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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM __________________ TO __________________
COMMISSION FILE NUMBER 1-7568
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COLTEC INDUSTRIES INC
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 13-1846375
(State of Incorporation) (I.R.S. Employer
Identification No.)
3 COLISEUM CENTRE
2550 WEST TYVOLA ROAD
CHARLOTTE, NC 28217
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code: (704) 423-7000
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Securities registered pursuant to Section 12(b) of the Act:
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 Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by referenced in Part III of this Form 10-K or any
amendment to this Form 10-K. X
On February 18, 1999, there were issued and outstanding 63,056,735 shares
of the registrant's Common Stock, par value $.01 per share (excluding 25,000,000
shares of Common Stock held by a subsidiary of Coltec). On February 18, 1999,
the aggregate market value of the registrant's voting stock (based on a closing
price of $17.6875 per share) held by non-affiliates was $1,108,397,623. 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
None.
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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes statements that reflect
projections or expectations of future financial or economic performance of
Coltec, and statements of Coltec's plans and objectives for future operations,
including those in the "Business" and "Legal Proceedings" sections or relating
to future capital expenditures or estimated costs to resolve and the
corresponding effect on Coltec of certain litigation and environmental matters.
Coltec believes such statements to be "forward looking" statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. No assurance can
be given that actual results or events will not differ materially from those
projected, estimated, assumed or anticipated in any such forward looking
statements. Important factors that could result in such differences in addition
to other factors noted with such forward looking statements, include: general
economic conditions in Coltec's markets, including inflation, recession,
interest rates and other economic factors; casualty to or other disruption of
Coltec's facilities and operations; and other factors that generally affect the
business of aerospace and industrial companies.
Readers are cautioned not to place undue reliance on these forward looking
statements, which speak only as of the date of this Form 10-K. All subsequent
written and oral forward looking statements attributable to Coltec or any person
acting on its behalf are expressly qualified in their entirety by the cautionary
statements contained or referred to in this section. Coltec does not undertake
any obligation to release publicly any revisions to these forward looking
statements to reflect events or circumstances after the date of this Form 10-K
or to reflect the occurrence of unanticipated events.
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PART I
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 and industrial products, primarily in the United States, Canada and
Europe. Coltec's operations are conducted through two principal segments: its
Aerospace and Industrial Segments. Set forth below is a description of the
business conducted by the respective divisions within Coltec's two operating
segments. See the five-year presentation of financial information in respect of
each reportable segment under the caption "Segment Information" in Management's
Discussion and Analysis of Financial Condition and Results of Operations and the
information in note 17 of the Notes to Consolidated Financial Statements.
PROPOSED MERGER WITH THE B.F.GOODRICH COMPANY
On November 22, 1998, Coltec, The B.F.Goodrich Company, a New York
corporation ("BFGoodrich"), and a wholly-owned subsidiary of BFGoodrich entered
into an agreement and plan of merger. Under the terms of the merger agreement,
this wholly-owned subsidiary of BFGoodrich will merge with and into Coltec, with
Coltec as the surviving corporation in the merger. Upon completion of the merger
each share of Coltec common stock issued and outstanding immediately prior to
the effective time of the merger will be converted into the right to receive
0.56 of a share of BFGoodrich common stock. The merger is expected to be
accounted for as a pooling of interests. The merger agreement has been approved
by the boards of directors of both companies. Completion of the merger is
subject to certain customary conditions, including, among others, approval of
the merger agreement by the shareholders of both companies and the receipt of
regulatory approvals. A special meeting of the shareholders of Coltec has been
scheduled for April 9, 1999 at which the Coltec shareholders will consider and
vote upon a proposal to approve and adopt the merger agreement.
When Coltec and BFGoodrich entered into the merger agreement, both also
entered into reciprocal stock option agreements pursuant to which each granted
to the other an option to purchase 19.9% of the outstanding shares of its common
stock upon the occurrence of certain specified events. The reciprocal stock
option agreements were entered into as a condition of the merger agreement and
serve as an inducement for each of the companies to complete the merger.
The headquarters of the combined company will be located in Charlotte,
North Carolina.
For additional information regarding the merger, see Coltec's Current
Report on Form 8-K filed November 24, 1998 and the Joint Proxy
Statement/Prospectus included in the BFGoodrich Registration Statement on Form
S-4 (SEC File No. 333-74067).
For a discussion of certain pending litigation relating to the merger, see
Item 3. "Legal Proceedings--The AlliedSignal Litigation."
AEROSPACE
Through its Aerospace Segment, Coltec is a manufacturer of landing gear
systems, engine fuel controls, flight attendant and cockpit seats, turbine
blades, fuel injectors, nozzles and related components for commercial and
military aircraft. The operating units and principal products, markets and
competitors of the Aerospace Segment are as follows:
<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL COMPETITORS
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<S> <C> <C> <C>
Menasco Aircraft landing gear and Commercial and military BFGoodrich,
flight control aircraft manufacturers, Messier-Dowty
actuators, landing gear airlines, U.S. Government
parts, repairs and
overhaul
</TABLE>
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<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL COMPETITORS
- - --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Walbar Aircraft and industrial gas Aircraft and stationary gas Chromalloy,
turbine engines and turbine engine Howmet
services, turbocharger manufacturers, diesel
rotating assemblies engine manufacturers
Chandler Evans Control Aircraft engine fuel pump Aircraft engine Argotech, Hamilton
and control systems manufacturers, Standard, Sundstrand,
U.S. Government and Allied Signal Controls
aftermarket and Accessories
Delavan Gas Turbine Aircraft engine fuel Aircraft engine Parker-Hannifin,
nozzles, valves and manufacturers, Textron
afterburner spray bars U.S. Government and
aftermarket
Lewis Engineering Aircraft instrumentation, Commercial and military Ametek, Rogerson,
temperature sensors, and aircraft, engine BFGoodrich, Norwich
level control products manufacturers and Aerospace
and electrical harnesses process industries
AMI Industries, Inc. Aircraft flight attendant Commercial aircraft IPECO, Sicma
and cockpit seats manufacturers and
airlines
</TABLE>
Menasco. Menasco is one of the leading suppliers of landing gear systems
for medium-to-heavy commercial and military aircraft. The design, manufacture
and test of aircraft landing gear and components and related overhaul and repair
comprise 90% of Menasco's sales volume. Landing gear and precision components
are highly engineered and manufactured to customer specifications and sold to
aircraft manufacturers, aircraft operators and to the United States Government
("U.S. Government"), both as original equipment and as spare parts for existing
aircraft. Menasco's historical concentration of landing gear sales among a
limited number of companies reflects the relatively small number of medium and
heavy aircraft manufacturers. Landing gear systems generally account for up to
2% of the total cost of an aircraft. Menasco also provides spare parts for
landing gear and landing gear repair and overhaul services. Aftermarket business
represented 19% of Menasco's total sales in 1998.
The remaining 10% of Menasco's sales are primarily flight control
actuators. Menasco produces large hydraulic and mechanical actuators and has the
capability to produce shock mitigation equipment for both military and
commercial applications.
Walbar. Walbar is an original equipment manufacturer and coating and
repair service center for aircraft and industrial gas turbine engine components.
Its product base ranges from complex precision machined turbine parts to
high-technology protective coatings. Its primary machined products are turbine
blades, vanes and other related turbine airfoil components. Walbar also
manufactures disks, integrally bladed rotors and complex impellers, as well as
complete rotating assemblies for flight and auxiliary power engines and
locomotive turbochargers. Following the reduction in U.S. Government
appropriation for military aircraft engines, Walbar has successfully increased
its focus on non-aerospace applications, and now enjoys significant market share
in the locomotive turbocharger market and the gas turbine power generation
market.
Chandler Evans Control Systems. The Chandler Evans Control Systems
division ("Chandler Evans") produces gas turbine engine fuel controls and pumps,
and pneumatic and hydraulic components for use on aircraft and helicopter
engines and aircraft systems. Chandler Evans has carved a niche market in the
area of small engine fuel pumps and controls for both commercial and military
applications. Chandler Evans also supplies small turbine engines with Full
Authority Digital Electronic Control ("FADEC") systems. Computerized electronics
in a FADEC system make aircraft safer and less expensive to operate.
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Delavan Gas Turbine Products. The Delavan Gas Turbine Products division
("Delavan") designs and manufactures fuel injectors, flow control valves, fuel
manifolds, afterburner spray bars and other accessories for commercial and
military gas turbine engines. Product applications in the aerospace industry
include products for engines powering large commercial and regional airliners,
business aircraft, military and commercial helicopters, military fighters and
transports and auxiliary power units. In the industrial sector, Delavan's fuel
injectors and valves are utilized in large land-based gas turbines found in
electrical power generation plants and natural gas pipeline installations.
Lewis Engineering. Lewis Engineering designs, develops and produces
electromechanical and electronic instrumentation for aircraft cockpits, landing
gear electrical harnesses and temperature sensors for aircraft and engine
systems. These products are used in commercial transport, general aviation and
military markets.
AMI Industries, Inc. AMI Industries, Inc. ("AMI") designs and manufactures
aircraft flight attendant and cockpit seats.
One customer (Boeing) in the Aerospace Segment represented approximately
19% of Coltec's 1998 total sales.
INDUSTRIAL
Through its Industrial Segment, Coltec manufactures industrial seals,
gaskets, packing products, self-lubricating bearings and oil seals and
hubodometers. The Industrial Segment also produces spray nozzles for
agricultural, home heating and industrial applications, as well as
high-horsepower diesel engines for naval ships and diesel and gas and dual-fuel
engines for electric power plants. Coltec also produces air compressors and
vacuum pumps. The operating units and principal products, markets and
competitors of the Industrial Segment are as follows:
<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL COMPETITORS
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<S> <C> <C> <C>
Garlock Sealing Seals, gaskets, packings Chemical, pulp and paper, Applied Industrial
Technologies and expansion joints, refining, utilities, Technologies, CR
butterfly valves, industrial and Industries, A.W.
polytetra- electronics Chesterton, Richard
fluoroethylene (PTFE) Klinger, AMRI,
sheet and film, OEM parts Durco, Neotecha,
and gaskets Dewal, W. Gore,
Durametallic,
John Crane
Fairbanks Morse Engine Diesel, gas and dual-fuel U.S. Navy, marine, loco- Caterpillar, Cooper
engines motive and stationary Industries, General
power markets Motors
Quincy Compressor Air compressors and vacuum Manufacturing, climate Gardner-Denver,
pumps control, oil and gas Sullair, Ingersoll-
industries Rand, Champion
Garlock Bearings Self-lubricated bearings Automotive and equipment Kolbenschmidt,
manufacturers Rexnord
Stemco Heavy duty wheel-end Fleet truck operators, CR Industries,
systems, oil seals, truck parts distributors Federal Mogul,
hub-caps and and vehicle assemblers Nelson, Donaldson
hubodometers, hubnuts
</TABLE>
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<TABLE>
<CAPTION>
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS PRINCIPAL COMPETITORS
- - --------------------------- --------------------------- --------------------------- ---------------------------
<S> <C> <C> <C>
Delavan Spray Technologies Spray nozzles, accessories, Home heating, industrial Spraying Systems,
pumps and systems and agriculture Danfoss
France Compressor Products Compressor valves and seals Compressor manufacturers Hoerbiger, C. Lee
and end users Cook
Haber Tool Cold-forming dies, details, Fastener and automotive Form Flow, Furon,
jigs, fixtures, precision manufacturers Uclid, Burnett
machinery
Plastomer Products PTFE tape Industrial manufacturers Fluoroglas, W. Gore
Sterling Die Thread-rolling dies Fastener manufacturers Reed Rico
Ortman Fluid Power Hydraulic and pneumatic Fluid power market Parker-Hannifin,
cylinders Miller Fluid Power
Garlock Rubber Technologies Sheet Rubber Products Steel mills, chemical BFGoodrich
processing, refineries
and paper mills
Coltec Specialty Products Engineered PTFE products Semiconductor, petro- Furon, EGC
chemical refining plants
Cefilac Seals, gaskets and Chemical, power, John Crane, Laddy
packings, petro-chemical refining
metal o-rings and spiral plants
wound gaskets
Helicoflex Metal o-rings, spring Power generation, Advanced Products
loaded seals petro-chemical refining
plants
</TABLE>
The more significant operating units in the Industrial Segment are
discussed below.
Garlock Sealing Technologies. The Garlock Sealing Technologies division
("Garlock Sealing") produces and markets fluid sealing devices that prevent
leakage and exclude contaminants from rotating and reciprocating machinery.
Garlock Sealing produces seal joints for high temperatures and corrosive
environment applications.
The newest Garlock Sealing products are positioned to meet current emission
standards for valves, pumps and flanges. To assist customers in complying with
more stringent global regulations for fugitive volatile organic compound
emissions, Garlock Sealing has developed a variety of products using traditional
and newly developed materials. Garlock Sealing products include compression
packings, gaskets and gasketing materials, hydraulic, oil and mechanical seals,
elastomeric expansion joints, industrial textiles, metallic gaskets and other
specialized industrial products.
Sophisticated Garlock Sealing products protect equipment in industry
applications where performance is vital to safety and environmental concerns.
These applications include natural resource recovery, petroleum refining,
chemicals, primary metals, food and pharmaceuticals, power generation, mining,
pulp and paper, water and waste treatment, construction and transportation.
Fairbanks Morse Engine Division. The Fairbanks Morse Engine division
("Fairbanks Morse") manufactures a broad range of heavy-duty diesel engines. It
has the capacity to provide diesel engines from 640 to 29,320 horsepower. In
addition, Fairbanks Morse manufactures dual-fuel, gas and diesel engines ranging
in size from four to 18 cylinders. Engines are offered in both conventional "V"
and in-line, four-cycle versions as
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well as in-line, two-cycle opposed-piston configurations. They are used for
marine propulsion and marine power generation and in pump, compressor and
electrical power generation applications. Fairbanks Morse also sells
FM/ALCO(Registered) locomotive products throughout the world except in India
where General Electric has retained rights to manufacture and sell such
products.
Quincy Compressor. The Quincy Compressor division ("Quincy") manufactures
a wide range of helical screw and reciprocating air compressors and vacuum
pumps. Quincy products vary in size from one-third to 350 horsepower and are
used in a variety of industrial applications, including industrial base load,
pneumatic temperature and instrument control, diesel and gas engine starting,
paint spraying and emergency standby service. Much of Quincy's business is in
the highly competitive industrial and climate control compressor markets.
Garlock Bearings. Garlock Bearings produces specialized self-lubricating
bearings, which consist of either steel or reinforced epoxy composite backings
with non-metallic bearing surfaces of PTFE fibers or a mixture that includes
PTFE. PTFE provides maintenance-free performance and reduced friction. Garlock
Bearings' products typically perform as sleeve bearings or thrust washers under
conditions of no lubrication, minimal lubrication or pre-lubrication.
Stemco. Stemco develops and manufactures unitized hub systems, hub oil
seals, hubcaps, axle nuts and distance-measuring devices for medium and
heavy-duty trucks.
Delavan Spray Technologies. The Delavan Spray Technologies division
designs and manufactures atomizers for combustion and industrial applications
and atomizers, pumps and accessories for agricultural, industrial and oil burner
metering applications.
Haber Tool Company. Haber Tool manufactures cold-forging dies, tooling
products, details, jigs, fixtures, precision machining.
Garlock Rubber Technologies. The Garlock Rubber Technologies division
("Garlock Rubber") manufactures high-quality rubber sheet products used for
gasketing and other applications in steel mills, chemical processing, refineries
and paper production, including conveyor belts. All of Garlock Rubber's products
are consumable.
Coltec Specialty Products. The Coltec Specialty Products division
manufactures PTFE fluid sealing products for the semiconductor industry and
reprocesses PTFE compounds for the chemical and semiconductor industry.
Cefilac. Cefilac produces seals, gaskets and packings, metal o-rings and
spiral-wound gaskets used in the chemical, power and refining industries.
Helicoflex. Helicoflex produces metal o-rings and spring-loaded seals and
metal c-rings. Helicoflex sealing products are specifically designed for
equipment and processes exposed to high temperatures, cryogenic temperatures,
high pressures, vacuum conditions, radioactive environments or corrosive
applications.
INTERNATIONAL OPERATIONS
Coltec's international operations, mainly in Canada and France, are
conducted through foreign-based manufacturing or sales subsidiaries, or both,
and include export sales of domestic divisions to unrelated foreign customers.
Export sales of 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 sales
representatives or sales agents.
Coltec's Canadian operations include the manufacture of landing gear
systems and aircraft flight controls, the provision of repair and overhaul
services for these systems and controls for Canadian and other customers and the
manufacture of turbine components and turbine and compressor rotating parts
primarily for aircraft gas turbine engines. The Canadian operations also
manufacture and market seals, gasketing material, packings and truck products,
and market parts for Fairbanks Morse diesel engines and accessories, and other
products for use in Canada and other countries.
Coltec operates 18 plants in Canada, Mexico, France, the United Kingdom,
Australia, Germany and Poland. In addition, Coltec occupies leased office and
warehouse space in various foreign countries.
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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 17 of the Notes to Consolidated Financial Statements.
Coltec's contracts with foreign nations for delivery of military equipment,
including components, are subject to deferral or cancellation by U.S. Government
regulation or orders regulating sales of military equipment abroad. Any such
action on the part of the U.S. Government could have an adverse effect on
Coltec.
ACQUISITIONS AND DIVESTITURES
For a discussion of material acquisitions and divestitures by Coltec during
the three-year period ended December 31, 1998, see note 2 of the Notes to
Consolidated Financial Statements.
SALES BY CLASS OF PRODUCTS
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
1998, 1997 and 1996, sales of landing gear systems constituted 22%, 18% and 15%,
respectively, of Coltec's total sales.
BACKLOG
At December 31, 1998, Coltec's backlog of firm unfilled orders was $922.0
million compared with $875.6 million at December 31, 1997. Approximately $276.6
million of the 1998 year-end backlog is scheduled to be shipped after 1999.
CONTRACT RISKS
Coltec, through its various operating units, primarily Menasco, Chandler
Evans, Walbar and Delavan, 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
U.S. Government contracts described below. Longer-term agreements normally
provide for price adjustments intended to compensate for deferral of delivery
depending upon market conditions.
A portion of the business of Coltec's Menasco, Chandler Evans, Walbar and
Delavan divisions has been as a subcontractor and as a prime contractor in
supplying products in connection with military programs. Substantially all of
Coltec's U.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
overruns. Under U.S. 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 U.S. Government also regulates the methods under which
costs are allocated to U.S. Government contracts. With respect to U.S.
Government contracts that are obtained pursuant to an open bid process and
therefore result in a firm fixed price, the U.S. Government has no right to
renegotiate any profits earned thereunder. In U.S. 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 U.S. Government is
current, accurate and complete, the U.S. Government similarly has no right to
renegotiate any profits earned thereunder. If the U.S. Government later conducts
an audit of the contractor and determines that such data was inaccurate or
incomplete and that the contractor thereby made an excessive profit, the U.S.
Government may take action to recoup the amount of such excessive profit, plus
treble damages, and take other enforcement actions. U.S. Government contracts
are, by their terms, subject to termination by the U.S. 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
U.S. 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
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terminated subcontractors, other settlement expenses, and a reasonable profit on
its costs incurred. However, if a contract termination is for default by the
contractor (a) the contractor is paid such amount as may be agreed upon for
completed and partially-completed products and services accepted by the U.S.
Government, (b) the U.S. Government is not liable for the contractor's costs
with respect to unaccepted items, and is entitled to 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 U.S. Government in procuring undelivered items from another source.
In addition to the right of the U.S. Government to terminate, U.S.
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.
CAPITAL EXPENDITURES
Capital expenditures were $53.5 million in 1998 compared to $81.2 million
in 1997 and $44.6 million in 1996, as Coltec continued to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand product capacity 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 1998 included amounts for enterprise resource
planning systems at several divisions. Coltec estimates capital expenditures for
1999 to approximate $55.0 million, including amounts for equipment purchases
related to capacity expansions and upgrades.
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 $57.9 million for 1998, $46.5 million
for 1997 and $44.1 million for 1996.
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.
YEAR 2000
For a discussion of Year 2000 issues as they relate to Coltec, see Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Year 2000."
EMPLOYEE RELATIONS
As of December 31, 1998, Coltec had approximately 9000 employees, of whom
approximately 4,000 were salaried. Approximately 45% of the hourly employees are
represented by unions for collective bargaining purposes. Three collective
bargaining agreements covering approximately 150 employees will be negotiated
during 1999. 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.
In 1998, two collective bargaining agreements covering approximately 500
hourly employees were renegotiated. Coltec considers the labor relations of
Coltec to be satisfactory, although it has experienced work stoppages from time
to time in the past.
Coltec is subject to extensive U.S. 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 U.S. Government contracts. These conditions are common to the various
industries in which Coltec participates and entail risks of financial and other
exposure.
For litigation relating to labor and other matters, see Item 3. "Legal
Proceedings--Other Litigation."
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ENVIRONMENTAL MATTERS
Coltec's operations are subject to a variety of environmental laws. Coltec
takes a proactive approach to comply with all environmental laws at its
manufacturing operations and in proposing and implementing any remedial plans
that may be necessary. Coltec is either in material compliance with all
applicable regulations or is operating in accordance with the appropriate
variances and compliance schedules or similar arrangements. Coltec has
identified certain situations that will require future capital and non-capital
expenditures to maintain or improve compliance with current environmental laws.
The majority of the identified situations relate to remediation projects at
former operating sites which have been sold or closed and primarily deal with
soil and groundwater remediation.
Coltec has been notified that it is among potentially responsible parties
under the environmental laws for the costs of investigating and, in some cases
remediating, contamination by hazardous materials at several sites. Such laws
can impose 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.
Coltec's policy is to accrue environmental remediation costs when it is
both probable that a liability has been incurred and the amount can be
reasonably estimated. The measurement of liability is based on an evaluation of
currently available facts with respect to each individual situation and takes
into consideration factors such as existing technology, presently enacted laws
and regulations and prior experience in remediation of contaminated sites.
Investigations have been completed for approximately 21 sites and
continuing investigations are being done at approximately 10 sites. Accruals are
provided for all sites based on the factors discussed above. As assessments
progress and remediation plans are implemented, estimated costs become more
fact-based and less judgment-based. These estimated costs are reviewed
periodically and related liabilities are adjusted to reflect additional
technical and legal information.
Coltec currently estimates that its future non-capital expenditures related
to environmental matters will range between $26.0 million and $55.0 million
representing management's best estimate of probable non-capital expenditures. At
December 31, 1998, Coltec had accrued $34.3 million for expenditures which are
estimated to be incurred over the next 10 to 20 years. In addition, capital
expenditures aggregating $5.0 million related to environmental matters may be
required during the next two years. Although Coltec is pursuing insurance
recovery in connection with certain of the underlying matters, no receivable has
been recorded with respect to any potential recovery of costs in connection with
any environmental matter. During 1998, costs associated with environmental
remediation and ongoing assessment were not significant.
Actual costs to be incurred for identified situations in future periods may
vary from estimates, given inherent uncertainties in evaluating environmental
exposures due to unknown conditions, changing government regulations and legal
standards regarding liability and evolving related technologies. Subject to the
imprecision in estimating future environmental costs, Coltec believes that
compliance with current environmental laws at its operations and cleanup
projects, will not require significant capital expenditures or have a material
adverse effect on its consolidated results of operations or financial position.
ITEM 2. PROPERTIES.
Coltec operates 64 manufacturing plants in 20 states in the U.S. and in
Canada, Mexico, France, the United Kingdom, Australia, Germany and Poland. In
addition, Coltec has other facilities throughout the United States and in
various foreign countries, which include sales offices, repair and service
facilities, light manufacturing and assembly facilities, administrative offices
and warehouses.
8
<PAGE>
Certain information with respect to Coltec's significant manufacturing
plants that are owned in fee, all of which (other than the New York and Ontario
facilities) are encumbered pursuant to a credit agreement and related security
documents between Coltec and certain banks, is set forth below:
<TABLE>
<CAPTION>
APPROXIMATE
NUMBER OF APPROXIMATE
SEGMENT LOCATION SQUARE FEET ACREAGE
- - ----------------------------------------------- ------------------------------- ----------- -----------
<S> <C> <C> <C>
Aerospace...................................... West Hartford, Connecticut (a) 549,800 71
Euless, Texas 442,000 42
Oakville, Ontario 287,000 14
Mississauga, Ontario 141,000 7
Industrial..................................... Palmyra, New York 682,000 137
Beloit, Wisconsin 856,000 73
Longview, Texas 205,000 43
Quincy, IL 323,000 64
</TABLE>
(a) Approximately 250,000 square feet are utilized by the Aerospace Segment with
the balance leased to third parties.
In addition to the owned facilities, certain manufacturing activities are
conducted within leased premises, the largest of which is in the Industrial
Segment, located in Germany, and covers approximately 137,000 square feet. Some
of these leases provide for options to purchase or to renew such leases.
Coltec's total manufacturing facilities presently being utilized aggregate
approximately 4,885,800 square feet of floor area of which approximately
4,367,000 square feet of area are owned in fee and the balance is leased from
third parties.
Coltec leases approximately 35,000 square feet at 3 Coliseum Centre, 2550
West Tyvola Road, Charlotte, North Carolina, for its executive offices, and has
renewal options under such lease through 2010.
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 1,
"Business--Environmental Matters" 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, 1998 and 1997, two subsidiaries of Coltec were among a
number of defendants (typically 15 to 40) in approximately 101,400 and 110,000
actions, respectively (including approximately 4,700 and 2,400 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.
During 1998, 1997 and 1996, these two subsidiaries of Coltec were named
defendants in approximately 34,400, 38,200 and 39,900 new actions, respectively.
Through December 31, 1998, approximately 244,000 of the approximately 345,400
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 from an extensive list of defendants.
Although the law in each state differs to some extent, it appears, based on
advice of counsel, that liability for compensatory damages would be shared among
all responsible defendants, thus limiting the potential monetary impact of such
judgments on any individual defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither Coltec nor any of its subsidiaries were parties, that held insurance
carriers are obligated to cover asbestos-related bodily injury actions if any
injury or disease process, from first exposure through manifestation, occurred
during a covered policy period (the "continuous trigger theory of coverage"),
Coltec settled litigation with its primary and most of its first-level excess
insurance carriers, substantially on the basis of the Pennsylvania Supreme
Court's ruling. Coltec has negotiated a final agreement with most of its excess
carriers that are in the layers of coverage immediately
9
<PAGE>
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. Payments were made by
Coltec with respect to asbestos liability and related costs aggregating
$53.7 million in 1998, $59.2 million in 1997, and $71.3 million in 1996,
substantially all of which were covered by insurance. Settlements are generally
made on a group basis with payments made to individual claimants over periods of
one to four years. Related to payments not covered by insurance, Coltec recorded
charges to operations amounting to $8.0 million in 1998, 1997 and 1996. The
average cost to the Company for unreimbursed expenses and liability per case
disposed was approximately $217 in 1998, $253 in 1997 and $404 in 1996.
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,
1998, 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 $116.5
million, and Coltec expects that this cost will be substantially covered by
insurance.
With respect to the 96,700 outstanding actions as of December 31, 1998
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. The lawsuits are disposed of over a
period of time ranging from one year to more than five years, with the majority
being disposed of by the third year after filing. 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.
Coltec believes that it will continue to receive some number of asbestos
lawsuits into the foreseeable future. It is difficult, however, to predict the
number of asbestos lawsuits that Coltec's subsidiaries will receive or the time
frame in which they will be received. 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, the jurisdiction in which a lawsuit is
filed, the pendency of tort reform 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. Subsidiaries of Coltec continue to distribute
encapsulated asbestos-bearing product in the United States with annual sales of
less than $1.5 million. All sales are accompanied by appropriate warnings. The
end users of such product are sophisticated users, who utilize the product for
critical applications where no known substitutes exist or have been approved.
Insurance coverage of a small non-operating subsidiary formerly
distributing asbestos-bearing products is nearly depleted. Considering the
foregoing, as well as the experience of Coltec's subsidiaries and other
defendants, and given the substantial amount of other insurance coverage that
Coltec expects to be available from its solvent carriers to cover the majority
of its exposure, Coltec believes that pending and reasonably anticipated future
actions are not likely to have a materially adverse effect on Coltec's
consolidated results of operations or 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,
10
<PAGE>
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 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 materially adverse effect on Coltec's consolidated
results of operations or 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 states 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 Sheets were as follows at
December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accounts and notes receivable........................................... $ 95,448 $ 56,039
Other assets............................................................ 32,577 16,249
Accrued expenses........................................................ 93,700 50,688
Other liabilities....................................................... 22,833 2,682
</TABLE>
THE ALLIEDSIGNAL LITIGATION
On February 26, 1999, AlliedSignal, Inc. filed a lawsuit in the U.S.
District Court for the Northern District of Indiana against BFGoodrich, Coltec
and Menasco Aerospace Ltd., a separately incorporated entity of Coltec
conducting Coltec's landing gear business in Ontario, Canada. In its complaint,
AlliedSignal alleges that the merger between BFGoodrich and Coltec would violate
a long-term strategic alliance agreement between AlliedSignal and Coltec dated
June 30, 1995. AlliedSignal further alleges that the merger would violate U.S.
antitrust laws.
In its complaint, AlliedSignal contends that the strategic alliance
agreement requires Coltec/Menasco and AlliedSignal, for a period of ten years,
to notify the other party of any request for a bid or contract for an aircraft
landing gear system, to jointly develop proposals for any bid or contract
requests, and, if either party is named as a landing systems integrator, to
attempt to purchase components from the other party. Specifically, AlliedSignal
alleges that, by their actions in connection with the proposed merger with
BFGoodrich, Coltec and Menasco have breached and/or anticipatorily breached
provisions of the strategic alliance agreement relating to non-competition,
non-assignment and proprietary information. AlliedSignal has commenced an
arbitration proceeding to adjudicate its contract claim and, in this complaint,
seeks preliminary injunction of the merger pending the final resolution of the
arbitration.
In its antitrust claim, AlliedSignal alleges that the merger between
BFGoodrich and Coltec may violate antitrust laws by lessening competition in the
markets for landing gear structures, integrated landing gear systems and wheels
and brakes and by lessening competition in innovation. AlliedSignal requests
that the court permanently enjoin the merger between BFGoodrich and Coltec and
Menasco and permanently enjoin BFGoodrich from acquiring any direct or indirect
interest in either Coltec or Menasco. AlliedSignal's complaint also requests the
court to award AlliedSignal costs and reasonable attorneys' fees in connection
with its complaint.
On March 15, 1999, the State of Indiana filed a motion to intervene in the
lawsuit filed by AlliedSignal. This motion to intervene relates only to
AlliedSignal's claim that the merger between BFGoodrich and Coltec violates
antitrust law.
