truck products and Farnam's sealing systems include highly-engineered
proprietary products.
INDUSTRIAL
In the Industrial segment, Coltec, through its Garlock Inc, Coltec
Industrial Products Inc and Garlock Bearings Inc subsidiaries, is a leading
manufacturer of industrial seals, gaskets, packing products and self-lubricating
bearings and, through its Delavan Inc and Delavan-Delta, Inc. subsidiaries, is a
producer of technologically advanced spray nozzles for agricultural, home
heating and industrial applications. Coltec also produces air compressors for
manufacturers. The operating units, principal products and principal markets of
the Industrial segment are as follows:
<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS
- ------------------------------- -------------------------------------- --------------------------------------
<S> <C> <C>
Garlock Mechanical Packing Seals, gaskets, packings and ex- Chemical, pulp and paper, utilities
pansion joints and industrial manufacturers
Garlock Valves & Industrial Valves, PTFE sheet and tape Chemical, pulp and paper, utilities
Plastics and industrial manufacturers
France Compressor Products Compressor valves and seals Compressor manufacturers and users and
energy and refining industries
Garlock Bearings Self-lubricating metal backed bearings Industrial and automotive manu-
and materials factures
Delavan Commercial Products Industrial, agricultural, and heating Industrial and agricultural opera-
unit spray nozzles tions, oil burner manufacuters and
replacement market
Ortman Fluid Power Hydraulic and pneumatic cylinders Industrial manufacturers and users
Haber and Sterling Cold-forming dies and thread-rolling Fastener and automotive manufacturers
dies
FMD Electronics Electronic ignition systems and level Industrial manufacturers
control instruments
Quincy Compressor Helical screw and reciprocating air Manufacturing and oil and gas
compressors industries
</TABLE>
Coltec's Industrial segment manufactures and markets a wide range of
products for use in various industries. In this segment, Coltec's strategy has
involved developing high quality products, capitalizing on brand name
recognition, targeting specific, well-defined markets and building good
distribution systems.
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SEALS, PACKINGS AND GASKETING MATERIAL
Garlock Inc operating as the Garlock Mechanical Packing Division ("Garlock")
is a leading manufacturer of industrial seals, gasketing material and gasket
assemblies and packing products.
Manufacturing processes involve rubbers, metals, textiles, chemicals, aramid
fibers, carbon fibers, or a combination of the same. Garlock has been a leader
in using advanced technology to develop new products, including its GYLON line
of products, and in converting to asbestos-free products. Approximately 95% of
the gasketing and packing materials currently manufactured by Garlock worldwide
are asbestos-free. Because the raw materials for Garlock's products are widely
available, the seals, gasketing materials and packings business of Garlock is
not dependent on a limited number of suppliers.
Garlock's seals, gasketing material and packings are marketed through sales
personnel, sales representatives, agents and distributors to numerous industrial
customers involved principally in the petroleum, steel, chemical, food
processing, power generation and pulp and paper industries.
Most seals, gasketing material and packings wear out during the life of the
product in which they are incorporated. Accordingly, the service and replacement
market for these products is significant. In 1995, the service and replacement
market accounted for approximately 80% of Garlock's sales of seals, gasketing
material and packings.
Manufacturers in this market compete on the basis of price and aftermarket
services. Garlock's extensive distribution network, and its leadership in
product development, have contributed to the establishment of what Coltec
believes to be its leading position in the market for seals, gasketing products
and packings.
BEARINGS, VALVES, COMPRESSOR PRODUCTS, PLASTICS, NOZZLES, CYLINDERS, FORMING
TOOLS, IGNITION SYSTEMS AND LEVEL CONTROLS
Coltec, through its 80% owned subsidiary Garlock Bearings Inc, is a leading
manufacturer of steel-backed and fiberglass-backed self-lubricating bearings and
bearing materials primarily for the automotive, truck, agricultural and
construction markets. Coltec, through its Coltec Industrial Products Inc
subsidiary operating as the Garlock Valves & Industrial Plastics Division,
manufactures polytetrafluoroethylene ("PTFE") lined butterfly and plug valves
and components and PTFE tapes.
Coltec, through its Coltec Industrial Products Inc subsidiary operating as
the France Compressor Products Division ("France"), manufactures and markets rod
packings, piston rings, valves and components for reciprocating gas and air
compressors used primarily in the hydrocarbon and petrochemical processing
industries. These products withstand high temperature, corrosive environments,
prevent leakage, limit fugitive emissions and exclude contaminants from rotating
and reciprocating machinery and seal joints. France believes it is a leading
supplier of premium components in the aftermarket, where it competes primarily
with C. Lee Cook and Cook Manley, subsidiaries of Dover Corporation, and
Hoerbinger Corporation of America Inc.
Coltec, through its Delavan Inc and Delavan-Delta, Inc. subsidiaries
operating as the Delavan Commercial Products Division, manufactures and markets
spray nozzles and accessories for the agricultural, industrial and home heating
markets. These products are sold to OEM's, distributors and other end-users.
Coltec believes that Delavan Commercial Products Division is one of the leading
manufacturers of spray nozzles for residential oil-fired burners.
Coltec, through its Coltec Industrial Products Inc subsidiary operating as
the Ortman Fluid Power Operation, manufactures hydraulic and pneumatic cylinders
in bore diameter sizes from 1 1/2 to 24 inches. Coltec, under the Sterling and
Haber names, manufactures and markets a wide variety of thread rolling dies and
metal forming tools. Sales of these products are primarily made directly to
consumers. Competition for such products is provided by numerous companies.
8
<PAGE>
Coltec, through its FMD Electronics Operation, manufactures magnetos,
ignition systems and level control instruments. These products are sold to OEM's
and through factory and regional sales forces to various accounts for resale.
AIR COMPRESSORS
Coltec, through its Quincy Compressor Division ("Quincy"), manufactures and
markets reciprocating and helical screw air compressors and vacuum pumps.
Helical screw air compressors are manufactured and sold under a non-exclusive
license and technical assistance agreement with Svenska Rotor Maskiner
Aktiebolag, a Swedish licensor.
Reciprocating and helical screw air compressors have a wide range of
industrial applications, providing compressed air for general plant services,
pneumatic climate and instrument control, dry-type sprinkler systems, air loom
weaving, paint spray processes, diesel and gas engine starting, pressurization,
pneumatic tools and other air-actuated equipment. Engine-driven skid-mounted
models of helical screw air compressors are used in energy related services,
such as air-assisted deep-hole drilling, both on offshore drilling platforms and
in tertiary recovery schemes involving on-site combustion approaches. Quincy air
compressors are marketed through a well-developed distribution network
consisting of field sales personnel and distributors to OEM's located in major
industrial centers throughout the United States, Canada, Mexico and the Pacific
Rim.
In the domestic market for small, industrial, reciprocating air compressors,
competitors include the Gardner-Denver Division of Cooper Industries, Inc.,
Sullair Corp., Ingersoll-Rand Company, Atlas Copco Compressor Inc, Le Roi
Industries Inc. and Campbell-Hausfeld Division of The Scott Fetzer Co.
INTERNATIONAL OPERATIONS
Coltec's international operations, mainly in Canada, are conducted through
foreign-based manufacturing or sales subsidiaries, or both, and by export sales
of domestic divisions to unrelated foreign customers. Export sales of products
of the Automotive segment and diesel engines are made either directly or through
foreign representatives. Compressors are sold through foreign distributors.
Certain products of the Industrial segment are sold in foreign countries through
salesmen and sales representatives or sales agents.
Coltec's manufacturing and marketing activities in Canada are carried on
through subsidiaries. Coltec Aerospace Canada Ltd., an indirect wholly owned
subsidiary of Coltec, manufactures landing gear systems and aircraft flight
controls, provides overhaul service for these systems and controls for Canadian
and other customers and manufactures turbine components and turbine and
compressor rotating parts primarily for aircraft gas turbine engines. Garlock of
Canada Ltd., a wholly owned subsidiary of Garlock Inc, manufactures and markets
seals, gasketing material, packings and truck products. It also markets parts
for Fairbanks Morse diesel engines and accessories as well as other products for
use in Canada and for export to other countries.
Through wholly owned or majority controlled foreign subsidiaries, Coltec
operates 16 plants in Canada, Mexico, France, the United Kingdom, Australia and
Germany. In addition, Coltec occupies leased office and warehouse space in
various foreign countries.
Devaluations or fluctuations relative to the United States dollar in the
exchange rates of the currency of any country where Coltec has foreign
operations could adversely affect the profitability of such operations in the
future.
For financial information on operations by geographic segments, see Note 10
of the Notes to Financial Statements of Coltec's 1995 Annual Report to its
shareholders incorporated herein by reference.
Coltec's contracts with foreign nations for delivery of military equipment,
including components, are subject to deferral or cancellation by United States
Government regulation or orders regulating sales of military equipment abroad.
Any such action on the part of the United States Government could have an
adverse effect on Coltec.
9
<PAGE>
SALES TO THE MILITARY AND BY CLASS OF PRODUCTS
Sales to the military and other branches of the United States Government,
primarily in the Aerospace/Government segment, were 10%, 11% and 14% of total
Coltec sales in 1995, 1994 and 1993, respectively. During the last three fiscal
years, landing gear systems was the only class of similar products that
accounted for at least 10% of total Coltec sales. In each of 1995, 1994 and
1993, sales of landing gear systems constituted 11% of total Coltec sales.
BACKLOG
At December 31, 1995, Coltec's backlog of firm unfilled orders was $727.7
million compared with $668.8 million at December 31, 1994. Of the $727.7 million
backlog at December 31, 1995, approximately $268.3 million is scheduled to be
shipped after 1996.
CONTRACT RISKS
Coltec, through its various operating units, primarily Menasco, Chandler
Evans, Walbar and Delavan Gas Turbine Products, produces products for
manufacturers of commercial aircraft pursuant to contracts that generally call
for deliveries at predetermined prices over varying periods of time and that
provide for termination payments intended to compensate for certain costs
incurred in the event of cancellation. In addition, certain commercial aviation
contracts contain provisions for termination for convenience similar to those
contained in United States Government contracts described below. Longer-term
agreements normally provide for price adjustments intended to compensate for
deferral of delivery depending upon market conditions.
A significant portion of the business of Coltec's Menasco, Chandler Evans,
Walbar and Delavan Gas Turbine Products divisions has been as a subcontractor
and as a prime contractor in supplying products in connection with military
programs. Substantially all of Coltec's government contracts are firm
fixed-price contracts. Under firm fixed-price contracts, Coltec agrees to
perform certain work for a fixed price and, accordingly, realizes all the
benefit or detriment occasioned by decreased or increased costs of performing
the contracts. From time to time, Coltec accepts fixed-price contracts for
products that have not been previously developed. In such cases, Coltec is
subject to the risk of delays and cost over-runs. Under United States Government
regulations, certain costs, including certain financing costs, portions of
research and development costs, and certain marketing expenses related to the
preparation of competitive bids and proposals, are not allowable. The Government
also regulates the methods under which costs are allocated to Government
contracts. With respect to Government contracts that are obtained pursuant to an
open bid process and therefore result in a firm fixed price, the Government has
no right to renegotiate any profits earned thereunder. In Government contracts
where the price is negotiated at a fixed price rather than on a cost-plus basis,
as long as the financial and pricing information supplied to the Government is
current, accurate and complete, the Government similarly has no right to
renegotiate any profits earned thereunder. If the Government later conducts an
audit of the contractor and determines that such data were inaccurate or
incomplete and that the contractor thereby made an excessive profit, the
Government may take action to recoup the amount of such excessive profit, plus
treble damages, and take other enforcement actions.
United States Government contracts are, by their terms, subject to
termination by the Government either for its convenience or for default of the
contractor. Fixed-price-type contracts provide for payment upon termination for
items delivered to and accepted by the Government, and, if the termination is
for convenience, for payment of the contractor's costs incurred plus the costs
of settling and paying claims by terminated subcontractors, other settlement
expenses, and a reasonable profit on its costs incurred. However, if a contract
termination is for default, (a) the contractor is paid such amount as may be
agreed upon for completed and partially-completed products and services accepted
by the Government, (b) the Government is not liable for the contractor's costs
with respect to unaccepted items, and is entitled for repayment of advance
payments and progress payments, if any, related to the terminated portions of
the contracts, and (c) the contractor may be liable for excess costs incurred by
the Government in procuring undelivered items from another source.
10
<PAGE>
In addition to the right of the Government to terminate, Government
contracts are conditioned upon the continuing availability of Congressional
appropriations. Congress usually appropriates funds on a fiscal-year basis even
though contract performance may take many years. Consequently, at the outset of
a major program, the contract is usually partially funded, and additional monies
are normally committed to the contract by the procuring agency only as
appropriations are made by Congress for future fiscal years.
A substantial portion of Coltec's automotive products are sold pursuant to
the terms and conditions (including termination for convenience provisions) of
the major domestic automotive manufacturers' purchase orders, and deliveries are
subject to periodic authorizations which are based upon the production schedules
of such automotive manufacturers.
RESEARCH AND PATENTS
Most divisions of Coltec maintain staffs of manufacturing and product
engineers whose activities are directed at improving the products and processes
of Coltec's operations. Manufactured and development products are subject to
extensive tests at various divisional plants. Total research and development
cost, including product development, was $25.6 million for 1995, $23.8 million
for 1994 and $22.1 million for 1993. Coltec presently has approximately 410
employees engaged in research, development and engineering activities.
Coltec owns a number of United States and other patents and trademarks and
has granted licenses under some of such trademarks. Management does not consider
the business of Coltec as a whole to be materially dependent upon any patent,
patent right or trademark.
EMPLOYEE RELATIONS
As of December 31, 1995, Coltec had approximately 9,600 employees, of whom
approximately 4,000 were salaried. Approximately 40% of the hourly employees are
represented by unions for collective bargaining purposes. Union agreements
relate, among other things, to wages, hours and conditions of employment, and
the wages and benefits furnished are generally comparable to industry and area
practices.
Two collective bargaining agreements covering approximately 365 hourly
employees were renegotiated in 1995. In 1996, one collective bargaining
agreement covering approximately 510 hourly employees has been renegotiated and
seven collective bargaining agreements covering approximately 1,090 hourly
employees are due to expire. Coltec considers the labor relations of Coltec to
be satisfactory, although Coltec does experience work stoppages from time to
time.
Coltec is subject to extensive Government regulations with respect to many
aspects of its employee relations, including increasingly important occupational
health and safety and equal employment opportunity matters. Failure to comply
with certain of these requirements could result in ineligibility to receive
Government contracts. These conditions are common to the various industries in
which Coltec participates and entail the risk of financial and other exposure.
For litigation relating to labor and other matters, see Item 3. "Legal
Proceedings -- Other Litigation."
11
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Because the Proxy Statement for Coltec's Annual Meeting of Shareholders will
not contain information with respect to all executive officers of Coltec, set
forth below is the information with respect to the executive officers of Coltec
required by Item 401 of Regulation S-K. Unless otherwise indicated, each
occupation set forth opposite an individual's name refers to employment with
Coltec.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL
NAME AND AGE POSITIONS HELD DURING PAST FIVE YEARS
- ------------------------- ------------------------------------------------------------
<S> <C>
John M. Cybulski (59) Senior Vice President, Aerospace since May 1991. Group
President from prior to 1991 to May 1991. President of
Menasco Aerospace Ltd., a subsidiary of Coltec, from prior
to 1990 to June 1991.
Richard L. Dashnaw (59) Senior Vice President, Group Operations and President of the
Fairbanks Morse Engine Division since January 1994. Group
President and President of the Fairbanks Morse Engine
Division from February 1991 to December 1993. President of
the Fairbanks Morse Engine Division from prior to 1991 to
February 1991.
John W. Guffey, Jr. (58) Chairman of the Board of Directors, Chief Executive Officer
and President since February 1995. President and Chief
Operating Officer from May 1991 to January 1995. President
of the Mechanical Packing Division of Garlock Inc from
prior to 1991 to May 1991. Group President from prior to
1991 to May 1991.
Laurence H. Polsky (52) Executive Vice President, Administration since January 1994.
Senior Vice President, Administration from April 1992 to
December 1993. Vice President, Personnel for Cooper
Industries, Inc., a diversified manufacturing company, from
prior to 1991 to April 1992.
Paul G. Schoen (51) Executive Vice President, Finance; Treasurer and Chief
Financial Officer since January 1994. Senior Vice
President, Finance; Treasurer and Chief Financial Officer
from May 1991 to December 1993. Senior Vice President and
Controller from January 1991 to May 1991.
Robert J. Tubbs (48) Senior Vice President, General Counsel and Secretary since
November 1995. Senior Vice President and General Counsel
since March 1995. General Counsel-Operations of Olin
Corporation ("Olin"), a chemical and metals manufacturing
company, from May 1993 to February 1995. Deputy General
Counsel of Olin from prior to 1991 to May 1993.
</TABLE>
All officers serve at the pleasure of the Board. None of the executive
officers or directors of Coltec is related to any other executive officer or
director by blood, marriage or adoption.
ITEM 2. PROPERTIES.
Coltec operates 62 manufacturing plants in 22 states and in Canada, Mexico,
France, the United Kingdom, Australia and Germany. In addition, Coltec has other
facilities throughout the United States and in various foreign countries, which
include sales offices, repair and service shops, light manufacturing and
assembly facilities, administrative offices and warehouses.
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<PAGE>
Certain information with respect to Coltec's principal manufacturing plants
that are owned in fee, all of which (other than Palmyra, New York) are
encumbered pursuant to the 1994 Credit Agreement between Coltec and certain
banks and related security documents, is set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF APPROXIMATE
SEGMENT LOCATION SQUARE FEET ACREAGE
- -------------------------- -------------------------------- -------------- --------------
<S> <C> <C> <C>
Aerospace/Government...... Beloit, Wisconsin 856,000 73
West Hartford, Connecticut (a) 492,000 79
Ft. Worth, Texas 394,000 43
Oakville, Ontario 238,000 14
Mississauga, Ontario 141,000 7
Automotive................ Bowling Green, Kentucky 480,000 60
Longview, Texas 265,000 52
Water Valley, Mississippi 221,000 59
Sallisaw, Oklahoma 220,000 53
Industrial................ Palmyra, New York 691,000 139
</TABLE>
- ------------------------
(a) Approximately 238,000 square feet are utilized by the Aerospace/Government
segment with the balance leased.
In addition to above facilities, certain manufacturing activities of some
industry segments are conducted within leased premises, the largest of which is
in the Industrial segment, located in Quincy, Illinois, and covers approximately
173,000 square feet. Some of these leases provide for options to purchase or to
renew the lease with respect to the leased premises.
Coltec's total manufacturing facilities presently being utilized aggregate
approximately 6,200,000 square feet of floor area of which approximately
5,400,000 square feet of area are owned in fee and the balance is leased.
Coltec leases approximately 39,000 square feet at 430 Park Avenue, New York,
New York, for its executive offices, and has renewal options under such lease
through 2001.
In the opinion of management, Coltec's principal properties, whether owned
or leased, are suitable and adequate for the purposes for which they are used
and are suitably maintained for such purposes. See Item 3. "Legal Proceedings --
Environmental Regulations" for a description of proceedings under applicable
environmental laws regarding certain of Coltec's properties.
ITEM 3. LEGAL PROCEEDINGS.
ASBESTOS LITIGATION
As of December 31, 1995 and 1994, two subsidiaries of Coltec were among a
number of defendants (typically 15 to 40) in approximately 105,300 and 76,700
actions, respectively, (including approximately 4,900 and 3,300 actions,
respectively, in advanced stages of processing) filed in various states by
plaintiffs alleging injury or death as a result of asbestos fibers. Through
December 31, 1995, approximately 131,200 of the approximately 236,500 total
actions brought have been settled or otherwise disposed.
The damages claimed for personal injury or death vary from case to case and
in many cases plaintiffs seek $1 million or more in compensatory damages and $2
million or more in punitive damages. Although the law in each state differs to
some extent, it appears, based on advice of counsel, that liability for
compensatory damages would be shared among all responsible defendants, thus
limiting the potential monetary impact of such judgments on any individual
defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither Coltec nor any of its subsidiaries were parties, that held insurance
carriers are obligated to cover asbestos-related bodily injury actions if any
injury or disease process, from first exposure through manifestation, occurred
during a covered policy period (the "continuous trigger theory of coverage"),
Coltec settled
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<PAGE>
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 1995, 1994 and
1993, two subsidiaries of Coltec received approximately 44,000, 29,800 and
27,400 new actions, respectively. Payments were made with respect to asbestos
liability and related costs aggregating $56,739,000 in 1995, $46,374,000 in
1994, and $38,677,000 in 1993, substantially all of which were covered by
insurance. In accordance with Coltec's internal procedures for the processing of
asbestos product liability actions and due to the proximity to trial or
settlement, certain outstanding actions have progressed to a stage where Coltec
can reasonably estimate the cost to dispose of these actions. As of December 31,
1995, 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
$59,241,000 and Coltec expects that this cost will be substantially covered by
insurance.
With respect to the 100,400 outstanding actions as of December 31, 1995
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.
14
<PAGE>
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 the 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.
ENVIRONMENTAL REGULATIONS
Coltec and its subsidiaries are subject to numerous federal, state and local
environmental laws. For example, the Clean Air Act Amendments regulate emissions
at certain of Coltec's facilities. In connection with the Clean Air Act
Amendments, Coltec will be required to make capital expenditures for equipment
to control emissions of hazardous air pollutants. In addition, certain of
Coltec's facilities will be required to obtain air emission control permits.
Coltec has made a determination of the impact on its operations of the Clean Air
Act Amendments. Based upon this determination, Coltec believes that it will not
be at a competitive disadvantage in complying with the Clean Air Act Amendments
and that any costs to comply with the Clean Air Act Amendments will not have a
material effect on Coltec's results of operations and financial condition.