Coltec intends to vigorously defend the lawsuit filed by AlliedSignal;
however, the lawsuit and the motion to intervene could delay or prevent the
merger.
11
<PAGE>
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 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
adverse effect on Coltec's consolidated results of operations or 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 corporate employment policy that had been established in 1962
and was terminated in 1972 by Coltec's Board of Directors. (George W. Henglein,
et al. v. Colt Industries Operating Corporation Informal Plan for Plant Shutdown
Benefits for Salaried Employees, et al., U.S. District Court for the Western
District of Pennsylvania, 86-cv-2021). Plaintiffs alleged that the policy
continued after the Board of Directors' action by reason of Coltec's failure to
notify them of elimination of the employment policy. As a result of that failure
to notify, the policy was converted into a welfare or pension benefit plan upon
the passage of the Employee Retirement Income Security Act in 1974. Based upon
the occurrence of this conversion, the plaintiffs were entitled to benefits in
1982 when the Crucible Inc operations in Midland, Pennsylvania closed.
Following a non-jury trial in the U.S. District Court for the Western
District of Pennsylvania, Coltec's motion to dismiss was granted and the
plaintiffs appealed. The U.S. 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 Coltec on the jurisdiction of the
District Court. Coltec again moved for dismissal and again its motion to dismiss
was granted by the District Court. This second decision of the District Court
was appealed to the Court of Appeals and the case was again remanded to the
District Court for additional findings as to the application of the law. On
February 10, 1994, the District Court for the third time dismissed the
plaintiffs' complaint and the plaintiffs appealed to the Court of Appeals. On
September 26, 1994, the Third Circuit Court of Appeals for the third time
remanded the case to the District Court. The Court of Appeals held the record
established by plaintiffs in the District Court was insufficient so as to allow
the Court of Appeals the ability to apply the appropriate legal standard. On
November 4, 1994 the Court of Appeals denied Coltec's request for a rehearing.
Coltec petitioned the U.S. Supreme Court for a writ of certiorari; its petition
was denied in 1995. Coltec again moved for dismissal before the District Court
based upon the holding of the Court of Appeals that plaintiffs had failed to
establish their case at trial. The District Court denied the motion and sua
sponte ordered a new trial de novo. A trial was held during July 1996 with both
parties introducing evidence. A decision was rendered in 1997 finding the
existence of an informal plan. The District Court remanded to the administrator
of Coltec's employee benefit plans the duties of calculating the benefits due to
those plaintiffs entitled.
The District Court held that all but six of the named plaintiffs' claims
were time barred. Both Coltec and plaintiffs filed timely notices of appeal.
Notwithstanding its filing of a notice of appeal, defendant has claimed and so
notified the Court of Appeals that it was of the opinion that the District
Court's order was not final and thus not now appealable. In December 1997,
plaintiffs concurred with Coltec's position. Coltec does not believe that this
action will have a material adverse effect on Coltec's consolidated results of
operations or 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 adverse effect on Coltec's consolidated results of operations or
financial condition.
The U.S. Government conducts investigations into procurement of defense
contracts as a part of a continuing process. Under current federal law, if such
investigations establish the existence of 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. See Item 1. "Business--Contract
12
<PAGE>
Risks." 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 management believes to be adequate. 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 management believes to be adequate.
Coltec is self-insured (for claims arising after July 1984) 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.
None.
13
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
MARKET PRICE AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.
Coltec's common stock (symbol COT) is listed on the New York Stock Exchange
and the Pacific Exchange. The high and low sales prices of Coltec's common stock
as reported on the New York Stock Exchange for each calendar quarter during 1998
and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
HIGH LOW HIGH LOW
---- --- ---- ---
<S> <C> <C> <C> <C>
First quarter...................................... 26 9/16 21 5/8 20 15/16 17 3/4
Second quarter..................................... 25 7/16 18 9/16 23 18 3/8
Third quarter...................................... 21 5/8 14 1/8 24 20
Fourth quarter..................................... 20 1/2 13 24 13/16 19 1/2
</TABLE>
At December 31, 1998, there were 564 shareholders of record. Coltec paid no
dividends on its common stock in 1998 or 1997 and no dividends are expected to
be paid by Coltec on its common stock in 1999. Payment of dividends by Coltec is
restricted by the terms of the credit agreement dated as of March 24, 1992, as
amended and restated as of December 18, 1996 (the "Credit Agreement"), among
Coltec, certain of its subsidiaries and various financial institutions. The
Credit Agreement prohibits Coltec from authorizing, declaring or paying any
dividends (other than, among other things, distributions on Coltec common stock
or on the convertible preferred securities issued by Coltec Capital Trust) or
repurchasing Coltec common stock or such convertible preferred securities,
except, in any fiscal year, subject to certain limitations, Coltec may pay
dividends or repurchase Coltec common stock or such convertible preferred
securities in an amount equal to the greater of $7.5 million or 30% of
Consolidated Net Income (as defined in the Credit Agreement) for the preceding
fiscal year.
RECENT SALES OF UNREGISTERED SECURITIES.
(i) In April 1998, Coltec issued $300,000,000 in aggregate principal amount
of its 7 1/2% Senior Notes due 2008 (the "Senior Notes"). All of the
Senior Notes were sold by Coltec in transactions exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), to Credit Suisse First Boston Corporation, BT Alex.
Brown Incorporated, BancAmerica Robertson Stephens and NationsBanc
Montgomery Securities LLC (the "initial note purchasers") in reliance on
Section 4(2) of the Securities Act and Regulation D under the Securities
Act. All of the Senior Notes were simultaneously sold by the initial note
purchasers in transactions exempt from the registration requirements of
the Securities Act to qualified institutional buyers in reliance on
Rule 144A under the Securities Act and to certain persons in offshore
transactions in reliance on Regulation S under the Securities Act. The
aggregate initial offering price for the Senior Notes was $299,541,000
and the aggregate discount to the initial note purchasers was $6,000,000.
(ii) In April 1998, Coltec Capital Trust issued 3,000,000 of its 5 1/4%
Convertible Preferred Securities, Term Income Deferrable Equity
Securities (TIDES)SM* (the "Convertible Preferred Securities") with a
stated value and liquidation preference of $50 per share. Coltec owns
all of the outstanding common securities of Coltec Capital Trust. Each
Convertible Preferred Security is convertible, at the option of the
holder, into 1.7058 shares of Coltec common stock, subject to certain
adjustments. All of the Convertible Preferred Securities were initially
sold by Coltec Capital Trust in transactions exempt from the
registration requirements of the Securities Act to Credit Suisse First
Boston Corporation, Lehman Brothers Inc. and CIBC Oppenheimer Corp. (the
"initial purchasers") in reliance on Section 4(2) of the Securities Act
and Regulation D under the Securities Act. The Convertible Preferred
Securities were simultaneously sold by the initial purchasers in
transactions exempt from the registration requirements of the Securities
Act to qualified institutional buyers in reliance on Rule 144A under the
Securities Act and to a limited number of institutional "accredited
investors" (as defined in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act) in reliance on Section 4(1) of the Securities Act. The
aggregate initial offering price for the Convertible Preferred
Securities was $150,000,000. Coltec paid the initial
14
<PAGE>
purchasers an aggregate fee of $4,140,000 as compensation for arranging
the investment of the proceeds from the sale of the Convertible
Preferred Securities.
*The terms Term Income Deferrable Equity Securities (TIDES)SM and
TIDESSM are registered servicemarks of Credit Suisse First Boston
Corporation.
ITEM 6. SELECTED FINANCIAL DATA.
The following table sets forth selected consolidated financial data of
Coltec and subsidiaries for the five years ended December 31, 1998.
COLTEC INDUSTRIES INC
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
Statement of Earnings Data: 1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales............................................... $1,504.1 $1,314.9 $1,159.7 $1,099.6 $1,000.2
-------- -------- -------- -------- --------
Operating income (a).................................... 188.1 197.8 157.6 142.0 165.2
Interest expense, net................................... 53.4 54.0 74.9 89.9 89.5
Gain on divestiture..................................... 56.2 -- -- -- --
Income taxes............................................ (64.9) (48.9) (28.1) (17.6) (27.2)
Minority interest in net loss of subsidiary (net of
tax).................................................. 3.7 -- -- -- --
-------- -------- -------- -------- --------
Earnings from continuing operations before extraordinary
item (a).............................................. 122.3 94.9 54.6 34.5 48.5
Discontinued operations (b)............................. -- -- 57.1 36.7 45.5
Extraordinary item (net of tax)(c)...................... (4.3) -- (30.6) (.3) (1.5)
-------- -------- -------- -------- --------
Net earnings............................................ $ 118.0 $ 94.9 $ 81.1 $ 70.9 $ 92.5
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Earnings per common share: (d)
Before extraordinary item............................. $ 1.81 $ 1.42 $ .79 $ .49 $ .70
Discontinued operations............................... -- -- .82 .53 .65
Extraordinary item.................................... (.06) -- (.44) -- (.02)
-------- -------- -------- -------- --------
Net earnings.......................................... $ 1.75 $ 1.42 $ 1.17 $ 1.02 $ 1.33
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Balance Sheet Data (At End of Period):
Working capital......................................... $ 169.2 $ 187.9 $ 215.6 $ 208.9 $ 189.6
Total assets............................................ 1,055.6 933.0 849.5 894.5 847.5
Total debt.............................................. 582.6 759.4 720.3 945.8 970.1
Convertible Preferred Securities (f).................... 145.3 -- -- -- --
Shareholders' equity.................................... (300.3) (359.2) (417.0) (453.8) (525.6)
Other Operating Data:
Operating margin (a).................................... 12.5% 15.0% 13.6% 12.9% 16.5%
Cash provided by operating activities................... $ 142.3 $ 61.4 $ 49.5 $ 91.0 $ 98.2
Capital expenditures.................................... 53.5 81.2 44.6 42.5 38.2
Depreciation of property, plant and equipment........... 34.0 29.7 27.0 26.8 25.3
Ratio of earnings to fixed charges (e).................. 4.0 3.5 2.1 1.6 1.8
Order backlog (at end of period)........................ 922.0 875.6 678.3 657.1 594.2
Number of employees (at end of period).................. 8,820 9,072 8,153 8,213 8,387
</TABLE>
(Footnotes on next page)
15
<PAGE>
(Footnotes from previous page)
- - ------------------
(a) Operating income for 1998 included charges of $42.0 million as follows:
$25.0 million to recognize program costs during the ramp-up of the Boeing
777 program and a $2.0 million expense for training costs and Year
2000 compliance for new computer systems in the Aerospace Segment; and
$12.0 million to record additional warranty and legal reserves and
$3.0 million expense for training costs and Year 2000 compliance for new
computer systems in the Industrial Segment. Operating income for 1996
included a charge of $14.2 million related to the bankruptcy of a major
aerospace customer (Fokker). 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. The charge also covered selected
workforce reductions throughout Coltec.
(b) See note 2 to consolidated financial statements.
(c) See note 3 to consolidated financial statements.
(d) Represents diluted earnings per common share. See note 5 to consolidated
financial statements.
(e) For purposes of calculating the ratio of earnings to fixed charges, earnings
are determined by adding fixed charges (excluding capitalized interest) and
income taxes to earnings from continuing operations 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.
(f) See note 12 to consolidated financial statements.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
OVERVIEW
The financial review that follows is based on continuing operations,
excluding the impact of the 1996 discontinued operations discussed in note 2 to
consolidated financial statements, and Coltec's two operating segments,
Aerospace and Industrial. Earnings per share information represents diluted
earnings per common share (see note 5 to consolidated financial statements). The
following discussion of operating results has been structured to provide an
analysis from the perspective of Coltec as a whole, followed by a more detailed
analysis for each operating segment. The Company adopted Statement of Financial
Accounting Standards (SFAS) No. 131, Disclosures about Segments of an Enterprise
and Related Information, effective December 31, 1998. The Company's 1998
reportable segments under SFAS No. 131 are the same as segments previously
reported in 1997 and 1996. The following are the major products in each
operating segment:
Aerospace: Menasco landing gear and flight control actuation systems;
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; AMI flight attendant seats.
Industrial: Garlock seals, gaskets, packings, bearings, valves and tape; FM
Engine large diesel and dual-fuel engines; Quincy air compressors; Delavan spray
nozzles; France compressor products; Haber dies; Ortman Fluid Power cylinders.
PROPOSED MERGER WITH THE B. F. GOODRICH COMPANY
On November 22, 1998, Coltec, BFGoodrich and a wholly owned subsidiary of
BFGoodrich entered into an agreement and plan of merger. Under the terms of the
merger agreement, this wholly owned subsidiary of BFGoodrich will merge with and
into Coltec, with Coltec as the surviving corporation in the merger. Upon
completion of the merger, each share of Coltec common stock issued and
outstanding immediately prior to the effective time of the merger will be
converted into the right to receive 0.56 of a share of BFGoodrich common stock.
The merger is expected to be accounted for as a pooling of interests. The merger
agreement has been approved by the boards of directors of both companies.
Completion of the merger is subject to certain customary conditions, including,
among others, approval of the merger agreement by the shareholders of both
companies and the receipt of regulatory approvals. A special meeting of the
shareholders of Coltec has been scheduled for April 9, 1999 at which the Coltec
shareholders will consider and vote upon a proposal to approve and adopt the
merger agreement.
16
<PAGE>
SEGMENT INFORMATION
The following table shows financial information by reportable segment for
the five years ended December 31, 1998.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------------
1998 1997 1996 1995 1994
-------- -------- -------- -------- --------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Net sales:
Aerospace................................. $ 724.8 $ 558.3 $ 433.5 $ 378.3 $ 339.2
Industrial................................ 780.5 757.6 726.9 722.6 662.7
Intersegment elimination(a)............... (1.2) (1.0) (.7) (1.3) (1.7)
-------- -------- -------- -------- --------
Total.................................. $1,504.1 $1,314.9 $1,159.7 $1,099.6 $1,000.2
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Operating income:
Aerospace................................. $ 90.1 (f) $ 97.7 (e) $ 51.6 (d) $ 32.4 (c) $ 51.0
Industrial................................ 135.5 (f) 139.8 (e) 147.1 146.6 145.4
-------- -------- -------- -------- --------
Total segments............................ 225.6 237.5 198.7 179.0 196.4
Corporate unallocated(b).................. (37.5) (39.7) (41.1) (37.0)(c) (31.2)
-------- -------- -------- -------- --------
Total.................................. $ 188.1 (f) $ 197.8 (e) $ 157.6 (d) $ 142.0 (c) $ 165.2
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Operating margin:
Aerospace................................. 12.4% 17.5% 11.9% 8.6% 15.0%
Industrial................................ 17.4 18.5 20.2 20.3 21.9
Total.................................. 12.5% 15.0% 13.6% 12.9% 16.5%
Return on total assets:(g)
Aerospace................................. 20.1% 22.3% 12.4% 8.3% 14.3%
Industrial................................ 37.1 45.0 51.2 49.1 53.3
Total.................................. 17.8% 21.2% 18.5% 15.9% 19.5%
Backlog:(h)
Aerospace................................. $ 792.2 $ 734.3 $ 560.7 $ 538.0 $ 445.7
Industrial................................ 129.8 142.0 117.8 119.5 148.5
Intersegment elimination.................. -- (.7) (.2) (.4) --
-------- -------- -------- -------- --------
Total.................................. $ 922.0 $ 875.6 $ 678.3 $ 657.1 $ 594.2
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- - ------------------
(a) Reflects elimination of intercompany sales between divisions in different
segments.
(b) Represents corporate selling and administrative expense, including other
income and expense that is not allocable to individual industry segments.
(c) Operating income for 1995 included a special charge of $27.0 million as
follows: $23.4 million in the Aerospace Segment and $3.6 million in
Corporate Unallocated. Excluding the special charge, operating income,
operating margin and return on total assets for 1995 would have been $55.8
million, 14.7% and 13.4%, respectively, for Aerospace.
(d) Operating income for 1996 included a charge of $14.2 million related to the
bankruptcy of a major aerospace customer (Fokker). Excluding this charge,
operating income, operating margin and return on total assets for 1996 would
have been $65.8 million, 15.2% and 18.1%, respectively, for Aerospace and
$171.8 million, 15.9% and 22.0%, respectively, for Coltec.
(e) Operating income for 1997 included a special charge of $10.0 million for the
restructuring of its Industrial Segment. In 1997 the remaining $10.0 million
accrual for the 1995 special charge related to the Aerospace Segment was
reversed.
(Footnotes continued on next page)
17
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(Footnotes continued from previous page)
(f) Operating income for 1998 included charges of $42.0 million as follows:
$25.0 million to recognize program costs during the ramp-up of the Boeing
777 program and a $2.0 million expense for training costs and Year 2000
compliance for new computer systems in the Aerospace Segment; and
$12.0 million to record additional warranty and legal reserves and
$3.0 million expense for training costs and Year 2000 compliance for new
computer systems in the Industrial Segment. Excluding these charges
operating income, operating margin and return on assets for 1998 would have
been $117.1 million, 16.2% and 26.1%, respectively, for Aerospace, $150.5
million, 19.3% and 41.2%, respectively, for Industrial and $230.1 million,
15.3% and 21.8%, respectively, for Coltec.
(g) Return on total assets is calculated for each segment by dividing annualized
segment operating income by segment total assets at end of applicable
period, and for Coltec by dividing Coltec's annualized operating income by
total assets at end of applicable period.
(h) Of the $922.0 million backlog at December 31, 1998, $276.6 million was
scheduled to be shipped after 1999.
RESULTS OF OPERATIONS--1998 COMPARED TO 1997
Company Review
Net sales for 1998 increased 14.4% to $1.50 billion from $1.31 billion for
1997 as a result of continued sales increases in the Aerospace Segment. Gross
profit increased slightly to $423.3 million for 1998 from $416.6 million for
1997. Gross profit in 1998 was unfavorably affected by a charge of
$25.0 million to recognize program costs associated with the development of
Boeing programs and a charge of $12.0 million to record additional warranty and
legal reserves. Excluding these charges, gross profit was $460.3 million for
1998 resulting in a 30.6% gross profit margin as compared to 31.7% in 1997.
Although selling and administrative expenses totaled $235.2 million for 1998
($230.2 million excluding a $5.0 million expense for Year 2000 compliance for
new and existing computer systems) compared to $218.8 million for 1997, selling
and administrative expenses decreased as a percentage of sales, 15.6% for 1998
(15.3% excluding Year 2000 expense) as compared to 16.6% for 1997.
In the second quarter of 1998, Coltec performed a study of total revenue
and costs for certain commercial aircraft programs. This study was performed on
the Boeing 777 as the program reached its 200th shipset milestone. Based on this
study which considered recent market conditions including normal market
uncertainties related to shipping schedules beyond five years and expected
future program efficiencies and related costs, Coltec's revised its total
estimated revenue and costs for the Boeing 777 program. In accordance with the
Coltec's accounting policy for commercial jet aircraft, Coltec reduced inventory
by $25.0 million, which resulted in a charge of $25.0 million to current
operations in 1998.
Also in the second quarter of 1998, Coltec recorded a $12.0 million charge
to establish additional warranty and legal reserves for claims and outstanding
cases. Based on first time production of commercial engine applications,
warranty claims escalated during the first six months of 1998. Based on the
liability for individual claims and cases being probable and estimable, Coltec
recorded a liability for these cases. In the last six months of 1998, two
warranty claims were settled for a total of $4.6 million. None of the remaining
claims or cases is expected to be individually material to Coltec's consolidated
financial position or results of operations.
In the second quarter of 1998, selling and administrative expenses included
expenses of $5.0 million for Year 2000 compliance. After reviewing costs
incurred for new computer systems scheduled to start up in the second quarter of
1998, Coltec determined that approximately $5.0 million of such costs related to
items that should be expensed. These expenses primarily included certain
consulting fees, software maintenance fees and training and travel costs.
Operating income decreased to $188.1 million for 1998 from $197.8 million
for 1997 as a result of $42.0 million of charges in the second quarter of 1998.
Operating margin for 1998 was 12.5% (15.3% excluding $42.0 million of charges)
compared to 15.0% for 1997.
18
<PAGE>
In May 1998, Coltec sold the capital stock of its Holley Performance
Products subsidiary to Kohlberg & Co., L.L.C., a private merchant-banking firm,
for $100 million in cash. The sale resulted in a pre-tax gain of $56.2 million,
net of liabilities retained.
Interest expense decreased slightly to $53.4 million in 1998 from
$54.0 million for 1997. The effective tax rate was 34.0% in 1998 and 1997.
In April 1998, Coltec privately placed $300.0 million principal amount of
Senior Notes and $150.0 million liquidation value of Convertible Preferred
Securities. The proceeds from the Senior Notes and Convertible Preferred
Securities were used to reduce Coltec's indebtedness under its credit agreement.
Distributions on the Convertible Preferred Securities were $3.7 million
after-tax in 1998, which are classified as minority interest in net loss of
subsidiaries in Coltec's consolidated statements of earnings.
As a result of the foregoing, earnings before extraordinary item for 1998
were $122.3 million as compared to $94.9 million in 1997. Coltec incurred an
extraordinary charge of $4.3 million, net of taxes, or $.06 per share in 1998 in
connection with early debt repayment. Net earnings were $118.0 million in 1998,
or $1.75 per share (diluted), compared to net earnings of $94.9 million, or
$1.42 per share (diluted), in 1997.
Segment Review--Aerospace
Sales in 1998 for the Aerospace Segment totaled $724.8 million, increasing
29.8% from $558.3 million in 1997. At Menasco, sales increased by $89.0 million
in 1998 as compared to 1997 due to rising commercial aircraft production.
Menasco deliveries of main landing gear systems for the Boeing 737 increased
from 196 shipsets in 1997 to 272 in 1998. Higher sales for Menasco also
reflected increased shipments of fully integrated landing gear systems. Sales
increases in 1998 were also driven by higher sales volumes of the engine
components businesses primarily as a result of increased original equipment
sales. The acquisition of AMI in June 1997 was a significant contributor to the
increase in sales for 1998.
Operating income for the Aerospace Segment for 1998 was $90.1 million
($117.1 million excluding 1998 charges totaling $27.0 million ($25.0 million to
recognize program costs associated with development of Boeing programs and $2.0
million for Year 2000 compliance for new computer systems) as compared to $97.7
million for 1997. The increase, excluding charges, was also driven by generally
higher sales volumes throughout the Aerospace Segment. Operating margins
increased to 16.2% in 1998, excluding charges, from 15.7% in 1997 primarily due
to increased production to absorb fixed costs and productivity initiatives.
Segment Review--Industrial
Industrial sales increased slightly to $780.5 million in 1998, from $757.6
in 1997. Sales were unfavorably impacted by the divestiture of Holley
Performance Products, the effect of which was offset by Coltec's first quarter
acquisitions. Continued economic weakness in Asia and South America and slower
growth in key markets including pulp and paper, chemical, refining and steel,
adversely affected industrial sales growth. As a result, Coltec's industrial
businesses experienced modest sales increases, except for Delavan Spray
Technologies which had a decrease in 1998 sales due to its relocation in late
1997.
Operating income for the Industrial Segment was $135.5 million in 1998
compared to $139.8 million in 1997. Operating income in 1998 included charges of
$12.0 million to record additional warranty and legal reserves and $3.0 million
for Year 2000 compliance for new computer systems. Excluding these charges, the
Industrial Segment operating income increased slightly to $150.5 million for
1998. Operating margin excluding the second quarter charges decreased slightly
from prior periods due to lower operating margins on the 1998 acquisitions,
although such acquisitions were accretive.
Acquisitions and Divestitures
In January 1998, Coltec acquired Marine & Petroleum Mfg., Inc.'s ("M&P")
manufacturing facilities based in Texas for approximately $17.0 million and
Tex-o-Lon and Repro-Lon for approximately $25.0 million. The M&P facilities
produce flexible graphite and PTFE fluid sealing products used in the
petrochemical industry. Tex-o-Lon manufactures, machines and distributes PTFE
products, primarily for the semiconductor industry. Repro-Lon reprocesses PTFE
compounds for the chemical and semiconductor industries. These acquisitions were
19
<PAGE>
combined into one division, Coltec Specialty Products, and are included in
Coltec's Industrial Segment. The acquisitions were accounted for as purchases;
accordingly, the purchase price, which was financed through available cash
resources, was allocated to the acquired assets based upon their fair market
values. The $31.7 million excess of the purchase price over net assets is being
amortized over 25 years.
In February 1998, Coltec purchased for $45.6 million the Sealing Division
of Groupe Carbone Lorraine, which was segregated into two divisions within the
Company's Industrial Segment. Cefilac, based in Saint Etienne and Montbrison,
France, produces seals, gaskets and packings, metal o-rings and spiral-wound
gaskets used in the chemical, power and refining industries. Helicoflex based in
Columbia, South Carolina, produces metal o-rings and spring-loaded seals and
metal c-rings. Helicoflex sealing products are specifically designed for
equipment and processes exposed to high temperatures, cryogenic temperatures,
high pressures, vacuum conditions, radioactive environments or corrosive
applications. This acquisition was accounted for as a purchase and the purchase
price, also financed through available cash resources, was allocated to the
acquired assets based upon their fair market values. The $25.0 million excess of
the purchase price over net assets is being amortized over 25 years.
In August 1998, Coltec acquired from Federal-Mogul Corporation the 20% of
Garlock Bearings that it did not previously own for approximately
$12.0 million. Garlock Bearings is a producer of self-lubricating bearings.
In June 1997, Coltec acquired the assets of AMI, a Colorado-based
manufacturer of flight attendant and cockpit seats for commercial aircraft, for
approximately $25.0 million. The purchase agreement also includes contingent
payments based on earning levels for the years ended December 31, 1997-2000.
These contingent payments will be recorded as additional purchase price and
amortized over the remaining life of goodwill. For financial statement purposes,
the acquisition was accounted for as a purchase and, accordingly, AMI's results
are included in Coltec's consolidated financial statements since the date of
acquisition. The purchase price, which was financed through available cash
resources, has been allocated to the acquired assets based upon their fair
market values. The $12.2 million excess of the purchase price over net assets is
being amortized over 25 years.
In October 1997, Coltec acquired the assets of the sheet rubber and
conveyor belt business of Dana Corporation's Boston Weatherhead division for
$28.0 million. The acquisition was accounted for as a purchase and its results
are included in Coltec's consolidated financial statements since the date of
acquisition. The purchase price, which was also financed through available cash
resources, has been allocated to the acquired assets based upon their fair
market values. The $6.9 million excess of the purchase price over net assets is
being amortized over 25 years.
The impact of these acquisitions was not material in relation to Coltec's
consolidated results of operations or financial position. Consequently, pro
forma information is not presented. Coltec also had several small acquisitions
during 1998 and 1997, which were not material to Coltec's consolidated results
of operations or financial position.
In May 1998, Coltec sold the capital stock of its Holley Performance
Products subsidiary to Kohlberg & Co., L.L.C., a private merchant banking firm,
for $100 million in cash. The sale resulted in a pre-tax gain of $56.2 million,
net of liabilities retained. The proceeds from this divestiture were applied
toward reducing debt. In 1997, Holley had gross revenues and operating income of
approximately $99.0 million and $8.0 million, respectively.
RESULTS OF OPERATIONS--1997 COMPARED TO 1996
Company Review
Net sales for 1997 increased 12.9% to $1.31 billion from $1.16 billion in
1996 primarily driven by increases in the Aerospace Segment. Gross profit
increased to $416.6 million in 1997 from $348.6 million in 1996. In 1997 gross
profit margin increased to 31.7% from 30.1% in 1996, primarily as a result of
the 1996 bankruptcy of Fokker, a major aerospace customer. Selling and
administrative expenses totaled $218.8 million, or 16.6%, of sales in 1997
compared to $191.0 million, or 16.5%, of sales (15.9% excluding the Fokker
impact) in 1996. The increase resulted from costs associated with expanding
Coltec's businesses, both domestically and internationally.
20
<PAGE>
Operating income amounted to $197.8 million in 1997 compared to
$157.6 million for 1996. The 1996 amount includes the effect of the
$14.2 million charge related to the bankruptcy of Fokker. Operating margin for
1997 was 15.0% and was 13.6% (14.8% excluding the effect of the charge related
to Fokker) for 1996.
Interest expense decreased 27.8% from $74.9 million in 1996 to
$54.0 million in 1997 as a result of lower interest rates primarily from
refinancing high-cost, fixed-rate debt with lower-cost, variable-rate bank debt,
and a full year impact of applying a substantial portion of the proceeds from
the 1996 second quarter sale of Coltec's automotive original equipment ("OE")
components operations to debt reduction.
The effective tax rate was 34.0% in 1997 and 1996.
The 1996 results of discontinued operations reflect the aforementioned 1996
second quarter sale of the automotive OE components operations as well as the
1996 fourth quarter sale of Farnam Sealing Systems. Note 2 to the consolidated
financial statements describes these transactions.
The 1996 extraordinary charge of $30.6 million relates to the refinancing
of high-cost, fixed-rate debt with lower-cost, variable-rate bank debt. In
January and December 1996, Coltec redeemed $605.8 million of such high-cost
debt.
Net earnings and earnings from continuing operations were $94.9 million, or
$1.42 per share, in 1997 while 1996 net earnings amounted to $81.1 million, or
$1.17 per share, with earnings from continuing operations for 1996 of $54.6
million, or $0.79 per share. The 1996 charge related to Fokker impacted earnings
by $0.13 per share. The reduction in interest expense increased earnings by
$0.20 per share in 1997.
Segment Review--Aerospace
Sales in 1997 for the Aerospace Segment aggregated $558.3 million, a 28.8%
increase over 1996 sales of $433.5 million. At Menasco, which represented
approximately 50% of this increase, sales increased due to rising commercial
aircraft production as well as improved military sales. Menasco deliveries of
main landing gear systems for the Boeing 737 increased to 196 shipsets in 1997
from 72 shipsets in 1996, while military sales benefited primarily from higher
shipset deliveries for the F-15 and F-16 programs (151 shipsets in 1997 versus
83 shipsets in 1996). At Chandler Evans, higher sales were primarily due to
increased sales of spare parts while original equipment sales also improved.
Aerospace Segment sales were favorably impacted by the acquisition of AMI in
July 1997. Sales in 1997 for the other aerospace businesses increased due to
increased sales volumes resulting from the continued strengthening of the
commercial aircraft market and regional airlines.
Operating income for the Aerospace Segment increased 48.5% to
$97.7 million in 1997, including the reversal of $10.0 million of the 1995
special charge which primarily related to the closing of the Walbar compressor
blade facility in Canada. In 1995, the special charge included amounts for
contractual obligation with customers, which Coltec could not fulfill upon the
closing of the facility and related legal fees. These amounts were reversed
during 1997 because the customers did not enforce the contracts. Operating
income was $65.8 million in 1996, excluding the 1996 charge for the Fokker
bankruptcy. The Segment's operating margin for 1997 was 17.3% (15.7% excluding
the special charge reversal) versus 15.2% in 1996 excluding the Fokker
bankruptcy charge. At Menasco, operating margin was impacted by improved
manufacturing efficiencies due to higher production. Chandler Evans realized
higher margins due to higher after-market sales and selling price increases for
certain products. The increase was also driven by higher sales volumes and
improved margins for the other engine components businesses.