Coltec and its subsidiaries also incur costs on a recurring basis for the
treatment, storage and disposal of hazardous materials generated at Coltec's
facilities in order to comply with the federal Resource Conservation and
Recovery Act of 1976, and its analogous state statutes. Coltec does not believe
that such costs have, nor will they have, a material effect on Coltec's results
of operations and financial condition.
Coltec has been notified that it is among the Potentially Responsible
Parties ("PRPs") under the federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended ("CERCLA"), or similar state
laws, for the costs of investigating and in some cases remediating contamination
by hazardous materials at several sites. CERCLA imposes joint and several
liability for the costs of investigating and remediating properties contaminated
by hazardous materials. Liability for these costs can be imposed on present and
former owners or operators of the properties or on parties who generated the
wastes that contributed to the contamination. The process of investigating and
remediating contaminated properties can be lengthy and expensive. The process is
also subject to the uncertainties occasioned by changing legal requirements,
developing technological applications and liability allocations among PRPs.
Among the sites where Coltec or its subsidiaries have been designated a PRP are:
Clare Municipal Well Fields, Clare, Michigan; Quincy Municipal Landfills #2 and
#3, Quincy, Illinois; Byron Barrel and Drum, Byron, New York; Operating
Industries, Inc., Monterey Park, California; San Fernando Valley Site, Glendale,
California; Lake of Isles, Connecticut and Hardage Landfill, Criner, Oklahoma.
Coltec is also working with various state authorities to investigate and
remediate certain properties that are or were the site of Coltec's operations.
Among such sites are: Liberty Industrial Finishing Site, Farmingdale, New York;
Holley Automotive properties in Water Valley, Mississippi and Paris, Tennessee;
Fairbanks Morse Engine property, Beloit, Wisconsin; Walbar Inc, Arizona Tempe
Facility in Chandler, Arizona; former Pratt & Whitney Cutting Tool property,
Hinsdale, New Hampshire; former Precision Seals property, Gastonia, North
Carolina; and former Central Moloney properties in Arcadia, Florida, and Pine
Bluff, Arkansas. Based on the progress to date in the investigation, cleanup and
allocation of responsibility for these sites, Coltec has estimated that its
costs in connection with these sites approximates $20.0 million at December 31,
1995, and has accrued for this amount in the Consolidated Balance Sheet as of
December 31, 1995. 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.
OTHER LITIGATION
In September 1983, the local employees' union at Menasco Canada Ltee. (now
Coltec Aerospace Canada Ltd.) ("Menasco Canada"), a federation of trade unions
and several member-employees filed a
15
<PAGE>
complaint in the Province of Quebec Superior Court against Menasco Canada,
alleging, among other things, an illegal lock-out, failure to negotiate in good
faith, interference with the affairs of the union and various violations of
local law. The plaintiffs are collectively seeking approximately Cdn. $14.0
million in damages, and Menasco Canada has filed a cross-claim for Cdn. $21.0
million and has closed its operations in Quebec Province. Coltec does not
believe that this action will have a material effect on Coltec's results of
operations and financial condition.
On September 24, 1986, approximately 150 former salaried employees of
Crucible Inc (a former subsidiary of Coltec) commenced an action claiming
benefits under a plant shutdown plan that had been created in 1969 (George
Henglein v. Colt Industries Operating Corporation Informal Plan for Plant
Shutdown Benefits for Salaried Employees, U.S. District Court for the Western
District of Pennsylvania, 86-cv-02021). Future eligibility of any employee for
such Plan was eliminated by Crucible Inc in November 1972. Plaintiffs claim that
they did not receive notice of such termination and therefore were entitled to
benefits in 1982 when the Midland steel-making facility closed. Following a
non-jury trial in the U.S. District Court for the Western District of
Pennsylvania, defendant's motion to dismiss was granted and the plaintiffs
appealed. The Court of Appeals for the Third Circuit remanded the case to the
District Court directing it to make specific findings of fact and conclusions of
law and also found for the defendant on the jurisdiction of the District Court.
The defendants' motion to dismiss was granted by the District Court, appealed to
the Third Circuit Court of Appeals and remanded to the District Court for
additional findings of fact. On February 10, 1994, the District Court dismissed
the plaintiffs' complaint and the plaintiffs appealed to the Third Circuit Court
of Appeals. On September 26, 1994, the Third Circuit Court of Appeals remanded
the case to the District Court and on November 4, 1994 denied the defendant's
request for a rehearing. Defendant's petition to the U.S. Supreme Court for a
writ of certiorari and its motion to dismiss were denied in 1995. The District
Court has ordered a new trial to commence in May 1996 or, alternatively, in July
1996. Coltec does not believe that this action will have a material effect on
Coltec's results of operations and financial condition.
In addition to the litigation described above, there are various pending
legal proceedings involving Coltec which are routine in nature and incidental to
the business of Coltec. Coltec does not believe that these proceedings will have
a material effect on Coltec's results of operations and financial condition.
The United States Government conducts investigations into procurement of
defense contracts as a part of a continuing process. Under current federal law,
if such investigations establish such improper activities, among other matters,
debarment or suspension of a company from participating in the procurement of
defense contracts could result. These conditions are common to the aerospace and
government industries in which Coltec participates and entail the risk of
financial and other exposure. Coltec is not aware of any such investigation, nor
is Coltec aware of any facts which, if known to investigators, might prompt any
investigation.
PRODUCT LIABILITY INSURANCE
Coltec has product liability insurance coverage for liabilities arising from
aircraft products which Coltec believes to be in adequate amounts. In addition,
with respect to other products, (exclusive of liability for exposure to asbestos
products) Coltec has product liability insurance in amounts exceeding $2.5
million per occurrence, which Coltec believes to be adequate.
Coltec has been self-insured with respect to liability for exposure to
asbestos products since third party insurance became unavailable in July 1984.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
16
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
Coltec's Common Stock (symbol COT) is listed on the New York and Pacific
Stock Exchanges. The high and low prices of the stock for each quarter during
1995 and 1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
---------------- ----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
<S> <C> <C> <C> <C>
First quarter........................... 17 3/8 15 3/8 21 7/8 18 3/4
Second quarter.......................... 18 3/4 16 3/4 20 1/2 18 1/4
Third quarter........................... 18 1/8 11 1/8 19 7/8 18 1/8
Fourth quarter.......................... 12 1/4 10 1/8 19 16
</TABLE>
At December 31, 1995, there were 493 shareholders of record. No dividends
were paid in 1995 and 1994, and no dividends are expected to be paid in 1996.
ITEM 6. SELECTED FINANCIAL DATA.
The five year tabular presentation under the caption "Selected Financial
Data" of Coltec's 1995 Annual Report to its shareholders is incorporated herein
by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
The information under the caption "Financial Review" of Coltec's 1995 Annual
Report to its shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The "Quarterly Sales and Earnings" information in Note 12 of the Notes to
Financial Statements of Coltec's 1995 Annual Report to its shareholders and the
Consolidated Balance Sheet, the Consolidated Statement of Earnings, the
Consolidated Statement of Cash Flows, the Consolidated Statement of
Shareholders' Equity, the Notes to Financial Statements, Report of Management
and the Report of Independent Public Accountants of Coltec's 1995 Annual Report
to its shareholders are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information under the caption "Election of Directors" in Coltec's Proxy
Statement for its 1996 Annual Meeting of Shareholders is herein incorporated by
reference. In respect of information as to Coltec's executive officers, see the
information under the caption "Executive Officers of the Registrant" under Item
1 of Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
The text and tabular information under the caption "Executive Compensation
and Other Information" in Coltec's Proxy Statement for its 1996 Annual Meeting
of Shareholders is herein incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information under the captions "Security Ownership of Certain Beneficial
Owners" and "Security Ownership of Management" in Coltec's Proxy Statement for
its 1996 Annual Meeting of Shareholders is herein incorporated by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information under the caption "Compensation Committee Interlocks and
Insider Participation" in Coltec's Proxy Statement for its 1996 Annual Meeting
of Shareholders is herein incorporated by reference.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) The following documents are filed as part of this report:
(1) Financial Statements (incorporated by reference from the 1995 Annual
Report to Shareholders): Consolidated Balance Sheet at December 31, 1995 and
1994; Consolidated Statement of Earnings for the Three Years ended December
31, 1995; Consolidated Statement of Cash Flows for the Three Years ended
December 31, 1995; Consolidated Statement of Shareholders' Equity for the
Three Years Ended December 31, 1995; Notes to Financial Statements; Report
of Management; and Report of Independent Public Accountants.
(2) Financial Statement Schedules listed in the Index to Financial
Statement Schedules on page S-1 hereof.
(3) The exhibits required by Item 601 of Regulation S-K as listed in the
accompanying exhibit index commencing on page I-1 hereof.
(b) No reports on Form 8-K were filed by Coltec during the last quarter of
the period ending December 31, 1995.
(c) Exhibits 4.16, 4.17, 10.8, 10.9, 10.10, 10.17, 10.20, 10.21, 12.1, 13.1,
21.1, 23.1 and 27.1 are filed herewith.
19
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities and
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
<TABLE>
<S> <C>
Coltec Industries Inc
(Registrant)
Date: March 14, 1996 By: /s/ PAUL G. SCHOEN
----------------------------------------
Paul G. Schoen
EXECUTIVE VICE PRESIDENT
FINANCE AND TREASURER
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant in the capacities noted on March 14, 1996.
<TABLE>
<CAPTION>
NAME AND TITLE NAME AND TITLE
- ------------------------------------ ----------------------------------------
<S> <C>
/s/ JOSEPH R. COPPOLA /s/ JOEL MOSES
- ------------------------------------ ----------------------------------------
Joseph R. Coppola Joel Moses
DIRECTOR DIRECTOR
/s/ JOHN W. GUFFEY, JR. /s/ PAUL G. SCHOEN
- ------------------------------------ ----------------------------------------
John W. Guffey, Jr. Paul G. Schoen
DIRECTOR, CHAIRMAN OF THE BOARD, DIRECTOR, EXECUTIVE VICE PRESIDENT
CHIEF EXECUTIVE OFFICER AND FINANCE AND TREASURER (PRINCIPAL
PRESIDENT FINANCIAL AND ACCOUNTING OFFICER)
/s/ DAVID I. MARGOLIS /s/ RICHARD A. STUCKEY
- ------------------------------------ ----------------------------------------
David I. Margolis Richard A. Stuckey
DIRECTOR DIRECTOR
/s/ J. BRADFORD MOONEY, JR.
- ------------------------------------
J. Bradford Mooney, Jr.
DIRECTOR
</TABLE>
20
<PAGE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
FINANCIAL STATEMENT SCHEDULES NUMBER
- ------------------------------------------------------------------ ------
<S> <C> <C>
II Valuation and Qualifying Accounts for the three years ended
- -- December 31, 1995.......................................... S-3
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of Coltec Industries Inc:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements included in Coltec Industries Inc and
subsidiaries' annual report to shareholders incorporated by reference in this
Form 10-K, and have issued our report thereon dated January 22, 1996. Our audits
were made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The schedule listed in the index to financial
statement schedules is the responsibility of the Company's management and is
presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
January 22, 1996
S-2
<PAGE>
SCHEDULE II
1995, 1994 AND
1993
COLTEC INDUSTRIES INC AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
-----------------------
COLUMN B ADDITIONS COLUMN E
---------- ----------------------- ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT
- -------------------------------------------------- BEGINNING COSTS AND OTHER ------------- END OF
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS (1) PERIOD
- -------------------------------------------------- ---------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1995
Valuation accounts deducted from assets --
Allowance for doubtful accounts............... $ 4,124 $ 327 $ -- $ 277 $ 4,174
---------- ---------- --- ------------- ----------
---------- ---------- --- ------------- ----------
Reserve for potential losses from excess and
slow-moving inventories...................... $ 15,576 $ 7,794 $ -- $ 6,833 $ 16,537
---------- ---------- --- ------------- ----------
---------- ---------- --- ------------- ----------
1994
Valuation accounts deducted from assets --
Allowance for doubtful accounts............... $ 4,170 $ 229 $ -- $ 275 $ 4,124
---------- ---------- --- ------------- ----------
---------- ---------- --- ------------- ----------
Reserve for potential losses from excess and
slow-moving inventories...................... $ 18,086 $ 4,595 $ -- $ 7,105 $ 15,576
---------- ---------- --- ------------- ----------
---------- ---------- --- ------------- ----------
1993
Valuation accounts deducted from assets --
Allowance for doubtful accounts............... $ 4,614 $ 335 $ -- $ 779 $ 4,170
---------- ---------- --- ------------- ----------
---------- ---------- --- ------------- ----------
Reserve for potential losses from excess and
slow-moving inventories...................... $ 16,789 $ 6,379 $ -- $ 5,082 $ 18,086
---------- ---------- --- ------------- ----------
---------- ---------- --- ------------- ----------
</TABLE>
- ------------------------
Note:
(1) Deductions are for the purposes for which the valuation accounts were
created.
S-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBITS
- -------
<C> <S> <C>
3.1 Amended and Restated Articles of Incorporation of Coltec, filed as
Exhibit 3.1 to Coltec's Registration Statement on Form S-2 (No.
33-44846) (the "Form S-2 Registration Statement") and
incorporated herein by reference.
3.2 By-laws of Coltec filed as Exhibit 3.2 to Coltec's Annual Report
on Form 10-K for the fiscal year ended December 31, 1994 and
incorporated herein by reference.
4.1 Form of Senior Securities Indenture, dated as of December 1, 1985,
between Coltec and Mellon Bank, N.A., as Trustee, filed as
Exhibit 4.1 to Coltec's Registration Statement on Form S-3 (No.
33-1811) and incorporated herein by reference.
4.2 Agreement of Resignation, Appointment and Acceptance, dated as of
May 10, 1991, by and among Coltec, Mellon Bank, N.A. and The Bank
of New York, filed as Exhibit 4.3 to the Form S-2 Registration
Statement and incorporated herein by reference.
4.3 Specimen certificate for 11 1/4% Debentures Due December 1, 2015,
filed as Exhibit 4.14 to Coltec's Registration Statement on Form
S-2 and S-3 (Nos. 33-8585 and 33-1811) the ("Form S-2/S-3
Registration Statement") and incorporated herein by reference.
4.4 Supplemental Indenture, dated as of April 1, 1992, between Coltec
and The Bank of New York, as Trustee, relating to the Senior
Securities Indenture, dated as of December 1, 1985, between
Coltec and Mellon Bank, N.A., as the original Trustee, filed as
Exhibit 6 to Coltec's Current Report on Form 8-K dated April 1,
1992 (the "Form 8-K") and incorporated herein by reference.
4.5 Credit Agreement, dated as of March 24, 1992 (the "Credit
Agreement") among Coltec and the financial institutions party
thereto, Bankers Trust Company, Manufacturers Hanover Trust
Company, Barclays Bank PLC, New York Branch and Credit Lyonnais
New York Branch, as Agents, and Bankers Trust Company, as
Administrative Agent, filed as Exhibit 4.13 to Coltec Holdings
Inc.'s Annual Report on Form 10-K for the fiscal year ended
December 31, 1991 and incorporated herein by reference.
4.6 First Amendment, dated as of April 1, 1992, to the Credit
Agreement, dated as of March 24, 1992, filed as Exhibit 3 to the
Form 8-K and incorporated herein by reference.
4.7 Second Amendment, dated as of April 8, 1992, to the Credit
Agreement, filed as Exhibit 4.7 to Coltec's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference.
4.8 Third Amendment and Waiver, dated as of September 3, 1992, to the
Credit Agreement, filed as Exhibit 4.8 to Coltec's Annual Report
on Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.
4.9 Fourth Amendment and Consent, dated as of September 25, 1992, to
the Credit Agreement, filed as Exhibit 4.9 to Coltec's Annual
Report on Form 10-K for the fiscal year ended December 31, 1993
and incorporated herein by reference.
4.10 Fifth Amendment, dated as of May 26, 1993, to the Credit
Agreement, filed as Exhibit 4.10 to Coltec's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.
4.11 Sixth Waiver, dated as of August 3, 1993, to the Credit Agreement,
filed as Exhibit 4.11 to Coltec's Annual Report on Form 10-K for
the fiscal year ended December 31, 1993 and incorporated herein
by reference.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -------
<C> <S> <C>
4.12 Seventh Consent, dated as of October 27, 1993, to the Credit
Agreement, filed as Exhibit 4.12 to Coltec's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.
4.13 Eighth Waiver, dated as of December 23, 1993, to the Credit
Agreement, filed as Exhibit 4.13 to Coltec's Annual Report on
Form 10-K for the fiscal year ended December 31, 1993 and
incorporated herein by reference.
4.14 Credit Agreement among Coltec, Various Banks, The Co-Agents and
Bankers Trust Company, as Administrative Agent dated as of March
24, 1992 and Amended and Restated as of January 11, 1994 (the
"Amended Credit Agreement"), filed as Exhibit 4.14 to Coltec's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.
4.15 First Waiver dated as of December 15, 1994 to the Amended Credit
Agreement filed as Exhibit 4.15 to Coltec's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 and incorporated
herein by reference.
4.16 Second Waiver dated as of June 5, 1995 to the Amended Credit
Agreement.
4.17 Second Amendment dated as of November 17, 1995 to the Amended
Credit Agreement.
4.18 Form of Indenture, dated as of October 26, 1992, between Coltec
and United States Trust Company of New York, as Trustee, relating
to Coltec's 9 3/4% Senior Notes Due 1999 (including the form of
9 3/4% Senior Note Due 1999), filed as Exhibit 4.1 to Coltec's
Regis-tration Statement on Form S-3 (No. 33-52414) and
incorporated herein by reference.
4.19 Indenture, dated as of April 1, 1992, between Coltec and United
States Trust Company of New York, as Trustee, relating to
Coltec's 9 3/4% Senior Notes Due 2000 (including the form of
9 3/4% Senior Note Due 2000), filed as Exhibit 4 to the Form 8-K
and incorporated herein by reference.
4.20 Indenture, dated as of April 1, 1992, between Coltec and Norwest
Bank Minnesota, National Association, as Trustee, relating to
Coltec's 10 1/4% Senior Subordinated Notes Due 2002 (including
the form of 10 1/4% Senior Subordinated Note Due 2002), filed as
Exhibit 5 to the Form 8-K and incorporated herein by reference.
Pursuant to paragraph (4)(iii) of Item 601(b) of Regulation S-K,
there are omitted certain agreements, which the registrant hereby
agrees to furnish to the Commission upon request.
10.1* Form of Family Protection Agreement used in connection with
Coltec's Family Protection Program, filed as Exhibit 3.5.1 to
Coltec's Registration Statement on Form 8-B, filed with the
Securities and Exchange Commission on June 25, 1976 and
incorporated herein by reference.
10.2* Benefits Equalization Plan of Coltec, filed as Exhibit 10.2 to
Coltec's Annual Report on Form 10-K for the fiscal year ended
December 31, 1988 and incorporated herein by reference.
10.3* Amendment No. 1 to the Benefits Equalization Plan, filed as
Exhibit 10.3 to Coltec's Annual Report on Form 10-K for the
fiscal year ended December 31, 1993 and incorporated herein by
reference.
10.4* Supplemental Retirement Savings Plan of Coltec, filed as Exhibit
10.3 to Coltec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1988 and incorporated herein by reference.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -------
<C> <S> <C>
10.5* Coltec's 1977 Long-Term Performance Plan, filed as Exhibit 10.5 to
the Form S-2/S-3 Registration Statement and incorporated herein
by reference.
10.6* Amendment to Coltec's 1977 Long-Term Performance Plan described in
Proposal 2 of Coltec's Proxy Statement for its 1981 Annual
Meeting of Shareholders, filed as Exhibit 10.6 to the Form
S-2/S-3 Registration Statement and incorporated herein by
reference.
10.7* Amendment No. 2 to Coltec's 1977 Long-Term Performance Plan, filed
as Exhibit 10.7 to the Form S-2/S-3 Registration Statement and
incorporated herein by reference.
10.8* Employment Agreement between Coltec and John W. Guffey, Jr. dated
June 1, 1995.
10.9* Form of Employment Agreement between Coltec and Paul G. Schoen and
Laurence H. Polsky dated June 1, 1995.
10.10* Form of Employment Agreement between Coltec and John M. Cybulski,
Richard L. Dashnaw and Robert J. Tubbs dated June 1, 1995.
10.11* Resolutions adopted by the Board of Directors of Coltec on July
14, 1982 establishing a pension program for directors who are not
otherwise entitled to a pension from Coltec, filed as Exhibit
10.16 to the Form S-2/S-3 Registration Statement and incor-
porated herein by reference.
10.12* The Incentive Plan for Certain Employees of Coltec and
Subsidiaries (the "Incentive Plan"), filed as Exhibit 10.22 to
the Form S-2 Registration Statement and incorporated herein by
reference.
10.13* Amendments to the Incentive Plan, filed as Exhibit 10.13 to
Coltec's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
10.14* Coltec's 1992 Stock Option and Incentive Plan, filed as Exhibit
10.24 to Coltec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1991 and incorporated herein by reference.
10.15* Amendment No. 1 to the Coltec 1992 Stock Option and Incentive
Plan, filed as Exhibit 10.15 to Coltec's Annual Report on Form
10-K for the fiscal year ended December 31, 1993 and incorporated
herein by reference.
10.16* 1994 Long-Term Incentive Plan of Coltec, filed as Exhibit 10.16 to
Coltec's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993 and incorporated herein by reference.
10.17* Resolutions of the Board of Directors of Coltec on July 13, 1995
amending Section 6(a) of the 1994 Long-Term Incentive Plan.