Segment Review--Industrial
Industrial Segment sales increased to $757.6 million in 1997 from
$726.9 million in 1996. During 1997, the Quincy and Fairbanks Morse divisions
had significant sales volume increases. The Fairbanks Morse increase was due to
increased orders and the recovery from a ten-week strike in 1996. Garlock
Sealing also experienced sales increases in part as a result of Coltec's
acquisition of the sheet rubber and conveyor belt business from Dana
Corporation's Boston Weatherhead division. The above increases, totaling
approximately $35.0 million, were partially offset by lower sales volumes of
$8.6 million at Holley.
21
<PAGE>
Operating income for the Industrial Segment was $139.8 million in 1997
($149.8 million excluding the special charge of $10.0 million for restructuring
costs in the Industrial Segment; see note 4 to the consolidated financial
statements) compared to $147.1 million in 1996. The Industrial Segment's
operating margin for 1997 was 18.5% (19.8% before the $10.0 million special
charge) compared to 20.2% in 1996. Operating income increased for Quincy and
Fairbanks Morse by approximately $10.0 million due to the higher sales volumes
as mentioned above while Garlock's income was impacted by approximately
$2.0 million of increased costs related to international initiatives. Holley's
operating income was $4.7 million lower primarily as a result of decreased sales
volumes.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
Coltec generated cash from operations of $142.3 million in 1998 compared to
$61.4 million in 1997. The increase in operating cash flows stemmed from the
increase in net earnings and depreciation and amortization, the decrease in
payments of liabilities of discontinued operations in 1998, and special charge
payments made in 1997. The cash flow generated by the decrease in inventory was
offset by the increase in accounts receivable. Working capital at December 31,
1998 of $169.2 million was $18.7 million lower than year-end 1997 as a result of
the decrease in inventory. The 1998 ratio of current assets to current
liabilities was 1.62 compared to 1.78 in 1997. Cash and cash equivalents
increased to $21.8 million in 1998 from $14.7 million in 1997.
In 1998 Coltec invested $53.5 million in capital expenditures compared to
$81.2 million in 1997. Coltec invested $94.2 million and $60.7 million in 1998
and 1997, respectively, in business acquisitions (see note 2 to consolidated
financial statements).
Coltec used $87.4 million in financing activities in 1998. In April 1998,
Coltec sold $300.0 million of Senior Notes and $150.0 million of Convertible
Preferred Securities (see note 12 to consolidated financial statements). The
proceeds from the Senior Notes and Convertible Preferred Securities, which are
effectively guaranteed by Coltec, were used to reduce Coltec's indebtedness
under its revolving credit facility. In 1998, the Company repurchased
$51.4 million of treasury stock. 1997 financing activities generated
$80.2 million primarily from the $82.5 million proceeds from sale of accounts
receivable. The purchase of $42.7 million of treasury stock in 1997 was offset
by a $39.5 million net increase in Coltec's revolving credit facility. Financing
activities in 1996 used cash of $323.0 million. A substantial portion of the
proceeds from the 1996 second quarter sale of Coltec's automotive OE components
operations was applied to debt reduction. During 1996, Coltec refinanced $617.0
million of high-cost, fixed-rate debt with lower-cost, variable-rate bank debt.
Coltec also purchased treasury stock with a cost of $46.4 million in 1996.
Capital Expenditures
Capital expenditures were $53.5 million in 1998 compared to $81.2 million
in 1997 and $44.6 million in 1996, as Coltec continued to invest in capital
improvements to increase efficiency, reduce costs, pursue new opportunities,
expand production capacity 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, and cost reduction and labor efficiency programs. Capital
expenditures during 1998 included amounts for enterprise resource planning
systems at several divisions. Coltec estimates capital expenditures for 1999 to
approximate $55.0 million, including amounts for equipment purchases related to
capacity expansions and upgrades.
Environmental Matters
Coltec's policy is to accrue environmental remediation costs when it is
both probable that a liability was incurred and the amount can be reasonably
estimated. Coltec currently estimates that its future non-capital expenditures
related to environmental matters will range between $26.0 million and $55.0
million representing management's best estimate of probable non-capital
expenditures. Investigations have been completed for approximately 21 sites and
continuing investigations are being done at approximately 10 sites. Accruals are
provided for all sites based on the factors discussed above. As assessments
progress and remediation plans are
22
<PAGE>
implemented, estimated costs become more fact-based and less judgment-based.
These estimated costs are reviewed periodically and related liabilities are
adjusted to reflect additional technical and legal information. In connection
with these environmental expenditures, Coltec had accrued $34.3 million at
December 31, 1998 representing management's best estimate of probable
non-capital expenditures. These non-capital expenditures are estimated to be
incurred over the next 10 to 20 years. In addition, capital expenditures
aggregating $5.0 million may be required during the next two years related to
environmental matters. Although Coltec is pursuing insurance recovery in
connection with certain of these matters, no receivable has been recorded with
respect to any potential recovery of costs in connection with any environmental
matter. During 1998, costs associated with environmental remediation and ongoing
assessment were not significant. See note 16 to consolidated financial
statements.
Asbestos Litigation
Coltec and certain of its subsidiaries are defendants in various lawsuits
involving asbestos-containing products. See note 16 to consolidated financial
statements. Based on the factors discussed in such notes 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
substantial 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
consolidated results of operations or financial condition.
Other Commitments and Contingencies
Liabilities of discontinued operations at December 31, 1998 of
$140.0 million relate to contingent contractual obligations, reserves for
postretirement benefits and other future estimated costs for various
discontinued operations. Coltec expects future cash payments will extend at
least over the next five to ten years.
Consistent with industry practice, Coltec uses the program method of
accounting for long-term commercial jet aircraft programs. The program method of
accounting involves the use of various estimates related to total program
revenues and costs. These estimates involve various assumptions and projections
relative to the outcome of future events, including the quantity and timing of
shipset deliveries. Also included are assumptions relative to future labor
performances and rates, and projections relative to material and overhead costs.
These assumptions involve various levels of expected performance improvements.
Coltec reevaluates its estimates periodically and reflects changes in estimates
in current operations.
Year 2000
As is the case with most other companies, Coltec recognizes the need to
ensure that its operations will not be adversely impacted by the Year 2000 date
transition and is faced with the task of addressing related issues. With senior
management accountability and corporate staff guidance, all operating units have
completed the assessment phase with respect to information technology ("IT")
systems, facilities equipment and products and are in varying stages of plan
implementation to address Coltec's Year 2000 issues. With regard to IT systems,
facilities equipment and products, Coltec is more than approximately 70%, 80%
and 95% complete, respectively, with its total planned efforts including
implementation and testing. Coltec expects that its implementation and testing
efforts will be substantially complete by September 1999. Coltec is also
evaluating whether the Year 2000 transition issues resulting from relationships
with customers, suppliers and other constituents will have an impact on Coltec's
results of operations, financial condition or cash flows. Coltec has initiated
formal communication with its active suppliers to determine the extent to which
Coltec is vulnerable to suppliers and customers who fail to address their own
Year 2000 issues.
Coltec estimates that total IT system expenditures (including all computer
systems replaced since January 1, 1997) will approximate $32.0 million, which
will be funded from operating cash flows. At December 31, 1998, approximately
$28.0 million of the $32.0 million had been incurred, $23.0 million of which has
been capitalized since January 1, 1997 and $5.0 million of Year 2000 costs was
expensed in 1998. The remaining costs of modifying its existing software for the
Year 2000 date transition should have an immaterial impact on consolidated
operating results. The costs of the project and the date on which Coltec plans
to complete Year 2000 compliance efforts are based on management's best
estimates, which were derived from assumptions of future
23
<PAGE>
events including the continued availability of certain resources, third parties'
Year 2000 readiness and other factors. There can be no assurance that these
assumptions will prove to be accurate, and actual results could differ
materially from those currently anticipated.
Although Coltec believes that its critical systems will be fully compliant
prior to year-end 1999, Coltec also believes that prudent business practices
call for the development of contingency plans. Coltec has Year 2000 contingency
plans in place. Coltec will continually assess these contingency plans during
1999. Such contingency plans primarily address mitigating the impact of internal
system and third party failures.
Based on the nature and diversity of Coltec's business operations, a worst
case scenario may be that one or more significant customers or key suppliers
suffers a business disruption. Because of Coltec's varied customer and supplier
base it is unlikely that such an occurrence would result in a significant loss
of sales for any period of time. Unless there is a disruption of power supply
affecting more than one of Coltec's major divisions, customers or suppliers,
Coltec does not expect the Year 2000 transition to have a material adverse
effect on its consolidated results of operation, financial position or cash
flows. However, if all Year 2000 issues are not properly identified, or
assessment, remediation and testing are not effected timely with respect to Year
2000 problems that are identified, there can be no assurance that the Year 2000
issue will not have a material adverse effect on Coltec's consolidated results
of operations, financial position or cash flows or adversely affect Coltec's
relationships with suppliers, customers or others. Additionally, there can be no
assurance that the Year 2000 issues of other entities will not have a material
adverse effect on Coltec's consolidated results of operations, financial
position or cash flows.
Financial Resources
At December 31, 1998, total debt was $582.6 million compared with
$759.4 million at year-end 1997. In February 1998, Coltec amended its revolving
credit facility to increase the commitment thereunder from $850 million to
$900 million. The revolving credit facility was further amended in April 1998 to
allow Coltec to issue the $300.0 million of Senior Notes and $150.0 million of
Convertible Preferred Securities, to provide that the Senior Notes would be
secured equally and ratably with the lenders under the revolving credit facility
and to provide that the total commitment under the revolving credit facility
would be reduced by two-thirds of the gross proceeds to Coltec from the Senior
Notes and Convertible Preferred Securities which amounted to a $300.0 million
reduction. In December 1997, Coltec amended the revolving credit facility to
establish an $80.0 million sublimit for Canadian borrowings. The revolving
credit facility also provides for a maximum issuance of $125.0 million for
letters of credit. At December 31, 1998, $239.5 million of borrowings and
$14.2 million of letters of credit were outstanding under the revolving credit
facility, leaving availability of $346.3 million. Coltec believes that
internally generated funds and borrowings available under the revolving credit
facility will be sufficient to meet its foreseeable working capital, capital
expenditure and debt service requirements.
Coltec has entered into interest rate swap agreements to reduce (hedge) the
impact of interest rate changes for variable rate borrowings under its revolving
credit facility. At December 31, 1998, the agreements included an aggregate
notional amount of $280.0 million, fixed interest rates ranging from 5.78% to
6.40% and maturity dates ranging from January 2000 to October 2002. At
December 31, 1997, the agreements included an aggregate notional amount of
$405.0 million, fixed interest rates ranging from 5.78% to 6.40% and maturity
dates ranging from April 1998 to October 2002. The interest rate differential is
reflected as an adjustment to interest expense over the life of the swaps.
Coltec's hedging activities had an immaterial impact on consolidated operating
results for the years ended December 31, 1998 and 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Coltec utilizes forward exchange contracts to hedge U.S. dollar-denominated
sales, under long-term contracts, of certain Canadian 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 gains and losses on the sales and related receivables being
hedged. At December 31, 1998 and 1997, Coltec had $120.5 million and $162.0
million, respectively, of notional value forward exchange contracts, denominated
in Canadian dollars. The contracts have varying maturities with none exceeding
five years. Gains
24
<PAGE>
and losses on forward exchange contracts are deferred and recognized in cost of
sales over the life of the underlying long-term contract being hedged.
Coltec's currency rate exposure on its remaining foreign subsidiaries at
December 31, 1998 would not materially affect the consolidated financial
position, results of operations or cash flows of Coltec.
Coltec has entered into interest swap agreements to reduce (hedge) the
impact of interest rate changes for variable rate borrowings under its revolving
credit facility and its agreement to sell accounts receivable on a revolving
basis (see note 6 to consolidated financial statements). At December 31, 1998,
the agreements included an aggregate notional amount of $280.0 million, fixed
interest rates ranging from 5.78% to 6.40% and maturity dates ranging from
January 2000 to October 2002.
Interest Rate Risk
The table below provides information about Coltec's derivative financial
instruments and other financial instruments that are sensitive to changes in
interest rates, including interest rate swaps and debt obligations. For debt
obligations, the table represents principal cash flows and related weighted
average interest rates by expected maturity dates. For interest rate swaps, the
table presents notional values and weighted average interest rates by expected
(contractual) maturity dates. Notional values are used to calculate the
contractual payments to be exchanged under the contract. Weighted average
variable rates are based on implied forward rates in the yield curve at December
31, 1998.
<TABLE>
<CAPTION>
EXPECTED MATURITY DATE
--------------------------------------------------------------------------------
FAIR
1999 2000 2001 2002 2003 THEREAFTER TOTAL VALUE
------ ------- -------- -------- ---- ---------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Debt
Fixed Rate................................ $5,127 $11,394 $ 3,128 $ 1,991 $833 $320,632 $343,105 $358,938
--Avg. Interest Rate...................... 6.5% 7.5% 2.4% .3% .6% 7.5% 7.2%
Variable Rate.............................. -- -- 239,500 -- -- -- 239,500 239,500
--Avg. Interest Rate...................... -- -- 5.6% -- -- -- 5.6%
Interest Rate Swaps
Variable to Fixed......................... -- 50,000 40,000 190,000 -- -- 280,000 (10,909)
Average Pay Rate.......................... -- 5.780% 6.112% 6.151% -- -- 6.079%
Average Receive Rate...................... -- 5.065% 5.072% 5.107% -- -- 5.094%
</TABLE>
Exchange Rate Risk
The table below provides information about Coltec's Canadian
dollar-denominated forward exchange contracts. The table presents the notional
values, fair values and average hedge rates by expected (contractual) maturity
dates. These notional values generally are used to calculate the contractual
payments to be exchanged under the contract.
<TABLE>
<CAPTION>
CURRENCY SOLD CURRENCY RECEIVED 1999 2000 2001 2002 2003 TOTAL
- - -------------------------------------------- ----------------- ------ ------- ------ ---- ---- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Forward Contracts:
U.S. Dollar................................. Canadian Dollar
Notional Value............................. 63,840 32,645 24,000 -- -- (120,485)
Fair Value................................. (5,676) (3,623) (3,105) -- -- (12,404)
Avg. Hedge Rate............................ 1.392 1.360 1.330 -- -- 1.371
</TABLE>
25
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
COLTEC INDUSTRIES INC
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C>
Net sales............................................................... $1,504,054 $1,314,869 $1,159,691
Cost of sales........................................................... 1,080,731 898,269 811,123
---------- ---------- ----------
Gross profit............................................................ 423,323 416,600 348,568
Selling and administrative.............................................. 235,204 218,808 190,993
---------- ---------- ----------
Operating income........................................................ 188,119 197,792 157,575
Gain on divestiture..................................................... 56,194 -- --
Interest expense and other, net......................................... (53,438) (54,043) (74,894)
---------- ---------- ----------
Earnings from continuing operations before income taxes, minority
interest in net loss of subsidiary and extraordinary item............. 190,875 143,749 82,681
Income taxes............................................................ (64,898) (48,875) (28,111)
Minority interest in net loss of subsidiaries (net of tax).............. (3,684) -- --
---------- ---------- ----------
Earnings from continuing operations before extraordinary item........... 122,293 94,874 54,570
Discontinued operations (net of tax)
Income from operations................................................ -- -- 19,252
Gain on sale.......................................................... -- -- 37,931
---------- ---------- ----------
Total discontinued operations.................................... -- -- 57,183
---------- ---------- ----------
Extraordinary item (net of tax)......................................... (4,326) -- (30,614)
---------- ---------- ----------
Net earnings............................................................ $ 117,967 $ 94,874 $ 81,139
---------- ---------- ----------
---------- ---------- ----------
Basic earnings per common share
Before extraordinary item............................................. $ 1.88 $ 1.44 $ .79
---------- ---------- ----------
Discontinued operations
Income from operations............................................. -- -- .28
Gain on sale....................................................... -- -- .55
---------- ---------- ----------
Total discontinued operations.................................... -- -- .83
---------- ---------- ----------
Extraordinary item.................................................... (.07) -- (.44)
---------- ---------- ----------
Net earnings.......................................................... $ 1.81 $ 1.44 $ 1.18
---------- ---------- ----------
---------- ---------- ----------
Weighted-average common shares.......................................... 65,090 65,896 69,091
---------- ---------- ----------
---------- ---------- ----------
Diluted earnings per common share
Before extraordinary item............................................. $ 1.81 $ 1.42 $ .79
---------- ---------- ----------
Discontinued operations
Income from operations............................................. -- -- .28
Gain on sale....................................................... -- -- .54
---------- ---------- ----------
Total discontinued operations.................................... -- -- .82
---------- ---------- ----------
Extraordinary item.................................................... (.06) -- (.44)
---------- ---------- ----------
Net earnings.......................................................... $ 1.75 $ 1.42 $ 1.17
---------- ---------- ----------
---------- ---------- ----------
Diluted weighted-average common shares.................................. 69,443 66,911 69,376
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
26
<PAGE>
COLTEC INDUSTRIES INC
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------
1998
---------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 21,785
Accounts and notes receivable, net of allowance of $3,109 in 1998 and $2,894
in 1997................................................................... 148,185
Inventory, net............................................................... 236,003
Deferred income taxes........................................................ 20,464
Other current assets......................................................... 15,612
-----------
Total current assets........................................................... 442,049
Property, plant and equipment, net............................................. 306,642
Costs in excess of net assets acquired, net.................................... 214,647
Other assets................................................................... 92,310
-----------
$ 1,055,648
-----------
-----------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................ $ 5,127
Accounts payable............................................................. 91,595
Accrued expenses............................................................. 171,084
Current portion of liabilities of discontinued operations.................... 4,999
-----------
Total current liabilities...................................................... 272,805
Long-term debt................................................................. 577,478
Deferred income taxes.......................................................... 139,909
Other liabilities.............................................................. 85,490
Liabilities of discontinued operations......................................... 134,995
Company-obligated, mandatorily redeemable convertible preferred securities of
subsidiary Coltec Capital Trust holding solely convertible junior
subordinated debentures of the company....................................... 145,293
Commitments and contingencies
Shareholders' equity:
Preferred stock--$.01 par value, 2,500,000 shares authorized, issued and
outstanding--none
Common stock--$.01 par value, 100,000,000 shares authorized, 70,583,695 and
70,501,948 shares issued at December 31, 1998 and 1997, respectively
(excluding 25,000,000 shares held by a wholly owned subsidiary)........... 706
Capital surplus.............................................................. 643,615
Retained deficit............................................................. (795,356)
Unearned compensation.......................................................... (2,671)
Accumulated other comprehensive income (loss).................................. (18,688)
-----------
(172,394)
Less cost of 7,526,960 and 4,666,406 shares of common stock in treasury at
December 31, 1998 and 1997, respectively..................................... (127,928)
-----------
(300,322)
-----------
$ 1,055,648
-----------
-----------
<CAPTION>
1997
---------------------------------
<S> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................................... $ 14,693
Accounts and notes receivable, net of allowance of $3,109 in 1998 and $2,894
in 1997................................................................... 120,311
Inventory, net............................................................... 256,736
Deferred income taxes........................................................ 15,195
Other current assets......................................................... 20,508
---------
Total current assets........................................................... 427,443
Property, plant and equipment, net............................................. 287,619
Costs in excess of net assets acquired, net.................................... 157,751
Other assets................................................................... 60,221
---------
$ 933,034
---------
---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt............................................ $ 1,811
Accounts payable............................................................. 93,799
Accrued expenses............................................................. 138,969
Current portion of liabilities of discontinued operations.................... 4,999
---------
Total current liabilities...................................................... 239,578
Long-term debt................................................................. 757,578
Deferred income taxes.......................................................... 79,229
Other liabilities.............................................................. 72,592
Liabilities of discontinued operations......................................... 143,218
Company-obligated, mandatorily redeemable convertible preferred securities of
subsidiary Coltec Capital Trust holding solely convertible junior
subordinated debentures of the company....................................... --
Commitments and contingencies
Shareholders' equity:
Preferred stock--$.01 par value, 2,500,000 shares authorized, issued and
outstanding--none
Common stock--$.01 par value, 100,000,000 shares authorized, 70,583,695 and
70,501,948 shares issued at December 31, 1998 and 1997, respectively
(excluding 25,000,000 shares held by a wholly owned subsidiary)........... 705
Capital surplus.............................................................. 642,828
Retained deficit............................................................. (912,029)
Unearned compensation.......................................................... (2,721)
Accumulated other comprehensive income (loss).................................. (8,391)
---------
(279,608)
Less cost of 7,526,960 and 4,666,406 shares of common stock in treasury at
December 31, 1998 and 1997, respectively..................................... (79,553)
---------
(359,161)
---------
$ 933,034
---------
---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
<PAGE>
COLTEC INDUSTRIES INC
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------
1998 1997 1996
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings................................................................ $117,967 $ 94,874 $ 81,139
Adjustments to reconcile net earnings to cash provided by operating
activities:
Gain on divestitures...................................................... (56,194) -- (66,791)
Extraordinary item........................................................ 6,554 -- 51,001
Depreciation and amortization............................................. 47,947 38,415 36,014
Deferred income taxes..................................................... 56,616 24,791 39,146
Payments of liabilities of discontinued operations........................ (8,223) (25,052) (19,563)
Special charge payments................................................... -- (11,746) (6,309)
Foreign currency translation adjustment................................... (8,364) (5,594) 665
Other operating items..................................................... (2,958) (6,951) (4,370)
Changes in assets and liabilities, net of effects from acquisitions and
divestitures:
Accounts and notes receivable.......................................... (40,254) (4,263) (42,602)
Inventories............................................................ 17,776 (42,508) 2,704
Other current assets................................................... 2,131 3,455 (617)
Accounts payable....................................................... (2,982) 35,963 (55)
Accrued expenses....................................................... 26,379 (18,972) (21,302)
Accrued pension liability.............................................. (14,076) (20,993) 443
-------- --------- ---------
Cash provided by operating activities....................................... 142,319 61,419 49,503
-------- --------- ---------
Cash flows from investing activities:
Proceeds from divestitures.................................................. 100,000 -- 329,113
Capital expenditures........................................................ (53,545) (81,218) (44,550)
-------- --------- ---------
Acquisition of businesses................................................... (94,242) (60,711) --
-------- --------- ---------
Cash provided by (used in) investing activities............................. (47,787) (141,929) 284,563
Cash flows from financing activities:
Proceeds from debt refinancing.............................................. -- -- 542,000
Issuance of long-term debt, net............................................. 291,451 813 --
Issuance of convertible preferred securities, net........................... 143,999 -- --
Repayment of long-term debt................................................. (24,265) (8,113) (622,582)
Increase (decrease) in revolving facility, net.............................. (458,000) 39,500 (196,000)
Purchase of treasury stock.................................................. (51,371) (42,695) (46,426)
Proceeds from sale of accounts receivable................................... 12,500 82,500 --
Proceeds from exercise of stock options..................................... 2,117 8,169 --
Other....................................................................... (3,871) -- --
-------- --------- ---------
Cash provided by (used in) financing activities........................... (87,440) 80,174 (323,008)
-------- --------- ---------
Increase (decrease) in cash and cash equivalents............................ 7,092 (336) 11,058
Cash and cash equivalents--beginning of year................................ 14,693 15,029 3,971
-------- --------- ---------
Cash and cash equivalents--end of year...................................... $ 21,785 $ 14,693 $ 15,029
-------- --------- ---------
-------- --------- ---------
Supplemental cash flow data:
Cash paid for:
Interest............................................................... $ 52,742 $ 50,207 $ 74,870
Income taxes........................................................... 18,325 19,327 27,667
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
28
<PAGE>
COLTEC INDUSTRIES INC
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
ACCUMULATED
COMMON STOCK OTHER TREASURY STOCK
--------------- CAPITAL RETAINED COMPREHENSIVE UNEARNED ------------------
SHARES AMOUNT SURPLUS DEFICIT INCOME (LOSS) COMPENSATION SHARES AMOUNT
------ ------ -------- ----------- ------------- ------------ ------ ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995.......... 70,077 $701 $639,419 $(1,088,042) $ (1,816) $ (2,408) (100) $ (1,616)
Net earnings...................... 81,139
Repurchase of common stock........ (3,129) (46,426)
Issuance of restricted stock, net. 322 3 3,941 272 (10) (142)
Exercise of stock options......... (139) 56 642
Minimum pension liability......... (3,200)
Foreign currency translation
adjustments..................... 665
------ ---- -------- ----------- --------- -------- ------ ---------
Balance, December 31, 1996.......... 70,399 704 643,221 (1,006,903) (4,351) (2,136) (3,183) (47,542)
Net earnings...................... 94,874
Repurchase of common stock........ (2,160) (42,695)
Issuance of restricted stock, net. 103 1 2,173 (585) (4) (51)
Exercise of stock options......... (2,566) 681 10,735
Minimum pension liability......... 1,554
Foreign currency translation
adjustments..................... (5,594)
------ ---- -------- ----------- --------- -------- ------ ---------
Balance, December 31, 1997.......... 70,502 705 642,828 (912,029) (8,391) (2,721) (4,666) (79,553)
Net earnings...................... 117,967
Repurchase of common stock........ (3,051) (51,371)
Amortization of preferred stock
issuance costs.................. (1,294)
Issuance of restricted stock, net. 82 1 1,666 50
Exercise of stock options......... (879) 190 2,996
Minimum pension liability......... (1,933)
Foreign currency translation
adjustments..................... (8,364)
------ ---- -------- ----------- --------- -------- ------ ---------
Balance, December 31, 1998.......... 70,584 $706 $643,615 $ (795,356) $ (18,688) $ (2,671) (7,527) $(127,928)
------ ---- -------- ----------- --------- -------- ------ ---------
------ ---- -------- ----------- --------- -------- ------ ---------
<CAPTION>
TOTAL
---------
<S> <C>
Balance, December 31, 1995.......... $(453,762)
Net earnings...................... 81,139
Repurchase of common stock........ (46,426)
Issuance of restricted stock, net. 4,074
Exercise of stock options......... 503
Minimum pension liability......... (3,200)
Foreign currency translation
adjustments..................... 665
---------
Balance, December 31, 1996.......... (417,007)
Net earnings...................... 94,874
Repurchase of common stock........ (42,695)
Issuance of restricted stock, net. 1,538
Exercise of stock options......... 8,169
Minimum pension liability......... 1,554
Foreign currency translation
adjustments..................... (5,594)
---------
Balance, December 31, 1997.......... (359,161)
Net earnings...................... 117,967
Repurchase of common stock........ (51,371)
Amortization of preferred stock
issuance costs.................. (1,294)
Issuance of restricted stock, net. 1,717
Exercise of stock options......... 2,117
Minimum pension liability......... (1,933)
Foreign currency translation
adjustments..................... (8,364)
---------
Balance, December 31, 1998.......... $(300,322)
---------
---------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
29
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1998 1997 1996
-------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net earnings.................................................................... $117,967 $94,874 $81,139
Other comprehensive income (/loss), net of tax:
Foreign currency translation adjustments...................................... (8,364) (5,594) 665
Minimum pension liability..................................................... (1,933) 1,554 (3,200)
-------- ------- -------
Other comprehensive income/(loss), net of tax............................ (10,297) (4,040) (2,535)
-------- ------- -------
Comprehensive income............................................................ $107,670 $90,834 $78,604
-------- ------- -------
-------- ------- -------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
30
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. SUMMARY OF ACCOUNTING POLICIES
Organization:
Coltec Industries Inc (the Company) is a diversified manufacturing company
serving the aerospace and general industrial markets primarily in the United
States, Canada and Europe.
Basis of Presentation:
Investments in which the Company has ownership of 50% or more of the voting
common stock are consolidated in the financial statements. Intercompany accounts
and transactions are eliminated.
Certain 1997 and 1996 amounts have been reclassified to conform to the 1998
presentation.
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.
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 the Company has the contractual right to bill. The
Company is involved in long-term government contracts which are accounted for on
a percentage completed basis. However, the Company's long-term contracts
primarily relate to commercial jet aircraft programs, which are planned,
committed and facilitized based on long-term delivery forecasts. Cost of sales
for jet aircraft programs is determined based on estimated average total cost
and revenue for the respective programs based on shipset quantities representing
what is believed to be conservative customer-produced market projections.
Estimated program average costs and revenues are reviewed and assessed
periodically, with changes in estimates recognized as adjustments to current
operations.
Program commitment quantities generally represent deliveries for the next
three to five years, although initial program quantities for new programs can
include orders and deliveries up to ten years. As of December 31, 1998 and 1997,
the Company had delivered approximately 52% and 43%, respectively, of the total
commitment quantities under these programs. The program method of accounting, an
aerospace industry-developed and accepted practice, was adopted by the Company
in the 1970's.
Inventories:
Inventories, including inventories under long-term commercial and
government contracts and programs, are valued at the lower of cost or market.
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, 1998 and 1997 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.
31
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
Property, Plant and Equipment:
Property, plant and equipment is carried at cost. Depreciation of plant and
equipment is provided generally by using the straight-line method, based on
estimated useful lives of the assets. The ranges of estimated useful lives used
in computing depreciation for financial reporting are as follows:
Land improvements................................................. 5-40
Buildings and equipment........................................... 10-45
Machinery and equipment........................................... 3-20
For leasehold improvements, the estimated useful life 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.
Costs in Excess of Net Assets Acquired:
It is the Company's policy to amortize the excess costs arising from
acquisitions on a straight-line basis over periods not to exceed 40 years. As of
December 31, 1998 the remaining weighted average life of the Company's goodwill
was 25 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, 1998 and 1997, accumulated amortization related to all completed
acquisitions was $83,082 and $74,013, respectively.
Income Taxes:
Income taxes are provided using 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.
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.
Legal Costs:
Legal costs are expensed as incurred. However, when a contingent liability
is recorded, at the time such liability becomes probable and can be reasonably
estimated, estimated legal costs are included in the liability.
32
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
1. SUMMARY OF ACCOUNTING POLICIES--(CONTINUED)
Cash and Cash Equivalents:
The Company considers all short-term investments purchased with a maturity
of three months or less to be cash equivalents.
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 in the Consolidated Balance Sheets. Foreign currency transaction gains
and losses are included in net earnings. For 1998, 1997 and 1996, such
transaction gains and losses were not significant.
Impact of New Accounting Standard:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No 133 ("SFAS No. 133") Accounting for Derivative
Instruments and Hedging Activities. The Statement established accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item in the income statement, and requires
that a company must formally document, designate, and assess the effectiveness
of transactions that receive hedge accounting.
SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A
company may also implement the Statement as of the beginning of any fiscal
quarter after issuance. SFAS No. 133 cannot be applied retroactively. SFAS No.
133 must be applied to derivative instruments and certain derivative instruments
embedded in hybrid contracts that were issued, acquired, or substantively
modified after December 31, 1997.
The Company has not yet quantified the impacts of adopting SFAS No. 133 on
its consolidated financial statements and has not determined the timing of or
method of adoption. However, the statement could increase volatility in net
income and other comprehensive income.
2. ACQUISITIONS AND DIVESTITURES
Acquisitions
In January 1998, the Company acquired certain Marine and Petroleum Mfg.
Inc.'s manufacturing facilities based in Texas for approximately $17,000. The
plants acquired produce flexible graphite and PTFE fluid sealing products used
in the petrochemical industry. The Company also acquired Texas-based Tex-o-Lon
and Repro-Lon for approximately $25,000. Tex-o-Lon manufactures, machines and
distributes PTFE products, primarily for the semiconductor industry. Repro-Lon
reprocesses PTFE compounds for the chemical and semiconductor industries. The
acquisitions were accounted for as purchases; accordingly, the purchase price,
which was financed through available cash resources, was allocated to the
acquired assets based upon their fair market values. The $31,697 combined excess
of the purchase price over net assets is being amortized over 25 years.
In February 1998, the Company purchased the Sealing Division of Groupe
Carbone Lorraine for $45,600. This division, with facilities in France and South
Carolina, produces high-technology metallic gaskets used in the nuclear,
petroleum and chemical industries. This acquisition was accounted for as a
purchase and the purchase
33
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
2. ACQUISITIONS AND DIVESTITURES--(CONTINUED)
price, also financed through available cash resources, was allocated to the
acquired assets based upon their fair market values. The $25,042 excess of the
purchase price over net assets is being amortized over 25 years.
In August 1998, the Company acquired from Federal-Mogul Corporation the 20%
of Garlock Bearings that it did not previously own for approximately $12,000.
Garlock Bearings is a producer of self-lubricating bearings.
In June 1997, the Company acquired the assets of AMI Industries Inc. (AMI),
a Colorado-based manufacturer of flight attendant and cockpit seats for
commercial aircraft, for approximately $25,000. The purchase agreement also
includes contingent payments based on earning levels for the years ended
December 31, 1997-2000. These contingent payments will be recorded as additional
purchase price and amortized over the remaining life of goodwill. For financial
statement purposes, the acquisition was accounted for as a purchase and,
accordingly, AMI's results are included in the Company's consolidated financial
statements since the date of acquisition. The purchase price, which was financed
through available cash resources, has been allocated to the acquired assets
based upon their fair market values. The $12,200 excess of the purchase price
over net assets is being amortized over 25 years.
In October 1997, the Company acquired the assets of the sheet rubber and
conveyor belt business of Dana Corporation's Boston Weatherhead division for
$28,000. The acquisition was accounted for as a purchase and its results are
included in the Company's consolidated financial statements since the date of
acquisition. The purchase price, which was also financed through available cash
resources, has been allocated to the acquired assets based upon their fair
market values. The $6,900 excess of the purchase price over net assets is being
amortized over 25 years.
The impact of these acquisitions was not material in relation to the
Company's results of operations. Consequently, pro forma information is not
presented. The Company also had several small acquisitions during 1998 and 1997,
which were not material to the Company's financial position or results of
operations.
Divestitures
In May 1998, the Company sold the capital stock of its Holley Performance
Products subsidiary to Kohlberg & Co., L.L.C., a private merchant banking firm
located in Mount Kisco, New York, for $100 million in cash. The sale resulted in
a pre-tax gain of $56,194, net of liabilities retained.
In June 1996, the Company sold Holley Automotive, Coltec Automotive and
Performance Friction Products to Borg-Warner Automotive, Inc. for $296,522 in
cash. In December 1996, Coltec sold Farnam Sealing Systems division to Meillor
SA for $20,728 in cash and a note receivable for $3,000. The sale of these
automotive original equipment (OE) components businesses resulted in an
after-tax gain of $37,931 (net of income taxes of $25,332), net of liabilities
retained, transaction costs and obligations relating to the sales. The sale of
the automotive OE components businesses represented a disposal of the Company's
Automotive Segment. Accordingly, the 1996 Consolidated Statement of Earnings was
restated to reflect the operations of the automotive OE components businesses as
a discontinued operation. Net sales of the discontinued automotive OE components
businesses were $182,599 in 1996.
In December 1996, the Company also sold the exhaust systems and components
business of its Stemco division for $11,863 resulting in a pre-tax gain of
$3,528. Such gain is reflected in the 1996 Consolidated Statement of Earnings in
continuing operations. Net sales of the exhaust systems and components business
were $18,085 in 1996.
34
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
3. EXTRAORDINARY ITEM
The Company incurred an extraordinary charge of $4,326, net of income taxes
of $2,228, in the second quarter of 1998 in connection with early debt
repayment.
In 1996, the Company redeemed all of its outstanding 11 1/4% debentures and
substantially all of its outstanding 9 3/4% and 10 1/4% senior notes at
redemption prices ranging from 105.125% to 106.987% of par. The redemption of
these notes including consent payments resulted in an extraordinary charge of
$30,614, net of income taxes of $20,387.
4. SPECIAL CHARGES
In 1995, the Company recorded a special charge of $27,000, primarily in the
Aerospace Segment to cover the costs of closing the Walbar compressor blade
facility in Canada. The facility was closed during 1996. The charge also covered
selected workforce reductions throughout the Company. The special charge
included costs to cover the cancellation of contractual obligations resulting
from the decision to close the Walbar facility, asset write-downs, severance and
employee-related costs and other costs necessary to implement the shutdown of
the Walbar facility and selected workforce reductions throughout the Company.
At December 31, 1997 all related costs had been charged and the remaining
accrual was reversed. The activity in the related reserve through December 31,
1997 was as follows:
<TABLE>
<CAPTION>
CONTRACTUAL ASSET
OBLIGATIONS WRITEDOWNS SEVERANCE OTHER TOTAL
------------ ---------- --------- ------- --------
<S> <C> <C> <C> <C> <C>
1995 charge................................ $ 9,065 $ 7,845 $ 5,084 $ 5,006 $ 27,000
1995 activity.............................. (65) (4,549) (1,778) (2,553) (8,945)
-------- -------- ------- ------- --------
December 31, 1995.......................... 9,000 3,296 3,306 2,453 18,055
1996 activity.............................. (961) (1,875) (1,876) (1,597) (6,309)
-------- -------- ------- ------- --------
December 31, 1996.......................... 8,039 1,421 1,430 856 11,746
1997 activity.............................. (1,200) -- (517) (29) (1,746)
Reversal................................... (6,839) (1,421) (913) (827) (10,000)
-------- -------- ------- ------- --------
December 31, 1997.......................... $ -- $ -- $ -- $ -- $ --
-------- -------- ------- ------- --------
-------- -------- ------- ------- --------
</TABLE>
In 1997, the Company recorded a special charge of $10,000, to cover the
restructuring of its Industrial Segment. This special charge included the costs
of closing its FMD Electronics operations in Roscoe, Illinois and its Ortman
Fluid Power operations in Hammond, Indiana. The special charge also included the
costs to restructure the Company's Industrial Segment businesses in Canada and
Germany and certain termination costs related to the relocation of the Delavan
Commercial Spray Technologies headquarters to North Carolina. The third quarter
1997 charge included costs resulting from cancellation of contractual
obligations, asset writedowns, severance and employee-related costs and other
costs to shut down these facilities that will not benefit future operations. The
related reserve activity for the year ended December 31, 1997 was as follows:
<TABLE>
<CAPTION>
CONTRACTUAL ASSET
OBLIGATIONS WRITEDOWNS SEVERANCE OTHER TOTAL
------------ ---------- --------- ------ -------
<S> <C> <C> <C> <C> <C>
1997 charge.................................. $ 641 $1,049 $ 5,425 $2,885 $10,000
1997 activity................................ (641) (1,049) (5,425) (2,885) (10,000)
------ ------ ------- ------ -------
December 31, 1997............................ $ -- $ -- $ -- $ -- $ --
------ ------ ------- ------ -------
------ ------ ------- ------ -------
</TABLE>
35
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
5. EARNINGS PER SHARE
In 1997, the Company adopted Statement of Financial Accounting Standards
(SFAS) No. 128, Earnings per Share, effective December 15, 1997. The Company's
reported earnings per common share for 1996 equaled diluted earnings per share
as set forth in SFAS No. 128. As a result, the Company's reported earnings per
share for 1996 was not restated.
Basic earnings per common share is computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the year.
Diluted earnings per common share is computed by using the treasury stock method
to determine shares related to stock options and restricted stock.
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income available to common shareholders before extraordinary item.............. $122,293 $94,874 $111,753
Dividends on convertible preferred securities, net of tax...................... 3,684 -- --
-------- ------- --------
Income available to common shareholders before extraordinary item plus assumed
conversions.................................................................. 125,977 94,874 111,753
Extraordinary item, net of tax................................................. (4,326) -- (30,614)
-------- ------- --------
Net income available to common shareholders plus assumed conversions........... $121,651 $94,874 $ 81,139
-------- ------- --------
-------- ------- --------
Basic weighted-average common shares........................................... 65,090 65,896 69,091
Stock options and restricted stock issued...................................... 728 1,015 285
Convertible preferred securities............................................... 3,625 -- --
-------- ------- --------
Diluted weighted-average common and common equivalent shares................... 69,443 66,911 69,376
-------- ------- --------
-------- ------- --------
</TABLE>
6. SALE OF ACCOUNTS RECEIVABLE
In September 1997, the Company and certain of its subsidiaries sold their
U.S. and Canadian customer trade receivables to CNC Finance LLC (CNC Finance), a
wholly owned bankruptcy remote subsidiary of the Company. CNC Finance entered
into a three-year agreement to sell without recourse, on a revolving basis, an
undivided fractional ownership interest in the receivables, based on the level
of eligible receivables, up to a maximum of $95,000 to a special purpose entity
of a financial institution. At December 31, 1998 and December 31, 1997, $95,000
and $82,500, respectively, of the Company's receivables were sold under this
agreement and the sale was reflected as a reduction of accounts receivable in
the 1998 and 1997 Consolidated Balance Sheets. The undivided interests were sold
at a discount, which was included in Interest expense and other, net in the 1998
and 1997 Consolidated Statements of Earnings.
7. INVENTORY
Inventories consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Finished goods........................................................ $ 42,447 $ 53,748
Work in process and finished parts.................................... 154,707 158,937
Raw materials and supplies............................................ 38,849 44,051
-------- --------
Total............................................................ $236,003 $256,736
-------- --------
-------- --------
</TABLE>
At December 31, 1998 and 1997, $48,939 and $54,441, respectively, of
contract advances were offset against inventories under long-term commercial and
government contracts and programs in the Consolidated Balance Sheets. Losses on
commercial and government contracts and programs are recognized in full when
identified.
36
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
7. INVENTORY--(CONTINUED)
Included in inventories are deferred production, engineering and tooling
costs related to the Company's various long-term jet aircraft programs, which
represent total costs incurred since the inception of the programs less the
costs of units delivered based on the anticipated average costs of producing the
total units provided for under these programs. At December 31, 1998 and 1997,
inventories included $34,593 and $30,909, respectively, of deferred engineering
costs; $15,863 and $26,457, respectively, of deferred production costs; and
$10,975 and $15,850, respectively, of deferred tooling costs. Total costs
incurred to date on long-term jet aircraft programs exceed the total cost of
units delivered and in-process, based on the estimated average cost of all units
to be delivered, by $61,430 and $73,216 at December 31, 1998 and 1997,
respectively, and are being amortized over current and future deliveries for the
respective program quantities. Certain engineering costs included in inventory
are directly reimbursable from customers. At December 31, 1998 and 1997, $12,700
and $10,700, respectively, were reimbursable from customers.
The excess of current cost over last-in, first-out cost at December 31,
1998 and 1997 was $19,251 and $22,022, respectively.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31,
1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Land and improvements................................................. $ 15,840 $ 14,517
Buildings and equipment............................................... 143,064 135,173
Machinery and equipment............................................... 507,636 486,335
Leasehold improvements................................................ 11,530 12,209
Construction in progress.............................................. 26,762 30,535
-------- --------
Total............................................................ 704,832 678,769
Less accumulated depreciation......................................... 398,190 391,150
-------- --------
Total............................................................ $306,642 $287,619
-------- --------
-------- --------
</TABLE>
9. ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Salaries, wages and employee benefits................................. $ 30,543 $ 34,603
Taxes................................................................. 2,254 13,728
Interest.............................................................. 9,543 7,115
Asbestos.............................................................. 93,700 50,688
Other................................................................. 35,044 32,835
-------- --------
Total............................................................ $171,084 $138,969
-------- --------
-------- --------
</TABLE>
37
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. INCOME TAXES
Domestic and foreign components of earnings from operations before income
taxes, minority interest in net loss of subsidiaries and extraordinary item were
as follows for the years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Domestic................................................. $160,643 $114,517 $ 68,199
Foreign.................................................. 30,232 29,232 14,482
-------- -------- --------
Total............................................... $190,875 $143,749 $ 82,681
-------- -------- --------
-------- -------- --------
</TABLE>
Income taxes on earnings from continuing operations were as follows for the
years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current
Domestic............................................... $ 5,941 $ 18,094 $ (2,912)
Foreign................................................ 3,544 6,872 13,634
-------- -------- --------
9,485 24,966 10,722
-------- -------- --------
Deferred
Domestic............................................... 47,886 17,706 24,126
Foreign................................................ 7,527 6,203 (6,737)
-------- -------- --------
55,413 23,909 17,389
-------- -------- --------
Total............................................... $ 64,898 $ 48,875 $ 28,111
-------- -------- --------
-------- -------- --------
</TABLE>
As discussed in note 2 to consolidated financial statements, the Company
sold its original equipment components businesses in 1996 resulting in income
tax on the gain of the sale of $25,332. As discussed in note 3 to consolidated
financial statements, the Company incurred extraordinary charges related to
early retirement of debt resulting in income tax benefit of $2,228 in 1998 and
$20,387 in 1996.
Reconciliation of tax at the U.S. statutory income tax rate of 35% for the
years ended December 31, 1998, 1997 and 1996 to income taxes on earnings from
continuing operations was as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Tax at U.S. statutory rate................................... $66,806 $50,312 $28,938
Repatriation of non-U.S. earnings.......................... (1,923) (1,195) 1,900
Non-U.S. rate differential................................. 490 2,844 1,828
Utilization of tax credits................................. (1,500) (997) (1,104)
Adjustment of reserves..................................... 32 (2,736) (6,979)
Other...................................................... 993 647 3,528
------- ------- -------
Income taxes............................................... $64,898 $48,875 $28,111
------- ------- -------
Effective tax rate........................................... 34.0% 34.0% 34.0%
------- ------- -------
------- ------- -------
</TABLE>
38
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
10. INCOME TAXES--(CONTINUED)
The significant components of deferred tax assets and liabilities at
December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
1998 1997
----------------------- -----------------------
DEFERRED DEFERRED DEFERRED DEFERRED
TAX TAX TAX TAX
ASSETS LIABILITIES ASSETS LIABILITIES
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Fixed asset basis adjustments............................ $ -- $ (8,391) $ -- $ (5,948)
Excess tax over book depreciation........................ -- (28,119) -- (21,828)
Book/tax differences on contract income.................. -- (26,613) -- (24,230)
Employee benefit plans................................... 11,558 -- 7,747 --
Accrued expenses and liabilities......................... 2,957 -- 10,159 --
Capital transactions, net................................ -- (61,786) -- (27,901)
Foreign tax credit carryforwards......................... -- -- 3,700 --
Other.................................................... -- (9,051) -- (2,033)
-------- --------- -------- ---------
14,515 (133,960) 21,606 (81,940)
Less valuation allowance................................. -- -- (3,700) --
-------- --------- -------- ---------
Total............................................... $ 14,515 $(133,960) $ 17,906 $ (81,940)
-------- --------- -------- ---------
-------- --------- -------- ---------
</TABLE>
The valuation allowance in 1997 is attributable to foreign tax credit
carryforwards which were utilized in 1998.
39
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
11. LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Credit Agreement(a)................................................... $239,500 $697,500
9 3/4% senior notes due 1999(b)....................................... 2,507 7,507
9 3/4% senior notes due 2000(c)....................................... 7,405 7,405
7 1/2% senior notes due 2008(d)....................................... 300,000 --
Other due 1999-2009................................................... 33,193 46,977
-------- --------
582,605 759,389
Less current portion.................................................. 5,127 1,811
-------- --------
$577,478 $757,578
-------- --------
-------- --------
</TABLE>
(a) The average interest rate was 6.5% and 6.7% for 1998 and 1997, respectively.
In February 1998, the reducing revolving credit facility (the Credit
Agreement), entered into with a syndicate of banks, was amended to increase
the total commitment from $850,000 to $900,000. The Amended Credit Agreement
was further amended in April, 1998 to reduce the total commitment from
$900,000 to $600,000 (see note 12 to consolidated financial statements). The
Credit Agreement provides up to $125,000 for the issuance of letters of
credit. At December 31, 1998, $14,217 of letters of credit had been issued
under the Credit Agreement. Obligations under the facility are secured by
substantially all of the Company's assets. Borrowings under the facility
bear interest, at the Company's option, at an annual rate equal to the base
rate or the Eurodollar rate plus 0.50%. The base rate is the higher of the
Federal Reserve reported certificate of deposit rate and the prime lending
rate. Letter of credit fees of 0.50% are payable on outstanding letters of
credit and a commitment fee of 0.1875% is payable on the unutilized
facility.
The Company has entered into interest rate swaps to reduce (hedge) the impact
of interest rate changes for variable rate borrowings under its credit
facility and its agreement to sell receivables on a revolving basis (see
note 6 to consolidated financial statements). The differential paid or
received is reflected as an adjustment to interest expense over the life of
the swaps. At December 31, 1998, the agreements include an aggregate notional
amount of $280,000, fixed interest rates ranging from 5.78% to 6.40% and
maturity dates ranging from January 2000 to October 2002. At December 31,
1997 the agreements included an aggregate notional amount of $405,000, fixed
interest rates ranging from 5.78% to 6.40% and maturity dates ranging from
April 1998 to October 2002.
(b) In 1998, the Company purchased in the open market $5,000 of the 9 3/4%
senior notes due November 1, 1999.
(c) The 9 3/4% senior notes due 2000 are redeemable at maturity on April 1,
2000.
(d) The 7 1/2% senior notes are redeemable at a premium prior to maturity on
April 15, 2008. See notes 12 and 19 to consolidated financial statements.
Minimum payments on long-term debt due within five years from December 31,
1998 are as follows:
1999.......................................................... $ 5,127
2000.......................................................... 11,394
2001.......................................................... 242,628
2002.......................................................... 1,991
2003.......................................................... 833
Thereafter.................................................... 320,632
--------
Total......................................................... $582,605
--------
--------
40
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
12. FINANCINGS
In April 1998, the Company privately placed, with institutional investors,
$300,000 principal amount of 7 1/2% Senior Notes due 2008 ("Senior Notes") and
$150,000 (3,000,000 shares at liquidation value of $50 per Convertible Preferred
Security) of 5 1/4% Trust Convertible Preferred Securities ("Convertible
Preferred Securities"). The placement of the Convertible Preferred Securities
was made through the Company's wholly-owned subsidiary, Coltec Capital Trust
("Trust"), a newly-formed Delaware business trust. The Convertible
Preferred Securities represent undivided beneficial ownership interests in the
Trust. Substantially all the assets of the Trust are the 5 1/4% Convertible
Junior Subordinated Deferrable Interest Debentures Due April 15, 2028 which were
acquired with the proceeds from the private placement of the Convertible
Preferred Securities. The Company's obligations under the Convertible Junior
Subordinated Debentures, the Indenture pursuant to which they were issued, the
Amended and Restated Declaration of Trust of the Trust, and the Guarantee of the
Company, taken together, constitute a full and unconditional guarantee by the
Company of amounts due on the Convertible Preferred Securities. The Convertible
Preferred Securities are convertible at the option of the holders at any time
into the common stock of the Company at an effective conversion price of
$29 5/16 per share and are redeemable at the Company's option after April 20,
2001 at 102.63% of the liquidation amount declining ratably to 100% after April
20, 2004.
The net proceeds of the Senior Notes and the Convertible Preferred
Securities of approximately $435,500 were used by the Company to reduce
indebtedness under its credit facility. Dividends on the Convertible Preferred
Securities were $3,684 after tax for the year ended December 31, 1998.
13. PENSION PLANS AND OTHER BENEFITS
The Company 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. The Company's policy is to fund amounts which are actuarially
determined to provide the plans with sufficient assets to meet future benefit
payment requirements. 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.
The Company also provides certain health care and life insurance benefits
to its eligible retired employees, principally in the United States, with some
of these retirees paying a portion of related costs. The Company funds
postretirement benefits on a "pay as you go" method. Information related to
these benefits is shown under other postretirement benefits.
41
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
As of December 31, 1998 and 1997, the change in benefit obligation and plan
assets, the funded status and the amounts recognized in the Company's
consolidated balance sheet related to the Company's pension and other
postretirement benefits were as follows:
<TABLE>
<CAPTION>
OTHER
POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------- --------------------
1997 1998 1997 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at beginning of year..................... $461,776 $417,207 $ 22,018 $ 18,961
Service cost................................................ 8,962 8,404 237 187
Interest cost............................................... 33,670 31,996 1,574 1,433
Amendments.................................................. 18,224 17,826 (1,244) --
Actuarial gain.............................................. 35,017 44,726 1,169 3,740
Benefits paid............................................... (30,523) (57,628) (2,408) (2,338)
Foreign currency exchange................................... (1,635) (755) -- --
Curtailment gain (loss)..................................... (1,170) -- -- 35
-------- -------- -------- --------
Benefit obligation at end of year......................... $524,321 $461,776 $ 21,346 $ 22,018
-------- -------- -------- --------
-------- -------- -------- --------
Change in plan assets:
Fair value of plan assets at beginning of year.............. $569,645 $488,714
Actual return on plan assets................................ 80,562 133,979
Employer contribution....................................... 4,247 5,449
Benefits paid............................................... (30,523) (57,544)
Foreign currency exchange................................... (2,065) (953)
-------- -------- -------- --------
Fair value of plan assets at end of year.................. $621,866 $569,645 $ -- $ --
-------- -------- -------- --------
-------- -------- -------- --------
Funded status:
Funded status............................................... $ 97,545 $107,870 $(21,346) $(22,018)
Unrecognized actuarial loss (gain).......................... (108,789) (114,112) 4,687 4,611
Unrecognized prior service cost............................. 33,918 17,987 (2,849) (1,964)
Unrecognized transition asset............................... (157) (667) 13,644 15,330
-------- -------- -------- --------
Net amount recognized..................................... $ 22,517 $ 11,078 $ (5,864) $ (4,041)
-------- -------- -------- --------
-------- -------- -------- --------
Amounts recognized in the balance sheet consist of:
Prepaid (accrued) benefit liability......................... $ 12,274 $ 3,254 $ (5,864) $ (4,041)
Intangible asset............................................ 4,744 5,292 -- --
Accumulated other comprehensive income...................... 3,579 1,646 -- --
Deferred taxes.............................................. 1,920 886 -- --
-------- -------- -------- --------
Net amount recognized..................................... $ 22,517 $ 11,078 $ (5,864) $ (4,041)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
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).
During 1998 and 1997, the Company merged several of its underfunded plans with
its overfunded plans. The projected benefit obligation, accumulated benefit
obligation, and fair value of plan assets for the pension plan with accumulated
benefit obligations in excess of plan assets were, $37,103, $35,296, $1,879,
respectively, as of December 31, 1998, and $34,039, $30,878, and $1,551,
respectively, as of December 31, 1997.
42
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Assumptions as of December 31 used to develop the net periodic benefit
costs for U.S. plans were:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
-------------------- --------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Discount rate for benefit obligations................................. 7.00% 7.25% 7.75% 7.00% 7.25% 7.75%
Expected long-term rate of return on assets........................... 9.00% 9.00% 9.00% -- -- --
Rate of increase in compensation levels............................... 4.75% 4.75% 5.00% -- -- --
</TABLE>
For non-U.S. plans, which were not material, similar economic assumptions
were used.
For measurement purposes, a 8.1% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999 decreasing gradually
to 5.0% by 2005.
The components of net periodic benefit cost for the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
OTHER POSTRETIREMENT
PENSION BENEFITS BENEFITS
------------------------------ --------------------------
1998 1997 1996 1998 1997 1996
-------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Service cost....................................... $ 8,962 $ 8,404 $ 9,377 $ 237 $ 187 $ 395
Interest cost...................................... 33,670 31,996 31,142 1,574 1,433 1,951
Expected return on assets.......................... (73,389) (95,430) (52,049) -- -- --
Amortization of transition obligations............. -- -- -- 1,030 1,022 1,107
Amortization and deferral, net..................... 20,237 47,782 11,443 32 (756) (124)
-------- ------- ------- ------ ------ ------
Net periodic benefit cost (income)................. $(10,520) $(7,248) $ (87) $2,873 $1,886 $3,329
-------- ------- ------- ------ ------ ------
-------- ------- ------- ------ ------ ------
</TABLE>
Assumed health care cost trend rates have a significant effect on the
amounts reported for health care plan. A one-percentage-point change is assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-PERCENTAGE- 1-PERCENTAGE-
POINT INCREASE POINT DECREASE
-------------- --------------
<S> <C> <C>
Effect on total of service and interest cost components........ $ 169 $ (154)
Effect on postretirement benefit obligation.................... 1,300 (1,200)
</TABLE>
For discontinued operations, the total projected pension benefit
obligations at December 31, 1998 and 1997 were $199,445 and $203,737,
respectively, and are fully funded. Interest cost on the projected benefit
obligations for 1998, 1997 and 1996 was $14,646, $16,097 and $16,502,
respectively, and was fully offset by return on assets resulting in no net
periodic pension cost.
14. FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of the Company's financial instruments.
43
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Cash and cash equivalents, accounts and notes receivable and accounts payable:
The carrying amount approximates fair value due to the short-term nature of
these items.
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 variable-rate long-term debt approximates carrying value.
Forward exchange contracts and interest rate hedges:
The fair value is based on quoted market prices of similar contracts.
The estimated fair value of the Company's financial instruments at December
31, 1998 and 1997 was as follows:
<TABLE>
<CAPTION>
1998 1997
-------------------- --------------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Long-term receivables and investments.................. $ 50,798 $ 57,589 $ 35,017 $ 42,737
Long-term debt......................................... 582,605 598,438 759,389 760,609
Forward exchange contracts............................. -- (12,404) -- (8,384)
Interest rate hedges................................... -- (10,909) -- (3,555)
</TABLE>
The Company utilizes forward exchange contracts to hedge U.S.
dollar-denominated sales, under long-term contracts, of certain foreign
subsidiaries. The Company does not engage in speculation. The Company's forward
exchange contracts do not subject the Company to risk due to exchange rate
movements because gains and losses on these contracts offset gains and losses on
the sales and related receivables being hedged. At December 31, 1998 and 1997,
the Company had $120,485 and $162,000, respectively, of forward exchange
contracts denominated in Canadian dollars. The contracts have varying maturities
with none exceeding five years. Gains and losses on forward exchange contracts
are deferred and recognized in cost of sales over the life of the underlying
long-term contract being hedged.
The Company has an outstanding contingent liability for guaranteed debt and
lease payments of $30,748, and for letters of credit $40,485. 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, non-performance
by the other parties to the contingent liabilities will not have a material
effect on the Company's results of operations or financial condition.
15. STOCK OPTION AND INCENTIVE PLANS
Pursuant to the Company's stock option plans, stock options and shares of
restricted stock have been granted to officers and key employees and stock
options to directors. In 1998 the number of shares of common stock that may be
issued under the stock option plans was increased to 12,293,000 shares from
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% or 33%, commencing one year from
date of grant and expiring ten years from date of grant.
The Company applies Accounting Principles Board Opinion #25, Accounting for
Stock Issued to Employees, in accounting for its stock option plans.
Accordingly, no compensation expense has been recognized for these plans. Had
compensation expense for the Company's stock option plans been determined based
on the fair value at the grant dates for awards under these plans consistent
with SFAS No. 123, Accounting for Stock-Based
44
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Compensation, the Company's pro forma net earnings would have been $114,729 for
1998, $92,137 for 1997 and $79,425 for 1996 and earnings per share would have
been $1.71 in 1998, $1.38 in 1997, and $1.15 in 1996.
The fair value of each option was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions: risk-free interest rate of 6.50% for 1998, 6.75% for 1997 and 7.0%
for 1996, no dividends paid, expected life of five years for 1998, 3.7 years for
1997 and five years for 1996, and volatility of 26% for 1998, 21% for 1997 and
23% for 1996. The weighted-average fair value of options granted was $7.90 for
1998, $5.75 for 1997 and $4.76 for 1996.
A summary of the status of the Company's fixed stock option plans as of
December 31, 1998, 1997 and 1996 was follows:
<TABLE>
<CAPTION>
WEIGHTED-
NUMBER OPTION AVERAGE
OF SHARES PRICE RANGE EXERCISE
(000S) PER SHARE PRICE
--------- ------------ ---------
<S> <C> <C> <C>
December 31, 1995................................................ 5,188 $10.75-21.25 $ 13.16
Granted.......................................................... 516 11.00-15.75 13.43
Exercised........................................................ (56) 10.75-11.63 11.37
Canceled......................................................... (236) 10.75-21.25 12.82
------- ------------ -------
December 31, 1996................................................ 5,412 10.75-21.25 13.22
Granted.......................................................... 1,069 18.88-22.88 21.09
Exercised........................................................ (1,004) 10.75-18.75 14.64
Canceled......................................................... (217) 10.75-18.75 12.08
------- ------------ -------
December 31, 1997................................................ 5,260 10.75-22.88 14.59
Granted.......................................................... 528 16.94-23.19 21.82
Exercised........................................................ (327) 10.75-19.35 13.00
Canceled......................................................... (35) 21.88 21.88
------- ------------ -------
December 31, 1998................................................ 5,426 $10.75-22.88 $ 15.34
------- ------------ -------
------- ------------ -------
</TABLE>
Stock options exercisable were 2,825,733, 2,156,000 and 2,103,000 at
December 31, 1998, 1997 and 1996, respectively.
45
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
The following summarizes information about the Company's stock options
outstanding as of December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
-------------------------------------
WEIGHTED- WEIGHTED-
NUMBER AVERAGE AVERAGE
OUTSTANDING REMAINING EXERCISE
RANGE OF EXERCISE PRICES (000S) LIFE PRICE
- - ------------------------------------------------------------------- ----------- --------- ---------
<S> <C> <C> <C>
$10.75 to $15.75................................................... 3,243 6.3 years $11.98
$16.25 to $20.13................................................... 753 6.0 years 18.00
$21.19 to $23.19................................................... 1,430 8.8 years 21.58
----- --------- ------
$10.75 to $23.19................................................... 5,426 6.9 years $15.34
----- --------- ------
----- --------- ------
<CAPTION>
OPTIONS EXERCISABLE
------------------------
WEIGHTED-
NUMBER AVERAGE
OUTSTANDING EXERCISE
RANGE OF EXERCISE PRICES (000S) PRICE
- - --------------------------------------------------------------------- ----------- ---------
<S> <C> <C>
$10.75 to $15.75..................................................... 2,012 $ 12.36
$16.25 to $20.13..................................................... 511 17.93
$21.19 to $23.19..................................................... 303 22.10
----- -------
$10.75 to $23.19..................................................... 2,826 $ 14.41
----- -------
----- -------
</TABLE>
In addition to the granting of stock options, the Company has granted
shares of restricted stock. Restrictions on certain shares lapse 100% three
years from the date of grant. Restrictions on the remaining shares lapse in
annual installments of 33% commencing one year from 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 Sheets and is
being charged to earnings over the period the restricted shares vest.
Shares available for grant at December 31, 1998 under the stock option
plans were 4,501,500.
16. COMMITMENTS AND CONTINGENCIES
The Company 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, 1998 and 1997, two subsidiaries of the Company were among a
number of defendants (typically 15 to 40) in approximately 101,400 and 110,000
actions, respectively (including approximately 4,700 and 2,400 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.
During 1998, 1997 and 1996, two subsidiaries of the Company received
approximately 34,400, 38,200 and 39,900 new actions, respectively. Through
December 31, 1998, approximately 244,000 of the approximately 345,400 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 $1,000 or more in compensatory damages and $2,000
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 the Company 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
46
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
policy period (the "continuous trigger theory of coverage"), the Company settled
litigation with its primary and most of its first-level excess insurance
carriers, substantially on the basis of the Court's ruling. The Company has
negotiated a final agreement with most of its excess carriers that are in the
layers of coverage immediately above its first layer. The Company is currently
receiving payments pursuant to this agreement. The Company 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.
Payments were made with respect to asbestos liability and related costs
aggregating $53,722 in 1998, $59,247 in 1997, and $71,354 in 1996, substantially
all of which were covered by insurance. Related to payments not covered by
insurance, the Company recorded charges to operations amounting to $8,000 in
1998, 1997 and 1996.
In accordance with the Company'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 the
Company can reasonably estimate the cost to dispose of these actions. As of
December 31, 1998, the Company 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 $116,500, and the Company expects that this cost will be
substantially covered by insurance.
With respect to the 96,700 outstanding actions as of December 31, 1998,
which are in preliminary procedural stages, the Company 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 the Company. 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, the Company generally does
not have the information necessary to analyze the actions in sufficient detail
to estimate the ultimate liability or costs to the Company, 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 the
Company's subsidiaries will receive in the future. The Company 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 the
Company's asbestos-related actions. The Company 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, the Company 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 the Company's subsidiaries and other
defendants in asbestos litigation, the likely sharing of judgments among
multiple responsible defendants, and the substantial amount of insurance
coverage that the Company expects to be available from its solvent carriers, the
Company believes that pending and reasonably anticipated future actions are not
likely to have a material effect on the Company's results of operations or
financial condition.
Although the insurance coverage which the Company 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. The
47
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
Company'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, the Company'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 the
Company. Likewise, the insignificant number of claims remaining to be resolved
are not expected to have a material effect on the Company's results of
operations or financial condition.
The Company 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, the Company 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 Sheets were as
follows at December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Accounts and notes receivable........................................... $95,448 $56,039
Other assets............................................................ 32,577 16,249
Accrued expenses........................................................ 93,700 50,688
Other liabilities....................................................... 22,833 2,682
</TABLE>
With respect to environmental proceedings, the Company has been notified
that it is among the Potentially Responsible Parties under federal environmental
laws, or similar state laws, relative to the costs of investigating and in some
cases remediating contamination by hazardous materials at several sites. Such
laws impose 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 Company's policy is to accrue environmental remediation costs when it is
both probable that a liability has been incurred and the amount can be
reasonably estimated. The measurement of liability is based on an evaluation of
currently available facts with respect to each individual situation and takes
into consideration factors such as existing technology, presently enacted laws
and regulations and prior experience in remediation of contaminated sites.
Investigations have been completed for approximately 21 sites and continuing
investigations are being done at approximately 10 sites. Accruals are provided
for all sites based on the factors discussed above. As remediation assessments
progress and plans are implemented, estimated costs become more fact-based and
less judgment-based. These estimated costs are reviewed periodically and related
liabilities adjusted to reflect additional technical and legal information.
While it is often difficult to reasonably quantify future environmental-related
expenditures, the Company currently estimates its future non-capital
expenditures related to environmental matters to range between $26,000 and
$55,000. In connection with these expenditures, the Company has accrued $34,277
at December 31, 1998 representing management's best estimate of probable
non-capital environmental expenditures. These non-capital expenditures are
estimated to be incurred over the next 10 to 20 years. In addition, capital
expenditures aggregating $5,000 may be required during the next two years
related to environmental matters. Although the Company is pursuing insurance
recovery in connection with certain of these matters, no receivable has been
recorded with respect to any potential recovery of costs in connection with any
environmental matters.
Under operating lease commitments, expiring on various dates after December
31, 1998, the Company and certain of its subsidiaries are obligated as of
December 31, 1998, to pay rentals totaling $36,794 as follows: $7,152 in 1999,
$6,184 in 2000, $4,652 in 2001, $3,674 in 2002, $2,907 in 2003 and $12,225 in
later years.
At December 31, 1998, the Company had committed to a minimum employer
contribution of $15,456 to the Company's 401K plans.
48
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
17. SEGMENT INFORMATION
As discussed in note 2 to consolidated financial statements, the Company
divested all of its automotive OE components businesses in 1996. Subsequent to
the divestitures, the Company reported the results of its business units in two
operating segments, Aerospace and Industrial. In 1998, the Company adopted
Statement of Financial Accounting Standards (SFAS) No. 131, Disclosures about
Segments of an Enterprise and Related Information, effective December 31, 1998,
however, the Company's operating segments did not change as a result of adoption
of SFAS No. 131. The Company's operating segments are strategic business units
that offer different products and services. They are managed separately because
each business requires different technology and marketing strategy. The
presentation of sales and operating income under Management's Discussion and
Analysis of Financial Condition and Results of Operations--Segment Review--
Aerospace and--Segment Review--Industrial are an integral part of the financial
statements.
One customer (Boeing) in the Aerospace Segment represented approximately
19% and 14% of the Company's 1998 and 1997 total sales, respectively.
Information on total assets, depreciation of property, plant and equipment
and capital expenditures by industry segment was as follows for the years ended
December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ------ ------
(IN MILLIONS)
<S> <C> <C> <C>
Total assets:
Aerospace.............................................................. $ 448.9 $437.3 $415.5
Industrial............................................................. 365.0 310.6 287.2
Corporate unallocated.................................................. 241.7 185.1 146.8
-------- ------ ------
Total............................................................... $1,055.6 $933.0 $849.5
-------- ------ ------
-------- ------ ------
Depreciation of property, plant and equipment:
Aerospace.............................................................. $ 17.9 $ 13.4 $ 12.2
Industrial............................................................. 16.6 14.0 12.9
Corporate unallocated.................................................. 1.2 2.3 1.9
-------- ------ ------
Subtotal............................................................ 35.7 29.7 27.0
Discontinued operations................................................ -- -- 3.5
-------- ------ ------
Total............................................................... $ 35.7 $ 29.7 $ 30.5
-------- ------ ------
-------- ------ ------
Capital expenditures:
Aerospace.............................................................. $ 23.8 $ 46.9 $ 26.9
Industrial............................................................. 29.6 31.4 13.7
Corporate unallocated.................................................. .1 2.9 4.0
-------- ------ ------
Subtotal............................................................ 53.5 81.2 44.6
Discontinued operations................................................ -- -- 5.4
-------- ------ ------
Total............................................................... $ 53.5 $ 81.2 $ 50.0
-------- ------ ------
-------- ------ ------
</TABLE>
49
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATING CONDENSED STATEMENT OF EARNINGS
Information by country was as follows for the years ended December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
OPERATING TOTAL
SALES(A) INCOME ASSETS
-------- --------- --------
(IN MILLIONS)
<S> <C> <C> <C>
1998
United States........................................................ $1,148.4 $ 174.4 $ 564.0
Canada............................................................... 238.2 35.4 182.7
Other foreign countries.............................................. 117.4 15.8 67.2
-------- ------- --------
Total................................................................ 1,504.0 225.6 813.9
Corporate unallocated................................................ -- (37.5) 241.7
-------- ------- --------
Total........................................................... $1,504.0 $ 188.1 $1,055.6
-------- ------- --------
-------- ------- --------
1997
United States........................................................ $1,027.2 $ 198.4 $ 590.1
Canada............................................................... 179.3 23.7 141.0
Other foreign countries.............................................. 108.4 15.4 16.8
-------- ------- --------
Total................................................................ 1,314.9 237.5 747.9
Corporate unallocated................................................ -- (39.7) 185.1
-------- ------- --------
Total.............................................................. $1,314.9 $ 197.8 $ 933.0
-------- ------- --------
-------- ------- --------
1996
United States........................................................ $ 888.6 $ 182.5 $ 554.2
Canada............................................................... 149.0 (5.1) 104.8
Other foreign countries.............................................. 122.1 21.3 43.7
-------- ------- --------
Total................................................................ 1,159.7 198.7 702.7
Corporate unallocated................................................ -- (41.1) 146.8
-------- ------- --------
Total.............................................................. $1,159.7 $ 157.6 $ 849.5
-------- ------- --------
-------- ------- --------
</TABLE>
- - ------------------
(a) Sales are attributed to countries based on shipping location.
50
<PAGE>
18. SUPPLEMENTARY EARNINGS INFORMATION
The following expenses were included in the Consolidated Statements of
Earnings for the years ended December 31, 1998, 1997 and 1996.
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Maintenance............................................................ $27,908 $24,000 $22,816
Taxes, other than federal income taxes
Payroll.............................................................. 30,062 30,025 24,633
Property............................................................. 6,362 4,928 4,626
State and local...................................................... 7,601 6,241 5,121
Rent................................................................... 9,070 8,950 9,965
Research and developments costs........................................ 54,860 46,548 44,125
</TABLE>
19. SUPPLEMENTAL GUARANTOR INFORMATION
As discussed in note 12 to consolidated financial statements, in April
1998, the Company privately placed $300,000 principal amount of 7 1/2% Senior
Notes due 2008 (Senior Notes). Substantially all the Company's subsidiaries
incorporated in the United States (the "Subsidiary Guarantors") have fully and
unconditionally guaranteed, on a joint and several basis, the Company's
obligations to pay principal and interest with respect to the Senior Notes. Each
Subsidiary Guarantor is wholly owned and management has determined that separate
financial statements for the Subsidiary Guarantors are not material to
investors. The subsidiaries of the Company that are not Subsidiary Guarantors
are referred to as the "Non-Guarantor Subsidiaries".
The following supplemental consolidating condensed financial statements
present balance sheets as of December 31, 1998 and 1997 and statements of
earnings and of cash flows for the years ended December 31, 1998, 1997 and 1996.
In the consolidating financial statements, Coltec Industries Inc ("Parent")
accounts for its investments in wholly-owned subsidiaries using the equity
method and the Subsidiary Guarantors account for their investments in
Non-Subsidiary Guarantors using the equity method. Interest expense related to
the indebtedness under the Company's credit agreement and its three series of
senior notes is allocated to United States subsidiaries based on net sales.
51
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
CONSOLIDATING CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................... $517,226 $610,874 $ 424,708 $ (48,754) $1,504,054
Cost of sales............................... 400,705 413,162 315,618 (48,754) 1,080,731
-------- -------- --------- ---------- ----------
Gross profit................................ 116,521 197,712 109,090 -- 423,323
Selling and administrative.................. 69,769 116,718 48,717 -- 235,204
-------- -------- --------- ---------- ----------
Operating income............................ 46,752 80,994 60,373 188,119
Equity earnings in affiliates............... 75,876 41,903 -- (117,779) --
Gain on divestiture......................... 56,194 -- -- -- 56,194
Interest expense and other, net............. (35,234) (51,381) 34,247 (1,070) (53,438)
-------- -------- --------- ---------- ----------
Earnings before income taxes, minority
interest and extraordinary item........... 143,588 71,516 94,620 (118,849) 190,875
Income taxes................................ (21,295) (18,807) (24,796) -- (64,898)
Minority interest in net loss of
subsidiaries (net of tax)................. -- -- (3,684) -- (3,684)
-------- -------- --------- ---------- ----------
Earnings before extraordinary item.......... 122,293 52,709 66,140 (118,849) 122,293
Extraordinary item (net of tax)............. (4,326) -- -- -- (4,326)
-------- -------- --------- ---------- ----------
Net earnings................................ $117,967 $ 52,709 $ 66,140 $ (118,849) $ 117,967
-------- -------- --------- ---------- ----------
-------- -------- --------- ---------- ----------
</TABLE>
52
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
CONSOLIDATING CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................ $430,206 $586,901 $ 340,833 $(43,071) $1,314,869
Cost of sales............................ 295,466 394,948 250,926 (43,071) 898,269
-------- -------- --------- -------- ----------
Gross profit............................. 134,740 191,953 89,907 -- 416,600
Selling and administrative............... 49,854 122,251 46,703 -- 218,808
-------- -------- --------- -------- ----------
Operating income......................... 84,886 69,702 43,204 -- 197,792
Equity earnings of subsidiaries.......... 55,570 22,156 -- (77,726) --
Interest expense and other, net.......... (30,505) (54,975) 31,437 -- (54,043)
-------- -------- --------- -------- ----------
Earnings before income taxes............. 109,951 36,883 74,641 (77,726) 143,749
Income taxes............................. (15,077) (8,630) (25,168) -- (48,875)
-------- -------- --------- -------- ----------
Net earnings............................. $ 94,874 $ 28,253 $ 49,473 $(77,726) $ 94,874
-------- -------- --------- -------- ----------
-------- -------- --------- -------- ----------
</TABLE>
53
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
CONSOLIDATING CONDENSED STATEMENT OF EARNINGS
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................... $363,743 $530,876 $ 285,875 $(20,803) $1,159,691
Cost of sales............................... 253,345 360,074 218,507 (20,803) 811,123
-------- -------- --------- -------- ----------
Gross profit................................ 110,398 170,802 67,368 -- 348,568
Selling and administrative.................. 32,749 82,812 75,432 -- 190,993
-------- -------- --------- -------- ----------
Operating income............................ 77,649 87,990 (8,064) -- 157,575
Equity earnings of subsidiaries............. 43,755 12,820 -- (56,575) --
Interest expense and other, net............. (66,891) (16,676) 8,673 -- (74,894)
-------- -------- --------- -------- ----------
Earnings from continuing operations before
income taxes and extraordinary item....... 54,513 84,134 609 (56,575) 82,681
Income taxes................................ 19,309 (24,672) (22,748) -- (28,111)
-------- -------- --------- -------- ----------
Earnings from continuing operations before
extraordinary item........................ 73,822 59,462 (22,139) (56,575) 54,570
Discontinued operations (net of tax)........ 37,931 -- 19,252 -- 57,183
Extraordinary item (net of tax)............. (30,614) -- -- -- (30,614)
-------- -------- --------- -------- ----------
Net earnings................................ $ 81,139 $ 59,462 $ (2,887) $(56,575) $ 81,139
-------- -------- --------- -------- ----------
-------- -------- --------- -------- ----------
</TABLE>
54
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
CONSOLIDATING CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1998
---------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents............... $ 6,422 $ 8,522 $ 6,841 $ 21,785
Accounts and notes receivable, net...... -- 20,943 127,242 148,185
Inventory, net.......................... 88,474 56,470 91,059 236,003
Deferred income taxes................... 9,388 8,532 2,544 20,464
Other current assets.................... 6,030 5,123 4,459 15,612
---------- -------- --------- ------------ ------------
Total current assets.................. 110,314 99,590 232,145 -- 442,049
Intercompany, net....................... (915,938) 324,944 590,994 --
Investments in affiliates............... 1,024,416 74,489 850 $ (1,099,755) --
Property, plant and equipment........... 113,069 109,991 83,582 306,642
Cost in excess of net assets acquired,
net................................... 58,924 134,861 20,862 214,647
Other assets............................ 46,922 2,953 42,435 92,310
---------- -------- --------- ------------ ------------
Total assets.......................... $ 437,707 $746,828 $ 970,868 $ (1,099,755) $ 1,055,648
---------- -------- --------- ------------ ------------
---------- -------- --------- ------------ ------------
Total current liabilities............... $ 89,170 $ 31,605 $ 152,030 $ 272,805
Long-term debt.......................... 484,107 2,096 91,275 577,478
Deferred income taxes................... (19,731) 141,446 18,194 139,909
Other liabilities....................... 49,488 12,018 28,750 $ (4,766) 85,490
Liabilities of discontinued
operations ........................... 134,995 -- -- 134,995
Company-obligated, mandatorily
redeemable convertible preferred
securities............................ -- -- 145,293 145,293
Shareholders' equity.................... (300,322) 559,663 535,326 (1,094,989) (300,322)
---------- -------- --------- ------------ ------------
Total liabilities and shareholders'
equity............................. $ 437,707 $746,828 $ 970,868 $ (1,099,755) $ 1,055,648
---------- -------- --------- ------------ ------------
---------- -------- --------- ------------ ------------
</TABLE>
55
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
CONSOLIDATING CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
---------------------------------------------------------------------------
NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents................ $ 9,912 $ 722 $ 4,059 $ 14,693
Accounts and notes receivable, net....... -- 24,130 96,181 120,311
Inventory, net........................... 99,100 71,958 85,678 256,736
Deferred income taxes.................... 4,535 10,689 (29) 15,195
Other current assets..................... 4,540 10,406 5,562 20,508
---------- -------- --------- ------------ ----------
Total current assets................... 118,087 117,905 191,451 -- 427,443
Intercompany, net........................ (741,897) 47,684 694,213 --
Investments in affiliates................ 1,057,890 355,399 2,688 $ (1,415,977) --
Property, plant and equipment............ 89,488 118,405 79,726 287,619
Cost in excess of net assets acquired,
net.................................... 21,820 133,441 2,490 157,751
Other assets............................. 40,266 3,490 16,465 60,221
---------- -------- --------- ------------ ----------
Total assets........................... $ 585,654 $776,324 $ 987,033 $ (1,415,977) $ 933,034
---------- -------- --------- ------------ ----------
---------- -------- --------- ------------ ----------
Total current liabilities................ $ 93,669 $ 49,494 $ 96,415 $ 239,578
Long term debt........................... 689,302 1,611 66,665 757,578
Deferred income taxes.................... (32,780) 101,871 10,138 79,229
Other liabilities........................ 51,406 12,844 10,544 $ (2,202) 72,592
Liabilities of discontinued operations... 143,218 -- -- 143,218
Shareholders' equity..................... (359,161) 610,504 803,271 (1,413,775) (359,161)
---------- -------- --------- ------------ ----------
Total liabilities and shareholders'
equity.............................. $ 585,654 $776,324 $ 987,033 $ (1,415,977) $ 933,034
---------- -------- --------- ------------ ----------
---------- -------- --------- ------------ ----------
</TABLE>
56
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------------------
NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash from operating activities.............. $ 131,737 $ 7,800 $ 2,782 -- $ 142,319
--------- --------- --------- ---------- ----------
Cash flows from investing activities:
Proceeds from divestiture................. 100,000 -- -- 100,000
Capital expenditures...................... (22,921) (17,863) (12,761) (53,545)
Acquisition of businesses................. (26,127) (17,133) (50,982) (94,242)
Cash from (to) Parent..................... (98,739) 34,996 63,743 --
--------- --------- --------- ---------- ----------
Cash used in investing activities...... (47,787) -- -- -- (47,787)
--------- --------- --------- ---------- ----------
Cash flows from financing activities:
Issuance of long-term debt................ 291,451 -- -- 291,451
Issuance of convertible preferred
securities............................. 143,999 143,999
Repayment of long-term debt............... (7,160) (1,632) (15,473) (24,265)
Increase (decrease) in revolving facility,
net.................................... (498,000) -- 40,000 (458,000)
Purchase of treasury stock................ (51,371) -- -- (51,371)
Payments for unclaimed stock.............. (3,871) (3,871)
Proceeds from sale of accounts
receivable............................. -- -- 12,500 12,500
Proceeds from exercise of stock options... 2,117 -- -- 2,117
Cash from (to) Parent..................... 179,394 1,632 (181,026) --
--------- --------- --------- ---------- ----------
Cash used in financing activities...... (87,440) -- -- -- (87,440)
--------- --------- --------- ---------- ----------
Increase (decrease) in cash and cash
equivalents............................... (3,490) 7,800 2,782 7,092
Cash and cash equivalents--beginning of
period.................................... 9,912 722 4,059 14,693
--------- --------- --------- ---------- ----------
Cash and cash equivalents--end of
period.................................... $ 6,422 $ 8,522 $ 6,841 -- $ 21,785
--------- --------- --------- ---------- ----------
--------- --------- --------- ---------- ----------
</TABLE>
57
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
NON-GUARANTOR
PARENT GUARANTOR SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- --------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash from operating activities............... $ 66,192 $ 152 $ (4,925) -- $ 61,419
-------- --------- --------- ---------- ----------
Cash flows from investing activities:
Capital expenditures....................... (28,720) (29,542) (22,956) (81,218)
Acquisition of businesses.................. (32,716) (27,995) -- (60,711)
Cash from (to) Parent...................... (80,493) 57,537 22,956 --
-------- --------- --------- ---------- ----------
Cash used in investing activities....... (141,929) -- -- -- (141,929)
-------- --------- --------- ---------- ----------
Cash flows from financing activities:
Issuance of long-term debt................. 813 -- -- 813
Repayment of long-term debt................ (4,929) (133) (3,051) (8,113)
Increase (decrease) in revolving facility,
net..................................... (500) -- 40,000 39,500
Purchase of treasury stock................. (42,695) -- -- (42,695)
Proceeds from sale of accounts
receivable.............................. -- -- 82,500 82,500
Proceeds from exercise of stock options.... 8,169 -- -- 8,169
Cash from (to) Parent...................... 119,316 133 (119,449) --
-------- --------- --------- ---------- ----------
Cash provided by financing activities... 80,174 -- -- -- 80,174
-------- --------- --------- ---------- ----------
Increase (decrease) in cash and cash
equivalents................................ 4,437 152 (4,925) (336)
Cash and cash equivalents--beginning of
period..................................... 5,475 570 8,984 15,029
-------- --------- --------- ---------- ----------
Cash and cash equivalents--end of period..... $ 9,912 $ 722 $ 4,059 -- $ 14,693
-------- --------- --------- ---------- ----------
-------- --------- --------- ---------- ----------
</TABLE>
58
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(Dollars in thousands)
CONSOLIDATING CONDENSED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
--------------------------------------------------------------------------
GUARANTOR NON-GUARANTOR
PARENT SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Cash from operating activities............. $ 43,920 $ (179) $ 5,762 -- $ 49,503
--------- -------- --------- -------- ----------
Cash flows from investing activities:
Capital expenditures..................... (20,799) (8,376) (15,375) (44,550)
Proceeds from divestitures............... 329,113 -- -- 329,113
Cash from (to) Parent.................... (23,751) 8,376 15,375 --
--------- -------- --------- -------- ----------
Cash provided by investing
activities.......................... 284,563 -- -- -- 284,563
--------- -------- --------- -------- ----------
Cash flows from financing activities:
Proceeds from debt refinancing........... 542,000 -- -- 542,000
Repayment of long-term debt.............. (622,582) -- -- (622,582)
Decrease in revolving facility, net...... (196,000) -- -- (196,000)
Purchase of treasury stock............... (46,426) -- -- (46,426)
--------- -------- --------- -------- ----------
Cash used in financing activities..... (323,008) -- -- -- (323,008)
--------- -------- --------- -------- ----------
Increase (decrease) in cash and cash
equivalents.............................. 5,475 (179) 5,762 11,058
Cash and cash equivalents--beginning of
period................................... -- 749 3,222 3,971
--------- -------- --------- -------- ----------
Cash and cash equivalents--end of period... $ 5,475 $ 570 $ 8,984 -- $ 15,029
--------- -------- --------- -------- ----------
--------- -------- --------- -------- ----------
</TABLE>
59
<PAGE>
COLTEC INDUSTRIES INC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(DOLLARS IN THOUSANDS)
20. PENDING MERGER
On November 22, 1998, the Company and The B. F. Goodrich Company
("BFGoodrich"), entered into an Agreement and Plan of Merger ("Merger
Agreement"). Under the terms of the Merger Agreement, upon consummation of the
Merger, each share of Coltec common stock issued and outstanding immediately
prior to the effective time of the Merger shall be converted into the right to
receive 0.56 of a share of BFGoodrich common stock. The Merger will be accounted
for as a pooling of interests. A special meeting of the shareholders of the
Company has been scheduled for April 9, 1999 at which the Company shareholders
will consider and vote upon a proposal to approve and adopt the Merger
Agreement.
The unaudited pro forma combined financial data is presented for
informational purposes only. They are not necessarily indicative of the results
of operations or of the financial position which would have occurred had the
Merger been completed during the periods or as of the date for which the pro
forma data are presented. They are also not necessarily indicative of the
combined Company's future results of operations or financial position. In
particular, the combined company expects to realize significant operating cost
savings as a result of the Merger. No adjustment has been included in the pro
forma combined financial data for these anticipated operating cost savings nor
for the one-time merger and consolidation costs expected to be incurred upon
consummation of the Merger.
Pro forma per share amounts for the combined company are based on the
Exchange Ratio of 0.56 of a share of BFGoodrich common stock for each share of
Coltec common stock.
UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Pro Forma Combined Statement of Income Data:
Sales............................................... $ 5,454.9 $ 4,687.9 $ 4,005.5
Income from continuing operations................... 350.4 208.1 170.1
Income from continuing operations per diluted common
share............................................ 3.08 1.86 1.57
Weighted average number of common shares and assumed
conversion (on a fully diluted basis)
(millions)....................................... 113.9 112.1 109.8
<CAPTION>
DECEMBER 31,
1998
--------------------
<S> <C>
Pro Forma Combined Balance Sheet Data:
Total assets........................................ $5,293.5
Total shareholders' equity.......................... 1299.3
Book value per common share......................... 11.84
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
60
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The directors and executive officers of Coltec are set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- - ----------------------------------------------- --- -------------------------------------------------
<S> <C> <C>
John W. Guffey, Jr............................. 61 Chairman of the Board, Chief Executive Officer
and Director.
Nishan Teshoian................................ 57 President, Chief Operating Officer and Director.
David D. Harrison.............................. 51 Executive Vice President, Chief Financial Officer
and Director.
Laurence H. Polsky............................. 55 Executive Vice President, Administration.
Robert J. Tubbs................................ 51 Executive Vice President, General Counsel and
Secretary.
Michael J. Burdulis............................ 53 Senior Vice President, Group Operations.
Paul R. Kuhn................................... 57 Senior Vice President, Group Operations.
Joseph F. Andolino............................. 46 Vice President, Business Development and Taxes.
John N. Maier.................................. 47 Vice President and Controller.
Joseph R. Coppola.............................. 68 Director.
William H. Grigg............................... 66 Director.
William R. Holland............................. 60 Director.
David I. Margolis.............................. 69 Director.
Joel Moses..................................... 57 Director.
Richard A. Stuckey............................. 67 Director.
</TABLE>
Biographical information concerning the directors and executive officers of
Coltec is as follows:
Mr. Guffey, Chairman of the Board and Chief Executive Officer of Coltec
since January 1998. Chairman of the Board, Chief Executive Officer and President
of Coltec from February 1995 to December 1997. Member of the Executive Committee
and member of the Nominating Committee of Coltec. President and Chief Operating
Officer of Coltec from prior to 1993 to January 1995. Director of Gleason Corp.,
a manufacturer of machine tools.
Mr. Teshoian, President and Chief Operating Officer since January 1998.
Chairman of the Board and Chief Executive Officer of Keystone International,
Inc., a diversified manufacturing company, from August 1995 to December 1997.
Executive Vice President of Operations of the Tools and Hardware Division of
Cooper Industries, Inc., a diversified manufacturing company ("Cooper
Industries"), from June 1993 to July 1995. President of the Belden Division of
Cooper Industries from prior to 1993 to August 1993.
Mr. Harrison, Executive Vice President and Chief Financial Officer since
January 1997. Executive Vice President, Chief Financial Officer and Treasurer
from October 1996 to January 1997. Executive Vice President and Chief Financial
Officer of Pentair Inc. from February 1994 to August 1996. From prior to 1993 to
February 1994, Vice President, Finance of General Electric Appliances Canada
(CAMCO).
Mr. Polsky, Executive Vice President, Administration since January 1994.
Senior Vice President, Administration from prior to 1993 to December 1993.
Mr. Tubbs, Executive Vice President, General Counsel and Secretary since
January 1997. Senior Vice President, General Counsel and Secretary from November
1995 to January 1997. Senior Vice President and General Counsel from March 1995
to November 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 1993 to May 1993.
61
<PAGE>
Mr. Burdulis, Senior Vice President, Group Operations since June 1996.
Group President from January 1995 to May 1996. President of the Garlock Sealing
Technologies Division from February 1994 to December 1994. President of the
Central Moloney Transformer Division from prior to 1993 to January 1994.
Mr. Kuhn, Senior Vice President, Group Operations since January 1998. Group
President and President of Chandler Evans Control Systems Division from January
1993 to December 1997.
Mr. Andolino, Vice President, Business Development and Taxes, since April
1998. Group President and Vice President, Taxes from July 1997 to April 1998.
Vice President, Taxes from March 1997 to June 1997. Staff Vice President, Taxes
from June 1995 to March 1997. Senior Tax Counsel of AlliedSignal Inc., a
diversified manufacturing company, from prior to 1993 to May 1995.
Mr. Maier, Vice President and Controller since March 1997. Staff Vice
President and Controller from March 1995 to March 1997. Vice President and
Controller of Lukens, Inc., a specialty steel and industrial products company,
from prior to 1993 to February 1995.