10.18* Annual Incentive Plan For Certain Employees of Coltec Industries
Inc and Its Subsidiaries, filed as Exhibit 10.17 to Coltec's
Annual Report on Form 10-K for the fiscal year ended December 31,
1993 and incorporated herein by reference.
10.19 1994 Stock Option Plan for Outside Directors, filed as Exhibit
10.18 to Coltec's Annual Report on Form 10-K for the fiscal year
ended December 31, 1993 and incorporated herein by reference.
10.20 Deferred Compensation Plan For Non-Employee Directors.
10.21 Resolution of the Board of Directors of Coltec on May 30, 1995
establishing a Change In Control arrangement for non-employee
directors.
12.1 Computation of Ratio of Earnings to Fixed Charges.
13.1 Portions of Coltec's 1995 Annual Report to Shareholders.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS
- -------
<C> <S> <C>
21.1 List of Subsidiaries of Coltec.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
*These exhibits are management contracts or compensatory plans or arrangements
required to be filed as an exhibit to this Form 10-K pursuant to item 14(c) of
Form 10-K.
I-4
<PAGE>
EXHIBIT 4.16
SECOND WAIVER
SECOND WAIVER (the "Waiver"), dated as of June 5, 1995, among COLTEC
INDUSTRIES INC (the "Company") and the financial institutions party to the
Credit Agreement referred to below (the "Banks"). All capitalized terms used
herein and not otherwise defined shall have the respective meanings provided
such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Company, the Banks, the Co-Agents and Bankers Trust
Company, as Administrative Agent, are parties to a Credit Agreement, dated as of
March 24, 1992 and amended and restated as of January 11, 1994, as amended,
modified or supplemented through the date hereof (as so amended, modified or
supplemented, the "Credit Agreement");
WHEREAS, the Company and the Collateral Agent are parties to a Pledge
Agreement dated as of March 24, 1992, as amended, modified or supplemented, (as
so amended, modified or supplemented, the "Company Pledge Agreement");
WHEREAS, the Company intends to create a new Foreign Subsidiary in (i)
the United Kingdom (the "New U.K. Subsidiary"), (ii) the Republic of France (the
"New French Subsidiary") and (iii) the Federal Republic of Germany (the "New
German Subsidiary" and, together with the New U.K. Subsidiary and the New French
Subsidiary, the "New Foreign Subsidiaries") each of which shall be a Wholly-
Owned Subsidiary of the Company;
WHEREAS, the New Foreign Subsidiaries will be engaged solely in the
sale of automotive products and shall have no significant assets or liabilities;
WHEREAS, the parties hereto wish to waive certain provisions of the
Credit Agreement as herein provided;
<PAGE>
NOW, THEREFORE, it is agreed:
1. Notwithstanding anything to the contrary contained in Section
9.14(ii)(x)(ii) of the Credit Agreement, the Required Banks hereby waive
compliance by the Company with the requirement contained therein that any
Foreign Subsidiary created by the Company shall be a Wholly-Owned Subsidiary of
another Foreign Subsidiary that is a Wholly-Owned Subsidiary of the Company,
solely to the extent necessary to permit each New Foreign Subsidiary to be
Wholly-Owned by the Company.
2. Notwithstanding anything to the contrary contained in the Credit
Agreement or the Pledge Agreement, the Required Banks hereby waive compliance by
the Company with the requirement to pledge 66% of the capital stock of each New
Foreign Subsidiary so long as the sum of the capital contributions by the
Company to all three New Foreign Subsidiaries does not exceed $1,000,000 in the
aggregate, provided that the Company will be required to pledge 66% of the
capital stock of each New Foreign Subsidiary when the sum of the capital
contributions by the Company to all three New Foreign Subsidiaries exceeds
$1,000,000 in the aggregate.
3. In order to induce the Banks to enter into this Waiver, the
Company hereby (i) makes each of the representations, warranties and agreements
contained in Section 7 of the Credit Agreement and (ii) represents and warrants
that there exists no Default or Event of Default, in each case on the Waiver
Effective Date (as defined herein) both before and after giving effect to this
Waiver.
4. This Waiver is limited as specified and shall not constitute a
modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
5. This Waiver may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and the Administrative Agent.
2
<PAGE>
6. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
7. This Waiver shall become effective on the date (the "Waiver
Effective Date") when the Company and the Required Banks shall have signed a
copy hereof (whether the same or different copies) and shall have delivered
(including by way of facsimile) the same to the Administrative Agent at the
Notice Office.
8. From and after the Waiver Effective Date, all references in the
Credit Agreement and the other Credit Documents to the Credit Agreement shall be
deemed to be references to such Credit Agreement as modified hereby.
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Waiver to be duly executed and delivered as of the date
first above written.
COLTEC INDUSTRIES INC
By
----------------------
Title:
BANKERS TRUST COMPANY,
Individually, and as
Administrative Agent
By
----------------------
Title:
3
<PAGE>
THE BANK OF MONTREAL
Individually and as Co-Agent
By
----------------------
Title:
THE BANK OF NOVA SCOTIA,
Individually, and as Co-Agent
By
----------------------
Title:
CREDIT LYONNAIS NEW YORK
BRANCH, Individually and as
Co-Agent
By
----------------------
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, New York Branch,
Individually, and as
Co-Agent
By
----------------------
Title:
4
<PAGE>
CIBC, INC.
By
----------------------
Title:
ABN AMRO BANK N.V.
By
----------------------
Title:
By
----------------------
Title:
COMERICA BANK
By
----------------------
Title:
THE SUMITOMO BANK, LIMITED
By
----------------------
Title:
BANK OF AMERICA ILLINOIS
By
----------------------
Title:
5
<PAGE>
SOCIETY NATIONAL BANK
By
----------------------
Title:
ROYAL BANK OF SCOTLAND
By
----------------------
Title:
THE BANK OF NEW YORK
By
----------------------
Title:
THE BANK OF TOKYO TRUST
COMPANY
By
----------------------
Title:
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By
----------------------
Title:
By
----------------------
Title:
6
<PAGE>
BANQUE PARIBAS
By
----------------------
Title:
By
----------------------
Title:
THE FUJI BANK, LIMITED,
New York Branch
By
----------------------
Title:
THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED, NEW
YORK BRANCH
By
----------------------
Title:
THE NIPPON CREDIT BANK, LTD.,
New York Branch
By
----------------------
Title:
7
<PAGE>
UNION BANK OF FINLAND LIMITED,
Grand Cayman Branch
By
----------------------
Title:
By
----------------------
Title:
ARAB BANKING CORP.
By
----------------------
Title:
BANK OF IRELAND
By
----------------------
Title:
BANK OF SCOTLAND
By
----------------------
Title:
8
<PAGE>
EXHIBIT 4.17
SECOND AMENDMENT TO CREDIT AGREEMENT
SECOND AMENDMENT (the "Second Amendment"), dated as of November 17,
1995, among COLTEC INDUSTRIES INC (the "Company") and the financial institutions
party to the Credit Agreement referred to below (the "Banks"). All capitalized
terms used herein and not otherwise defined shall have the respective meanings
provided such terms in the Credit Agreement.
W I T N E S S E T H :
WHEREAS, the Company, the Banks, the Co-Agents and Bankers Trust
Company, as Administrative Agent, are parties to a Credit Agreement, dated as of
March 24, 1992 and amended and restated as of January 11, 1994, as amended,
modified or supplemented through the date hereof (as so amended, modified or
supplemented, the "Credit Agreement");
WHEREAS, the parties hereto wish to amend the Credit Agreement as
herein provided;
NOW, THEREFORE, it is agreed:
1. On the Second Amendment Effective Date (as hereinafter defined), the
Total Commitment shall (and the parties hereto agree that it shall) be increased
from $415,000,000 to $465,000,000 and the Commitment of each Bank shall on such
date be equal to the respective amounts shown on Schedule I hereto, which on the
Second Amendment Effective Date shall replace existing Schedule I to the Credit
Agreement.
2. Notwithstanding anything to the contrary contained in the Credit
Agreement (including without limitation Section 1.07 thereof), it is hereby
agreed that, during the period from the Second Amendment Effective Date until
the date which is 30 days after the Second Amendment Effective Date, all
Borrowings of Eurodollar Rate Loans which were outstanding on the Second
Amendment Effective Date shall remain outstanding as Loans by the
<PAGE>
Banks who originally made such Loans (or their subsequent assigns) and, as a
result, such Loans may not be PRO RATA on the basis of the Commitments of the
Bank as adjusted pursuant to this Second Amendment. On the date of the
expiration of an Interest Period relating to any such outstanding Borrowing of
Eurodollar Rate Loans, if such Borrowing is not to be repaid in full on such
date, the Borrower in coordination with the Agent shall effect such repayments
and reborrowings as are necessary so that any such Borrowing is thereafter made
by the Banks pro rata on the basis of their Commitments as adjusted pursuant to
this Second Amendment. Notwithstanding anything to the contrary contained in
the immediately preceding sentence, not later than the date which is 30 days
after the Second Amendment Effective Date, the Borrower shall, in coordination
with the Agent and Banks, have repaid and, if necessary, incurred additional
Revolving Loans in each case so that on such date the Banks participate in each
Borrowing of Revolving Loans pro rata on the basis of their Commitments as then
in effect (and after giving effect to this Amendment).
3. Notwithstanding anything to the contrary contained in the Credit
Agreement or in this Second Amendment, the sum of (x) the outstanding principal
amount of Loans pursuant to the Credit Agreement, (y) the Letter of Credit
Outstandings pursuant to the Credit Agreement and (z) the amount of all Non-
Facility Letter of Credit Outstandings pursuant to the Credit Agreement shall in
no event exceed $415,000,000 until such time, if any, as the following
conditions are satisfied (as determined in good faith by the Administrative
Agent):
(a) EXECUTION OF AMENDMENT; NOTES. (i) The Second Amendment Effective
Date shall have occurred and (ii) there shall have been delivered to the
Agent for the account of each Bank which has a changed Commitment as a
result of this Amendment a new Revolving Note in the appropriate amount to
reflect such new Commitment and as otherwise provided in the Credit
Agreement.
(b) OPINION OF COUNSEL. The Agent shall have received an opinion
addressed to the Agent, the Collateral Agent and each of the Banks, which
opinion shall cover matters (including without limitation no conflicts with
existing Indebtedness), and shall be in form and substance, satisfactory to
the Agent.
2
<PAGE>
(c) CORPORATE DOCUMENTS; PROCEEDINGS; ETC. All corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by this Second Amendment, shall be reasonably
satisfactory in form and substance to the Agent, and the Agent shall have
received all information and copies of all documents and papers, including
records of corporate proceedings, governmental approvals, good standing
certificates and bring-down telegrams or facsimiles, if any, which the
Agent reasonably may have requested in connection therewith, such documents
and papers where appropriate to be certified by proper corporate or
governmental authorities.
(d) MORTGAGES. The Collateral Agent shall have received fully
executed counterparts of amendments (the "Mortgage Amendments"), in form
and substance satisfactory to the Collateral Agent, to each of the
Mortgages, together with evidence that counterparts of each of the Mortgage
Amendments have been delivered to the title company ensuring the Lien on
the existing Mortgages for recording in all places to the extent necessary
or desirable, in the judgment of the Collateral Agent, effectively to
maintain a valid and enforceable first priority mortgage lien on the
Mortgaged Properties in favor of the Collateral Agent for the benefit of
the Secured Creditors, and the Collateral Agent shall have received
endorsements to the existing Mortgage Policies assuring the Collateral
Agent that each Mortgage, after giving effect to the respective Mortgage
Amendment, is a valid and enforceable first priority mortgage lien on the
respective Mortgaged Properties, free and clear of all defects and
encumbrances except Permitted Encumbrances.
(e) CREDIT PARTY ACKNOWLEDGMENTS. The Agent shall have received such
acknowledgments as it may have requested from the Credit Parties, acknowledging
and agreeing that all obligations pursuant to the Credit Agreement (as amended
by this Second Amendment, and with the increase to the Total Commitment
contemplated herein) are entitled to the benefits of the respective Guaranties
and Security Documents executed by them.
(f) EXISTING SENIOR DEBENTURE REDEMPTION. (i) The Existing Senior
Debenture Redemption shall have been effected or (ii) the amount needed to
effect the Existing Senior Debenture
3
<PAGE>
Redemption is then being drawn pursuant to the Credit Agreement (x) for deposit
with the trustee under the Existing Senior Debenture Indenture for purposes of
effecting the Existing Senior Debenture Redemption or (y) to reimburse the
Borrower for amounts theretofore used by it to effect the Existing Senior
Debenture Redemption.
4. Section 8 of the Credit Agreement is hereby amended by inserting the
following new Section 8.15 immediately following Section 8.16 thereof:
"8.16 REDEMPTION OF EXISTING SENIOR DEBENTURES. On or before
March 31, 1996, the Company shall cause the Existing Senior Debenture
Redemption to have occurred."
5. Section 9.10 of the Credit Agreement is hereby amended by inserting
the following new sub-clause (v) immediately before sub-clause (w) of clause (i)
thereof:
"(v) the Existing Senior Debenture Redemption may be
effected in accordance with the definition thereof contained
herein, so long as, on or before the date of the
consummation thereof, the conditions described in Section 3
of the Second Amendment have been satisfied,".
6. Section 11 of the Credit Agreement is hereby further amended by
inserting the following new definitions in said Section 11 in the appropriate
alphabetical order:
"Existing Senior Debenture Redemption" shall mean the partial
redemption, to occur after December 1, 1995 and on or before March 31, 1996
of a principal amount of $46,407,000 of the Existing Senior Debentures at
105.625% of their principal amount, plus accrued and unpaid interest
thereon.
"Second Amendment" shall mean the Second Amendment to this Agreement,
dated as of November 17, 1995.
7. In order to induce the Banks to enter into this Second Amendment, the
Company hereby (i) makes each of the representations, warranties and agreements
contained in Section 7 of the Credit Agreement, (ii) represents and warrants
that there exists no Default or Event of Default and (iii) represents and
warrants that
4
<PAGE>
the indebtedness of the Borrower as increased pursuant to the Second Amendment
is permitted by (w) Section 4.04(d) of the Existing Senior Indenture, (x)
Section 3.03(i) of the Senior Note Indenture without regard to the first
parapraph thereof, (y) Section 3.03(i) of the Senior Refinancing Note Indenture
without regard to the first paragraph thereof, and (z) Section 4.03(i) of the
Senior Subordinated Note Indenture without regard to the first paragraph
thereof, in each case on the Second Amendment Effective Date (as defined herein)
both before and after giving effect to this Second Amendment.
8. This Second Amendment is limited as specified and shall not constitute
a modification, acceptance or waiver of any other provision of the Credit
Agreement or any other Credit Document.
9. This Second Amendment may be executed in any number of counterparts
and by the different parties hereto on separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of which
shall together constitute one and the same instrument. A complete set of
counterparts shall be lodged with the Company and the Administrative Agent.
10. THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE
STATE OF NEW YORK.
11. This Second Amendment shall become effective on the date (the "Second
Amendment Effective Date") when the Company, the Required Banks and each Bank
whose Commitment is being increased pursuant to this Second Amendment shall have
signed a copy hereof (whether the same or different copies) and shall have
delivered (including by way of facsimile) the same to the Administrative Agent
at the Notice Office.
12. From and after the Second Amendment Effective Date, all references in
the Credit Agreement and the other Credit Documents to the Credit Agreement
shall be deemed to be references to such Credit Agreement as modified hereby.
5
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused a
counterpart of this Second Amendment to be duly executed and delivered as of the
date first above written.
COLTEC INDUSTRIES INC
By ______________________
Title:
BANKERS TRUST COMPANY,
Individually, and as
Administrative Agent
By ______________________
Title:
THE BANK OF MONTREAL,
Individually and as Co-Agent
By ______________________
Title:
THE BANK OF NOVA SCOTIA,
Individually, and as Co-Agent
By ______________________
Title:
6
<PAGE>
CREDIT LYONNAIS NEW YORK
BRANCH, Individually and as
Co-Agent
By ______________________
Title:
THE INDUSTRIAL BANK OF JAPAN,
LIMITED, New York Branch,
Individually, and as
Co-Agent
By ______________________
Title:
CIBC, INC.
By ______________________
Title:
ABN AMRO BANK N.V.
By ______________________
Title:
By ______________________
Title:
7
<PAGE>
COMERICA BANK
By ______________________
Title:
THE SUMITOMO BANK, LIMITED
By ______________________
Title:
BANK OF AMERICA ILLINOIS
By ______________________
Title:
SOCIETY NATIONAL BANK
By ______________________
Title:
ROYAL BANK OF SCOTLAND
By ______________________
Title:
8
<PAGE>
THE BANK OF NEW YORK
By ______________________
Title:
THE BANK OF TOKYO TRUST
COMPANY
By ______________________
Title:
BANQUE FRANCAISE DU
COMMERCE EXTERIEUR
By_______________________
Title:
By_______________________
Title:
9
<PAGE>
BANQUE PARIBAS
By_______________________
Title:
By_______________________
Title:
THE FUJI BANK, LIMITED,
New York Branch
By_______________________
Title:
THE LONG-TERM CREDIT BANK
OF JAPAN, LIMITED, NEW
YORK BRANCH
By ______________________
Title:
THE NIPPON CREDIT BANK, LTD.,
New York Branch
By ______________________
Title:
10
<PAGE>
MERITA BANK
By ______________________
Title:
By ______________________
Title:
ARAB BANKING CORP.
By ______________________
Title:
BANK OF IRELAND
By ______________________
Title:
BANK OF SCOTLAND
By ______________________
Title:
11
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
COMMITMENTS
<S> <C>
ABN AMRO $ 15,000,000
Arab Banking $ 10,000,000
Bank of Ireland $ 10,000,000
Bank of Montreal $ 21,000,000
Bank of New York $ 33,000,000
Bank of Nova Scotia $ 33,000,000
Bank of Scotland $ 10,000,000
Bank of Tokyo Trust $ 15,000,000
Banque Francais $ 10,000,000
Banque Paribas $ 15,000,000
CIBC $ 20,000,000
Comerica Bank $ 10,000,000
Bank of America III $ 15,000,000
Credit Lyonnais $ 33,000,000
Fuji Bank $ 7,500,000
IBJ $ 33,000,000
LTCBJ $ 25,000,000
Merita Bank $ 5,000,000
Nippon Credit Bank $ 25,000,000
Royal Bank of Scotland $ 5,000,000
Society National $ 25,000,000
Sumitomo $ 15,000,000
BTCo $ 74,500,000
------------
TOTAL $465,000,000
</TABLE>
1
<PAGE>
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
Agreement dated June 1, 1995, between JOHN W. GUFFEY, JR. (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 five years commencing on the date hereof
and terminating on the fifth anniversary of the date hereof (the "Contract
Period"). The Contract Period shall be subject to earlier termination in
accordance with the provisions set forth in Section 6 below.
2. DUTIES
2.1 The Executive shall serve, subject to the supervision and control of the
Board of Directors of the Corporation (the "Board"), as Chairman of the
Board, President and Chief Executive 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 its Chairman, President and Chief Executive Officer or are customarily
delegated or granted by similarly situated corporations to an employee
holding these positions. 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
<PAGE>
Corporation or which are customarily delegated or granted by similarly
situated corporations to an employee holding such positions.
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,
or at such other office or location within the New York metropolitan area
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 receive an annual salary which is not less than his annual
salary on the date of this Agreement and shall have the opportunity for
periodic increases in accordance with the Corporation's regular practices.
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
2
<PAGE>
(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 and shall not in any case be less than Executive's level
of participation in such plans on the date of this Agreement. Any payout
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 and limousines, 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 Corporation
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
3
<PAGE>
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. MANAGEMENT OF THE CORPORATION
During the Contract Period and subject to its fiduciary duties, the Board
shall not interfere with Executive's responsibilities in connection with
the normal day-to-day management of the Corporation's business matters and
will involve Executive, as a director, in determining the strategic
direction of the Corporation consistent with the Board's past practice and
its fiduciary duties to management and the Corporation's shareholders.
6. TERMINATION OF EMPLOYMENT
The Contract Period shall terminate prior to its term on the Date of
Termination as defined in Sections 6.2 and 6.3 below, following receipt by
the Executive or the Corporation, as the case may be, of a Notice of
Termination, as defined in Section 6.1 below.
6.1 "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 9 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.
6.2 "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;
4
<PAGE>
(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 7.6 or 7.7
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.
6.3 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 6.2(e) above
("Retirement Termination").
7. COMPENSATION UPON TERMINATION OR DURING DISABILITY
7.1 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
5
<PAGE>
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 11.1
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 6.2
above), specified in the Notice of Termination:
(i) the terms of this Agreement are materially
6
<PAGE>
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 6 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 Board which
demand specifically identifies the manner in which Executive
believes that such 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 Board members in regular
reviews of those items which have, consistent with the
Corporation's past practices, been normally within the purview of
the Board's responsibilities 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 New York City without the concurrence of Executive.
7
<PAGE>
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; 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
8
<PAGE>
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.
7.2 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, but not limited to, 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.
9
<PAGE>
7.3 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 the Executive'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.
7.4 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.
7.5 If Executive's employment shall be terminated by the Corporation for Cause,
then Executive shall be entitled to the following benefits:
10
<PAGE>
(a) The Corporation shall pay Executive, 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 to the
extent required by Federal or state law.
7.6 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 7.7 below ("Section 7.7 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 Chairman and CEO of the
Corporation during any of the three previous years multiplied by the
higher of three (3) or the number of years (including fractions
thereof) remaining under the Contract Period.
(c) At Executive's option and as soon as practicable after
11
<PAGE>
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 three 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 7.9, 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.
7.7 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
12
<PAGE>
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 five times (5x) 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 Chairman and CEO 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 five 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 7.9, 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
13
<PAGE>
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.