Mr. Coppola, Member of the Audit Committee, member of the Stock Option and
Compensation Committee (the "Compensation Committee") and Chairman of the
Nominating and Corporate Governance Committee (the "Nominating Committee") of
Coltec. Chairman, Chief Executive Officer and President of Giddings & Lewis,
Inc. ("Giddings & Lewis"), a machine tool manufacturing company, from July 1993
to retirement from Giddings & Lewis in July 1997. From prior to 1993 to July
1993 he was Senior Vice President, Manufacturing Services of Cooper Industries.
Director of Belden Inc., a manufacturer of electrical wire and cable.
Mr. Grigg, Chairman of the Audit Committee and member of the Nominating
Committee of Coltec. Chairman and Chief Executive Officer of Duke Power Company,
now Duke Energy Corporation ("Duke"), a public utility company, from April 1994
to June 1997. Mr. Grigg retired from Duke in December 1997. Vice Chairman of
Duke from prior to 1993 to April 1994. Director of Duke and the following mutual
funds: Hatteras Income Securities Inc., Nations Fund Inc., Nations Fund Trust,
Nations Fund Portfolios Inc., Nations LifeGoal Portfolios Inc., Nations
Institutional Reserves Inc., Nations Government Income Term Trust 2003, Inc.,
Nations Government Income Term Trust 2004, Inc. and Nations Balanced Target
Maturity Inc. Director of Shaw Group, Inc., a designer, manufacturer and service
provider of complex piping systems.
Mr. Holland, Member of the Audit Committee and member of the Compensation
Committee of Coltec. Chairman and Chief Executive Officer of United Dominion
Industries ("United Dominion"), a diversified manufacturing company, from 1987
to present. From prior to 1987 Mr. Holland held various executive positions at
United Dominion. Director of J. A. Jones Construction Co., a construction
company. Director of Carolinas HealthCare System, a healthcare medical facility.
Mr. Margolis, Chairman of the Executive Committee of Coltec since October
1994. Chairman of the Board and Chief Executive Officer of Coltec from prior to
1993 to retirement from Coltec in January 1995. Director of Burlington
Industries, Inc., a manufacturer of textiles.
Mr. Moses, Chairman of the Compensation Committee and member of the
Executive Committee of Coltec. Formerly Provost, Massachusetts Institute of
Technology ("MIT"), from June 1995 to July 1998. D.C. Jackson Professor of
Computer Science and Engineering, MIT since prior to 1993. Dean, School of
Engineering, MIT, from prior to 1993 to June 1995. Director of Analog Devices,
Inc., a manufacturer of integrated circuits.
Mr. Stuckey, Member of the Audit Committee and member of the Compensation
Committee of Coltec. Chief Economist, E.I. du Pont de Nemours and Company, Inc.
("du Pont"), a diversified chemical manufacturing company, from prior to 1993 to
retirement from du Pont in December 1994. Economic consultant since January
1995.
All officers serve at the pleasure of the Board of Directors. None of the
executive officers or directors of Coltec is related to any other executive
officer or director by blood, marriage or adoption.
62
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION.
The following table provides certain summary information concerning the
compensation of Coltec's Chief Executive Officer and each of the four other most
highly compensated executive officers of Coltec (determined as of December 31,
1998) (hereinafter referred to as the "named executive officers") for the fiscal
years ended December 31, 1998, 1997 and 1996:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
---------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------------------- -------------------------- ---------
(A) (B) (C) (D) (E) (F) (G) (H)
- - ----------------------------- ---- ------- --------- ------------ ------------ ---------- ---------
OTHER ANNUAL RESTRICTED SECURITIES LTIP
SALARY BONUS COMPENSATION STOCK AWARDS UNDERLYING PAYOUT
NAME AND PRINCIPAL POSITION YEAR $ $ ($) ($)(1) OPTIONS ($)(2)
- - ----------------------------- ---- ------- --------- ------------ ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
John W. Guffey, Jr .......... 1998 775,000 1,600,000 -- -- -- 574,000
Chairman of the Board and 1997 727,680 2,200,000 -- -- 700,000 525,350
Chief Executive Officer 1996 693,000 1,300,000 -- 152,584 -- 1,396,500
Nishan Teshoian ............. 1998 550,000 600,000 -- -- 200,000 136,667
President and Chief
Operating Officer
David D. Harrison ........... 1998 396,360 600,000 -- -- -- 155,321
Executive Vice President 1997 381,420 800,000 -- -- -- --
and Chief Financial Officer 1996 123,340 400,000 -- 1,041,250 250,000 --
Laurence H. Polsky .......... 1998 363,120 600,000 -- -- -- 164,000
Executive Vice President, 1997 342,600 800,000 -- -- -- 150,100
Administration 1996 326,280 475,000 -- 26,708 -- 441,000
Robert J. Tubbs ............. 1998 294,240 550,000 -- -- -- 142,133
Executive Vice President, 1997 283,000 650,000 -- -- 55,000 105,207
General Counsel and 1996 231,060 350,000 -- -- -- --
Secretary
<CAPTION>
(A) (I)
- - ----------------------------- ------------
ALL OTHER
COMPENSATION
NAME AND PRINCIPAL POSITION ($)(3)
- - ----------------------------- ------------
<S> <C>
John W. Guffey, Jr .......... 359,900
Chairman of the Board and 210,650
Chief Executive Officer 328,205
Nishan Teshoian ............. 235,353
President and Chief
Operating Officer
David D. Harrison ........... 143,182
Executive Vice President 147,471
and Chief Financial Officer 166,762
Laurence H. Polsky .......... 141,187
Executive Vice President, 401,213
Administration 141,708
Robert J. Tubbs ............. 125,054
Executive Vice President, 145,978
General Counsel and 95,321
Secretary
</TABLE>
- - ------------------
(1) The restricted stock owned by each of the named executive officers at
December 31, 1998 and the values thereof based on the closing price of the
Common Stock on December 31, 1998 were as follows: Mr. Guffey, 24,136
shares, $470,652; Mr. Teshoian, 25,000 shares, $487,500; Mr. Harrison,
23,334 shares, $455,013; Mr. Polsky, 10,626 shares, $207,207; and
Mr. Tubbs, 1,554 shares, $30,303.
With respect to Mr. Guffey's shares, restrictions on 10,775 shares lapsed on
January 2, 1999, restrictions on 10,774 shares are scheduled to lapse on
January 2, 2000 and restrictions on 2,587 shares are scheduled to lapse on
January 2, 2001. With respect to Mr. Teshoian's shares, restrictions on
8,333 shares lapsed on January 5, 1999, restrictions on 8,333 shares are
scheduled to lapse on January 5, 2000 and restrictions on 8,334 shares are
scheduled to lapse on January 5, 2001. With respect to Mr. Harrison's
shares, restrictions on 23,334 shares are scheduled to lapse on August 20,
1999. With respect to Mr. Polsky's shares, restrictions on 6,563 shares
lapsed on January 2, 1999, restrictions on 3,324 shares are scheduled to
lapse on January 2, 2000 and restrictions on 739 shares are scheduled to
lapse on January 2, 2001. With respect to Mr. Tubbs' shares, restrictions on
518 shares lapsed on January 2, 1999 and restrictions on 518 shares are
scheduled to lapse on each of January 2, 2000 and 2001. Any dividends
payable on the Common Stock would also be payable on such restricted stock.
(2) The amounts for 1998 are payments in January 1999 of the value of the
three-year 1996 Performance Cycle that ended on December 31, 1998 pursuant
to the 1994 Long-Term Incentive Plan. One-third of such amounts were
converted into restricted stock (33,319 shares for Mr. Guffey, 2,404 shares
for Mr. Teshoian, 3,989 shares for Mr. Harrison, 2,885 shares for
Mr. Polsky and 2,500 shares for Mr. Tubbs) with restrictions scheduled to
lapse in three equal annual installments beginning January 2, 2000.
(3) Pursuant to the Savings Plan, the amounts credited by Coltec for each of
Messrs. Guffey, Polsky and Tubbs for 1998, 1997 and 1996 were $10,000,
$9,500 and $9,000, respectively. Such amounts for Mr. Teshoian for 1998 were
$10,000 and for Mr. Harrison were $10,000 for 1998, $9,500 for 1997 and
$3,500 for 1996. Such amounts are included in the amounts in column
(i) above.
Pursuant to the defined contribution portion of the Benefits Equalization
Plan, the amounts credited by Coltec for 1998, 1997, and 1996 for each of
the named executive officers were as follows: Mr. Guffey, $264,900 for 1998,
$112,161 for 1997 and $89,220 for 1996; Mr. Teshoian, $59,400 for 1998;
Mr. Harrison, $98,182 for 1998, $85,367 for 1997 and $2,050 for 1996;
Mr. Polsky, $96,187 for 1998, $39,556 for 1997 and $31,577 for 1996; and
Mr. Tubbs, $80,054 for 1998, $28,481 for 1997 and $15,664 for 1996. Such
amounts are included in the amounts in column (i) above.
(Footnotes continued on next page)
63
<PAGE>
(Footnotes continued from previous page)
The costs to Coltec for 1996 for whole life insurance, measured by the
excess of premiums paid over the cash surrender value were as follows:
Mr. Guffey, $16,772; Mr. Harrison, $26,033; and Mr. Tubbs, $18,455. Such
amounts are included in the amounts in column (i) above.
The whole life insurance program was changed in 1997 so that Coltec is
reimbursed from the insurance proceeds paid upon the executive's death for
the premiums it previously paid. The total premiums paid for the named
executive officers in 1998 and 1997 were as follows: Mr. Guffey, $85,000 for
each of 1998 and 1997; Mr. Teshoian, $50,000 for 1998; Mr. Harrison, $35,000
for each of 1998 and 1997; Mr. Polsky, $35,000 for each of 1998 and 1997;
and Mr. Tubbs $35,000 for each of 1998 and 1997. Such amounts are included
in the amounts in column (i) above.
Relocation expenses in 1997 and 1996 in connection with the move of the
corporate office to Charlotte, North Carolina, for each of the named
executive officers were as follows: Mr. Guffey, $3,989 for 1997 and $213,213
(including $93,778 as reimbursement for taxes) for 1996; Mr. Harrison,
$3,104 (including $2,152 as reimbursement for taxes) for 1997 and $135,179
(including $57,306 as reimbursement for taxes) for 1996; Mr. Polsky, $57,157
(including $26,818 as reimbursement for taxes) for 1997 and $101,131
(including $36,846 as reimbursement for taxes) for 1996; and Mr. Tubbs,
$72,997 (including $2,535 as reimbursement for taxes) for 1997 and $52,202
(including $19,219 as reimbursement for taxes) for 1996. Relocation expenses
in 1998 for Mr. Teshoian were $115,953 (including $54,404 as reimbursement
for taxes). Such amounts are included in column (i) above.
The amounts included in column (i) above for 1997 for Messrs. Polsky and
Harrison include payments ($260,000 to Mr. Polsky and $62,500 to
Mr. Harrison) which compensation was the difference between the price of the
Common Stock at the time of the grant of the options pursuant to the 1992
Stock Option and Incentive Plan, and the agreed upon exercise price of said
options which had been negotiated by each of them at the time of acceptance
of employment. Most of the amount for Mr. Polsky, after withholding tax
deductions, was used by Mr. Polsky in 1997 to purchase shares of Common
Stock.
STOCK OPTIONS
The following table contains information concerning 1998 grants of stock
options under Coltec's 1992 Stock Option and Incentive Plan to the named
executive officers and the potential realizable value of these option grants
based on assumed rates of stock appreciation of 5% and 10% per year over the
10-year term of the options.
OPTION GRANTS IN 1998
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
ASSUMED ANNUAL RATES OF
STOCK APPRECIATION FOR
INDIVIDUAL GRANTS OPTION TERM (1)
- - ----------------------------------------------------------------------------------------- -------------------------
(A) (B) (C) (D) (E) (F) (G)
- - ----------------------- -------------- ---------- -------- ------------------- --------- ---------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE
UNDERLYING GRANTED TO OR BASE
OPTIONS EMPLOYEES PRICE
NAME GRANTED (#)(2) IN 1998 ($/SH) EXPIRATION DATE 5%($) 10%($)
- - ----------------------- -------------- ---------- -------- ------------------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Nishan Teshoian........ 200,000 39.5 $22.56 January 4, 2008 2,837,572 7,190,965
</TABLE>
(1) These appreciation rates are arbitrary assumptions specified by the SEC and
do not represent Coltec's predictions as to actual appreciation rates.
(2) The options are nonqualified options exercisable to the extent of 20% of the
total commencing January 5, 1999 with an additional 20% becoming exercisable
annually thereafter until fully exercisable on January 5, 2003. Exercise of
an option may be by cash, negotiable certificates representing whole shares
of Common Stock (or, subject to the approval of the Compensation Committee,
through the withholding of Common Stock which would otherwise have been
received upon exercise of the option) or any combination thereof. The option
agreement contains provisions protecting the option holder in the event of a
change-in-control. See "Employment Contracts and Termination of Employment
and Change-In-Control Arrangements" for additional information.
64
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table contains information with respect to the named
executive officers concerning the options exercised during 1998 and the options
held as of December 31, 1998 (Messrs. Guffey and Polsky were the only named
executive officers who exercised options during 1998):
AGGREGATED OPTION EXERCISES IN 1998 AND DECEMBER 31, 1998 OPTION VALUES
<TABLE>
<CAPTION>
(A) (B) (C) (D)
- - ----------------------------- --------------- -------------- ---------------------------------------------------------------
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED OPTIONS
AT DECEMBER 31, 1998
SHARES ACQUIRED VALUE ---------------------------------------------------------------
NAME ON EXERCISE(#) REALIZED($)(1) EXERCISABLE UNEXERCISABLE
--------------- -------------- ------------------------------ ------------------------------
<S> <C> <C> <C> <C>
John W. Guffey, Jr........... 60,000 705,000 820,333 709,667
Nishan Teshoian.............. -- -- 200,000
David D. Harrison............ -- -- 100,000 150,000
Laurence H. Polsky........... 50,000 676,563 220,000 100,000
Robert J. Tubbs.............. -- -- 143,000 132,000
<CAPTION>
(A) (E)
- - ----------------------------- ---------------------------
VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT DECEMBER 31, 1998($)(2)
---------------------------
NAME EXERCISABLE UNEXERCISABLE
- - ----------------------------- ----------- -------------
<S> <C> <C>
John W. Guffey, Jr........... $ 3,674,000 $ 1,999,750
Nishan Teshoian.............. $ 0
David D. Harrison............ $ 462,500 $ 693,750
Laurence H. Polsky........... $ 1,005,000 $ 875,000
Robert J. Tubbs.............. $ 936,875 $ 647,500
</TABLE>
- - ------------------
(1) Value realized based on the closing price of Coltec's common stock on the
exercise date minus the exercise price.
(2) Total value of options based on the closing price of the Common Stock of
$19.50 on December 31, 1998 minus the exercise price. The actual gain, if
any, an executive officer realizes will depend on the market price of the
Common Stock at the time of exercise. "In-the-money" means the closing price
of the Common Stock on December 31, 1998 is greater than the exercise price
of the option.
LONG TERM INCENTIVE PLANS--AWARDS IN 1998
The following table contains information concerning 1998 awards under
Coltec's Long Term Incentive Plan ("LTIP") to the named executive officers.
Amounts shown in column (e) below are based upon the cumulative operating
profit of $599.6 million for the 3 year performance cycle beginning January 1,
1996 and ending December 31, 1998, as determined by the Stock Option and
Compensation Committee on January 14, 1999. This value is an arbitrary
assumption specified by the SEC, and does not represent Coltec's prediction as
to the cumulative operating profit for any other performance cycle.
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF OR OTHER NON-STOCK PRICE-BASED PLANS
SHARES, UNITS PERIOD UNTIL -------------------------------------
OR OTHER MATURATION OR THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#) PAYOUT ($) ($) ($)
(A) (B) (C) (D) (E) (F)
- - ------------------------------------------ ------------- ------------- --------- ------- -----------
<S> <C> <C> <C> <C> <C>
John W. Guffey, Jr........................ 35,000(1) 3 years 420,000 544,950 (1)
Nishan Teshoian........................... 25,000(2) 1 year 300,000 410,000 410,000(2)
25,000(3) 2 years 300,000 399,500 (3)
50,000(1) 3 years 600,000 778,500 (1)
David D. Harrison......................... 12,000(1) 3 years 144,000 186,840 (1)
Laurence H. Polsky........................ 10,000(1) 3 years 120,000 155,700 (1)
Robert J. Tubbs........................... 10,000(1) 3 years 120,000 155,700 (1)
</TABLE>
65
<PAGE>
- - ------------------
(1) Performance units granted under the LTIP for the performance cycle beginning
January 1, 1998 and ending December 31, 2000 (the "1998 performance cycle").
The threshold target and award value schedule applicable to performance
units granted under the LTIP for the 1998 performance cycle is as follows:
<TABLE>
<CAPTION>
PERFORMANCE TARGETS FOR CUMULATIVE OPERATING
PROFIT AWARD VALUE
- - -------------------------------------------------- -----------------------------
<S> <C>
Less than $492.3 million * $ 0.00
$492.3 million $12.00
Over $492.3 million $12.00 plus $0.0333 for each
$1 million over
$492.3 million
- - ---------
* Threshold target.
</TABLE>
(2) Performance units granted under the LTIP for the performance cycle beginning
January 1, 1996 and ending December 31, 1998 (the "1996 performance cycle").
The threshold target and award value schedule applicable to performance
units granted under the LTIP for the 1996 performance cycle is as follows:
<TABLE>
<CAPTION>
PERFORMANCE TARGETS FOR CUMULATIVE OPERATING
PROFIT AWARD VALUE
- - -------------------------------------------------- -----------------------------
<S> <C>
Less than $467.7 million * $ 0.00
$467.7 million $12.00
Over $467.7 million $12.00 plus $0.0333 for each
$1 million over
$467.7 million
- - ---------
* Threshold target.
</TABLE>
The amount shown in column (f) is based upon the cumulative operating profit
for the 1996 performance cycle of $599.6 million and the award value for the
1996 performance cycle of $16.40 per performance unit, as determined by the
Stock Option and Compensation Committee on January 14, 1999.
(3) Performance units granted under the LTIP for the performance cycle beginning
January 1, 1997 and ending December 31, 1999 (the "1997 performance cycle").
The threshold target and award value schedule applicable to performance
units granted under the LTIP for the 1997 performance cycle is as follows:
<TABLE>
<CAPTION>
PERFORMANCE TARGETS FOR CUMULATIVE OPERATING
PROFIT AWARD VALUE
- - -------------------------------------------------- -----------------------------
<S> <C>
Less than $480.0 million * $ 0.00
$480.0 million $12.00
Over $480.0 million $12.00 plus $0.0333 for each
$1 million over
$480.0 million
- - ---------
* Threshold target.
</TABLE>
66
<PAGE>
PENSION PLAN
The following table shows the estimated annual pension benefits payable to
a covered participant upon retirement at normal retirement age (age 65) on a
single life annuity basis under Coltec's qualified defined benefit plan, as well
as nonqualified supplemental pension plans that provide benefits that would
otherwise be denied participants by reason of certain Internal Revenue Code
limitations on qualified plan benefits, based for the most part on five-year
average final compensation (salary and bonus during the 60 highest-paid
consecutive months out of the last 120 months of service) and years of credited
service with Coltec and its subsidiaries and not subject to deduction for Social
Security or other payments:
<TABLE>
<CAPTION>
FIVE-YEAR YEARS OF CREDITED SERVICE
AVERAGE FINAL ----------------------------------------------------------------------------
COMPENSATION 10 15 20 25 30 35
- - --------------------------------- -------- -------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000....................... $ 31,700 $ 47,500 $ 63,300 $ 79,200 $ 95,000 $ 110,800
300,000....................... 48,700 73,000 97,300 121,700 146,000 170,300
400,000....................... 65,700 98,500 131,300 164,200 197,000 229,800
500,000....................... 82,700 124,000 165,300 206,700 248,000 289,300
600,000....................... 99,700 149,500 199,300 249,200 299,000 348,800
700,000....................... 116,700 175,000 233,300 291,700 350,000 408,300
800,000....................... 133,700 200,500 267,300 334,200 401,000 467,800
900,000....................... 150,700 226,000 301,300 376,700 452,000 527,300
1,000,000....................... 167,700 251,500 335,300 419,200 503,000 586,800
1,200,000....................... 201,700 302,500 403,300 504,200 605,000 705,800
1,400,000....................... 235,700 353,500 471,300 589,200 707,000 824,800
1,600,000....................... 269,700 404,500 539,300 674,200 809,000 943,800
1,800,000....................... 303,700 455,500 607,300 759,200 911,000 1,062,800
2,000,000....................... 337,700 506,500 675,300 844,200 1,013,000 1,181,800
2,200,000....................... 371,700 557,500 743,300 929,200 1,115,000 1,300,800
2,400,000....................... 405,700 608,500 811,300 1,014,200 1,217,000 1,419,800
2,600,000....................... 439,700 659,500 879,300 1,099,200 1,319,000 1,538,800
2,800,000....................... 473,700 710,500 947,300 1,184,200 1,421,000 1,657,800
3,000,000....................... 507,700 761,500 1,015,300 1,269,200 1,523,000 1,776,800
3,200,000....................... 541,700 812,500 1,083,300 1,354,200 1,625,000 1,895,800
</TABLE>
As of December 31, 1998, the five-year average final compensation (or
average compensation for all months of credited service for a participant with
less than 60 months of service) and current years of credited service for each
of the following persons were: Mr. Guffey, $2,057,258 and 20 years (includes
6 years of credited service as an employee of one of Coltec's subsidiary
corporations); Mr. Teshoian, $1,150,008 and 1 year; Mr. Harrison, $1,157,494 and
2 years; Mr. Polsky, $849,960 and 7 years; and Mr. Tubbs $705,230 and 4 years.
Compensation covered under the pension plans includes amounts reported in
columns (c) and (d) of the Summary Compensation Table. Coltec has agreed to
calculate the pension benefits of Mr. Guffey as if his prior service with a
subsidiary was earned under the plan (which service is included in the figures
set forth above).
67
<PAGE>
COMPENSATION OF DIRECTORS
Directors who are not also employees of Coltec receive a retainer at the
annual rate of $25,000 ($30,000 if Chairperson of a Committee) and receive
$1,250 per meeting for attendance at meetings of the Board of Directors and its
committees with a maximum of $2,000 for more than one meeting on the same day
($2,500 if Chairperson of one of the meetings). A fee of $750 is paid for each
meeting of the Board of Directors held by unanimous written consent or where the
attendance of the director at such meeting is by means of a telephone conference
or similar communications equipment. The Board of Directors has established a
retirement age policy which provides that a director shall not be eligible for
nomination to the Board of Directors if such person has attained the age of 70.
The pension arrangement for directors who are not entitled to a pension
from Coltec or any subsidiary thereof was terminated in July 1996 for all
directors serving at that time. In accordance with the 1997 Restricted Stock
Plan for Outside Directors (the "Restricted Stock Plan") approved by
shareholders at the 1997 Annual Meeting of Shareholders, the present value of
the accrued lifetime pension benefit for these directors was calculated and
arrangements were made to convert these amounts to restricted stock based on
market values on the dates the directors would otherwise have vested in pension
benefits. In accordance with this arrangement, on June 11, 1998, Professor Moses
was granted 189 shares of restricted stock. The restrictions on the shares
granted under the Restricted Stock Plan will lapse upon termination of such
director's membership on the Board of Directors. Directors elected after July
1996 will receive restricted stock at the time of first election by the
shareholders in a number of shares based on one-half of the amount of the
director annual retainer in effect at that time and the then market value of the
Common Stock. The Restricted Stock Plan was amended in January 1998 to provide
that in the event of a change-in-control (as defined in the plan), all
restrictions on assignment, transfer or other disposition of the restricted
stock lapse.
Payment of director retainer, committee or attendance fees may be deferred
in whole or in part, at the option of a non-employee director, under Coltec's
Deferred Compensation Plan for Non-Employee Directors (the "Deferred
Compensation Plan") adopted by the Board of Directors in January 1996. The
Deferred Compensation Plan provides that any fees deferred thereunder shall be
credited at the end of each quarter to (i) a share account, which allows for the
purchase of share units that represent shares of Common Stock, (ii) a cash
account, which pays interest at a rate based on the ninety-day Treasury bill
rate over the past twelve months, or (iii) a combination of both. The amount
deferred under the Deferred Compensation Plan will be paid, at the non-employee
director's option, in a lump sum or over a ten-year period commencing on the
first business day of the calendar year following the year during which the
non-employee director ceases to be a director of Coltec. Messrs. Coppola and
Stuckey participate in the Deferred Compensation Plan. As of December 31, 1998,
Messrs. Coppola and Stuckey have 10,614 and 927 units, respectively, credited to
their share accounts.
Pursuant to the 1994 Stock Option Plan for Outside Directors of Coltec
Industries Inc (the "1994 Stock Option Plan for Outside Directors"),
non-employee directors receive option grants to purchase 3,000 shares of Common
Stock on each reelection date during their service on the Board of Directors.
The 1994 Stock Option Plan for Outside Directors provides for the acceleration
of the vesting of all options to acquire Common Stock theretofore or thereafter
granted in the event of a change-in-control (as defined in the plan). Unless
earlier terminated by the Board of Directors of Coltec, the 1994 Stock Option
Plan for Outside Directors will terminate on July 1, 2004 and no further options
will be awarded after that date.
In May 1995, the Board of Directors approved change-in-control arrangements
for non-employee directors who do not continue to serve as a director of Coltec
during any part of the two-year period following a change-in-control for reasons
other than voluntary resignation or voluntary choice not to stand for
reelection. Pursuant thereto each such director would receive a lump sum payment
equal to five times the amount of the director's annual retainer at the time he
or she ceases to be a director.
68
<PAGE>
EMPLOYMENT CONTRACTS, SEVERANCE ARRANGEMENTS AND CHANGE-IN-CONTROL ARRANGEMENTS.
Outstanding Stock-Based Awards
All currently outstanding agreements granting restricted stock or stock
options to the named executive officers in the Summary Compensation Table
contain change-in-control provisions. In the case of the restricted stock, in
the event of a change-in-control, all restrictions on assignment, transfer or
other disposition of the restricted stock lapse. In the case of stock options,
in the event of a change-in-control, the options become fully exercisable, or in
the discretion of the Board of Directors, for options granted before October 9,
1997, the named executive officer may surrender all or part of his or her
options to Coltec (or its successor) during a one-year period after the
change-in-control in exchange for a cash payment for each option surrendered
equal to the excess of the fair market value of the Common Stock on the date of
surrender over the option price. Fair market value for this purpose equals the
last sales price of the Common Stock on the surrender date on the NYSE Composite
Tape (or, if no such sale occurred on such date, the last date preceding such
date on which a sale was reported), except that, in the case of a change of
ownership of more than 35% of the outstanding shares of Common Stock, fair
market value means the amount of cash and fair market value of other
consideration tendered for such outstanding shares.
Employment Agreements
As of July 15, 1998, Coltec entered into employment agreements with all of
the named executive officers. The agreements expire, upon the terms and
conditions contained in the agreements until terminated in accordance with the
provisions set forth in Section 5 of the agreements. The July 15, 1998
agreements supersede all prior employment agreements. On November 1, 1998,
Mr. Teshoian's agreement was modified to clarify Sections 6.6 and 6.7 of the
agreement and in all other respects, Mr. Teshoian's employment agreement remains
in full force and effect. Compensation payable under the employment agreements
is at current salary rates, with participation in incentive and employee benefit
plans at the discretion of the Board of Directors. Without the executive's
consent, the executive cannot be assigned duties or responsibilities
inconsistent with his position.
Each of the employment agreements contains covenants prohibiting the
executive from competing with Coltec for a specified period of time following
termination of employment. If during the term of any such agreement a
change-in-control (as defined in the agreements) occurs, the executive may
terminate the agreement upon the happening of certain defined events and the
executive is (i) to be paid a lump sum cash payment equal to (x) the sum of
salary and the highest annual bonus paid over the prior three years
(y) multiplied by a factor, which is four for Mr. Guffey and three for Messrs.
Teshoian, Harrison, Polsky and Tubbs; (ii) to continue participation as an
active participant in all Coltec perquisites and benefit plans and fringe
benefit programs for a specified period of time from the date of termination
which is four years for Mr. Guffey, and three years for Messrs. Teshoian,
Harrison, Polsky and Tubbs; (iii) provided with a fully paid up life insurance
policy pursuant to the terms of Coltec's family protection plant; and (iv) paid
amounts under Coltec's long-term incentive plan and, at the executive's option,
under Coltec's supplemental retirement plan. Amounts to be paid are to include
an additional tax gross-up covering any excise tax on any payments made or
benefits provided to the executives.
Effect of Proposed BFGoodrich/Coltec Merger on Employment Agreements and
Benefit Plans.
As discussed in Item 1. "Business--Proposed Merger with The B.F.Goodrich
Company", Coltec and BFGoodrich have entered into an agreement and plan of
merger. Upon approval and adoption of the merger agreement by Coltec
shareholders, or, in the case of the LTIP, upon completion of the merger, the
change of control provisions of the Coltec employment agreements and benefit
plans will be triggered.
Coltec anticipates that all of the named executive officers will be
terminated within the meaning of the employment agreements and be given the
payments and benefits provided for under their employment agreements immediately
following the merger. Messrs. Guffey and Polsky will be offered employment by
BFGoodrich following completion of the merger in positions and with
responsibilities different than they held with Coltec.
The following table sets forth information about the estimated value of the
payments and benefits the named executive officers will receive under the
employment agreements solely as a result of the merger. The following
69
<PAGE>
table also sets forth information about the unexercisable Coltec stock options
and shares of Coltec restricted stock that the named executive officers hold
that will become fully vested and/or exercisable solely as a result of the
merger.
<TABLE>
<CAPTION>
UNEXERCISABLE
COLTEC STOCK OPTIONS
ESTIMATED VALUE OF -------------------------------
PAYMENTS AND NUMBER OF WEIGHTED NUMBER OF
BENEFITS UNDER COMMON SHARES AVERAGE SHARES OF
EMPLOYMENT UNDERLYING EXERCISE PRICE RESTRICTED
NAME AGREEMENTS OPTIONS ($/SHARE) STOCK
- - ------------------------------------------------- ------------------ ------------- -------------- ----------
<S> <C> <C> <C> <C>
John W. Guffey, Jr............................... $ 20,118,666 709,667 18.45 46,680
Nishan Teshoian.................................. $ 6,687,387 160,000 22.56 19,071
David D. Harrison................................ $ 6,083,242 150,000 14.88 27,323
Laurence H. Polsky............................... $ 6,026,732 100,000 10.75 6,948
Robert J. Tubbs.................................. $ 5,152,393 109,000 13.90 4,054
</TABLE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Set forth below is certain information with respect to persons known to
Coltec as of February 18, 1999 to be the beneficial owners of more than five
percent of the Common Stock. This information is based solely on statements made
in Schedule 13D or 13G filings of beneficial owners with the Securities and
Exchange Commission. The beneficial ownership positions contained in such
filings and set forth below may have changed since the date on which such
filings were made.