7.8 In addition to the benefits set forth in Sections 7.6 and 7.7, 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 7.7
Good Reason, or (3) by Executive for Section 7.7 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 7.6 or 7.7 (the "Severance Payments"), if
Executive will be subject to the tax (the "Excise Tax") imposed by
Section 4999 of the
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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
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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,
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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).
7.9 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 11 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 11 of this Agreement) benefits
otherwise receivable by Executive pursuant to Subsections 7.6(d) or 7.7(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.
8. 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
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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.
9. 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 Two Sutton Place South, Apt. 5D, New York, New York 10022, 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.
10. 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.
11. NONCOMPETITION
11.1 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
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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 11.1 shall permit
the Corporation to terminate Executive's employment for Cause in accordance
with Section 6.1(b) hereof.
11.2 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
7.6(b) and 7.7(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 11. 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.
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11.3 Executive acknowledges and agrees that damages for breach of the
covenant not to compete in this Section 11 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 14 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.
12. 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.
13. 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.
14. ARBITRATION
Except as contemplated by Section 11.3 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.
15. GOVERNING LAW
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This Agreement shall be governed by and construed and enforced in
accordance with the laws of the State of New York.
16. 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.
The Employment Agreement dated July 1, 1991 between the Corporation and the
Executive is hereby canceled and superseded by this Agreement.
The obligations of the Corporation under Section 7 above and the
Executive's obligations under Section 11 above shall survive the expiration
of the term of this Agreement.
17. WITHHOLDING
Any payments made to Executive under this Agreement shall be paid net of
any applicable withholding required under Federal, state or local law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COLTEC INDUSTRIES INC
By Laurence H. Polsky
--------------------
/S/ John W. Guffey, Jr.
-----------------------
JOHN W. GUFFEY, JR.
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
Agreement dated June 1, 1995, between ______________ (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 the date hereof
and terminating on the fourth anniversary of the date hereof (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,
Administration 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
<PAGE>
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,
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 receive an annual salary which is not less than his annual
salary on the date of this Agreement and shall have the opportunity for
periodic increases in accordance with the Corporation's regular practices.
3.2 Executive shall be entitled to participate, to the extent
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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 and shall not in any case be less than Executive's level
of participation in such plans on the date of this Agreement. 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
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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;
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(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;
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(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;
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(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
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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; 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
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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
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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.
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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
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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.
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(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, Administration 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
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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.
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(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
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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;
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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
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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 150 East 69th Street, Apt. 3C, New York, New York 10021, 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
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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
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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
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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.
The Employment Agreement dated July 1, 1991 between the Corporation and the
Executive is hereby canceled and superseded by this Agreement.
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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COLTEC INDUSTRIES INC
By
-------------------
---------------------
EXECUTIVE
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EXHIBIT 10.10
EMPLOYMENT AGREEMENT
Agreement dated June 1, 1995, between _____________ (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 three years commencing on the date hereof
and terminating on the third anniversary of the date hereof (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 Senior Vice President, Aerospace
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
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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,
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 receive an annual salary which is not less than his annual
salary on the date of this Agreement and shall have the opportunity for
periodic increases in accordance with the Corporation's regular practices.
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
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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 and shall not in any case be less than Executive's level
of participation in such plans on the date of this Agreement. 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.
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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
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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
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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
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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
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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; 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
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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
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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
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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 Senior Vice President,
Aerospace of the Corporation during any of the three previous years
multiplied by the higher of one (1) or the number of years (including
fractions thereof)
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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 one year 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
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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 three times (3x) 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 Senior Vice President, Aerospace 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 three 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
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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
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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),
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(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
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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
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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 10 Westhaven Lane, White Plains, New York 10605, 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
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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
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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
20
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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.
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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
COLTEC INDUSTRIES INC
By _______________________
__________________________
EXECUTIVE
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EXHIBIT 10.17
WHEREAS, the Corporation has previously adopted the 1994
Long-Term Incentive Plan of Coltec Industries Inc (the "Plan");
WHEREAS, the Plan is intended to meet the requirements of
Section 162(m) of the Internal Revenue Code of 1986 (the "Code"),
and was drafted to comply with the then outstanding provisions of
proposed treasury Regulation 1.162-27 ("Proposed Regulation
1.162-27");
WHEREAS, the Proposed Regulation 1.162-27 has been amended
and the Corporation now desires to amend the Plan to conform to
the provisions of paragraph (e)(2)(i) of the amended Proposed
Regulation 1.162-27; and
WHEREAS, Section 11 of the Plan confers upon the Board the
right to amend the Plan at any time in whole or in part;
NOW, THEREFORE, BE IT
RESOLVED, that, effective as of January 1, 1994,
Section 6(a) of the Plan is amended by deleting the first
sentence thereof and replacing it with the following:
"The Committee shall grant Performance Units to
eligible persons for a given Performance Cycle by no
later than 90 days after the commencement of such
Performance Cycle."
RESOLVED, that each officer of the Corporation is
hereby authorized, empowered and directed to take any such
further action by and on behalf of the Corporation as such
officer may deem necessary or advisable in order to effect
the intent of the foregoing resolution.
<PAGE>
EXHIBIT 10.20
COLTEC INDUSTRIES INC
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PARTICIPANTS. Any director of Coltec Industries Inc (the
"Company"), other than a director which is also a salaried officer or employee
of the Company or any of its subsidiaries, may elect to become a participant
("Participant") under this Plan by written notice to the Company in
substantially the form attached as Exhibit A hereto ("Notice").
2. DEFERRED COMPENSATION. Following the date on which Notice is
received by the Company, a Participant may defer all or part of his/her
compensation as a director for services rendered during all calendar quarters
subsequent to such date (the "Deferred Amount"). In the Notice, the Participant
shall indicate whether the Deferred Amount shall be credited to (i) a Share Unit
Account ("Share Account"), (ii) a Cash Account ("Cash Account"), or (iii) a
combination of both. Any participant may increase, reduce, suspend or
reallocate between accounts future deferments by submitting an amended Notice to
the Company; provided that no such Participant may make any such change more
than once during any twelve (12) month period.
3. SHARE ACCOUNTS. At the end of each calendar quarter a
Participant's Share Account shall be credited with a number of units ("Share
Units") equal to (i) the portion of the Deferred Amount for such quarter
designated in such Notice to be credited to the Participant's Share Account
divided by (ii) the closing price of the Company's Common Stock ("Stock") as
reported on the New York Stock Exchange Transactions report ("NYSE") on the last
trading business day immediately preceding the end of such calendar quarter.
Whenever cash dividends are paid by the Company on outstanding Stock,
there shall be credited to the Share Account additional Share Units equal to (i)
the aggregate dividend that would be payable on a number of outstanding shares
of Stock equal to the number of Share Units in the Share Account on the record
date for the dividend divided by (ii) the closing price of the Company Stock as
reported on the NYSE on the last trading business day immediately preceding the
date of payment of the dividend.
<PAGE>
The number of Share Units credited to a Share Account shall be
adjusted as appropriate in the event of any changes in the outstanding Company
Stock by reason of any stock dividend, stock split, recapitalization, merger,
consolidation, combination or exchange of stock or other similar corporate
change.
4. CASH ACCOUNTS. At the end of each calendar quarter a
Participant's Cash Account shall be credited with the portion of the Deferred
Amount for such quarter designated in the Notice to be credited to the
Participant's Cash Account. A Participant's Cash Account balance at the
beginning of each calendar quarter shall be credited at the end of such quarter
with interest for the quarter at an annual rate equal to the sum obtained by (i)
adding together the yield on ninety (90)-day Treasury Bills in effect on the
last day of each of the twelve (12) preceding calendar months and (ii) dividing
by twelve (12).
5. NO ACCOUNT TRANSFER. A Participant may not transfer or convert a
Share Account to a Cash Account or vice versa.
6. DISTRIBUTIONS. Upon an election to defer, a Participant shall
select from the following options the method by which the Share Account and/or
Cash Account balance(s) shall be paid:
OPTION A. The balance(s) may be paid in one lump sum, payable on
the first business day of the calendar year following
the year during which the Participant ceases to be a
director of the Company; or
OPTION B. The balance(s) may be paid in up to ten (10) annual
installments commencing on the first business day of
the calendar year following the year during which the
Participant ceases to be a director of the Company.
All payments made pursuant to this Plan shall be made in cash. The
Share Units credited to a Share Account shall be converted to cash in the manner
described below and credited to a Cash Account on the following date ("Valuation
Date"):
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A. In the case of Option A, on the date of payment.
B. In the case of Option B, on the date of the first such
installment payment.
The amount credited to the Cash Account upon such conversion shall
equal (i) the Number of Share Units credited to the Share Account on the
Valuation Date, multiplied by (ii) the average of the reporting closing prices
of the Stock as reported on NYSE for the twenty (20) consecutive trading
business days immediately preceding the Valuation Date. In the case of annual
installments, the Cash Account shall continue to be credited with interest
pursuant to Paragraph 4 above.
By submitting an amended Notice to the Company, a Participant may
amend the method by which distributions are made under this Paragraph 6 and Part
III of the Notice; PROVIDED, HOWEVER, that such amendments may be made only with
respect to future deferments.
7. FUNDING AND PARTICIPANTS' RIGHTS. This Plan shall be non-funded.
The right of any Participant to receive a distribution hereunder shall be an
unsecured claim against the general assets of the Company.
8. BENEFICIARY. A Participant may designate a beneficiary or
beneficiaries to receive payments due under the Plan in the event of the
Participant's death. Such designation must be in writing and be received by the
Company prior to the Participant's death. The Participant's Share Account
and/or Cash Account balance(s) shall be paid to the Participant's beneficiary or
beneficiaries in a lump sum as soon as practicable after the Participant's
death. Any Share Units credited to a Share Account shall be converted to cash
and credited to a Cash Account in the manner described in Paragraph 6 above, in
which case the Valuation Date shall be the date of the Participant's death. In
the absence of an effective beneficiary designation, the Participant's Share
Account and/or Cash Account balance(s) shall be paid to the Participant's
estate.
9. ASSIGNMENT. Neither the Participant, the Participant's
beneficiary, nor the Participant's estate shall have any right or power to
transfer, assign, pledge, encumber or
3
<PAGE>
otherwise dispose of any rights or any distributions payable hereunder and any
such attempted assignment, transfer, pledge, or other conveyance shall not be
recognized by the Company.
10. AMENDMENTS OF THE PLAN. The Board of Directors of the Company
may amend the Plan at any time, without the consent of the Participants or their
beneficiaries; provided, however, that no amendment shall divest any Participant
of rights to which he/she would have been entitled if the Plan had been
terminated on the effective date of such amendment.
11. TERMINATION OF PLAN. The Board of Directors of the Company may
terminate the Plan at any time. Upon termination of the Plan, distributions in
respect of credits to Participants' Cash Account and/or Share Accounts as of the
date of termination shall be made in the manner and at the time chosen in the
Notice with respect to distributions pursuant to Paragraph 6 hereof.
12. ADMINISTRATION AND EXPENSES. The Plan shall be administered by
the Chief Executive Officer of the Company who shall be empowered to carry out
the Plan and make interpretations of the Plan; provided that such
interpretations shall not affect the obligations of the Company to pay
Participants their Share Account and/or Cash Account balance(s).
Costs of administration of the Plan will be paid by the Company.
4
<PAGE>
EXHIBIT A
NOTICE OF ELECTION TO DEFER FEES UNDER COLTEC INDUSTRIES INC
DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS
------------------------------------------------------
The undersigned, being a non-employee director of Coltec Industries Inc
(the "Company"), hereby elects to participate in the Company's Deferred
Compensation Plan for Non-Employee Directors (the "Deferred Compensation Plan")
on the terms and conditions set forth in such Plan and pursuant to the specific
instructions below:
I. Percentage of Directors' Fees to be Deferred for services rendered
during all calendar quarters subsequent to the date hereof. (Please
list percentage of fees you wish to defer)
A. Annual Retainer Fee
------------
B. Board and Committee Fee
------------
NOTE: The sum of fees deferred is hereinafter referred
to as the "Deferred Amount".
II. Percentage of Deferred Amount to be credited to Share Account and/or
Cash Account.
A. Share Account
-------------
B. Cash Account
-------------
III. Method by which Share Account and/or Cash Account Balance(s) shall be
paid. (Please check one)
A. . One lump-sum, payable on first business day of the
-------------
calendar year following the year during which you cease to be a
director of the Company.
<PAGE>
B. . In 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 (please circle
------------- -----------------------------
one number) annual installments commencing on the first business
day of the calendar year following the year during which you
cease to be a director of the Company.
NOTE: You should review the Deferred Compensation Plan for
information as to how and when Share Units held in the
Share Account will be converted to cash and distributed.
IV. Designation of Beneficiary under the Deferred Compensation Plan, if
any.
Name and Address of Beneficiary:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
Made and executed as of this day of , 19 .
---- --------- --
------------------------------
Director
<PAGE>
EXHIBIT 10.21
WHEREAS, the Board of Directors of the Corporation deems it advisable to make
certain provisions in the event that a change in control of the Corporation
occurs; and
WHEREAS, for purposes of the following resolutions, a change in control shall be
deemed to have occurred if any partnership, corporation or any person, group or
entity shall acquire beneficial ownership of a majority of the outstanding
shares of capital stock of the Corporation entitled to vote together without
regard to class for the election of directors ("Change in Control");
NOW, THEREFORE, BE IT
RESOLVED, that if a Change in Control occurs, each director of the
Corporation who is not an employee of the Corporation or a subsidiary
thereof and who does not continue to serve as a director of the Corporation
during any part of the two year period following such Change in Control for
reasons other than voluntary resignation or voluntary choice not to stand
for re-election:
1. Shall be paid a lump sum amount equal to five times the amount of the
director's annual retainer being paid by the Corporation at the time
he or she shall cease to be a director, to be paid within 90 days of
ceasing membership as a director of the Corporation;
2. Shall have five years as a director added to his completed years as a
director for purposes of calculating benefits to be paid pursuant to
the pension arrangement for directors established by resolution of the
Board of Directors on July 14, 1982, excluding any director who shall
have a right to a pension provided by the Corporation or any
subsidiary.
<PAGE>
EXHIBIT 12.1
COLTEC INDUSTRIES INC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings from continuing
operations before
extraordinary item. . . . . . . . . . . . . $ 71,160 $ 93,989 $ 65,226 $ 64,683 $ 2,209
Add (deduct):
Income taxes:
Federal and foreign . . . . . . . . . . . 36,658 52,869 36,293 42,577 28,300
State and local . . . . . . . . . . . . . 3,611 4,931 1,877 1,886 1,538
Portion of rents representative
of interest factor (1). . . . . . . . . . 3,334 3,369 4,078 4,283 4,268
Interest expense. . . . . . . . . . . . . . 91,208 90,337 111,497 137,797 201,954
---------------------------------------------------------------------
Earnings from continuing
operations before
extraordinary item,
as adjusted . . . . . . . . . . . . . . . . $205,971 $245,495 $218,971 $251,226 $238,269
---------------------------------------------------------------------
---------------------------------------------------------------------
Fixed charges:
Interest expense. . . . . . . . . . . . . . $ 91,208 $ 90,337 $111,497 $137,797 $201,954
Capitalized interest. . . . . . . . . . . . 997 689 1,140 1,196 955
Portion of rents representative
of interest factor (1). . . . . . . . . . 3,334 3,369 4,078 4,283 4,268
---------------------------------------------------------------------
Fixed charges. . . . . . . . . . . . . . . . . $ 95,539 $ 94,395 $116,715 $143,276 $207,177
---------------------------------------------------------------------
---------------------------------------------------------------------
Ratio of earnings to
fixed charges . . . . . . . . . . . . . . . 2.2 2.6 1.9 1.8 1.2
---------------------------------------------------------------------
---------------------------------------------------------------------
</TABLE>
- ---------------
Note:
(1) Estimated to be 1/3 of total rent expense.
<PAGE>
SELECTED FINANCIAL DATA
Coltec Industries Inc 1995 Annual Report
The following table sets forth selected financial data of Coltec for the five
years ended December 31, 1995. The selected financial data, with the exception
of order backlog and employee data, were derived from the financial statements
of Coltec, certain of which statements have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their report included elsewhere
herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
STATEMENT OF EARNINGS DATA:
Sales $1,401.9 $1,326.8 $1,334.8 $1,368.7 $1,373.0
Operating income(a) 197.7 236.3 211.7 243.1 229.0
Earnings before interest, income taxes
and extraordinary item 197.7 236.3 211.7 243.1 230.4
Interest and debt expense, net 89.9 89.5 110.2 135.8 199.9
Provision for income taxes 36.6 52.8 36.3 42.6 28.3
Earnings before extraordinary item(a) 71.2 94.0 65.2 64.7 2.2
Extraordinary item(b) (.3) (1.5) (17.8) (106.9) .6
Net earnings (loss) 70.9 92.5 47.4 (42.2) 2.8
Earnings (loss) per common share:
Before extraordinary item 1.02 1.35 .94 1.11 .09
Extraordinary item -- (.02) (.26) (1.83) .02
Net earnings (loss) 1.02 1.33 .68 (.72) .11
Ratio of earnings to fixed charges(c) 2.2 2.6 1.9 1.8 1.2
BALANCE SHEET DATA (AT END OF PERIOD):
Working capital 208.9 189.6 163.1 95.3 168.8
Total assets 894.5 847.5 796.5 817.9 823.2
Long-term debt (including current portion) 945.8 970.1 1,033.6 1,122.1 1,622.9
Shareholders' equity (453.8) (525.6) (625.5) (666.6) (1,194.5)
OTHER OPERATING DATA:
Operating margin(a) 14.1% 17.8% 15.9% 17.8% 16.7%
Cash provided by operating activities 91.0 98.2 105.2 119.9 149.2
Capital expenditures 42.5 38.2 38.6 25.0 26.2
Depreciation of property, plant and equipment 32.5 31.1 33.2 35.3 36.9
Order backlog (at end of period) 727.7 668.8 669.7 709.1 808.8
Number of employees (at end of period) 9,600 9,800 10,000 10,700 11,400
</TABLE>
(A) OPERATING INCOME FOR 1995 INCLUDED A SPECIAL CHARGE OF $27.0 MILLION
PRIMARILY TO COVER THE COSTS OF CLOSING THE WALBAR COMPRESSOR BLADE
FACILITY IN CANADA. IT IS ANTICIPATED THAT THIS FACILITY WILL BE CLOSED BY
THE END OF 1996. THE CHARGE ALSO COVERED SELECTED REDUCTIONS IN WORK FORCE
THROUGHOUT THE COMPANY. IF THE SPECIAL CHARGE WAS EXCLUDED, OPERATING
INCOME, EARNINGS BEFORE EXTRAORDINARY ITEM AND THE OPERATING MARGIN WOULD
HAVE BEEN $224.7 MILLION, $88.7 MILLION AND 16.0%, RESPECTIVELY, IN 1995.
OPERATING INCOME FOR 1993 INCLUDED A SPECIAL CHARGE OF $25.2 MILLION TO
COVER THE COST OF CONSOLIDATION AND REARRANGEMENT OF CERTAIN MANUFACTURING
FACILITIES AND RELATED REDUCTIONS IN WORK FORCE, PRIMARILY IN THE
AEROSPACE/GOVERNMENT SEGMENT, AS WELL AS AT CENTRAL MOLONEY TRANSFORMER
DIVISION. IF THE SPECIAL CHARGE WAS EXCLUDED, OPERATING INCOME, EARNINGS
BEFORE EXTRAORDINARY ITEM AND THE OPERATING MARGIN WOULD HAVE BEEN $236.9
MILLION, $80.5 MILLION AND 17.7%, RESPECTIVELY, IN 1993. CENTRAL MOLONEY
WAS SOLD IN JANUARY 1994.
(B) COLTEC RECOGNIZED EXTRAORDINARY CHARGES IN EACH OF THE FIVE YEARS ENDED
DECEMBER 31, 1995, IN CONNECTION WITH DEBT REFINANCINGS AND EARLY
RETIREMENT OF DEBT AND, IN 1992 IN CONNECTION WITH A RECAPITALIZATION.
(C) FOR PURPOSES OF CALCULATING THE RATIO OF EARNINGS TO FIXED CHARGES,
EARNINGS ARE DETERMINED BY ADDING FIXED CHARGES (EXCLUDING CAPITALIZED
INTEREST) AND INCOME TAXES TO EARNINGS BEFORE EXTRAORDINARY ITEM. FIXED
CHARGES CONSIST OF INTEREST EXPENSE, CAPITALIZED INTEREST AND THAT PORTION
OF RENTAL EXPENSE DEEMED TO BE REPRESENTATIVE OF THE INTEREST FACTOR.
19
<PAGE>
FINANCIAL REVIEW
COLTEC INDUSTRIES INC 1995 ANNUAL-REPORT
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994
Earnings before extraordinary item for 1995 were $71.2 million, equal to $1.02
per common share, or $88.7 million and $1.27 per common share, excluding the
$27.0 million special charge. This compared with earnings before extraordinary
item of $94.0 million, or $1.35 per common share, in 1994. Sales were $1,401.9
million compared with $1,326.8 million in 1994. Operating income for 1995 was
$197.7 million and the operating margin was 14.1%. However, excluding the
special charge, operating income was $224.7 million and the operating margin was
16.0%. This compared with operating income of $236.3 million and an operating
margin of 17.8% in 1994. The 1995 earnings decline was due to weakness in the
Automotive segment which more than offset the improved performances in the
Aerospace/Government and Industrial segments and the lower effective tax rate in
1995.
The Aerospace/Government segment reported a 29% decline in operating income in
1995 on a 15% sales increase and an operating margin of 9.9% compared with 16.0%
in 1994. Excluding the special charge, operating income improved 6% and the
segment's operating margin was 14.7%. For 1995, operating income was $48.1
million, $71.5 million excluding the special charge, on sales of $486.5 million.