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF
BENEFICIAL
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS(A)
- - -------------------------------------------------------------------------------- ---------- --------------------
<S> <C> <C>
The B.F.Goodrich Company ....................................................... 12,550,638(b) 16.6
4020 Kinross Lakes Parkway
Richfield, Ohio 44286
J.P. Morgan & Co. Incorporated ................................................. 9,759,117(c) 15.5
60 Wall Street
New York, NY 10260
GSB Investment Management, Inc. ............................................... 4,201,592(d) 6.7
301 Commerce Street, Suite 1501
Fort Worth, TX 76102
Franklin Mutual Advisers, Inc. ................................................ 3,440,763(e) 5.5
52 John F. Kennedy Parkway
Short Hills, NJ 07078
</TABLE>
- - ------------------
(a) The percentages are calculated on the basis of 63,056,735 shares of Common
Stock outstanding on February 18, 1999 (excluding 25,000,000 shares of
Common Stock held by a subsidiary of Coltec).
(b) In its Schedule 13D filed December 2, 1998, BFGoodrich stated that the
beneficial ownership of 12,550,638 shares of Common Stock was being reported
by it solely as a result of the stock option agreement dated as of
November 22, 1998 between BFGoodrich and Coltec. As more fully described in
the Schedule 13D, Coltec has granted to BFGoodrich an irrevocable option
pursuant to which BFGoodrich has the right, upon the occurrence of certain
events (none of which has occurred), to purchase up to 12,550,638 shares of
Common Stock (subject to customary anti-dilution adjustments) at a price per
share of $20.125. The option has not yet become exercisable. Because the
option will not become exercisable unless and until certain specified events
occur, BFGoodrich expressly disclaims beneficial ownership of all such
shares.
(Footnotes continued on next page)
70
<PAGE>
(Footnotes continued from previous page)
(c) In its Amendment No. 8 to Schedule 13G filed February 22, 1999, J.P. Morgan
& Co. Incorporated reported that it had sole voting power for 7,130,897
shares, shared voting power for 4,620 shares, sole power to dispose for
9,750,627 shares and shared power to dispose for 7,290 shares and that it
had filed such Schedule 13G as a parent holding company.
(d) In its Amendment No. 3 to Schedule 13G filed February 16, 1999, GSB
Investment Management, Inc. reported that it had sole voting power for
1,127,294 shares, sole dispositive power for 4,038,867 shares and shared
dispositive power for 162,725 shares and that it had filed such Schedule 13G
as a registered investment adviser.
(e) In its Schedule 13G filed January 29, 1999, Franklin Mutual Advisers, Inc.,
reported that it had sole voting power over 3,440,763 shares and sole
dispositive power over 3,440,763 shares and that it had filed such Schedule
13G as a registered investment adviser.
SECURITY OWNERSHIP OF MANAGEMENT.
Set forth below is information as of February 18, 1999 (except as set forth
in footnote (c) below with regard to shares in the Coltec Retirement Savings
Plan for Salaried Employees, the information with respect to which is as of
December 31, 1998), concerning the ownership of Common Stock by each director,
each of the executive officers named in the Summary Compensation Table and all
current directors and executive officers of Coltec as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT OF
NAME OWNERSHIP(A) CLASS(B)
- - --------------------------------------------------------------------------------- ----------------- -----------
<S> <C> <C>
Joseph R. Coppola................................................................ 8,000 *
William H. Grigg................................................................. 2,745 *
John W. Guffey, Jr.(c)(d)........................................................ 1,105,762 1.7
David D. Harrison(c)............................................................. 185,078 *
William R. Holland............................................................... 2,500 *
David I. Margolis................................................................ 52,844 *
Joel Moses....................................................................... 14,318 *
Laurence H. Polsky(c)............................................................ 270,575 *
Richard A. Stuckey............................................................... 8,200 *
Nishan Teshoian(c)............................................................... 82,791 *
Robert J. Tubbs(c)............................................................... 177,203 *
All directors and executive officers as a group,
consisting of 15 persons....................................................... 2,340,920 3.7
</TABLE>
- - ------------------
* Less than 1%
(a) Includes shares subject to options exercisable on or within 60 days of
February 18, 1999 as follows: Mr. Coppola, 7,000 shares; Mr. Grigg, 2,000
shares, Mr. Guffey, 820,333 shares; Mr. Harrison, 100,000 shares;
Mr. Moses, 10,000 shares; Mr. Polsky, 220,000 shares; Mr. Stuckey, 8,000
shares; Mr. Teshoian, 40,000 shares; Mr. Tubbs, 166,000 shares; and all
directors and executive officers as a group, 1,759,333 shares.
(b) The percentages are calculated on the basis of 63,056,735 shares of Common
Stock outstanding on February 18, 1999, (excluding 25,000,000 shares of
Common Stock held by a subsidiary of Coltec) plus, for any person, that
number of shares with respect to which such person has the right to acquire
beneficial ownership as specified in Rule 13d-3(d)(1) under the Securities
Exchange Act of 1934.
(c) As participants in the Coltec Retirement Savings Plan for Salaried
Employees, Coltec's executive officers have the following shares of Common
Stock credited to their individual accounts as of December 31, 1998
(Footnotes continued on next page)
71
<PAGE>
(Footnotes continued from previous page)
and such shares as included in the table above: Mr. Guffey, 6,610 shares;
Mr. Harrison, 1,089 shares; Mr. Polsky, 3,376 shares; Mr. Teshoian, 387
shares; Mr. Tubbs, 2,149 shares; and all executive officers as a group,
30,542 shares.
(d) Includes 19,084 shares owned by The Guffey Family Foundation; 3,360 shares
owned by The Guffey Family Trust for the benefit of Mr. Guffey's
grandchildren and options for 225,000 shares of Coltec's common stock gifted
to the Guffey Family Limited Partnership, a Georgia Limited Partnership for
the benefit of Mr. Guffey's grandchildren. Mr. Guffey disclaims beneficial
ownership of all of the above shares.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
None.
72
<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) Consolidated Financial Statements: Consolidated Statements of
Earnings for the Three Years ended December 31, 1998; Consolidated
Balance Sheets at December 31, 1998 and 1997; Consolidated
Statements of Cash Flows for the Three Years ended December 31,
1998; Consolidated Statements of Shareholders' Equity for the Three
Years ended December 31, 1998; Consolidated Statements of
Comprehensive Income for the Three Years ended December 31, 1998;
Notes to Consolidated Financial Statements; Report of Management;
and Report of Independent Public Accountants.
(2) Consolidated Financial Statement Schedules listed in the Index
to Consolidated 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) During the quarter ended December 31, 1998, Coltec filed the following
reports on Form 8-K:
Current Report on Form 8-K filed November 24, 1998 (Items 5 and 7);
Current Report on Form 8-K filed December 21, 1998 (Items 5 and 7);
and
Current Report on Form 8-K filed December 23, 1998 (Items 5 and 7)
(c) Except for exhibits 4.3(i), 4.8(a), 4.10(c), 4.11(a), 4.11(b), 4.11(c),
10.5(a), 12.1, 21.1, 23.1 and 27.1, the exhibits listed on the attached
Index to Exhibits have been filed previously. Pursuant to
paragraph (4)(iii) of Item 601(b) of Regulation S-K, there are omitted
certain agreements, which Coltec hereby agrees to furnish to the
Commission upon request.
For a listing of all management contracts and compensatory plan
arrangements required to be filed as exhibits to this Form 10-K, see the
Exhibits listed under Exhibit Nos. 10.1 through 10.17(c), on pages I-1
through I-6 of the Exhibit Index.
73
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
COLTEC INDUSTRIES INC
Date: March 24, 1999
By: /s/ DAVID D. HARRISON
---------------------------------
David D. Harrison
Executive Vice President and
Chief Financial Officer
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 24, 1999.
NAME AND TITLE NAME AND TITLE
- - ------------------------- -----------------------------------
/s/ JOSEPH R. COPPOLA /s/ DAVID I. MARGOLIS
- - --------------------- ---------------------
Joseph R. Coppola David I. Margolis
Director Director
/s/ WILLIAM H. GRIGG /s/ JOHN W. GUFFEY, JR.
- - -------------------- -----------------------
William H. Grigg John W. Guffey, Jr.
Director Director, Chairman of the Board and
Chief Executive Officer
/s/ DAVID D. HARRISON
- - --------------------- /s/ WILLIAM R. HOLLAND
David D. Harrison ----------------------
Director, Executive Vice President William R. Holland
and Chief Financial Officer Director
(Principal Financial and Accounting
Officer) /s/ RICHARD A. STUCKEY
----------------------
/s/ JOEL MOSES Richard A. Stuckey
- - -------------- Director
Joel Moses
Director
/s/ NISHAN TESHOIAN
- - -------------------
Nishan Teshoian
Director, President and Chief Operating
Officer
74
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES NUMBER
- - -------------------------------------------------------------------------------------------------------- ------
<S> <C>
II--Valuation and Qualifying Accounts for the three years ended December 31, 1998....................... S-3
</TABLE>
S-1
<PAGE>
COLTEC INDUSTRIES INC
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 and subsidiaries (the Company) as of December 31, 1998 and 1997,
and the related consolidated statements of earnings, shareholders' equity, cash
flows and comprehensive income for each of the three years in the period ended
December 31, 1998. These consolidated financial statements and the schedule
referred to below are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedule 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 consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Coltec
Industries Inc and subsidiaries as of December 31, 1998 and 1997, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1998, in conformity with generally
accepted accounting principles.
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
consolidated 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 no 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.
As discussed in Note 20, the Company entered into an Agreement and Plan of
Merger with The B.F.Goodrich Company (BFGoodrich). Upon consummation of the
merger, the Company shareholders will receive .56 shares of BFGoodrich common
stock for each share of the Company's common stock.
ARTHUR ANDERSEN LLP
Charlotte, North Carolina
January 22, 1999
S-2
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE YEARS ENDED DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
COLUMN C
------------------------
COLUMN B ADDITIONS COLUMN E
------------ ------------------------ ----------
COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE OF
- - ------------------------------------------------ BEGINNING OF COST AND OTHER ------------- END OF
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- - ------------------------------------------------ ------------ ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
1998
Valuation account deducted from assets--
Allowance for doubtful accounts............... $2,894 $1,049 $ -- $ 834 $3,109
------ ------ ------ ------- ------
------ ------ ------ ------- ------
1997
Valuation account deducted from assets--
Allowance for doubtful accounts............... $2,007 $1,222 $ -- $ 335 $2,894
------ ------ ------ ------- ------
------ ------ ------ ------- ------
1996
Valuation account deducted from assets--
Allowance for doubtful accounts............... $4,174 $1,517 $ -- $ 3,684 $2,007
------ ------ ------ ------- ------
------ ------ ------ ------- ------
</TABLE>
Note:
(1) Deductions are for the purposes for which the valuation accounts were
created.
S-3
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 -- Agreement and Plan of Merger dated as of November 22, 1998 among The B.F. Goodrich Company, Runway
Acquisition Corporation and Coltec Industries Inc, filed as Exhibit 99.2 to The B.F. Goodrich
Company Current Report on Form 8-K filed on November 24, 1998 (File No. 1-892) and incorporated
herein by reference.
2.2 -- Coltec's Stock Option Agreement dated as of November 22, 1998 between The B.F. Goodrich Company
and Coltec Industries Inc, filed as Exhibit 99.3 to The B.F. Goodrich Company Current Report on
Form 8-K filed on November 24, 1998 (File No. 1-892) and incorporated herein by reference.
2.3 -- Parent Stock Option Agreement dated as of November 22, 1998 between The B.F. Goodrich Company and
Coltec Industries Inc, filed as Exhibit 99.3 to The B.F. Goodrich Company Current Report on
Form 8-K filed on November 24, 1998 (File No. 1-892) and incorporated herein by reference.
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) and incorporated herein by reference.
3.2 -- Amended and Restated By-Laws of Coltec filed as Exhibit 3.2 to Coltec's Quarterly Report on
Form 10-Q for the quarter ended September 27, 1998 and incorporated herein by reference.
4.1 -- Form of Indenture, dated as of October 26, 1992, between Coltec and United States Trust Company of
New York, as trustee, relating to Coltec's 9 3/4% Senior Notes Due 1999 (including the form of
9 3/4% Senior Note Due 1999), filed as Exhibit 4.1 to Coltec's Registration Statement on Form S-3
(No. 33-52414) and incorporated herein by reference.
4.2 -- 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 Coltec's Current Report on Form 8-K, filed April 2, 1992 and
incorporated herein by reference.
4.3 -- Credit Agreement among Coltec, various banks, Bankers Trust Company, as Administrative Agent, Bank
of America Illinois, as Documentation Agent, and The Chase Manhattan Bank, as Syndication Agent,
dated as of March 24, 1992 and Amended and Restated as of January 11, 1994 and further Amended and
Restated as of December 18, 1996, filed as Exhibit 4.20 to Coltec's Annual Report on Form 10-K for
the year ended December 31, 1996 and incorporated herein by reference.
4.3(a) -- First Amendment to Credit Agreement dated as of August 22, 1997 between Coltec, various banks,
Bankers Trust Company, as Administrative Agent, Bank of America Illinois, as Documentation Agent
and Chase Manhattan Bank, as Syndication Agent, filed as Exhibit 4.1 to Coltec's Quarterly Report
on Form 10-Q for the quarter ended September 28, 1997 and incorporated herein by reference.
4.3(b) -- Second Amendment to Credit Agreement dated as of October 14, 1997 between Coltec, various banks,
Bankers Trust Company, as Administrative Agent, Bank of America Illinois, as Documentation Agent,
and Chase Manhattan Bank, as Syndication Agent, filed as Exhibit 4.2 to Coltec's Quarterly Report
on Form 10-Q for the quarter ended September 28, 1997 and incorporated herein by reference.
4.3(c) -- Third Amendment to Credit Agreement dated as of December 18, 1997 between Coltec, Coltec Aerospace
Canada Ltd., Various Banks, Bank of America National Trust and Savings Association (as successor
by merger to Bank of America Illinois), The Chase Manhattan Bank, as Syndication Agent, Bankers
Trust Company, as Administrative Agent and Bank of Montreal, as Canadian Paying Agent, filed as
Exhibit 4.22 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1997, and
incorporated herein by reference.
</TABLE>
I-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.3(d) -- Fourth Amendment to Credit Agreement dated as of January 26, 1998 between Coltec, Coltec Aerospace
Canada Ltd., the Subsidiary Guarantors named therein, and various banks, Bankers Trust Company,
(as successor by merger to Bank of America Illinois), as the Documentation Agent, The Chase
Manhattan Bank, as Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of
Montreal, as Canadian Paying Agent, filed as Exhibit 4.23 to Coltec's Annual Report on Form 10-K
for the year ended December 31, 1997 and incorporated herein by reference.
4.3(e) -- Fifth Amendment to Credit Agreement, dated as of March 16, 1998 among Coltec, Coltec Aerospace
Canada Ltd., the Subsidiary Guarantors named therein, the financial institutions party thereto
from time to time, Bank of America National Trust and Savings Association, as Documentation Agent,
The Chase Manhattan Bank, as Syndication Agent, Bankers Trust Company, as Administrative Agent,
and Bank of Montreal, as Canadian Paying Agent, filed as Exhibit 4.4 to Coltec's Quarterly Report
on Form 10-Q for the quarter ended June 28, 1998 and incorporated herein by reference.
4.3(f) -- Modification to Fifth Amendment to Credit Agreement, dated as of April 20, 1998, among Coltec,
Coltec Aerospace Canada Ltd., the Subsidiary Guarantors named therein, the financial institutions
party thereto from time to time, Bank of America National Trust and Savings Association, as
Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, Bankers Trust Company, as
Administrative Agent, and Bank of Montreal, as Canadian Paying Agent, filed as Exhibit 4.6 to
Coltec's Registration Statement on Form S-4 (No. 333-53005) and incorporated herein by reference.
4.3(g) -- Sixth Amendment to Credit Agreement dated as of September 9, 1998, filed as Exhibit 4.27 to
Coltec's Quarterly Report on Form 10-Q for the quarter ended September 27, 1998 and incorporated
herein by reference.
4.3(h) -- Consent and Agreement, dated as of March 31, 1998, with respect to the Credit Agreement among
Coltec, Coltec Aerospace Canada Ltd., the Subsidiary Guarantors named therein, the financial
institutions party thereto from time to time, Bank of America National Trust and Savings
Association, as Documentation Agent, The Chase Manhattan Bank, as Syndication Agent, Bankers Trust
Company, as Administrative Agent, and Bank of Montreal, as Canadian Paying Agent, filed as
Exhibit 4.5 to Coltec's Registration Statement on Form S-4 (No. 333-53005) and incorporated herein
by reference.
4.3(i)* -- Waiver dated as of November 20, 1998, with respect to the Credit Agreement among Coltec, Coltec
Aerospace Canada Ltd., the Subsidiary Guarantors named therein, various banks, Bank of America
National Trust and Savings Association, as Documentation Agent, The Chase Manhattan Bank, as
Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of Montreal, as
Canadian Paying Agent.
4.4 -- Amended and Restated Company Pledge Agreement dated as of March 24, 1998, made by Coltec in favor
of Bankers Trust Company, as Collateral Agent, filed as Exhibit 4.7 to Coltec's Registration
Statement on Form S-4 (No. 333-53005) and incorporated herein by reference.
4.5 -- Amended and Restated Company Security Agreement, dated as of March 24, 1998, made by Coltec in
favor of Bankers Trust Company as Collateral Agent, filed as Exhibit 4.8 to Coltec's Registration
Statement on Form S-4 (No. 333-53005) and incorporated herein by reference.
4.6 -- Amended and Restated Subsidiary Pledge Agreement, dated as of March 24, 1998, made by the
Subsidiary named therein in favor of Bankers Trust Company, as Collateral Agent, filed as
Exhibit 4.9 to Coltec's Registration Statement on Form S-4 (No. 333-53005) and incorporated herein
by reference.
</TABLE>
I-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.7 -- Amended and Restated Subsidiary Security Agreement, dated as of March 24, 198, made by the
Subsidiary named therein in favor of Bankers Trust Company, as Collateral Agent, filed as
Exhibit 4.10 to Coltec's Registration Statement on Form S-4 (No. 333-53005) and incorporated
herein by reference.
4.8 -- Receivables Purchase Agreement dated as of September 19, 1997 between Coltec, CNC Finance LLC, and
Credit Lyonnais, Atlantic Asset Securitization Corp., The Industrial Bank of Japan, Limited,
Lloyds Bank PLC, The Sumitomo Bank, Limited, filed as Exhibit 4.24 to Coltec's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
4.8(a)* -- First Amendment to Receivables Purchase Agreement dated as of November 18, 1998, among Coltec, CNC
Finance LLC, Atlantic Asset Securitization Corp., Lloyds Bank PLC, Wachovia Bank, N.A. and Credit
Lyonnais.
4.9 -- Receivables Transfer and Administration Agreement dated as of September 19, 1997 among Coltec,
certain subsidiaries and affiliates of Coltec and Coltec North Carolina Inc, filed as
Exhibit 4.25 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
4.10 -- Receivables Transfer and Administration Agreement dated as of September 19, 1997 among Coltec,
certain Canadian subsidiaries and affiliates of Coltec and Coltec North Carolina Inc, filed as
Exhibit 4.26 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
4.10(a) -- First Amendment to Receivables Transfer and Administration Agreement dated as of December 15, 1997
among Coltec and Coltec North Carolina Inc, filed as Exhibit 4.28 to Coltec's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
4.10(b) -- Second Amendment to Receivables Transfer and Administration Agreement, dated as of January 26,
1998, made by the subsidiary named therein in favor of Bankers Trust Company as Collateral Agent,
filed as Exhibit 4.26 to Coltec's Quarterly Report on Form 10-Q for the quarter ended June 28,
1998 and incorporated herein by reference.
4.10(c)* -- Third Amendment to Receivables Transfer and Administration Agreement dated as of October 23, 1998
between Coltec and Coltec North Carolina Inc.
4.11 -- Receivables Purchase and Contribution Agreement dated as of September 19, 1997 between Coltec
North Carolina Inc and CNC Finance LLC., filed as Exhibit 4.27 to Coltec's Annual Report on
Form 10-K for the year ended December 31, 1997 and incorporated herein by reference.
4.11(a) -- First Amendment to Receivables Purchase and Contribution Agreement dated as of December 15, 1997
among Coltec, Coltec North Carolina Inc and CNC Finance LLC, filed as Exhibit 4.29 to Coltec's
Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated herein by
reference.
4.11(b)* -- Second Amendment to Receivables Purchase and Contribution Agreement dated as of October 23, 1998
among Coltec North Carolina Inc and CNC Finance LLC.
4.11(c)* -- Third Amendment to Receivables Purchase and Contribution Agreement dated as of October 23, 1998
between Coltec North Carolina and CNC Finance LLC.
4.12 -- Indenture dated as of April 16, 1998, between Coltec and Bankers Trust Company as Trustee,
relating to the 7 1/2% Senior Secured Notes, filed as Exhibit 4.1 to Coltec's Registration
Statement on Form S-4 (No. 333-53005) and incorporated herein by reference.
4.13 -- Indenture dated as of April 14, 1998, between Coltec and The Bank of New York, as Trustee,
relating to the 5 1/4% Convertible Preferred Securities, filed as Exhibit 4.3 on Coltec's
Registration Statement on Form S-3 (No. 333-52975) and incorporated herein by reference.
</TABLE>
I-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.14 -- Registration Rights Agreement, dated as of April 16, 1998, between Coltec and the Initial
Purchasers named therein, filed as Exhibit 4.3 on Coltec's Registration Statement on Form S-4
(No. 333-53005) and incorporated herein by reference.
4.15 -- Form of 7 1/2% Series B Senior Secured Notes, filed as Exhibit 4.2 to Coltec's Registration
Statement on Form S-4 (No. 333-53005) and incorporated herein by reference.
4.16 -- Form of 5 1/4% Convertible Preferred Security, filed as Exhibit 4.4 to Coltec's Registration
Statement on Form S-3 (No. 333-52975) and incorporated herein by reference.
4.17 -- Form of 5 1/4% Convertible Junior Subordinated Interest Debenture Due 2028, filed as Exhibit 4.5
to Coltec's Registration Statement on Form S-3 (No. 333-52975) and incorporated herein by
reference.
4.18 -- Guarantee Agreement, dated as of April 14, 1998, among Coltec Industries Inc and The Bank of New
York, as Trustee, filed as Exhibit 4.6 to Coltec's Registration Statement on Form S-3
(No. 333-52975) and incorporated herein by reference.
4.19 -- Registration Rights Agreement, dated as of April 14, 1998, among Coltec Industries Inc, Coltec
Capital Trust and the Initial Purchasers named therein, filed as Exhibit 4.7 to Coltec's
Registration Statement on Form S-3 (No. 333-52975) and incorporated herein by reference.
4.20 -- Certificate of Trust of the Coltec Capital Trust, filed as Exhibit 4.1 to Coltec's Registration
Statement on Form S-3 (No. 333-52975) and incorporated herein by reference.
4.21 -- Amended and Restated Declaration of Trust of Coltec Capital Trust dated as of April 14, 1998,
among Coltec Industries Inc, as Sponsor, The Bank of New York, as Property Trustee, and The Bank
of New York (Delaware), as Delaware Trustee, and the individuals named therein as Administrative
Trusts therein, filed as Exhibit 4.2 to Coltec's Registration Statement on Form S-3
(No. 333-52975) and incorporated herein by reference.
10.1 -- Family Protection Plan of Coltec filed as Exhibit 4.28 to Coltec's Quarterly Report on Form 10-Q
for the quarter ended September 27, 1998 and incorporated herein by reference.
10.2 -- Form of Split Dollar Insurance Agreement dated May 8, 1997 between Coltec and certain executive
officers, filed as Exhibit 10.2 to Coltec's Annual Report on Form 10-K for the year ended December
31, 1997 and incorporated herein by reference.
10.3 -- Benefits Equalization Plan of Coltec effective January 1, 1976 and Amended and Restated as of
January 1, 1989, filed as Exhibit 10.3 to Coltec's Annual Report on Form 10-K for the year ended
December 31, 1997 and incorporated herein by reference.
10.4 -- Employment Agreement between Coltec and John W. Guffey, Jr., dated July 15, 1998, filed as
Exhibit 10.28 to Coltec's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and
incorporated herein by reference.
10.5 -- Employment Agreement between Coltec and Nishan Teshoian, dated July 15, 1998, filed as
Exhibit 10.29 to Coltec's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and
incorporated herein by reference.
10.5(a)* -- First Amendment dated November 1, 1998 to Employment Agreement dated July 15, 1998 between Coltec
and Nishan Teshoian.
10.6 -- Employment Agreement between Coltec and David D. Harrison, dated July 15, 1998, filed as
Exhibit 10.30 to Coltec's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and
incorporated herein by reference.
10.7 -- Employment Agreement between Coltec and Robert J. Tubbs, dated July 15, 1998, filed as
Exhibit 10.31 to Coltec's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and
incorporated herein by reference.
10.8 -- Employment Agreement between Coltec and Laurence H. Polsky, dated July 15, 1998, filed as
Exhibit 10.32 to Coltec's Quarterly Report on Form 10-Q for the quarter ended June 28, 1998 and
incorporated herein by reference.
</TABLE>
I-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.9 -- The Incentive Plan for Certain Employees of Coltec and its subsidiaries, filed as Exhibit 10.22 to
Coltec's Registration Statement on Form S-2 (No. 33-44846) and incorporated herein by reference.
10.9(a) -- Amendments to the Incentive Plan for Certain Employees of Coltec and its subsidiaries, filed as
Exhibit 10.13 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
10.10 -- 1992 Stock Option and Incentive Plan of Coltec, filed as Exhibit 10.24 to Coltec's Annual Report
on Form 10-K for the year ended December 31, 1991 and incorporated herein by reference.
10.10(a) -- Amendment No. 1 to Coltec's 1992 Stock Option and Incentive Plan, filed as Exhibit 10.15 to
Coltec's Annual Report on Form 10-K for the year ended December 31, 1993 and incorporated herein
by reference.
10.11 -- 1994 Long-Term Incentive Plan of Coltec, filed as Exhibit 10.16 to Coltec's Annual Report on
Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.12 -- Resolutions of the Board of Directors of Coltec adopted July 13, 1995 amending Section 6(a) of
Coltec's 1994 Long-Term Incentive Plan, filed as Exhibit 10.17 to Coltec's Annual Report on
Form 10-K for the year ended December 31, 1995 and incorporated herein by reference.
10.13 -- Annual Incentive Plan For Certain Employees of Coltec and its subsidiaries, filed as
Exhibit 10.17 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1993 and
incorporated herein by reference.
10.14 -- 1994 Stock Option Plan for Outside Directors of Coltec, filed as Exhibit 10.18 to Coltec's Annual
Report on Form 10-K for the year ended December 31, 1993 and incorporated herein by reference.
10.14(a) -- First Amendment to Coltec's 1994 Stock Option Plan for Outside Directors, filed as Exhibit 10.5 to
Coltec's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997 and incorporated
herein by reference.
10.14(b) -- Second Amendment to Coltec's 1994 Stock Option Plan for Outside Directors, filed as Exhibit 10.26
to Coltec's Annual Report on Form 10-K for the year ended December 31, 1997 and incorporated
herein by reference.
10.14(c) -- Amendment No. 3 to Coltec's 1994 Stock Option Plan for Outside Directors, filed as Exhibit B to
Coltec's definitive proxy statement filed March 12, 1998 and incorporated herein by reference.
10.15 -- Deferred Compensation Plan For Non-Employee Directors of Coltec, filed as Exhibit 10.20 to
Coltec's Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein
by reference.
10.16 -- Resolution of the Board of Directors of Coltec adopted on May 30, 1995 establishing a
change-in-control arrangement for non-employee directors, filed as Exhibit 10.21 to Coltec's
Annual Report on Form 10-K for the year ended December 31, 1995 and incorporated herein by
reference.
10.17 -- 1997 Restricted Stock Plan for Outside Directors of Coltec filed as Exhibit A to Coltec's
definitive proxy statement filed March 26, 1997 and incorporated herein by reference.
10.17(a) -- Amendment No. 1 to the 1997 Restricted Stock Plan for Outside Directors of Coltec, filed as
Exhibit 10.20 to Coltec's Annual Report on Form 10-K for the year ended December 31, 1997 and
incorporated herein by reference.
10.17(b) -- Second Amendment to Coltec's 1992 Stock Option and Incentive Plan, filed as Exhibit 10.3 to
Coltec's Quarterly Report on Form 10-Q for the quarter ended September 28, 1997 and incorporated
herein by reference.
</TABLE>
I-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- - ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.17(c) -- Amendment No. 3 to Coltec's 1992 Stock Option and Incentive Plan, filed as Exhibit A to Coltec's
definitive proxy statement filed March 26, 1997 and incorporated herein by reference.
12.1* -- Computation of Ratio of Earnings to Fixed Charges.
21.1* -- List of Subsidiaries of Coltec.
23.1* -- Consent of Arthur Andersen LLP.
27.1* -- Consolidated Financial Data Schedule.
</TABLE>
- - ------------------
* Filed herewith
I-6
<PAGE>
Exhibit 4.3(i)
WAIVER
Reference is hereby made to the Credit Agreement, dated as of March 24,
1992, amended and restated as of January 11, 1994 and further amended and
restated as of December 18, 1996 (as amended, modified or supplemented to the
date hereof, the "Credit Agreement"), among Coltec Industries Inc, a corporation
organized and existing under the laws of the Commonwealth of Pennsylvania (the
"Company"), Coltec Aerospace Canada Ltd., an Ontario corporation (the "Canadian
Borrower"), the various Subsidiaries of the Company that are Credit Parties on
the date of this Waiver, the various Banks party thereto, Bank of America
National Trust and Savings Association (as successor by merger to Bank of
America Illinois), as Documentation Agent, The Chase Manhattan Bank, as
Syndication Agent, Bankers Trust Company, as Administrative Agent, and Bank of
Montreal, as Canadian Paying Agent. All capitalized terms used herein and not
otherwise defined shall have the respective meanings provided such terms in the
Credit Agreement.