This compared with operating income of $67.7 million on sales of $422.1 million
in 1994. The segment benefited from increasing strength in the aerospace
industry, as divisions serving this market reported increases of 9% in operating
income, 12% in sales and 52% in order input. However, the segment's operating
margin was impacted by continued start-up costs on the Alco engine product line
and lower aftermarket sales to standby nuclear generator facilities at Fairbanks
Morse Engine. The Automotive segment saw its sales and operating income slip 4%
and 19%, respectively, from a very strong 1994, but still achieved a 19.0%
operating margin. The 1994 margin of 22.4% was the second highest in the
segment's history. Operating income for the Automotive segment was $92.8 million
in 1995 on sales of $487.8 million compared with $114.2 million of operating
income in 1994 on sales of $508.7 million. Operating results for the segment
were affected by the adverse industry pricing environment and a decline in sales
of vehicles that use Coltec components. The Industrial segment reported strong
sales and operating income increases in 1995, with improvement coming from most
of its businesses. The segment achieved a record 22.5% operating margin,
compared with 22.2% in 1994, a 9% improvement in operating income and an 8%
increase in sales. Segment operating income was $96.5 million and sales were
$428.9 million, compared with operating income of $88.4 million and sales of
$397.7 million in 1994. The higher operating results in the Industrial segment
were driven by a strong domestic industrial economy and new product
introductions. Sales and earnings gains were reported by Quincy Compressor,
Garlock Bearings, Garlock Mechanical Packing, France Compressor Products,
Garlock Valves & Industrial Plastics, Plastomer Products, Ortman Fluid Power,
Haber Tool and Sterling Die.
Following is a discussion of the results of operations for the year ended
December 31, 1995, compared with the year ended December 31, 1994.
SALES. For 1995, sales totaled $1,401.9 million or 6% higher than the $1,326.8
million in 1994. In the Aerospace/Government segment, sales increased to $486.5
million from $422.1 million in 1994 reflecting the strengthening conditions in
the aerospace industry as well as higher engine shipments at Fairbanks Morse
Engine. At Menasco, sales were higher on increased shipments of landing gear
systems for the Boeing 777, Fokker 70 and 100, and McDonnell Douglas MD-80
aircraft; and flight controls for the Fokker 100 and Canadair RJ aircraft. In
1995, Menasco delivered 20 shipsets of landing gear systems for the Boeing 777
compared with 13 in 1994 and 3 in 1993. In addition, Menasco began deliveries in
1995 of landing gear for the McDonnell Douglas F-15 fighter. This business was
acquired in June 1995 from AlliedSignal Inc ('AlliedSignal'). Fairbanks Morse
Engine reported higher shipments of engines for the U.S. Navy Landing Ship Dock
and Sealift programs and began deliveries in 1995 of Alco engines, a business
acquired in 1994. Sales were higher at Delavan Gas Turbine Products on increased
demand for fuel nozzles and overhaul services to regional airlines. At Walbar,
sales were up on increased shipments of turbine blades and vanes for commercial
aircraft engines, and components and assemblies for the locomotive turbocharger
market. The sales improvement at Chandler Evans Control Systems was due to
higher selling prices and to increased shipments of fuel pumps for the Taiwanese
Fighter program and spare units to the foreign military market.
Automotive segment sales declined to $487.8 million from $508.7 million in 1994,
reflecting the adverse industry pricing environment and a decline in sales of
vehicles that use Coltec components. At Holley Automotive, sales were down due
to pricing concessions; lower demand for throttle bodies, transmission solenoids
and manifold assemblies; and the continuing phaseout of the mechanical emission-
control air pump. The division's sales decline was offset in part by higher
sales of oil pumps and electric emission-control air pumps. Sales were lower for
Stemco Truck Products' wheel lubrication systems to the truck and trailer
aftermarket; and for Farnam
20
<PAGE>
Sealing Systems' gaskets to original equipment manufacturers and the automotive
aftermarket. Holley Performance Products reported higher sales in 1995 on
increased consumer demand and market penetration for high-performance and
remanufactured carburetors. Sales were up at Performance Friction Products on
increased shipments of synchronizer kits to the truck aftermarket.
For 1995, sales for the Industrial segment were $428.9 million compared with
$397.7 million in 1994. The higher sales reflected the strength of the
industrial sector of the U.S. economy, new product introductions and improved
market conditions in Europe. Quincy Compressor reported record sales in 1995 on
strong demand for rotary screw air compressors and on the increased level of
compressor parts and accessories business. At Garlock Mechanical Packing, sales
were higher on improved pricing and increased demand in the U.S. market for
KLOZURE oil seals, cut gaskets and GYLON gasketing products. Also contributing
to the division's sales improvement was higher international sales. In December
1995, Garlock Mechanical Packing acquired certain assets of Furon Company's
('Furon') metallic gasket business. This business manufactures gaskets for high-
temperature applications, primarily as replacement components in the chemical
processing industry. Garlock Bearings reported record sales in 1995 on the
continued development of new applications for its DU bearings and on strong
demand for both DU and DX bearings from the automotive and truck markets. Sales
were higher at Haber Tool due mainly to increased demand from the automotive
market and at Plastomer Products on increased shipments of PTFE insulating tape
to the aerospace market. The higher sales at France Compressor Products and
Garlock Valves & Industrial Plastics reflected improved conditions in both the
U.S. and European economies.
COST OF SALES. Cost of sales increased 10% in 1995 and, as a percent of sales,
increased to 69.9% from 67.2% in 1994. This increase reflected the higher sales
volume in the Aerospace/Government and Industrial segments, and higher than
expected start-up costs on the Alco engine product line at Fairbanks Morse
Engine. Also contributing to the increase were higher material cost and
depreciation expense, increased spending to develop new products and competitive
pressures limiting price increases. These adverse cost factors were offset in
part by manufacturing efficiencies and other savings achieved as part of
Coltec's cost-reduction efforts.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense,
including other income and expense, was level in 1995 compared with 1994, but as
a percent of sales, selling and administrative expense declined to 14.1% from
15.0% in 1994. Coltec's continued emphasis on controlling costs kept these
expenses comparable to prior year levels.
SPECIAL CHARGE. In the third quarter of 1995, Coltec recorded a special charge
of $27.0 million, primarily to cover the costs of closing the Walbar compressor
blade facility in Canada. It is anticipated that this facility will be closed by
the end of 1996. The charge also covered selected reductions in work force
throughout Coltec covering approximately 520 employees, all of whom have been
terminated or notified of their termination at December 31, 1995. The special
charge includes $9.1 million for the cancellation of contractual obligations
resulting from the decision to close the Walbar facility, $7.8 million for asset
writedowns, $5.1 million for severance and employee-related costs and $5.0
million for other costs necessary to implement the shutdown of the Walbar
facility and other actions. Charges of $8.9 million were recorded against this
reserve in 1995.
INTEREST AND DEBT EXPENSE. The $.4 million increase in interest and debt expense
in 1995 was due to higher interest rates offset in part by repayment of long-
term debt.
PROVISION FOR INCOME TAXES. The effective income tax rate for 1995 was 34%
compared with 36% in 1994. The lower effective tax rate for 1995 was due to the
adjustment of reserves and the utilization of tax credits.
EXTRAORDINARY ITEM. In 1995, Coltec incurred extraordinary charges of $.3
million in connection with the early retirement of debt.
YEAR ENDED DECEMBER 31, 1994, COMPARED WITH YEAR ENDED DECEMBER 31, 1993
For 1994, earnings before extraordinary item were $94.0 million compared with
$65.2 million in 1993; and earnings per share before extraordinary item were
$1.35 per common share compared with 94 cents per common share in 1993.
Excluding a special charge of $25.2 million, earnings before extraordinary item
in 1993 were $80.5 million, equal to $1.16 per common share. The higher 1994
earnings were due to a significant reduction in interest expense which resulted
from refinancing bank debt in January 1994, as well as to strong performances by
the Automotive and Industrial segments. Sales of $1,326.8 million were slightly
less than the $1,334.8 million in 1993. However, excluding the sales of the
Central Moloney Transformer Division, sales were up 4% from $1,270.6 million
last year. Operating income was $236.3 million and the operating margin was
17.8% in 1994 compared with operating income of $211.7 million and an operating
margin of 15.9% in 1993. Excluding the $25.2 million special charge and Central
Moloney Transformer, operating income was $238.0 million and the operating
margin was 18.7% in 1993. Central Moloney Transformer was sold in January 1994
at a price approximating book value.
21
<PAGE>
Aerospace/Government segment operating income was level compared with 1993 on a
7% decline in sales, and the operating margin was 16.0% compared with 15.0% in
1993. Excluding the special charge, operating income was down 21% and the 1993
operating margin was 18.9%. Operating income for the Aerospace/ Government
segment was $67.7 million on sales of $422.1 million, compared with operating
income of $67.8 million, $85.5 million excluding the special charge, on sales of
$453.3 million in 1993. The Aerospace/Government segment continued to be
affected in 1994 by the difficult market conditions in the aerospace industry,
reflecting fewer deliveries of commercial aircraft and the downward trend in
military spending. Also contributing to the lower segment results were a gap in
shipments for U.S. Navy programs at the Fairbanks Morse Engine and production
inefficiencies at Walbar. In the Automotive segment, operating income improved
12% on a 14% sales increase and the operating margin was 22.4% compared with
23.0% in 1993. Excluding the special charge, operating income improved 8% and
the operating margin was 23.8% in 1993. Operating income and sales for the
Automotive segment were $114.2 million and $508.7 million, respectively, in
1994. This compared with operating income of $102.4 million, $106.2 million
excluding the special charge, and sales of $445.7 million in 1993. The operating
results for the Automotive segment benefited from a strong automotive industry
and from increased applications for segment components. The Industrial segment
reported a 16% improvement in operating income and a 22.2% operating margin in
1994, compared with 17.4% in 1993. Sales for the Industrial segment declined 9%,
in 1994; however, excluding the special charge and Central Moloney Transformer,
sales were up 5%; operating income improved 9%, and the operating margin was
22.4% compared with 21.7% in 1993. Segment operating income was $88.4 million,
and sales were $397.7 million compared with operating income of $75.9 million
and sales of $436.7 million in 1993. Excluding the special charge and Central
Moloney Transformer, operating income and sales were $80.7 million and $372.5
million, respectively, in 1993.
Following is a discussion of the results of operations for the year ended
December 31, 1994, compared with the year ended December 31, 1993.
SALES. Sales of $1,326.8 million were slightly less than the $1,334.8 million in
1993 but 4% higher after excluding Central Moloney Transformer. Sales in the
Aerospace/Government segment were $422.1 million compared with $453.3 million in
1993. The sales decline reflected the continued general weakness in the
aerospace industry and lower military sales. Sales at Menasco were down in 1994
due to lower shipments of flight controls for the Fokker 100 aircraft and
landing gear systems for the Boeing 757 and 767 aircraft. Sales of landing gear
systems in total were slightly higher in 1994 reflecting shipments on new
programs for the Boeing 777 aircraft and the Fokker 70 and 100 aircraft. Sales
were lower at Fairbanks Morse Engine due to a gap in shipments for U.S. Navy
programs. Sales were down at Chandler Evans Control Systems due to lower demand
for fuel controls from both commercial and military markets; and at Walbar, due
to lower shipments of blades and rotating parts for gas turbine engines to
aircraft engine manufacturers. The sales decline at Walbar was offset in part by
strong demand for repair and coating services for gas turbine engine components.
Delavan Gas Turbine Products reported lower sales in 1994 on continued
reductions in defense spending.
Sales for the Automotive segment increased 14% to $508.7 million, reflecting a
strong automotive industry and increased applications for segment components.
All divisions within the Automotive segment reported increased sales in 1994.
Sales were higher at Holley Automotive on strong market acceptance for new
transmission solenoid products that were introduced in 1992 and 1993 and on
increased demand for transmission modulators and manifold assemblies. Also
contributing to the division's sales increase were higher shipments of oil pumps
and both mechanical and electric emission-control air pumps. The higher sales of
electric emission-control air pumps reflected the acquisition late in 1993 of
General Motors' air pump manufacturing operation and Holley Automotive becoming
sole source of these components to the automaker's North American operations.
The sales improvement at Farnam Sealing Systems was due to strong demand for
transmission gaskets and seals from both original equipment manufacturers and
the aftermarket. Contributing to the higher sales at Stemco Truck Products were
increased shipments of wheel lubrication systems and muffler and exhaust system
components to manufacturers of heavy trucks and trailers and selected price
increases. Shipments were up at Holley Performance Products on improved pricing
and higher shipments of performance carburetors and fuel injection systems,
reflecting increased consumer spending in 1994.
Industrial segment sales were $397.7 million in 1994 compared with $436.7
million in 1993. However, excluding Central Moloney Transformer, sales increased
5% to $392.9 million from $372.5 million in 1993. The higher sales reflected
continuing improvements in the markets served by our Industrial businesses, as
well as selected price increases and new product introductions. Quincy
Compressor reported increased sales of compressors on improved market
conditions, increased market penetration and higher selling
22
<PAGE>
prices. At Garlock Bearings, sales were higher as a result of new applications
for DU bearings and greater demand for bearings from all markets served. The
sales improvement at Delavan Commercial Products was due to higher shipments of
oil burner nozzles to the home heating market, price increases and the
introduction of new products. Strong demand for metal-cutting and metal-forming
tools from the automotive industry resulted in the strong sales improvement at
Sterling Die and Haber Tool. Sales at Garlock Mechanical Packing and France
Compressor Products benefited from improved market conditions in the chemical
and petroleum industries, higher selling prices and new product introductions.
The increase in Industrial segment sales was offset in part by lower demand for
Plastomer Products PTFE insulating tape from the aerospace market.
COST OF SALES. Cost of sales declined slightly in 1994; however, excluding
Central Moloney, cost of sales was 5% higher. This increase reflected the higher
sales volume in the Automotive and Industrial segments as well as production
inefficiencies at Walbar. Also contributing to the increase in cost of sales
were higher manufacturing costs at Fairbanks Morse Engine attributable to the
Alco engine business, increased spending for research and development, and
higher maintenance costs. The higher cost was offset in part by benefits
realized from cost-reduction programs and from the consolidation and
rearrangement program that was completed in 1994. As a percent of sales, cost of
sales increased to 67.2% from 66.6%, after excluding Central Moloney.
SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense,
including other income and expense, increased 3% in 1994 and, after excluding
Central Moloney, the increase was 6%. This increase was due mainly to higher
state and local income taxes and to the recovery in 1993 of previously incurred
engineering expense by Holley Automotive. The higher selling and administrative
expense was offset in part by cost savings resulting from reductions in the
sales force at Garlock Mechanical Packing. As a percent of sales, selling and
administrative expense increased to 15.0% in 1994 from 14.7% in 1993, after
excluding Central Moloney.
INTEREST AND DEBT EXPENSE, Net. Interest and debt expense, net declined $20.7
million or 19% in 1994 due to lower borrowing costs, under the new credit
agreement entered into in January 1994, and to repayments of long-term debt.
PROVISION FOR INCOME TAXES. The effective income tax rate for 1994 was 36.0%
compared with 35.75% for 1993.
EXTRAORDINARY ITEM. Coltec incurred extraordinary charges of $1.5 million in
1994 in connection with the early retirement of debt and $17.8 million in 1993
in connection with debt refinancings and the early retirement of debt.
INDUSTRY SEGMENT INFORMATION
Following are the major products in each industry segment: Aerospace/Government:
Menasco landing gear and flight control actuation systems; Fairbanks Morse large
diesel and dual-fuel engines; Walbar blades, vanes and discs for jet and other
gas turbine engines; Chandler Evans fuel pumps and control systems; Delavan gas
turbine products; Lewis Engineering cockpit instrumentation and sensors.
Automotive: Holley Automotive fuel injection components and solenoids, air and
oil pumps; Holley Performance carburetors and fuel injection components; Stemco
truck products; Farnam gaskets and seals; Performance Friction gears,
synchronizers and clutch plates.
Industrial: Garlock seals, gaskets, packings, bearings, valves and tape; Quincy
air compressors; Delavan spray nozzles; France compressor products; Haber and
Sterling dies; Ortman Fluid Power cylinders.
23
<PAGE>
The following table shows financial information by industry segment for the five
years ended December 31, 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(DOLLARS IN MILLIONS) 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Sales:
Aerospace/Government $ 486.5 $ 422.1 $ 453.3 $ 523.7 $ 562.8
Automotive 487.8 508.7 445.7 402.6 372.6
Industrial(a) 428.9 397.7 436.7 443.8 439.3
Intersegment elimination(b) (1.3) (1.7) (.9) (1.4) (1.7)
Total $ 1,401.9 $ 1,326.8 $ 1,334.8 $ 1,368.7 $ 1,373.0
Operating income(c):
Aerospace/Government $ 48.1 $ 67.7 $ 67.8 $ 102.1 $ 109.6
Automotive 92.8 114.2 102.4 85.1 59.3
Industrial(a) 96.5 88.4 75.9 84.4 80.2
Total segments 237.4 270.3 246.1 271.6 249.1
Corporate unallocated(d) (39.7) (34.0) (34.4) (28.5) (20.1)
Operating income $ 197.7 $ 236.3 $ 211.7 $ 243.1 $ 229.0
Operating margin(c):
Aerospace/Government 9.9% 16.0% 15.0% 19.5% 19.5%
Automotive 19.0 22.4 23.0 21.1 15.9
Industrial(a) 22.5 22.2 17.4 19.0 18.3
Total 14.1% 17.8% 15.9% 17.8% 16.7%
Return on total assets(c)(e):
Aerospace/Government 10.8% 16.8% 17.6% 26.3% 26.7%
Automotive 71.1 88.2 82.2 71.8 48.1
Industrial(a) 52.6 53.8 42.1 45.2 42.2
Total 22.1% 27.9% 26.6% 29.7% 27.8%
Backlog(f):
Aerospace/Government $ 611.7 $ 547.3 $ 524.5 $ 576.9 $ 697.2
Automotive 76.4 84.2 77.6 64.8 47.0
Industrial(a) 39.6 37.3 67.6 67.4 64.6
Total $ 727.7 $ 668.8 $ 669.7 $ 709.1 $ 808.8
</TABLE>
(a) EXCLUDING THE CENTRAL MOLONEY TRANSFORMER DIVISION, WHICH WAS SOLD IN
JANUARY 1994, AND THE 1993 SPECIAL CHARGE, INDUSTRIAL SEGMENT SALES, OPERATING
INCOME, OPERATING MARGIN, RETURN ON TOTAL ASSETS AND BACKLOG WOULD HAVE BEEN AS
FOLLOWS FOR THE FOUR YEARS ENDED DECEMBER 31, 1994:
<TABLE>
<CAPTION>
(DOLLARS IN MILLIONS) 1994 1993 1992 1991
<S> <C> <C> <C> <C>
SALES $392.9 $372.5 $365.3 $349.7
OPERATING INCOME 88.3 80.7 81.9 75.9
OPERATING MARGIN 22.4% 21.7% 22.4% 21.7%
RETURN ON TOTAL ASSETS 53.7% 50.2% 49.9% 46.0%
BACKLOG 37.3 33.5 31.7 30.7
</TABLE>
(b) REFLECTS ELIMINATION OF INTERCOMPANY SALES BETWEEN DIVISIONS IN DIFFERENT
SEGMENTS.
(c) OPERATING INCOME FOR 1995 INCLUDED A SPECIAL CHARGE OF $27.0 MILLION AS
FOLLOWS: $23.4 MILLION IN THE AEROSPACE/GOVERNMENT SEGMENT AND $3.6 MILLION IN
CORPORATE UNALLOCATED. EXCLUDING THE SPECIAL CHARGE, OPERATING INCOME, THE
OPERATING MARGIN AND RETURN ON TOTAL ASSETS FOR 1995 WOULD HAVE BEEN $71.5
MILLION, 14.7% AND 16.0% FOR AEROSPACE/GOVERNMENT.
OPERATING INCOME FOR 1993 INCLUDED A SPECIAL CHARGE OF $25.2 MILLION AS FOLLOWS:
$17.7 MILLION IN AEROSPACE/GOVERNMENT, $3.8 MILLION IN AUTOMOTIVE AND $3.7
MILLION IN INDUSTRIAL. EXCLUDING THE SPECIAL CHARGE, OPERATING INCOME, THE
OPERATING MARGIN AND RETURN ON TOTAL ASSETS FOR 1993 WOULD HAVE BEEN $85.5
MILLION, 18.9% AND 22.1% FOR AEROSPACE/GOVERNMENT, $106.2 MILLION, 23.8% AND
85.2% FOR AUTOMOTIVE AND $79.6 MILLION, 18.2% AND 44.2% FOR INDUSTRIAL.
(d) REPRESENTS CORPORATE SELLING AND ADMINISTRATIVE EXPENSE, INCLUDING OTHER
INCOME AND EXPENSE, THAT IS NOT ALLOCABLE TO INDIVIDUAL INDUSTRY SEGMENTS.
(e) RETURN ON TOTAL ASSETS IS CALCULATED FOR EACH SEGMENT BY DIVIDING SEGMENT
OPERATING INCOME BY SEGMENT TOTAL ASSETS AT DECEMBER 31, AND FOR TOTAL COLTEC BY
DIVIDING TOTAL COLTEC OPERATING INCOME BY TOTAL ASSETS AT DECEMBER 31.
(f) OF THE $727.7 MILLION BACKLOG AT DECEMBER 31, 1995, $268.3 MILLION WAS
SCHEDULED TO BE SHIPPED AFTER 1996.
24
<PAGE>
LIQUIDITY AND FINANCIAL POSITION
Coltec ended 1995 with total debt of $945.8 million compared with $970.1 million
in 1994. The negative balance in shareholders' equity of $453.8 million compares
with a negative balance of $525.6 million at year-end 1994. Cash and cash
equivalents were $4.0 million at December 31, 1995, and $4.2 million in 1994.
Working capital of $208.9 million was higher by $19.3 million; and the current
ratio was 1.87 compared with 1.79 at year-end 1994.
Cash from operations amounted to $91.0 million in 1995 compared with $98.2
million in 1994 and $105.2 million in 1993. The lower cash generated from
operations in 1995 was due to increased working capital requirements. Accrued
expenses declined due to a lower interest and tax accruals, and to payments
covering the special charge. Offsetting in part the decline in cash from
operations were an increase in deferred income taxes and the net receipt of
$15.5 million from insurance carriers for asbestos-related matters. This
compared with the receipt of $10.8 million in 1994 and $3.1 million in 1993. The
1994 decrease in cash from operations compared with 1993 was attributable to
higher levels of receivables and inventories. The $91.0 million of cash
generated in 1995 was used to acquire AlliedSignal's aircraft landing gear
business for $14.0 million and certain assets of Furon's metallic gasket
business for $7.8 million, invest $42.5 million in capital expenditures and
reduce indebtedness by $24.5 million. Included in receivables at December 31,
1995 and 1994 were $53.7 million and $68.2 million, respectively, of receivables
due from insurance carriers for asbestos product liability claims and related
litigation costs. Excluding these amounts, receivables increased 6% to $138.3
million and receivables days outstanding were 38 days at December 31, 1995,
compared with 36 days at year-end 1994. Inventories increased 16% to $229.4
million, and inventory turnover was 4.02 times in 1995 compared with 4.61 times
in 1994. The increase in inventories was due to the build up of inventory for
the Boeing 777 and 737-600/700/800 programs at Menasco and the U.S. Navy Sealift
program and Alco engine business at Fairbanks Morse Engine, and the acquisitions
of the AlliedSignal aircraft landing gear and Furon metallic gasket businesses.
At December 31, 1995, total debt was $945.8 million compared with $970.1 million
at year-end 1994. In 1994, Coltec entered into a credit agreement with a
syndicate of banks which expires June 30, 1999. In November 1995, the total
commitment under the credit agreement was increased $50 million to $465.0
million. The additional commitment was used to redeem $46.4 million principal
amount of the 11 1/4% debentures, in January 1996, at a redemption price of
105.625% plus accrued interest. The purpose of the redemption was to substitute
the debentures for bank debt, at a lower interest rate. Excluding the $50.0
million of additional commitment, at December 31, 1995, $261.0 million of
borrowings were outstanding and $45.8 million of letters of credit had been
issued under the credit agreement, leaving $108.2 million of borrowings
available for working capital and general corporate purposes. The credit
agreement provides up to $100.0 million for the issuance of letters of credit
and reductions in the total commitment of $50.0 million on both January 11, 1997
and 1998. Coltec's loan agreements contain various restrictions and conditions,
with which Coltec is in compliance. Management believes that cash generated from
operations and borrowings available under the credit agreement will be adequate
to meet Coltec's operating needs, planned capital expenditures and debt service
requirements through 1998. In 1999 and 2000, $628.0 million of debt matures and
it is planned that a portion of this debt will be repaid from cash generated
from operations with the remainder to be refinanced.
During 1995, shareholders' equity increased by $71.8 million to a negative
balance of $453.8 million at the end of 1995. This increase reflects $70.9
million of net earnings, $1.6 million of amortization of unearned compensation
related to restricted shares, $.4 million of proceeds and tax benefits from the
exercise of stock options and the expiration of restrictions on restricted
stock, offset by a $1.1 million reduction in foreign currency translation
adjustments.
The $29.5 million in liabilities of discontinued operations at December 31,
1995, represented reserves to cover postretirement benefits for the former
employees of the discontinued operations and other future estimated costs of the
disposition of Crucible Materials Corporation in 1985, the steelmaking facility
in Midland, Pennsylvania in 1982, and Colt Firearms in 1990. Payments covering
the liabilities of discontinued operations in 1995, 1994 and 1993 were $2.5
million, $3.2 million and $4.4 million, respectively. Coltec expects future cash
payments covering the liabilities of discontinued operations will extend over
the remaining lives of the former employees at the discontinued operations.
25
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures were $42.5 million in 1995 compared with $38.2 million in
1994 and $38.6 million in 1993, as Coltec continues to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand production and improve facilities. The level of capital expenditures has
and will vary from year to year, affected by the timing of capital spending for
production equipment for new products, periodic plant and facility expansion as
well as cost reduction and labor efficiency programs. Capital expenditures
during 1995 included production equipment to manufacture a new engine oil pump
at Holley Automotive, equipment to increase production capacity at Garlock
Bearings and production equipment for new landing gear programs at Menasco. At
December 31, 1995, Coltec had $39.6 million of planned capital expenditures that
included production equipment to support new programs at Menasco and Holley
Automotive.
ENVIRONMENTAL
Coltec and its subsidiaries are subject to numerous federal, state and local
environmental laws. For example, the Clean Air Act Amendments regulate emissions
at certain of Coltec's facilities. In connection with the Clean Air Act
Amendments, Coltec will be required to make capital expenditures for equipment
to control emissions of hazardous air pollutants. In addition, certain of
Coltec's facilities will be required to obtain air emission control permits.
Coltec has made a determination of the impact on its operations of the Clean Air
Act Amendments. Based upon this determination, Coltec believes that it will not
be at a competitive disadvantage in complying with the Clean Air Act Amendments
and that any costs to comply with the Clean Air Act Amendments will not have a
material effect on Coltec's results of operations and financial condition.
Coltec and its subsidiaries also incur costs on a recurring basis for the
treatment, storage and disposal of hazardous materials generated at Coltec's
facilities in order to comply with the federal Resource Conservation and
Recovery Act of 1976 ("RCRA"), and its analogous state statutes. Coltec does not
believe that such costs have, nor will they have, a material effect on Coltec's
results of operations and financial condition.
Coltec has been notified that it is among the Potentially Responsible Parties
("PRPs") under the federal Comprehensive Environmental Response Compensation and
Liability Act of 1980, as amended ("CERCLA"), or similar state laws, for the
costs of investigating and in some cases remediating contamination by hazardous
materials at several sites. See Note 13 of the Notes to Financial Statements for
information on the impact of CERCLA on Coltec.
Coltec's annual expenditures (including capital expenditures) relating to
environmental matters over the three years ended December 31, 1995 ranged from
$6.5 million to $9.0 million, and Coltec expects such expenditures to
approximate $12.5 million in 1996 and $10.0 million in 1997. Over the three
years ended December 31, 1995, annual expenditures for recurring environmental
matters approximated $2.5 million, annual capital expenditures ranged from $1.0
million to $2.5 million, and annual expenditures for remediation and other
nonrecurring environmental matters ranged from $3.0 million to $4.0 million.
Expenditures for recurring environmental matters are expected to approximate
$3.0 million in each of 1996 and 1997, capital expenditures are expected to
approximate $3.5 million in 1996 and $2.0 million in 1997, and expenditures for
remediation and other nonrecurring environmental matters are expected to
approximate $6.0 million in 1996 and $5.0 million in 1997. Capital expenditure
requirements for 1996 and 1997 include estimates of annual expenditures pursuant
to the Clean Air Act Amendments of $2.5 million and $2.0 million, respectively.
The estimate of annual environmental expenditures for 1996 and 1997 is based
upon the expected timing of expenditures pursuant to currently identified
environmental matters. Because environmental laws and the related
interpretations frequently change, Coltec is unable to estimate with certainty
the future costs to comply with such laws; however, Coltec does not foresee a
continuous upward trend in annual expenditures on environmental matters, nor
does it believe that it will be at a competitive disadvantage in complying with
any such laws.
26
<PAGE>
ASBESTOS LITIGATION
Coltec and certain of its subsidiaries are defendants in various lawsuits
involving asbestos-containing products. See Note 13 of the Notes to Financial
Statements for information on asbestos litigation.
OTHER FINANCIAL INFORMATION
EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS
Inflation and foreign currency fluctuations have not had a material impact on
the operating results and financial position of Coltec during the past three
years. Coltec generally has been able to offset the effects of inflation with
price increases, cost-reduction programs and operating efficiencies. Coltec's
foreign operations are primarily located in Canada.
DIVIDENDS
No dividends were paid in 1995 and 1994, and no dividends are expected to be
paid in 1996.
COMMON STOCK DATA
Coltec's common stock (symbol COT) is listed on the New York and Pacific Stock
Exchanges. The high and low prices of the stock for each quarter during 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
1995 1994
High Low High Low
<S> <C> <C> <C> <C>
First quarter 173/8 153/8 217/8 183/4
Second quarter 183/4 163/4 201/2 181/4
Third quarter 181/8 115/8 197/8 181/8
Fourth quarter 121/4 101/8 19 16
</TABLE>
At December 31, 1995, there were 493 shareholders of record.
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K AVAILABLE
The annual report on Form 10-K, without exhibits, will be made available free of
charge to interested shareholders upon written request to the Corporate
Secretary, Coltec Industries Inc, 430 Park Avenue, New York, NY 10022-3597.
27
<PAGE>
CONSOLIDATED BALANCE SHEET
COLTEC INDUSTRIES INC AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1995 1994
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (Notes 1 and 6) $ 3,971 $ 4,188
Accounts and notes receivable (Notes 6
and 13)
Trade 138,327 129,790
Other 57,858 72,483
196,185 202,273
Less allowance for doubtful accounts 4,174 4,124
192,011 198,149
Inventories (Note 1)
Finished goods 55,533 46,316
Work in process and finished parts 146,916 126,097
Raw materials and supplies 26,987 25,790
229,436 198,203
Deferred income taxes (Note 4) 13,902 15,222
Other current assets 10,174 13,936
Total current assets 449,494 429,698
Property, plant and equipment, at cost
(Note 1)
Land and improvements 17,562 17,973
Buildings and equipment 134,320 133,940
Machinery and equipment 481,538 474,053
Leasehold improvements 10,028 8,071
Construction in progress 22,837 18,870
666,285 652,907
Less accumulated depreciation and
amortization 435,812 429,793
230,473 223,114
Costs in excess of net assets acquired, net of
amortization (Note 1) 140,811 131,024
Other assets (Notes 6 and 13) 73,724 63,614
$ 894,502 $ 847,450
28
<PAGE>
DECEMBER 31,
(IN THOUSANDS, EXCEPT SHARE DATA) 1995 1994
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Current maturities of long-term
debt (Notes 5 and 6) $ 226 $ 886
Accounts payable 72,735 76,648
Accrued expenses (Note 13)
Salaries, wages and employee benefits 47,348 47,746
Taxes 25,008 33,157
Interest 14,918 18,616
Other 77,343 60,009
164,617 159,528
Current portion of liabilities of
discontinued operations 3,000 3,000
Total current liabilities 240,578 240,062
Long-term debt (Notes 5 and 6) 945,606 969,261
Deferred income taxes (Note 4) 14,878 10,533
Other liabilities (Note 13) 120,670 124,159
Liabilities of discontinued operations 26,532 29,036
Commitments and contingencies (Note 13)
Shareholders' equity (Notes 1 and 7)
Preferred stock
$.01 par value, 2,500,000 shares
authorized, shares outstanding -- none -- --
Common stock
$.01 par value, 100,000,000 shares
authorized, 70,077,350 and 70,016,384 shares
issued at December 31, 1995 and 1994,
respectively (excluding 25,000,000 shares
held by a wholly owned subsidiary) 701 700
Capital in excess of par value 639,419 638,407
Retained earnings (deficit) (1,088,042) (1,158,948)
Unearned compensation -- restricted
stock awards (2,408) (3,480)
Foreign currency translation adjustments (1,816) (681)
(452,146) (524,002)
Less cost of 100,346 and 98,862 shares of
common stock in treasury at December 31, 1995
and 1994, respectively (1,616) (1,599)
(453,762) (525,601)
$ 894,502 $ 847,450
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
STATEMENT.
29
<PAGE>
CONSOLIDATED STATEMENT OF EARNINGS
COLTEC INDUSTRIES INC AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993
<S> <C> <C> <C>
Net sales $ 1,401,884 $ 1,326,761 $ 1,334,829
Costs and expenses
Cost of sales 979,229 891,942 905,464
Selling and administrative 197,951 198,489 192,437
Special charges (Note 2) 27,000 -- 25,219
Total costs and expenses 1,204,180 1,090,431 1,123,120
Operating income 197,704 236,330 211,709
Interest and debt expense, net 89,886 89,472 110,190
Earnings before income taxes and
extraordinary item 107,818 146,858 101,519
Provision for income taxes (Note 4) 36,658 52,869 36,293
Earnings before extraordinary item 71,160 93,989 65,226
Extraordinary item (Note 3) (254) (1,472) (17,792)
Net earnings $ 70,906 $ 92,517 $ 47,434
Earnings (loss) per common share
(Note 1)
Before extraordinary item $ 1.02 $ 1.35 $ .94
Extraordinary item -- (.02) (.26)
Net earnings $ 1.02 $ 1.33 $ .68
Weighted average number of common
and common equivalent shares 69,839 69,815 69,591
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
STATEMENT.
30
<PAGE>
CONSOLIDATED STATEMENT OF CASH FLOWS
COLTEC INDUSTRIES INC AND SUBSIDIARIES
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities
Net earnings $ 70,906 $ 92,517 $ 47,434
Adjustments to reconcile net earnings
to cash provided by operating
activities
Extraordinary item 254 1,472 17,792
Special charges 27,000 -- 25,219
Depreciation and amortization 42,086 42,131 49,092
Deferred income taxes 4,345 (19,274) (10,766)
Receivable from insurance carriers 15,452 10,843 3,056
Payment of liabilities of
discontinued operations (2,504) (3,174) (4,444)
Other operating items (8,565) 3,644 (11,809)
148,974 128,159 115,574
Changes in assets and liabilities
Accounts and notes receivable (6,632) (11,808) (2,007)
Inventories (32,373) (33,511) (2,871)
Deferred income taxes 1,320 1,814 3,501
Other current assets 3,762 (1,961) (877)
Accounts payable (4,283) 14,362 4,067
Accrued expenses (19,760) 1,163 (12,169)
Changes in assets and liabilities (57,966) (29,941) (10,356)
Cash provided by operating
activities 91,008 98,218 105,218
Cash flows from investing activities
Capital expenditures (42,496) (38,191) (38,587)
Acquisition of businesses (21,750) (4,048) --
Cash received in Holdings
reorganization -- -- 26,749
Other -- net (2,512) 864 1,948
Cash used in investing activities (66,758) (41,375) (9,890)
Cash flows from financing activities
Issuance of long-term debt 44,662 335,042 46,069
Payment of long-term debt (69,129) (393,446) (138,179)
Distribution to Holdings pursuant to
preferred stock redemption and tax
sharing procedure -- -- (4,624)
Cash used in financing activities (24,467) (58,404) (96,734)
Cash and cash equivalents
Decrease (217) (1,561) (1,406)
At beginning of period 4,188 5,749 7,155
At end of period $ 3,971 $ 4,188 $ 5,749
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
STATEMENT.
31
<PAGE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
COLTEC INDUSTRIES INC AND SUBSIDIARIES
<TABLE>
<CAPTION>
THREE YEARS ENDED DECEMBER 31, 1995
UNEARNED FOREIGN
CAPITAL IN RETAINED COMPENSATION- MINIMUM CURRENCY
COMMON STOCK EXCESS OF EARNINGS RESTRICTED PENSION TRANSLATION TREASURY STOCK
(IN THOUSANDS, EXCEPT SHARES AMOUNT PAR VALUE (DEFICIT) STOCK AWARDS LIABILITY ADJUSTMENTS SHARES AMOUNT TOTAL
SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1993 69,853,464 $ 699 $ 634,088 $ (1,298,899) $ (7,221) $ -- $ 4,689 -- $ -- $ (666,644)
Net earnings 47,434 47,434
Issuance of
restricted stock,
net 89,877 1,389 1,669 (14,309) (229) 2,829
Exercise of stock
options (4) 5,000 79 75
Tax benefit from
stock option
and incentive plan 133 133
Stock exchange in
the Holdings
reorganization 1,240 (170,000) (2,740) (1,500)
Minimum pension
liability (4,205) (4,205)
Foreign currency
translation
adjustments (3,612) (3,612)
Balance, December
31, 1993 69,943,341 699 636,846 (1,251,465) (5,552) (4,205) 1,077 (179,309) (2,890) (625,490)
Net earnings 92,517 92,517
Issuance of
restricted
stock, net 73,043 1 1,370 2,072 (17,553) (293) 3,150
Exercise of
stock options (114) 98,000 1,584 1,470
Tax benefit
from stock option
and incentive plan 305 305
Minimum pension
liability 4,205 4,205
Foreign currency
translation
adjustments (1,758) (1,758)
Balance, December
31, 1994 70,016,384 700 638,407 (1,158,948) (3,480) -- (681) (98,862) (1,599) (525,601)
Net earnings 70,906 70,906
Issuance of
restricted
stock, net 60,966 1 1,006 1,072 (26,484) (422) 1,657
Exercise of
stock options (30) 25,000 405 375
Tax benefit from
stock option
and incentive plan 36 36
Foreign currency
translation
adjustments (1,135) (1,135)
BALANCE,
DECEMBER 31,
1995 70,077,350 $ 701 $ 639,419 $ (1,088,042) $ (2,408) $ -- $ (1,816) (100,346) $ (1,616) $ (453,762)
</TABLE>
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS
STATEMENT.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
COLTEC INDUSTRIES INC AND SUBSIDIARIES
1. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION: Investments in which Coltec Industries Inc
("Coltec") has ownership of 50% or more of the voting common stock are
consolidated in the financial statements. Intercompany accounts and transactions
are eliminated.
ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
CONSOLIDATED STATEMENT OF CASH FLOWS: Cash equivalents consist of short-term,
highly liquid investments with original maturities of three months or less. The
effect of changes in foreign exchange rates on cash balances is not significant.
Interest paid and federal and state income taxes paid and refunded were as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Interest paid $ 92,292 $ 92,304 $ 105,713
Income taxes --
Paid 45,799 42,308 31,873
Refunded 4,114 2,262 3,913
</TABLE>
FOREIGN CURRENCY TRANSLATION: The financial statements of foreign subsidiaries
were prepared in their respective local currencies and were translated into U.S.
dollars at year-end rates for assets and liabilities and at monthly weighted
average rates for income and expenses. Translation adjustments are included in
shareholders' equity. Foreign currency transaction gains and losses are included
in net earnings. For 1995, 1994 and 1993, such gains and losses were not
significant.
INVENTORIES: Inventories, including inventories under long-term commercial and
government contracts and programs, are valued at the lower of cost or market. At
December 31, 1995, and 1994, $36,750,000 and $34,411,000, respectively, of
contract advances have been offset against inventories under long-term
commercial and government contracts and programs in the Consolidated Balance
Sheet. Losses on commercial and government contracts and programs are recognized
in full when identified. At December 31, 1995, and 1994, an accrual for loss
contracts and programs was not required. Cost elements included in inventory are
material, labor and factory overhead, primarily using standard cost, which
approximates actual cost. Cost on approximately 50% of the domestic inventory at
December 31, 1995 was determined on the last-in, first-out basis. Cost on the
remainder of the inventory is generally determined on the first-in, first-out
basis. The excess of current cost over last-in, first-out cost at December 31,
1995, and 1994 was approximately $20,400,000 and $18,800,000, respectively.
PROPERTY AND DEPRECIATION: Depreciation and amortization of plant and equipment
are provided generally by using the straight-line method, based on estimated
useful lives of the assets. For U.S. federal income tax purposes, most assets
are depreciated using allowable accelerated methods.
The ranges of estimated useful lives used in computing depreciation and
amortization for financial reporting were as follows:
Years
Land improvements 5 -- 40
Buildings and equipment 10 -- 45
Machinery and equipment 3 -- 20
For leasehold improvements, the estimated useful life used in computing
amortization is the lesser of the asset life or the lease term.
Renewals and betterments are capitalized by additions to the related asset
accounts, while repair and maintenance costs are charged against earnings.
Coltec generally records retirements by removing the cost and accumulated
depreciation from the asset and reserve accounts.
ENVIRONMENTAL EXPENDITURES: Expenditures that relate to an existing condition
caused by past operations, and which do not contribute to current or future
revenue generation, are accrued when it is probable that an obligation has been
incurred and the amount can be reasonably estimated. Expenditures incurred for
environmental compliance with respect to pollution prevention and ongoing
monitoring programs are expensed as incurred. Expenditures that increase the
value of the property are capitalized.
START-UP COSTS: Start-up costs related to new operations and new product lines
are expensed as incurred.
REVENUE RECOGNITION: Revenue, including revenue under long-term commercial and
government contracts and programs, is recorded at the time deliveries or
customer acceptances are made and Coltec has the contractual right to bill.
COSTS IN EXCESS OF NET ASSETS ACQUIRED: It is Coltec's policy to amortize the
excess costs arising from acquisitions on a straight-line basis over periods not
to exceed 40 years. In evaluating the value and future benefits of the excess
costs arising from acquisitions, the recoverability from operating income is
measured. Under this approach, the carrying value would be reduced if it is
probable that management's best estimate of future operating income from related
operations before amortization will be less than the carrying amount of the
excess costs arising from acquisitions over the remaining amortization period.
At December 31, 1995, and 1994, accumulated amortization related to all
completed acquisitions, was $62,275,000 and $57,186,000, respectively.
33
<PAGE>
SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE: In November 1993, the shareholders
of Coltec Holdings Inc ("Holdings"), the former parent company of Coltec,
exchanged their shares of common stock of Holdings for 35.5% or 24,830,000
shares of common stock of Coltec (the "Holdings Reorganization") in a
transaction accounted for as a purchase. The net assets acquired consisted
primarily of 25,000,000 shares of common stock of Coltec and $26,749,000 of
cash.
Earnings per common share are computed by dividing earnings by the weighted
average number of common and common equivalent shares outstanding during each
period. Common equivalent shares are shares issuable on the exercise of stock
options and shares of restricted stock, net of shares assumed to have been
purchased using the treasury stock method.
IMPACT OF NEW ACCOUNTING STANDARDS: Coltec adopted Financial Accounting
Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and AICPA
Statement of Position 94-6, "Disclosure of Certain Significant Risks and
Uncertainties," effective January 1, 1995. The adoption of these statements did
not have a material effect on Coltec's results of operations and financial
condition. Based on preliminary analyses, Coltec does not expect that the future
adoption of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of,"
and No. 123, "Accounting for Stock-Based Compensation," will have a material
effect on Coltec's results of operations and financial condition.
2. SPECIAL CHARGES
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. It is anticipated that this facility will be closed by the end of 1996.
The charge also covered selected reductions in work force throughout the Company
covering approximately 520 employees, all of whom have been terminated or
notified of their termination at December 31, 1995. The special charge includes
costs to cover the cancellation of contractual obligations resulting from the
decision to close the Walbar facility, asset writedowns, severance and employee-
related costs and other costs necessary to implement the shutdown of the Walbar
facility and other actions. The components of the charge and its status at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
ORIGINAL 1995 BALANCE
(IN THOUSANDS) RESERVE ACTIVITY DECEMBER 31, 1995
<S> <C> <C> <C>
Cancellation of contractual
obligations $ 9,065 $ (65) $ 9,000
Asset writedowns 7,845 (4,549) 3,296
Severance 5,084 (1,778) 3,306
Other 5,006 (2,553) 2,453
Total $ 27,000 $ (8,945) $ 18,055
</TABLE>
In the second quarter of 1993, Coltec recorded a special charge of $25,219,000
to cover the cost of consolidation and rearrangement of certain manufacturing
facilities and related reductions in work force, primarily in the
Aerospace/Government segment, as well as at the Central Moloney Transformer
Division. The objectives of this program were completed in 1994 and the
liability was fully utilized as of December 31, 1994.
3. EXTRAORDINARY ITEM
Coltec incurred extraordinary charges of $254,000, net of a $136,000 tax
benefit; $1,472,000, net of a $792,000 tax benefit; and $17,792,000, net of a
$9,581,000 tax benefit; in 1995, 1994 and 1993, respectively, in connection with
the early retirement of debt, and in 1993 in connection with debt refinancings.
4. INCOME TAXES
Effective January 1, 1993, Coltec adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," which requires that the
deferred tax provision be determined under the liability method. Under this
method, deferred tax assets and liabilities are recognized based on differences
between the financial statement and tax bases of assets and liabilities using
presently enacted tax rates.
The significant components of deferred tax assets and liabilities at December
31, 1995 and 1994 were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
<S> <C> <C> <C> <C>
Excess tax over
book depreciation $ -- $ (29,932) $ -- $ (30,076)
Recognition of income
on contracts reported
on different methods
for tax and financial
reporting -- (29,299) -- (29,003)
Employee benefit plans 22,011 -- 26,184 --
Accrued expenses
and liabilities 12,527 -- 13,062 --
Foreign tax credit
carryforwards 7,300 -- 6,000 --
Other 23,717 -- 24,522 --
65,555 (59,231) 69,768 (59,079)
Less -- Valuation
allowance (7,300) -- (6,000) --
Total deferred taxes $ 58,255 $ (59,231) $ 63,768 $ (59,079)
</TABLE>
34
<PAGE>
The valuation allowance is attributable to foreign tax credit carryforwards,
which expire in the years 1997 through 2000.
Domestic and foreign components of earnings before income taxes and
extraordinary item were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Domestic $ 81,108 $ 126,254 $ 71,126
Foreign 26,710 20,604 30,393
Total $ 107,818 $ 146,858 $ 101,519
Provisions for income taxes were as
follows:
(IN THOUSANDS) 1995 1994 1993
Current --
Domestic $ 23,355 $ 56,812 $ 36,254
Foreign 7,638 11,253 9,568
30,993 68,065 45,822
Deferred --
Domestic 4,241 (12,503) (11,553)
Foreign 1,424 (2,693) 2,024
5,665 (15,196) (9,529)
Total $ 36,658 $ 52,869 $ 36,293
</TABLE>
Reconciliation of tax at the U.S. statutory income tax rate of 35% to the
provision for income taxes was as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Tax at U.S. statutory rate $ 37,736 $ 51,400 $ 35,532
Tax cost (benefit)-
Repatriation of non-U.S. earnings 2,692 2,713 3,201
Non-U.S. rate differential (287) 1,349 954
Utilization of tax credits (1,500) -- --
Adjustment of reserves (6,197) (5,789) (6,692)
Other (not individually significant) 4,214 3,196 3,298
Provision for income taxes $ 36,658 $ 52,869 $ 36,293
Effective tax rate 34.0% 36.0% 35.75%
</TABLE>
5. LONG-TERM DEBT
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
<S> <C> <C>
Credit Agreement -- 7.2%* $ 261,000 $ 291,000
9 3/4% senior notes due 1999 150,000 150,000
9 3/4% senior notes due 2000 200,000 200,000
11 1/4% debentures due 1996-2015 67,782 67,782
10 1/4% senior subordinated
notes due 2002 218,080 231,465
Other due 1996-2010 48,970 29,900
945,832 970,147
Less -- Amounts due within one year 226 886
$ 945,606 $ 969,261
</TABLE>
* Indicates average interest rate for 1995.
a) The reducing revolving credit facility (the "Credit Agreement"), entered into
with a syndicate of banks, expires June 30, 1999. At December 31, 1995,
$261,000,000 of borrowings were outstanding and $45,761,000 of letters of credit
had been issued under the Credit Agreement. In November 1995, the total
commitment under the Credit Agreement was increased by $50,000,000 to
$465,000,000. The additional commitment was used to redeem $46,407,000 principal
amount of the 11 1/4% debentures in January 1996 at a redemption price of
105.625% plus accrued interest. The Credit Agreement provides up to $100,000,000
for the issuance of letters of credit and the facility will be reduced by
$50,000,000 on both January 11, 1997 and 1998. Obligations under the facility
are secured by substantially all of Coltec's assets. Borrowings under the
facility bear interest, at Coltec's option, at an annual rate equal to the base
rate or the Eurodollar rate plus 1%. The base rate is the higher of 1/2 of 1% in
excess of the Federal Reserve reported certificate of deposit rate and the prime
lending rate. Letter of credit fees of 1% are payable on outstanding letters of
credit and a commitment fee of 3/8 of 1% is payable on the unutilized facility.
The facility contains various restrictions and conditions. The most restrictive
of these requires that the fixed charge coverage ratio be at least 2.5 to 1 for
any period of four consecutive quarters. The ratio of current assets to current
liabilities must be at least 1.25 to 1. In addition, the facility limits or
restricts purchases of Coltec's common stock, payment of dividends, capital
expenditures, indebtedness, liens, mergers, asset acquisitions and dispositions,
investments, prepayment of certain debt and transactions with affiliates. At
December 31, 1995, Coltec was in compliance with the above covenants.
b) The 9 3/4% senior notes due 1999 are not redeemable prior to maturity on
November 1, 1999.
c) The 9 3/4% senior notes due 2000 are not redeemable prior to maturity on
April 1, 2000.
d) Coltec has purchased in the open market $31,920,000 of the 10 1/4% senior
subordinated notes. The remaining 10 1/4% senior subordinated notes are
redeemable at the option of Coltec on or after April 1, 1997 at 105.125% of par,
declining to 100% of par on or after April 1, 1999.
35
<PAGE>
e) Coltec has purchased in the open market and redeemed $82,218,000 of its 11
1/4% debentures and in January 1996 redeemed an additional $46,407,000. The
remaining 11 1/4% debentures are redeemable at the option of Coltec at 105.625%
of par, declining to 100% of par on or after December 1, 2005. Mandatory annual
sinking fund payments of $7,125,000 beginning December 1, 1996 are calculated to
retire 90% of the debentures prior to maturity. Coltec, at its option, may
redeem up to an additional $14,250,000 annually, beginning December 1, 1996
through 2014.
f) Minimum payments on long-term debt due within five years from December 31,
1995 are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996 $ 226
1997 2,524
1998 539
1999 427,601
2000 200,353
</TABLE>
6. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
Coltec's financial instruments:
CASH AND CASH EQUIVALENTS AND ACCOUNTS AND NOTES RECEIVABLE, OTHER: The carrying
amount approximates fair value due to the short-term maturity of the investments
and the short-term nature of the receivables.
LONG-TERM RECEIVABLES AND INVESTMENTS: The fair value is based on quoted market
prices for similar publicly traded securities or on the present value of
estimated future cash flows.
LONG-TERM DEBT: The fair value of Coltec's publicly traded long-term debt is
based on the quoted market prices for such debt and for non-publicly traded
long-term debt, on quoted market prices for similar publicly traded debt.
FORWARD EXCHANGE CONTRACTS: The fair value is based on quoted market prices of
similar contracts.
The estimated fair value of Coltec's financial instruments at December 31, 1995
and 1994 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C>
Assets:
Cash and cash
equivalents $ 3,971 $ 3,971 $ 4,188 $ 4,188
Accounts and notes
receivable, other 57,858 57,858 72,483 72,483
Long-term
receivables and
investments -
Practical to
estimate
fair value 33,497 42,336 36,008 39,364
Not practical
to estimate
fair value 8,711 -- 8,711 --
Liabilities:
Long-term debt 945,832 965,065 970,147 962,647
Forward exchange
contracts -- 11,147 -- 21,026
</TABLE>
It was not practicable to estimate the fair value of Coltec's stock investment
in Crucible Materials Corporation ("Crucible"), a private corporation. The
carrying value of the investment in Crucible is included in other assets in the
Consolidated Balance Sheet.
It is Coltec's policy to enter into forward exchange contracts to hedge U.S.
dollar-denominated sales, under long-term contracts, of certain foreign
subsidiaries. Coltec does not engage in speculation. Coltec's forward exchange
contracts do not subject Coltec to risk due to exchange rate movements because
gains and losses on these contracts offset losses and gains on the sales and
related receivables being hedged. At December 31, 1995, and 1994 Coltec had
$277,278,000 and $306,230,000, respectively, of forward exchange contracts,
denominated in Canadian dollars, which had a fair value of $266,131,000 and
$285,204,000, respectively. The contracts have varying maturities with none
exceeding five years. Gains and losses on forward exchange contracts are
deferred and recognized at the completion of the underlying long-term contract
being hedged.
Coltec has an outstanding contingent liability for guaranteed debt and lease
payments of $30,816,000, and for letters of credit of $45,761,000. It was not
practical to obtain independent estimates of the fair values for the contingent
liability for guaranteed debt and lease payments and for letters of credit
without incurring excessive costs. In the opinion of management, nonperformance
by the other parties to the contingent liabilities will not have a material
effect on Coltec's results of operations and financial condition.
36
<PAGE>
7. STOCK OPTION AND INCENTIVE PLANS
Coltec stock option plans provide for the granting of incentive stock rights,
stock options, stock appreciation rights, restricted stock and dividend
equivalents to officers and key employees and stock options to directors. In
1994, shareholders approved an increase in the number of shares of common stock
that may be issued under the stock option plans to 7,468,000 shares. Stock
options outstanding under the stock option plans were granted at a price equal
to 100% of the market price on the date of grant and are exercisable in annual
installments of 20%, commencing one year from date of grant.
Information on stock options is as follows:
<TABLE>
<CAPTION>
OPTION
NUMBER PRICE RANGE
OF SHARES PER SHARE
<S> <C> <C>
Outstanding January 1, 1993 2,015,000 $15.00-18.25
Granted 290,000 16.38-18.75
Exercised (5,000) 15.00
Canceled (40,000) 15.00
Outstanding December 31, 1993 2,260,000 15.00-18.75
Granted 295,000 16.25-21.25
Exercised (98,000) 15.00
Canceled (140,000) 15.00-20.25
Outstanding December 31, 1994 2,317,000 15.00-21.25
Granted 2,960,000 10.75-18.08
Exercised (25,000) 15.00
Canceled (64,000) 15.00-18.25
Outstanding December 31, 1995 5,188,000 10.75-21.25
Exercisable December 31:
1993 398,000 15.00-18.25
1994 772,000 15.00-18.75
1995 1,188,000 15.00-21.25
</TABLE>
In addition to the granting of stock options, Coltec has granted shares of
restricted stock. Restrictions on certain shares lapse in annual installments of
33 1/3% commencing one or three years from date of grant. Restrictions on the
remaining shares lapse 100% three years from the date of grant. The unearned
compensation resulting from the grant of restricted shares is reported as a
reduction to shareholders' equity in the Consolidated Balance Sheet and is being
charged to earnings over the period the restricted shares vest.
Information on restricted stock is as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
1995 1994 1993
<S> <C> <C> <C>
Outstanding January 1 517,486 554,260 578,464
Granted 60,966 73,043 89,877
Restrictions expired (203,867) (92,264) (99,772)
Forfeited (26,484) (17,553) (14,309)
Outstanding December 31 348,101 517,486 554,260
</TABLE>
Shares available for grant at December 31, 1995 and 1994 under the stock option
plans were 1,349,650 and 4,306,616, respectively.
8. PENSION AND RETIREMENT PLANS
Coltec and certain of its subsidiaries have in effect, for substantially all
U.S. employees, pension plans under which funds are deposited with trustees. The
benefits under these plans are based primarily on years of service and either
final average salary or fixed amounts for each year of service. Coltec's funding
policy is consistent with the funding requirements of the Employee Retirement
Income Security Act ("ERISA") of 1974, as amended. Plan assets consist
principally of publicly traded equity and fixed-income securities. Pension
coverage for employees of non-U.S. subsidiaries is provided in accordance with
local requirements and customary practices.
For certain pension plans, the plan assets exceed the accumulated benefit
obligations ("overfunded plans"); and in the remainder of the plans, the
accumulated benefit obligations exceed the plan assets ("underfunded plans").
37
<PAGE>
As of December 31, 1995 and 1994, the status of Coltec's pension plans was as
follows:
<TABLE>
<CAPTION>
1995 1994*
OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED
(IN THOUSANDS) PLANS PLANS PLANS PLANS
<S> <C> <C> <C> <C>
Actuarial present value of
projected benefit obligation,
based on employment service to date
and current salary levels:
Vested employees $ 252,612 $ 125,481 $ 214,401 $ 101,658
Nonvested employees 6,527 5,259 5,489 4,564
Accumulated benefit obligation 259,139 130,740 219,890 106,222
Additional amounts related to
projected salary increases 28,294 4,436 22,397 2,343
Total projected benefit obligation 287,433 135,176 242,287 108,565
Assets available for benefits:
Funded assets 365,704 91,894 305,780 78,207
Accrued (prepaid) pension expense,
per books (21,256) 40,389 (8,129) 30,127
Total assets 344,448 132,283 297,651 108,334
Assets in excess of (less than)
projected benefit obligation $ 57,015 $ (2,893) $ 55,364 $ (231)
Consisting of:
Unamortized net asset existing
at date of adoption of
FAS No. 87 $ 1,747 $ 12,274 $ 11,260 $ 5,019
Unrecognized net gain (loss) 57,992 (4,220) 46,356 5,070
Unrecognized prior service cost (2,724) (10,947) (2,252) (10,320)
$ 57,015 $ (2,893) $ 55,364 $ (231)
</TABLE>
*RESTATED TO REFLECT FUNDING CLASSIFICATION AS OF DECEMBER 31, 1995.
38
<PAGE>
For U.S. plans, discount rates of 7.5% and 9.0% were used as of December 31,
1995 and 1994, respectively, for the valuation of the actuarial present value of
benefit obligations.
In accordance with the requirements of Statement of Financial Accounting
Standards No. 87, "Employers' Accounting for Pensions," Coltec recorded a
minimum pension liability for underfunded plans of $2,044,000 at December 31,
1995, which is included in other liabilities in the Consolidated Balance Sheet.
This liability represents the excess of the accumulated benefit obligation over
plan assets and has been offset by an intangible asset, included in other assets
in the Consolidated Balance Sheet, for previously unrecognized prior service
cost. At December 31, 1994, a minimum pension liability was not required.
Assumptions as of January 1 used to develop the net periodic pension cost for
U.S. plans were:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
Discount rate for benefit obligations 9.0% 7.5% 8.0%
Expected long-term rate of
return on assets 9.0% 8.5% 8.5%
Rate of increase in
compensation levels 5.0% 5.0% 5.0%
</TABLE>
For non-U.S. plans, which were not material, similar economic assumptions were
used.
The components of net periodic pension cost were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Service cost -- benefits earned $ 7,618 $ 9,763 $ 9,423
Interest cost on projected
benefit obligation 30,317 27,793 28,496
Actual return on assets (91,611) 7,353 (7,770)
Amortization and deferral, net 52,953 (47,687) (30,968)
Net periodic pension cost (credit) $ (723) $ (2,778) $ (819)
</TABLE>
For discontinued operations, Coltec's total projected benefit obligation at
December 31, 1995, and 1994 was $224,934,000 and $215,121,000, respectively, and
is fully funded. Interest accrued for 1995, 1994 and 1993 on the projected
benefit obligation was $19,609,000, $18,684,000, and $20,450,000, respectively,
and was fully offset by return on assets resulting in no net periodic cost.
9. OTHER POSTRETIREMENT BENEFITS
Coltec provides health care and life insurance benefits to its eligible retired
employees, principally in the United States. Effective January 1, 1993, Coltec
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions," ("FAS 106") using
the delayed recognition transition option whereby the transition obligation is
being amortized on a straight-line basis over 20 years. FAS 106 requires that
the cost of postretirement benefits be recognized in the financial statements
during the years the employees provide services.
Coltec's accumulated postretirement benefit obligation, none of which is funded,
and the postretirement benefit cost liability were as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Actuarial present value of projected
accumulated postretirement
benefit obligation:
Retirees $ 17,449 $ 16,224 $ 17,511
Fully eligible active participants 4,228 3,568 4,613
Other active participants 5,415 3,126 3,441
Total 27,092 22,918 25,565
Unamortized transition obligation (18,076) (19,736) (22,727)
Unrecognized net loss (4,827) (1,279) (1,482)
Unrecognized prior service cost (1,033) -- --
Postretirement benefit cost liability $ 3,156 $ 1,903 $ 1,356
The components of postretirement benefit
cost were as follows:
(IN THOUSANDS) 1995 1994 1993
Service cost -- benefits earned $ 198 $ 179 $ 249
Interest cost on accumulated
postretirement benefit obligation 1,927 1,810 1,838
Amortization of transition obligation 1,373 1,101 1,196
Amortization and deferral, net (63) (127) --
Curtailment loss -- 427 --
Postretirement benefit cost $ 3,435 $ 3,390 $ 3,283
</TABLE>
During 1994, Coltec recognized a curtailment loss in connection with a plan
amendment which accelerated the recognition of the related unamortized
transition obligation.
39
<PAGE>
Discount rates of 7.5% and 9.0% were used in determining the accumulated
postretirement benefit obligation at December 31, 1995 and 1994, respectively.
The health care cost trend rates used in determining the accumulated
postretirement benefit obligation at December 31, 1995 were 9.8% in 1996
gradually declining to 5.0% in 2005. The effect of a 1% increase in the health
care cost trend rates in each year would be to increase the total service and
interest cost components of the postretirement benefit cost for 1995 by
approximately $207,000 and to increase the accumulated postretirement benefit
obligation at December 31, 1995, by approximately $1,900,000.
10. SEGMENT INFORMATION
Coltec's financial results are reported in three industry segments:
Aerospace/Government, Automotive, and Industrial.
Customers of the Aerospace/Government segment are principally aircraft and
aircraft engine manufacturers. The principal customers of the Automotive segment
are the domestic original equipment manufacturers and the automotive
aftermarket. Information on the major products within each industry segment and
on sales and operating income by industry segment for the years 1995, 1994 and
1993 included on pages 23 and 24 in the Financial Review is incorporated herein
by reference.
Information on total assets; depreciation of property, plant and equipment; and
capital expenditures by industry segment is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1995 1994 1993
<S> <C> <C> <C>
Total assets:
Aerospace/Government $ 446.2 $ 402.3 $ 386.2
Automotive 130.6 129.5 124.6
Industrial 183.4 164.4 180.1
Corporate unallocated 134.3 151.3 105.6
Total $ 894.5 $ 847.5 $ 796.5
Depreciation of property,
plant and equipment:
Aerospace/Government $ 15.8 $ 14.7 $ 16.1
Automotive 7.9 7.5 7.4
Industrial 8.6 8.7 9.5
Corporate unallocated .2 .2 .2
Total $ 32.5 $ 31.1 $ 33.2
Capital expenditures:
Aerospace/Government $ 18.3 $ 21.3 $ 21.8
Automotive 10.1 7.0 9.6
Industrial 9.9 9.9 7.2
Corporate unallocated 4.2 -- --
Total $ 42.5 $ 38.2 $ 38.6
Information by geographic segment is
as follows:
OPERATING TOTAL
(IN MILLIONS) SALES INCOME ASSETS
1995
Domestic operations $ 1,189.4 $ 227.1 $ 673.9
Foreign operations 245.6 10.3 205.4
Intersegment elimination (33.1) -- (119.1)
Total segments 1,401.9 237.4 760.2
Corporate unallocated -- (39.7) 134.3
Total $ 1,401.9 $ 197.7 $ 894.5
1994
Domestic operations $ 1,148.3 $ 241.5 $ 629.2
Foreign operations 208.1 28.8 202.0
Intersegment elimination (29.6) -- (135.0)
Total segments 1,326.8 270.3 696.2
Corporate unallocated -- (34.0) 151.3
Total $ 1,326.8 $ 236.3 $ 847.5
1993
Domestic operations $ 1,155.4 $ 215.9 $ 619.4
Foreign operations 206.7 30.2 207.6
Intersegment elimination (27.3) -- (136.1)
Total segments 1,334.8 246.1 690.9
Corporate unallocated -- (34.4) 105.6
Total $ 1,334.8 $ 211.7 $ 796.5
</TABLE>
11. SUPPLEMENTARY EARNINGS INFORMATION
The following costs and expenses are included in the Consolidated Statement of
Earnings:
<TABLE>
<CAPTION>
(IN THOUSANDS) 1995 1994 1993
<S> <C> <C> <C>
Maintenance $ 27,566 $ 27,224 $ 25,363
Taxes, other than federal
income taxes
Payroll 28,660 28,205 28,700
Property 4,685 4,565 4,764
State and local 6,816 7,688 4,785
Rent 9,589 10,106 12,235
Research and development costs 25,619 23,830 22,079
</TABLE>
40
<PAGE>
12. QUARTERLY SALES AND EARNINGS (UNAUDITED)
The following table sets forth quarterly sales, gross profit and earnings for
the three years ended December 31, 1995.
<TABLE>
<CAPTION>
QUARTER
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1ST 2ND 3RD 4TH
<S> <C> <C> <C> <C>
1995
Net sales $ 356,344 $ 361,547 $ 332,134 $ 351,859
Gross profit 109,855 112,162 101,029 99,609
Operating income 58,133 60,351 25,094 54,126
Earnings before extraordinary item 23,486 24,069 1,804 21,801
Extraordinary item (82) -- -- (172)
Net earnings 23,404 24,069 1,804 21,629
Earnings per common share
Before extraordinary item .34 .34 .03 .31
Extraordinary item -- -- -- --
Net earnings .34 .34 .03 .31
1994
Net sales $ 331,850 $ 337,018 $ 317,507 $ 340,386
Gross profit 104,209 110,206 106,248 114,156
Operating income 54,679 60,691 57,831 63,129
Earnings before extraordinary item 20,643 24,383 23,037 25,926
Extraordinary item -- (1,015) (177) (280)
Net earnings 20,643 23,368 22,860 25,646
Earnings per common share
Before extraordinary item .30 .35 .33 .37
Extraordinary item -- (.02) -- --
Net earnings .30 .33 .33 .37
1993
Net sales $ 339,934 $ 334,591 $ 316,077 $ 344,227
Gross profit 107,903 107,729 104,585 109,148
Operating income 54,967 37,040 56,800 62,902
Earnings before extraordinary item 17,490 6,013 18,490 23,233
Extraordinary item (264) (375) (378) (16,775)
Net earnings 17,226 5,638 18,112 6,458
Earnings per common share
Before extraordinary item .25 .09 .27 .33
Extraordinary item -- (.01) (.01) (.24)
Net earnings .25 .08 .26 .09
</TABLE>
REFERENCE IS MADE TO NOTE 2 FOR SPECIAL CHARGES, NOTE 3 FOR EXTRAORDINARY ITEM
AND NOTE 1 FOR EARNINGS PER SHARE.
41
<PAGE>
13.COMMITMENTS AND CONTINGENCIES
Coltec and certain of its subsidiaries are liable for lease payments and are
defendants in various lawsuits, including actions involving asbestos-containing
products and certain environmental proceedings. With respect to asbestos product
liability and related litigation costs, as of December 31, 1995, and 1994, two
subsidiaries of Coltec were among a number of defendants (typically 15 to 40) in
approximately 105,300 and 76,700 actions, respectively, (including approximately
4,900 and 3,300 actions, respectively, in advanced stages of processing) filed
in various states by plaintiffs alleging injury or death as a result of exposure
to asbestos fibers. Through December 31, 1995, approximately 131,200 of the
approximately 236,500 total actions brought have been settled or otherwise
disposed of.
The damages claimed for personal injury or death vary from case to case and in
many cases plaintiffs seek $1,000,000 or more in compensatory damages and
$2,000,000 or more in punitive damages. Although the law in each state differs
to some extent, it appears, based on advice of counsel, that liability for
compensatory damages would be shared among all responsible defendants, thus
limiting the potential monetary impact of such judgments on any individual
defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither Coltec or any of its subsidiaries were parties, that held insurance
carriers are obligated to cover asbestos-related bodily injury actions if any
injury or disease process, from first exposure through manifestation, occurred
during a covered policy period (the "continuous trigger theory of coverage"),
Coltec settled litigation with its primary and most of its first-level excess
insurance carriers, substantially on the basis of the Court's ruling. Coltec 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
1995, 1994 and 1993, two subsidiaries of Coltec received approximately 44,000,
29,800 and 27,400 new actions, respectively. Payments were made with respect to
asbestos liability and related costs aggregating $56,739,000 in 1995,
$46,374,000 in 1994, and $38,677,000 in 1993, substantially all of which were
covered by insurance. In accordance with Coltec's internal procedures for the
processing of asbestos product liability actions and due to the proximity to
trial or settlement, certain outstanding actions have progressed to a stage
where Coltec can reasonably estimate the cost to dispose of these actions. As of
December 31, 1995, 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 $59,241,000, and Coltec expects that this cost will be
substantially covered by insurance.
With respect to the 100,400 outstanding actions as of December 31, 1995, 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
42
<PAGE>
absence of other possible causes of a plaintiff's illness, the availability of
legal defenses, such as the statute of limitations or state of the art, and
whether the lawsuit is an individual one or part of a group, management is
unable to estimate with reasonable certainty the cost of disposing of
outstanding actions in preliminary procedural stages or of actions that may be
filed in the future. However, Coltec believes that its subsidiaries are in a
favorable position compared to many other defendants because, among other
things, the asbestos fibers in its asbestos-containing products were
encapsulated. Considering the foregoing, as well as the experience of Coltec's
subsidiaries and other defendants in asbestos litigation, the likely sharing of
judgments among multiple responsible defendants, and the significant amount of
insurance coverage that Coltec expects to be available from its solvent
carriers, Coltec believes that pending and reasonably anticipated future actions
are not likely to have a material effect on Coltec's results of operations and
financial condition.
Although the insurance coverage which Coltec has is substantial, it should be
noted that insurance coverage for asbestos claims is not available to cover
exposures initially occurring on and after July 1, 1984. Coltec's subsidiaries
continue to be named as defendants in new cases, some of which allege initial
exposure after July 1, 1984.
In addition to claims for personal injury, Coltec's subsidiaries 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:
<TABLE>
<CAPTION>
DECEMBER 31,
(IN THOUSANDS) 1995 1994
<S> <C> <C>
Accounts and notes receivable -- other $ 53,677 $ 68,179
Other assets 16,243 13,119
Accrued expenses -- other 47,791 34,099
Other liabilities 11,450 8,155
</TABLE>
With respect to environmental proceedings, Coltec has been notified that it is
among the Potentially Responsible Parties ("PRPs") under the federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended ("CERCLA"), or similar state laws, for the costs of investigating and in
some cases remediating contamination by hazardous materials at several sites.
CERCLA imposes joint and several liability for the costs of investigating and
remediating properties contaminated by hazardous materials. Liability for these
costs can be imposed on present and former owners or operators of the properties
or on parties who generated the wastes that contributed to the contamination.
The process of investigating and remediating contaminated properties can be
lengthy and expensive. The process is also subject to the uncertainties
occasioned by changing legal requirements, developing technological applications
and liability allocations among PRPs. Based on the progress to date in the
investigation, cleanup and allocation of responsibility for these sites, Coltec
has estimated that its costs in connection with these sites approximate
$20,000,000 at December 31, 1995, and has accrued for this amount in the
Consolidated Balance Sheet as of December 31, 1995. 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.
Under operating lease commitments, expiring on various dates after December 31,
1996, Coltec and certain of its subsidiaries are obligated as of December 31,
1995, to pay rentals totaling $26,779,000 as follows: $6,097,000 in 1996,
$5,392,000 in 1997, $4,536,000 in 1998, $3,657,000 in 1999, $2,752,000 in 2000,
and $4,345,000 in later years.
43
<PAGE>
REPORT OF MANAGEMENT
The management of Coltec Industries Inc is responsible for the preparation of
the financial statements and related financial information included in this
Annual Report and for their integrity and objectivity. The financial statements
have been prepared in conformity with generally accepted accounting principles
and contain estimates and judgments by management as appropriate.
The Company maintains a system of internal accounting control designed to
provide reasonable assurance that assets are safeguarded, transactions are
executed and recorded in accordance with management's authorization and
accounting records may be relied upon for preparation of financial statements.
Management is responsible for maintenance of these systems, which is
accomplished through communication of established written codes of conduct,
policies and procedures; selection of qualified personnel; and appropriate
delegation of authority and segregation of responsibilities. Adherence to these
controls, policies and procedures is monitored and evaluated by the Company's
internal auditors.
Coltec Industries Inc's financial statements have been audited by Arthur
Andersen LLP, the Company's independent public accountants. In planning and
performing their audit of the Company's financial statements, the independent
public accountants consider the internal control structure in determining their
auditing procedures. The independent public accountants also prepare
recommendations for improving policies and procedures and such recommendations
are communicated to management and the Audit Committee of the Board of
Directors.
The Audit Committee, composed solely of outside directors, meets periodically
with management, the independent public accountants and the internal auditors,
to review matters relating to the system of internal accounting control and the
Company's financial statements. Both the independent public accountants and
internal auditors have direct access to the Audit Committee, with or without the
presence of management, to discuss the scope and results of their audits and
their comments on the adequacy of the Company's internal accounting control
system.
/s/ John W. Guffey Jr.
JOHN W. GUFFEY, JR.
Chairman, President and Chief Executive Officer
/s/ Paul G. Schoen
PAUL G. SCHOEN
Executive Vice President, Finance;
Treasurer, and Chief Financial Officer
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF COLTEC INDUSTRIES INC:
We have audited the accompanying consolidated balance sheets of Coltec
Industries Inc (a Pennsylvania corporation) and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of earnings,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Coltec Industries Inc and
subsidiaries as of December 31, 1995 and 1994, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
New York, N.Y.
January 22, 1996
<PAGE>
Directors
top row, left to right
Paul G. Schoen
Executive Vice President, Finance; Treasurer, and
Chief Financial Officer
Coltec Industries Inc
J. Bradford Mooney, Jr.
Oceanography Consultant
(Retired) Rear Admiral, U.S. Navy
Professor Joel Moses
Provost
Massachusetts Institute of Technology
Joseph R. Coppola
Chairman, President and
Chief Executive Officer
<PAGE>
Giddings & Lewis, Inc.
bottom row, left to right
John W. Guffey, Jr.
Chairman, President and
Chief Executive Officer
Coltec Industries Inc
David I. Margolis
(Retired) Former Chairman and
Chief Executive Officer
Coltec Industries Inc
Richard A. Stuckey
Economic Consultant
(Retired) Chief Economist of
E.I. du Pont de Nemours & Co.
Officers
John W. Guffey, Jr.
Chairman, President and
Chief Executive Officer
Laurence H. Polsky
Executive Vice President,
Administration
Paul G. Schoen
Executive Vice President,
Finance; Treasurer, and
Chief Financial Officer
John M. Cybulski
Senior Vice President,
Aerospace
Richard L. Dashnaw
Senior Vice President,
Group Operations
Robert J. Tubbs
Senior Vice President,
General Counsel and
Secretary
Transfer Agent and Registrar
Chemical Mellon Shareholder
Services, L.L.C.
Auditors
Arthur Andersen LLP
Executive Offices
430 Park Avenue
New York, NY 10022-3597
(212) 940-0400
Affirmative Action
In striving to develop and maintain an effective work force, the company
provides employment, training and advancement opportunities without regard to
race, color, religion, sex, age, national origin or disability. The company's
affirmative action program covers the employment of minorities, women,
<PAGE>
disabled persons, Vietnam veterans or special disabled veterans.
Domestic Operations
Aerospace/Government
Chandler Evans Control Systems
Charter Oak Boulevard
P.O. Box 330651
West Hartford, CT 06133-0651
860/236-0651
Delavan Gas Turbine Products
P.O. Box 65100
811 Fourth Street
West Des Moines, IA 50265-0100
515/274-1561
Fairbanks Morse Engine
701 White Avenue
Beloit, WI 53511
608/364-4411
Lewis Engineering
238 Water Street
Naugatuck, CT 06770-0231
203/597-6900
Menasco Aerosystems
4000 South Highway 157
Euless, TX 76040-7012
817/283-4471
Walbar Inc
Peabody Industrial Center
Fifth Street
Peabody, MA 01960-3369
508/532-2350
Automotive
Farnam Sealing Systems
650 Stephenson Highway
Troy, MI 48083
810/588-0044
Holley Automotive
11955 East Nine Mile Road
<PAGE>
Warren, MI 48089-2003
810/497-4000
Holley Performance Products
1801 Russellville Road
P.O. Box 10360
Bowling Green, KY 42102-7360
502/782-2900
Performance Friction Products
Rt. 3, Box 168
Highway 349
P.O. Box 8326
Longview, TX 75607
903/643-7991
Stemco Truck Products
300 East Industrial Boulevard
P.O. Box 1989
Longview, TX 75606-1989
903/758-9981
Industrial
Delavan Commercial Products
20 Delavan Drive
Lexington, TN 38351
901/968-8152
FMD Electronics
6402 Rockton Road
Roscoe, IL 61073
815/389-3660
France Compressor Products
104 Pheasant Run
Newtown, PA 18940
215/968-5959
Garlock Bearings
700 Mid Atlantic Parkway
Thorofare, NJ 08086
609/848-3200
Garlock Mechanical Packing
1666 Division Street
Palmyra, NY 14522
315/597-4811
Plastomer Products
23 Friends Lane
<PAGE>
Newtown, PA 18940
215/968-5011
Garlock Valves & Industrial Plastics
602 North 10th Street
P.O. Box 648
Camden, NJ 08101-0648
609/964-0370
Haber Tool
12850 Inkster Road
Detroit, MI 48239
313/255-1750
Ortman Fluid Power
19 143rd Street
Hammond, IN 46327
219/931-1710
Quincy Compressor
3501 Wismann Lane
P.O. Box C2
Quincy, IL 62301-1257
217/222-7700
Sterling Die
13811 Enterprise Avenue
Cleveland, OH 44135-5196
216/267-1300
International Facilities of Domestic OperationsColtec Aerospace Canada Ltd
Menasco Aerospace
1400 South Service Road West
Oakville, Ontario, Canada
L6L 5Y7
905/827-7777
Coltec Aerospace Canada Ltd
Menasco Aviation Services
5415 North Service Road
Burlington, Ontario, Canada
L7L 5H7
905/319-3006
Coltec Aerospace Canada Ltd
Walbar Canada
1865 Sharlyn Road
Mississauga, Ontario, Canada
L4X 1R2
905/602-1810
Delavan Ltd
Gorsey Lane
Widnes
Cheshire WA8 ORJ
<PAGE>
England
44-151-424-6821
Garlock of Canada Ltd
France Compressor Products
P.O. Box 636
124 Shaver Street
Brantford, Ontario
Canada
N3T 5P9
519/753-8671
Garlock of Canada Ltd
Mechanical Packing
2860 Plymouth Drive
Oakville, Ontario
Canada
L6H 5S8
905/829-3200
Garlock of Canada Ltd
Mechanical Packing
4100 Rue Garlock
Sherbrooke, Quebec
Canada
J1L 1W5
819/563-8080
Garlock of Canada Ltd
Stemco Truck Products
400 Trader's Boulevard East
Mississauga, Ontario
Canada
L4Z 1W7
905/890-1900
Garlock GmbH
France Compressor Products
Hans Boecklerstrasse 32
6080 Gross Gerau
64502 Neuss
<PAGE>
Germany
49-6152-93160
Garlock GmbH
Mechanical Packing
Postfach 21 04 64
41430 Neuss
Germany
49-2131-3490
Garlock GmbH
Valves & Industrial Plastics
Gescheftsbereich Armaturen
Postfach 10 05 49
41405 Neuss
Germany
49-2131-31080
Garlock (Great Britain) Limited
France Compressor Products
Imperial Court - Unit 1
Magellan Close
Andover
Hants SP 10 5NT
England
44-1264-357421
Garlock (Great Britain) Limited
Mechanical Packing
Unit 5
Pipers Court, Berkshire Drive
Thatcham, Newbury
Berkshire RG13 4ER
England
44-1635-871778
Garlock (Great Britain) Limited
Stemco Truck Products
Hambridge Road
Newbury
Berkshire RG14 5TG
England
44-1635-38668
Louis Mulas Sucs., S.A. de C.V.
Mechanical Packing
Apartado Postal 15-111
Poniente 116, No. 571
Colonia Industrial Vallejo
Delegacion Azcapotzalco
02300 Mexico, D.F.
525/567-5600
Garlock de Mexico, S.A. de C.V.
Mechanical Packing Division
Apartado Postal 15-103
Poniente 116, No.571
Colonia Industrial Vallejo
Delegacion Azcapotzalco
02300 Mexico, D.F.
525/567-7011
Garlock Pty. Ltd
Mechanical Packing
10 Willis Street
P.O. Box 54
Arncliffe, N.S.W. 2205
Australia
61-2-597-4422
<PAGE>
Holley Automotive
Group Limited
Unit 2230
Kettering Parkway
Kettering Venture Park
North Hamptonshire NN156XP
United Kingdom
44- 1536-534500
Holley Automotive Systems GmbH
Scheffelstrasse 73
Falkenweg 1
41468 Neuss
Germany
49-2131-3490
Liard S.A.
France Compressor Products
Route Nationale 49
BP 69-F-59570 Bavay Cedex
France
33-2763-1664
Liard S.A.
Stemco Truck Products
Z1 La Petite Montagne
SUD
1 Allee du Dauphine
91018 Evry Cedex
France
33-1-6086-9717
<PAGE>
EXHIBIT 21.1
COLTEC INDUSTRIES INC AND SUBSIDIARIES
PARENTS AND SUBSIDIARIES
DECEMBER 31, 1995
Set forth below is a list of Coltec's principal subsidiaries. All such
subsidiaries are consolidated in Coltec's Consolidated Financial Statements.
Percentage of
State or Voting Securities
Jurisdiction Owned by its
Name Where Organized Immediate Parent
- ---- --------------- ----------------
CII Holdings Inc ................. Delaware 100
Coltec Aerospace Canada Ltd. ..... Canada 89*
Coltec Automotive Inc ............ Delaware 100
Coltec Canada Inc ................ Delaware 100
Coltec (Great Britain) Limited ... United Kingdom 100
Coltec Holdings Inc .............. Delaware 100
Coltec Industrial Products Inc ... Delaware 100
Delavan-Delta, Inc................ Tennessee 100
Delavan Inc ...................... Iowa 100
Delavan Limited................... United Kingdom 100
Farnam Sealing Systems Inc ....... Delaware 100
Garlock Bearings Inc. ............ Delaware 80
Garlock de Mexico, S.A. de C.V.... Mexico 65.7
Garlock GmbH ..................... Germany 100
Garlock (Great Britain) Ltd. ..... United Kingdom 100
Garlock Inc ...................... Ohio 100
Garlock of Canada Ltd. ........... Ontario, Canada 100
Garlock Overseas Corporation ..... Delaware 100
Garlock Pty. Limited ............. Australia 80
Garlock, S.A. .................... Panama 100
Holley Automotive Group Limited .. United Kingdom 100
Holley Automotive Inc ............ Delaware 100
Holley Automotive Systems GmbH ... Germany 100
Holley Performance Products Inc .. Delaware 100
Liard S.A. ....................... France 100
Louis Mulas, Sucs., S.A. de C.V... Mexico 65.7
Stemco Inc ....................... Texas 100
The Anchor Packing Company ....... Delaware 100
Walbar Inc ....................... Delaware 100
*11% owned by another subsidiary
<PAGE>
The names of certain other subsidiaries of Coltec have been omitted from
the list above because such unnamed subsidiaries considered in the aggregate as
a single subsidiary would not constitute a significant subsidiary.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders
of Coltec Industries Inc:
As independent public accountants, we hereby consent to the incorporation of
our reports included in and incorporated by reference into this Form 10-K, into
the Company's previously filed Registration Statement File Nos. 33-45426,
33-52414, 33-1811 and 33-56139.
ARTHUR ANDERSEN LLP
New York, N.Y.
January 22, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1995 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE TWELVE
MONTHS ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 3,971
<SECURITIES> 0
<RECEIVABLES> 196,185
<ALLOWANCES> 4,174
<INVENTORY> 229,436
<CURRENT-ASSETS> 449,494
<PP&E> 666,285
<DEPRECIATION> 435,812
<TOTAL-ASSETS> 894,502
<CURRENT-LIABILITIES> 240,578
<BONDS> 945,606
0
0
<COMMON> 701
<OTHER-SE> (454,463)
<TOTAL-LIABILITY-AND-EQUITY> 894,502
<SALES> 1,401,884
<TOTAL-REVENUES> 1,401,884
<CGS> 979,229
<TOTAL-COSTS> 1,204,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 89,886
<INCOME-PRETAX> 107,818
<INCOME-TAX> 36,658
<INCOME-CONTINUING> 71,160
<DISCONTINUED> 0
<EXTRAORDINARY> (254)
<CHANGES> 0
<NET-INCOME> 70,906
<EPS-PRIMARY> 1.02
<EPS-DILUTED> 1.02
</TABLE>