The Company has informed the Banks that it has entered, or intends to
enter, into an agreement (the "Merger Agreement") pursuant to which a certain
entity (the "Acquiror"), through a newly-formed wholly-owned subsidiary of the
Acquiror ("Merger Sub"), would acquire (the "Acquisition"), 100% of the equity
of the Company by means of the merger of Merger Sub with and into the Company,
with the Company being the surviving corporation of such merger. The Company has
determined that it is in the best interests of the Company to enter into the
Merger Agreement and to consummate the Acquisition (pursuant to the terms and
subject to the conditions set forth in the Merger Agreement). The Company has
also informed the Banks that, in connection with the entering into of the Merger
Agreement, the Company and the Acquiror have entered, or intend to enter, into a
stock option agreement pursuant to which the Acquiror will grant the Company an
option with respect to certain shares of the Acquiror's common stock (the
"Acquiror Stock Option Agreement") and a stock option agreement pursuant to
which the Company will grant the Acquiror an option with respect to certain
shares of the Company's common stock (the "Company Stock Option Agreement" and,
collectively with the Acquiror Stock Option Agreement, the "Cross Stock Option
Agreements").
In consideration of the making by the Company and the Canadian Borrower
of the representations and warranties, and the payment by the Company to the
Banks of the consent fee set forth in the second succeeding paragraph, the Banks
hereby waive (subject to the provisions of the immediately succeeding paragraph)
any Default or Event of Default which may exist pursuant to the Credit Agreement
as a result of the Company's entering into the Merger Agreement and the Cross
Stock Option Agreements or, subject to the provisions of the immediately
succeeding paragraph, the performance by the Company of its obligations, or the
exercise of its rights, under or in connection with the Merger Agreement (other
than the consummation of the Acquisition thereunder) and the Cross Stock Option
Agreements so long as (i) the Merger Agreement and the Cross Stock Option
Agreements together expressly provide that the liabilities of the Company and
its Subsidiaries in the event the Merger Agreement is terminated in accordance
with its terms (including, without limitation, in respect of the payment by the
Company to the Acquiror of (x) any breakup fee under the Merger Agreement and/or
(y) any cash payment in respect of the option held by the Acquiror under the
Company Stock Option Agreement) or the Acquisition is not consummated shall in
no event exceed $95,000,000 and (ii) the Merger Agreement does not contemplate
the assumption by the Company or any of its Subsidiaries of any liabilities of,
or relating to, the Acquiror or any of its Subsidiaries other than as may occur
in connection with, and upon consummation of, the Acquisition.
It is expressly understood and agreed that this Waiver shall not apply
to permit (or to waive any Default or Event of Default resulting from) any
Change of Control arising as a result of any purchases pursuant to the Cross
Stock Option Agreements. Furthermore, it is expressly understood and agreed that
this Waiver shall not apply to permit the consummation of the Acquisition (or
any Change of Control resulting therefrom) and that neither the Company nor any
of its Subsidiaries shall be permitted to consummate the Acquisition unless
either (x) concurrently therewith or prior thereto, all Commitments and Letters
of Credit pursuant to the Credit Agreement are terminated and all amounts owing
pursuant to the Credit Agreement are repaid in full or (y) the Company has
obtained the prior written consent of the Required Banks (which consent may be
granted or withheld in the sole discretion of the Banks,
<PAGE>
or subject to such terms or conditions as may be imposed by the Banks) adopted
in accordance with the requirements of the Credit Agreement.
In order to induce the Banks to enter into this Waiver, (i) the Company
and the Canadian Borrower hereby represent and warrant that (x) all
representations and warranties contained in Section 7 of the Credit Agreement
are true and correct in all material respects on and as of the Waiver Effective
Date (as defined below) and after giving effect to this Waiver (unless such
representations and warranties relate to a specific earlier date, in which case
such representations and warranties shall be true and correct as of such earlier
date) and (y) there exists no Default or Event of Default on the Waiver
Effective Date after giving effect to this Waiver and (ii) the Company hereby
agrees to pay to the Administrative Agent for the account of each Bank which
executes and delivers (including, without limitation, by usage of facsimile
transmission) to the Administrative Agent a counterpart of this Waiver on or
prior to 11:59 P.M. (New York time) on November 20, 1998 a non-refundable
consent fee in the amount equal to 0.05% of the Commitment of such Bank (as same
is in effect on the Waiver Effective Date), which fee shall be payable on the
first Business Day after the Waiver Effective Date, provided, however, that such
fee shall not be payable if the Waiver Effective Date does not occur. Payment of
the fee described in clause (ii) of the immediately preceding sentence shall not
be subject to counterclaim or set-off for, or be otherwise affected by, any
claim or dispute relating to any other matter.
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. 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. This Waiver shall become effective on the date (the "Waiver
Effective Date") when each Credit Party (including, without limitation, the
Company, the Canadian Borrower and each Subsidiary Guarantor) and the Required
Banks shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered (including, without limitation, by usage
of facsimile transmission) the same to the Administrative Agent at its Notice
Office. This Waiver and the agreements contained herein shall be binding on the
successors and assigns of the parties hereto.
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.
* * *
2
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused a counterpart of
this Waiver to be duly executed and delivered as of the 20th day of November,
1998.
COLTEC INDUSTRIES INC
By /s/ Thomas B. Jones, Jr.
-----------------------------------
Title: Vice President and Treasurer
COLTEC AEROSPACE CANADA LTD.
By /s/ Thomas B. Jones, Jr.
----------------------------------
Title: Vice President and Treasurer
<PAGE>
BANKERS TRUST COMPANY,
Individually and as
Administrative Agent
By /s/ Patricia Hogan
-------------------------
Title: Principal
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION
Individually and as
Documentation Agent
By /s/ Robert Parkhurst
----------------------------
Title: Sr. Vice President
THE CHASE MANHATTAN BANK,
Individually and as
Syndication Agent
By _____________________________
Title:
<PAGE>
BANK OF MONTREAL,
Individually and as Canadian
Paying Agent and Canadian
Documentation Agent
By /s/ Bruce A. Pietra
------------------------------
Title: Director
ALLIED IRISH BANK, PLC,
CAYMAN ISLANDS BRANCH
By____________________________
Title:
BANK OF IRELAND
By_____________________________
Title:
BANK COMMERCIALE ITALIANA
NEW YORK BRANCH
By_____________________________
Title:
By_____________________________
Title:
BANK LEUMI TRUST COMPANY
OF NEW YORK
By______________________________
Title:
<PAGE>
THE BANK OF NEW YORK
By /s/ Ann Marie Hughes
--------------------------
Title: Vice President
BANK OF SCOTLAND
By /s/ Annie Chin Tat
-----------------------------
Title: Senior Vice President
BANK OF TOKYO-MITSUBISHI TRUST COMPANY
By __________________________
Title:
NATEXIS BANQUE BFCE, formerly
BANQUE FRANCAISE DU COMMERCE
EXTERIEUR
By___________________________
Title:
By___________________________
Title:
CIBC INC.
By /s/ Ihor Zaluckyj
-----------------------------
Title: Executive Director
CIBC Oppenheimer Corp.
AS AGENT
<PAGE>
ROYAL BANK OF CANADA
By________________________________
Title:
COMMERCIAL LOAN FUNDING TRUST I
By Lehman Commercial Paper
Inc., not in its
individual capacity but
solely as administrative
agent.
By______________________________
Title:
MELLON BANK CANADA
By /s/ Ed McGrath
--------------------------
Title: Vice President
CREDIT LYONNAIS ATLANTA AGENCY
By /s/ David M. Cawrse
---------------------------
Title: First Vice President
and Manager
CREDIT LYONNAIS NEW YORK
BRANCH
By________________________________
Title:
<PAGE>
THE DAI-ICHI KANGYO BANK, LTD.
By________________________________
Title:
FIRST UNION NATIONAL BANK
(f/k/a First Union National
Bank of North Carolina)
By /s/ David Trotter
-------------------------
Title: Vice President
THE FUJI BANK, LIMITED,
ATLANTA AGENCY
By________________________________
Title:
ERSTE BANK DER
OESTERREICHISCHEN
SPARKASSEN AG (f/k/a
Girocredit Bank AG Der
Sparkassen, Grand Cayman
Island Branch)
By________________________________
Title:
By________________________________
Title:
<PAGE>
THE INDUSTRIAL BANK OF JAPAN,
LIMITED
By________________________________
Title:
LEHMAN COMMERCIAL PAPER INC.
By________________________________
Title:
LLOYDS BANK PLC
By________________________________
Title:
By________________________________
Title:
MELLON BANK, N.A.
By /s/ John H. Gibney
-------------------------
Title: Vice President
NATIONSBANK, N.A.
By /s/ Robert Parkhurst
--------------------------
Title: Sr. Vice President
THE SAKURA BANK, LTD.
By________________________________
Title:
<PAGE>
THE SANWA BANK, LIMITED
By________________________________
Title:
By________________________________
Title:
THE SUMITOMO BANK, LIMITED
By________________________________
Title:
THE TOKAI BANK, LIMITED
NEW YORK BRANCH
By________________________________
Title:
WACHOVIA BANK, N.A.
By /s/ Timothy R. Hileman
---------------------------------
Title: Senior Vice President
BT BANK OF CANADA
By /s/ Michael Pullella
--------------------------------
Title: Vice President and Chief
Financial Officer
By /s/ Brian S. Strauss
----------------------------
Title: Principal
<PAGE>
BANK OF AMERICA CANADA
By /s/ Edwin B. Cox, Jr.
---------------------------------
Title: VP & Senior Credit Officer
THE CHASE MANHATTAN BANK OF
CANADA
By________________________________
Title:
CREDIT LYONNAIS CANADA
By /s/ D. J. Farmer
------------------
Title: FVP
By /s/ Robert Dyck
------------------------
Title: Manager, Corporate Banking
CANADIAN IMPERIAL BANK OF
COMMERCE
By________________________________
Title:
<PAGE>
Acknowledged and Agreed:
AMI INDUSTRIES INC.
CII HOLDINGS INC
COLTEC CANADA INC
COLTEC INDUSTRIAL PRODUCTS INC
COLTEC INTERNATIONAL SERVICES CO
COLTEC NORTH CAROLINA INC.
COLTEC TECHNICAL SERVICES INC
DELAVAN INC (F/K/A DELAVAN NEWCO INC.)
GARLOCK INC
GARLOCK INTERNATIONAL INC
GARLOCK OVERSEAS CORPORATION
HABER TOOL COMPANY INC
JAMCO PRODUCTS, LLC
MENASCO AEROSYSTEMS INC
STEMCO INC
WALBAR INC
By /s/ Thomas B. Jones, Jr.
---------------------------------
Title: Vice President and Assistant Treasurer
On behalf of each of the above
Subsidiary Guarantors
<PAGE>
EXHIBIT 4.8(a)
AMENDMENT 1 TO RECEIVABLES PURCHASE AGREEMENT
AMENDMENT, dated as of November 18, 1998 to the Receivables
Purchase Agreement, dated as of September 19, 1997 (the "Receivables
Agreement"), among CNC FINANCE LLC (the "Seller"), COLTEC INDUSTRIES INC,
ATLANTIC ASSET SECURITIZATION CORP., LLOYDS BANK PLC, WACHOVIA BANK, N.A. and
CREDIT LYONNAIS, a French banking corporation acting through its New York
Branch, individually and as agent (the "Agent") for the Investors and the Banks.
RECITALS
WHEREAS, the Seller and the Agent have agreed subject to the
terms and conditions of this Amendment, to amend the Receivables Agreement as
hereinafter set forth. Terms used herein but not defined herein shall have the
meaning assigned thereto in the Receivables Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Amendment of Receivables Agreement. The Receivables
Agreement and all documents entered into in connection therewith are hereby
amended as follows:
(a) The definition of "Purchase Limit" shall be amended by
replacing the dollar figure $85,000,000 with the dollar figure
$95,000,000.
(b) The Bank Commitments as of the date hereof are as follows:
Credit Lyonnais $40,000,000
Lloyds Bank PLC $30,000,000
Wachovia Bank, N.A. $25,000,000
2. Execution in Counterparts, Etc. This Amendment may be
executed in any number of counterparts, each of which when so executed shall be
deemed to be an original and all of which when taken together shall constitute
one and the same amendment. The delivery of a signed signature page to this
Amendment by telecopy transmission shall constitute due execution and delivery
of this Amendment for all purposes.
3. Receivables Agreement in Full Force and Effect. Except as
amended by this Amendment, all of the provisions of the Receivables Agreement
and all of the provisions of all other documentation required to be delivered
with respect thereto shall remain in full force and effect from and after the
date hereof.
4. References to Receivables Agreement. From and after the
date hereof, (a) all references in the Receivables Agreement to "this
Agreement," "hereof," "herein," or similar terms and (b) all references to the
Receivables Agreement in each agreement, instrument and other document executed
or delivered in connection with the Receivables Agreement, shall mean and refer
to the Receivables Agreement, as amended by this Amendment.
5. Further Assurances. The parties hereto agree to execute
and deliver any and all further agreements, certificates and other documents
reasonably necessary to implement the provisions of this Amendment.
6. Governing Law. This Amendment shall be governed by, and
construed in accordance with, the law of the State of New York without giving
effect to the conflict of laws principles thereof.
<PAGE>
[Amendment 1 - Coltec Receivables Agreement]
IN WITNESS WHEREOF, the parties have caused this Amendment to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
SELLER: CNC FINANCE LLC
By: CNC Member Inc.
By: /s/ Thomas B. Jones, Jr.
---------------------------------------
Name: Thomas B. Jones, Jr.
Title: Vice President and Treasurer
By: Coltec North Carolina Inc
By: /s/ Thomas B. Jones, Jr.
---------------------------------------
Name: Thomas B. Jones, Jr.
Title: Vice President and Treasurer
AGENT: CREDIT LYONNAIS NEW YORK BRANCH,
as Agent
By: /s/ David C. Fink
---------------------------------------
Name: David C. Fink
Title: First Vice President
2
<PAGE>
SCHEDULE 4.01(n)
Attached
<PAGE>
EXHIBIT 4.10(c)
THIRD AMENDMENT
TO
RECEIVABLES TRANSFER AND ADMINISTRATION AGREEMENT
THIS THIRD AMENDMENT TO RECEIVABLES TRANSFER AND ADMINISTRATION
AGREEMENT, dated as of October 23, 1998 (this "Amendment"), is to that
Receivables Transfer and Administration Agreement, dated as of September 19,
1997 as amended and modified hereby and as amended by the First Amendment
thereto, dated as of December 15, 1997 and the Second Amendment thereto, dated
as of January 26, 1998, and as further amended and modified from time to time
hereafter (the "Transfer Agreement"), by and among COLTEC INDUSTRIES INC, a
Pennsylvania corporation, as agent for the Sellers (the "Sellers' Agent"), as
collection agent (the "Collection Agent") and as a Seller, the entities listed
on the signature pages thereof (each a "Seller" and, collectively, the
"Sellers") and COLTEC NORTH CAROLINA INC, a North Carolina corporation, as
Purchaser (the "Purchaser"). Terms used and not otherwise defined in this
Amendment shall have the meanings set forth in the Transfer Agreement.
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Delavan-Delta Inc ("Delavan-Delta") was a Seller under the
Transfer Agreement.
WHEREAS, Delavan-Delta was liquidated on December 31, 1997 and
transferred its receivables to Coltec Industries Inc.
WHEREAS, DM&T, Inc. (d/b/a Danti Tool & Die) was acquired by Coltec
Industries Inc, acting in that capacity, on September 29, 1997.
WHEREAS, the Sellers' Agent contributed the Haber Tool operation to
DM&T, Inc. on December 31, 1997, and changed the name of that subsidiary to
Haber Tool Company Inc ("Haber").
WHEREAS, DM&T, Inc., from September 29, 1997 to December 31, 1997, sold
certain Receivables to the Purchaser, and Haber, from December 31, 1997 to the
date of this Amendment, has sold certain Receivables to the Purchaser.
WHEREAS, JAMCO Products LLC ("JAMCO") was acquired by Coltec Industries
Inc, acting in that capacity, on January 30, 1998 and from March 30, 1998 to the
date of this Amendment, has sold certain Receivables to the Purchaser.
WHEREAS, the parties hereto desire to amend the Transfer Agreement to
reflect the addition of JAMCO and Haber as Sellers and the removal of
Delavan-Delta as a Seller under that Agreement.
NOW, THEREFORE, IN CONSIDERATON of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment.
- - ---------
a.This amendment confirms that JAMCO was added, and
assumed the rights and obligations, as a Seller under the Transfer Agreement,
including, without limitation, under the Sale Assignment, dated as of October
23, 1998 (the "Sale Agreement") by and between JAMCO and the Purchaser,
effective as of March 30, 1998. The parties hereto confirm that, effective
March 30, 1998, JAMCO began to sell, transfer, absolutely assign,
<PAGE>
set over and convey Recivables, Related Security and the proceeds thereof to the
Purchaser under the Transfer Agreement or under the Sale Assignment.
b.This Amendment confirms that Haber was added, and
assumed the rights and obligations, as a Seller under the Transfer Agreement,
including, without limitation, under the Sale Assignment, dated as of
October 23, 1998 (the "Sale Assignment") by and between Haber and the Purchaser,
effective as of December 31, 1997. The parties hereto confirm that, effective
December 31, 1997, Haber began to sell, transfer, absolutely assign, set over
and convey Receivables, Related Security and the proceeds thereof to the
Purchaser under the Transfer Agreement or under the Sale Assignment. The parties
also confirm that, from and including September 29, 1997, to and including
December 31, 1997, DM&T, Inc. sold, transferred, absolutely assigned, set over
and conveyed Receivables, Related Security and the proceeds thereof to the
Purchaser under the Transfer Agreement.
c.This Amendment confirms that Delavan-Delta withdrew and
terminated its rights and obligations, as a Seller under the Transfer Agreement,
including, without limitation, under the Sale Assigment dated as of September
22, 1997 (the "Sale Assignment") by and between Delavan-Delta and the Purchaser,
effective as of December 31, 1997. The parties hereto confirm that, effective as
of December 31, 1997, Delavan-Delta stopped selling, transferring, absolutely
assigning, setting over and conveying Receivables, Related Security and the
proceeds thereof to the Purchaser under the Agreement or under the Sale
Assignment (which Sale Assignment is hereby terminated as of the date hereof).
The withdrawal of Delavan-Delta as a Seller does not affect the Receivables,
Related Security and the proceeds thereof that were transferred and assigned by
Delavan-Delta prior to December 31, 1997. The Purchaser will retain as its
property the Receivables, Related Security and proceeds thereof that were
previously transferred by Delavan-Delta to it.
d.Schedule 4.01(n) referred to in, and attached to, the
Transfer Agreement, is hereby deleted and replaced in its entirety with the
revised Schedule 4.01(n) attached hereto.
2.No Other Changes.
-----------------
Except as modified by this Amendment, all of the terms and provisions
of the Transfer Agreement remain in full force and effect.
3.Counterparts.
-------------
This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original. It shall not
be necessary in making proof of this Amendment to produce or account for more
than one such counterpart.
4.Governing Law.
- - --------------
This Amendment shall be construed and enforced in accordance with the
laws of the State of North Carolina without regard to its rules with respect to
conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
The undersigned have caused this THIRD AMENDMENT TO RECEIVABLES TRANSFER
AND ADMINISTRATION AGREEMENT to be duly executed and delivered by their proper
duly authorized representatives as of the 23rd day of October, 1998.
COLTEC INDUSTRIES INC,
as Sellers' Agent
By: /s/ Thomas B. Jones, Jr.
-------------------------------------
Name: Thomas B. Jones, Jr.
Title: Vice President and Treasurer
COLTEC NORTH CAROLINA INC,
as Purchaser
By: /s/ Thomas B. Jones, Jr.
-------------------------------------
Name: Thomas B. Jones, Jr.
Title: Vice President and Treasurer
JAMCO PRODUCTS LLC,
as Seller
By: /s/ Robert J. Tubbs
-------------------------------------
Name: Robert J. Tubbs
Title: Vice President and Secretary
HABER TOOL COMPANY INC
as Seller
By: /s/ Robert J. Tubbs
-------------------------------------
Name: Robert J. Tubbs
Title: Vice President and Secretary
<PAGE>
SCHEDULE 4.01(n)
Attached
<PAGE>
EXHIBIT 4.11(b)
SECOND AMENDMENT
TO
RECEIVABLES PURCHASE AND CONTRIBUTION AGREEMENT
THIS SECOND AMENDMENT TO RECEIVABLES PURCHASE AND CONTRIBUTION
AGREEMENT dated as of October 23, 1998 (this "Amendment"), is to that
Receivables Purchase and Contribution Agreement, dated as of September 19,
1997, as amended by the First Amendment dated as of December 15, 1997, (the
"First Amendment"), and as further amended and modified from time to time
hereafter (the "Purchase Agreement"), by and between COLTEC NORTH CAROLINA INC,
a North Carolina corporation, as Seller (the "Seller"), and CNC FINANCE LLC, a
North Carolina limited liability company, as Purchaser (the "Purchaser"). Terms
used and not otherwise defined in this Amendment shall have the meanings set
forth in the Purchase Agreement.
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend Schedule 1 of the Purchase
Agreement to reflect the addition of the Haber Tool Operation of Haber Tool
Company Inc ("Haber") as an Eligible Originator under that Agreement.
WHEREAS, Haber, as confirmed by Amendment dated Otober 23, 1998, has
been made a party to that certain Receivables Transfer and Administration
Agreement, dated as of September 19, 1997, as amended by the First Amendment
thereto, dated as of December 15, 1997 and the Second Amendment thereto, dated
as of January 26, 1998, and as further amended and modified from time to time
hereafter ("Transfer Agreement").
WHEREAS, under the Transfer Agreement, Haber has agreed to sell,
transfer, absolutely assign, set over and convey to Seller all Receivables
owned by Haber.
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment.
a. Seller desires to confirm the addition of the Haber Tool
Operation of Haber as an Eligible Originator under the Purchase Agreement. The
parties hereto agree that Seller began selling, transferring, absolutely
assigning, setting over, conveying and contributing to the Purchaser all
Receivables of Haber Tool Operation owned by the Seller as of December 31,
1997.
b. Schedule 1 referred to in, and attached to, the Purchase
Agreement, is hereby deleted and replaced in its entirety with the revised
Schedule 1 attached hereto.
2. No Other Changes.
Except as modified by this Amendment, all of the terms and provisions
of the Purchase Agreement remain in full force and effect.
<PAGE>
3. Counterparts.
This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original. It shall not
be necessary in making proof of this Amendment to produce or account for more
than one such counterpart.
4. Governing Law.
This Amendment shall be construed and enforced in accordance with the
laws of the State of North Carolina without regard to its rules with respect to
conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
The undersigned have caused this AMENDMENT TO RECEIVABLES PURCHASE AND
CONTRIBUTION AGREEMENT to be duly executed and delivered by their proper duly
authorized representatives as of the 23rd day of October, 1998.
COLTEC NORTH CAROLINA INC,
as Seller
By: /s/ Thomas B. Jones, Jr.
------------------------------------------
Name: Thomas B. Jones, Jr.
Title: Vice President and Treasurer
CNC FINANCE LLC,
as Purchaser
By: /s/ Thomas B. Jones, Jr.
------------------------------------------
Name: Thomas B. Jones, Jr.
Title: Vice President and Treasurer
<PAGE>
APPENDIX 1
Eligible Originators
AMI Industries, Inc.,
a Subsidiary of Coltec Industries Inc
1275 North Newport Rd.
Colorado Springs, CO 80916
Chandler Evans Control Systems,
a Division of Coltec Industries Inc
Charter Oak Boulevard
P.O. Box 330651
W. Hartford, CT 06133-0651
Delavan Gas Turbine Products,
a Division of Delavan Inc
811 Fourth Street
P.O. Box 65100
West Des Moines, IA 50265-0100
Delavan Process Instrumentation,
an Operating Unit of the Lewis Engineering Company
Division of Coltec Industries Inc
238 Water Street
Naugatuck, CT 06770
Garlock Bearings Inc,
a Subsidiary of Coltec Industries Inc
700 Mid Atlantic Parkway
Thorofare, NY 08086
Garlock Metallic Gaskets,
an Operating Unit of Garlock Inc
1977 Kindred Street
Houston, TX 77049
Garlock Sealing Technologies,
a Division of Garlock Inc
1666 Division Street
Palmyra, NY 14522
Garlock Sealing Technologies,
a Division of Garlock Inc
300 Alling Drive
Sodus, NY 14551
Garlock Sealing Technologies,
a Division of Garlock of Canada Ltd
2860 Plymouth Drive
Oakville, Ontario
Canada L6H-5S8
Haber Tool Operation,
an Operating Unit of Haber Tool Company Inc
<PAGE>
42001 Koppernick
Canton, MI 48187
Lewis Engineering Company,
a Division of Coltec Industries Inc
238 Water Street
Naugatuck, CT 06770
Menasco Aerospace,
a Division of Coltec Aerospace Canada Ltd.
1400 South Service Road West
Oakville, Ontario
Canada L6L-5Y7
Menasco Aerosystems,
a Division of Coltec Industries Inc
4000 South Highway 157
Euless, TX 76040-7012
Quincy Compressor/Ortman Fluid Power,
a Division of Coltec Industries Inc
3501 Wismann Lane
Quincy, IL 62301-3116
Stemco Truck Products,
a Division of Stemco Inc
300 East Industrial Blvd.
Longview, TX 75602-4720
Walbar Arizona,
a Division of Walbar Inc
323 S. Bracken Lane
Chandler, AZ 85224
Walbar Canada,
a Division of Coltec Aerospace Canada Ltd.
1865 Sharlyn Road
Mississauga
Canada L4X-1R2
Walbar Metals,
a Division of Walbar Inc
Peabody Industrial Center, Fifth Street
Peabody, MA 01960-3369
Walbar Metals,
a Division of Walbar Inc
5502 Highway 25 North
Hodges, SC 29653
<PAGE>
EXHIBIT 4.11(c)
THIRD AMENDMENT
TO
RECEIVABLES PURCHASE AND CONTRIBUTION AGREEMENT
THIS THIRD AMENDMENT TO RECEIVABLES PURCHASE AND CONTRIBUTION
AGREEMENT dated as of October 23, 1998 (this "Amendment"), is to that
Receivables Purchase and Contribution Agreement, dated as of September 19,
1997, as amended by the First Amendment dated as of December 15, 1997, (the
"First Amendment"), the Second Amendment dated as of October 23, 1998, and as
further amended and modified from time to time hereafter (the "Purchase
Agreement"), by and between COLTEC NORTH CAROLINA INC, a North Carolina
corporation, as Seller (the "Seller"), and CNC FINANCE LLC, a North Carolina
limited liability company, as Purchaser (the "Purchaser"). Terms used and not
otherwise defined in this Amendment shall have the meanings set forth in the
Purchase Agreement.
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend Schedule 1 of the Purchase
Agreement to reflect the addition of the Garlock Rubber Technologies Division
of Garlock Inc as an Eligible Originator under that Agreement.
NOW, THEREFORE, IN CONSIDERATION of these premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Amendment.
a. Seller desires to confirm the addition of the Garlock
Rubber Technologies Division of Garlock Inc as an Eligible Originator under the
Purchase Agreement. The parties hereto agree that Seller began selling,
transferring, absolutely assigning, setting over, conveying and contributing to
the Purchaser all Receivables of Garlock Rubber Technologies Division owned by
the Seller as of October 19, 1998.
b. Schedule 1 referred to in, and attached to, the Purchase
Agreement, is hereby deleted and replaced in its entirety with the revised
Schedule 1 attached hereto.
2. No Other Changes.
Except as modified by this Amendment, all of the terms and provisions
of the Purchase Agreement remain in full force and effect.
3. Counterparts.
This Amendment may be executed in any number of counterparts, each of
which when so executed and delivered shall be deemed an original. It shall not
be necessary in making proof of this Amendment to produce or account for more
than one such counterpart.
4. Governing Law.
<PAGE>
This Amendment shall be construed and enforced in accordance with the
laws of the State of North Carolina without regard to its rules with respect to
conflicts of law.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
2
<PAGE>
The undersigned have caused this AMENDMENT TO RECEIVABLES PURCHASE AND
CONTRIBUTION AGREEMENT to be duly executed and delivered by their proper duly
authorized representatives as of the 23rd day of October, 1998.
COLTEC NORTH CAROLINA INC,
as Seller
By: /s/ Thomas B. Jones, Jr.
----------------------------------------------
Name: Thomas B. Jones, Jr.
Title: Vice President and Treasurer
CNC FINANCE LLC,
as Purchaser
By: /s/ Thomas B. Jones, Jr.
----------------------------------------------
Name: Thomas B .Jones, Jr.
Title: Vice President and Treasurer
<PAGE>
APPENDIX 1
Eligible Originators
AMI Industries, Inc.,
a Subsidiary of Coltec Industries Inc
1275 North Newport Rd.
Colorado Springs, CO 80916
Chandler Evans Control Systems,
a Division of Coltec Industries Inc
Charter Oak Boulevard
P.O. Box 330651
W. Hartford, CT 06133-0651
Delavan Gas Turbine Products,
a Division of Delavan Inc
811 Fourth Street
P.O. Box 65100
West Des Moines, IA 50265-0100
Delavan Process Instrumentation,
an Operating Unit of the Lewis Engineering Company
Division of Coltec Industries Inc
238 Water Street
Naugatuck, CT 06770
Garlock Bearings Inc,
a Subsidiary of Coltec Industries Inc
700 Mid Atlantic Parkway
Thorofare, NY 08086
Garlock Metallic Gaskets,
an Operating Unit of Garlock Inc
1977 Kindred Street
Houston, TX 77049
Garlock Rubber Technologies,
a division of Garlock Inc
201 Dana Drive
Paragould, Arkansas 72450
Garlock Sealing Technologies,
a Division of Garlock Inc
1666 Division Street
Palmyra, NY 14522
Garlock Sealing Technologies,
a Division of Garlock Inc
300 Alling Drive
Sodus, NY 14551
Garlock Sealing Technologies,
a Division of Garlock of Canada Ltd
2860 Plymouth Drive
<PAGE>
Oakville, Ontario
Canada L6H-5S8
Haber Tool Operation,
an Operating Unit of Haber Tool Company Inc
42001 Koppernick
Canton, MI 48187
Lewis Engineering Company,
a Division of Coltec Industries Inc
238 Water Street
Naugatuck, CT 06770
Menasco Aerospace,
a Division of Coltec Aerospace Canada Ltd.
1400 South Service Road West
Oakville, Ontario
Canada L6L-5Y7
Menasco Aerosystems,
a Division of Coltec Industries Inc
4000 South Highway 157
Euless, TX 76040-7012
Quincy Compressor/Ortman Fluid Power,
a Division of Coltec Industries Inc
3501 Wismann Lane
Quincy, IL 62301-3116
Stemco Truck Products,
a Division of Stemco Inc
300 East Industrial Blvd.
Longview, TX 75602-4720
Walbar Arizona,
a Division of Walbar Inc
323 S. Bracken Lane
Chandler, AZ 85224
Walbar Canada,
a Division of Coltec Aerospace Canada Ltd.
1865 Sharlyn Road
Mississauga
Canada L4X-1R2
Walbar Metals,
a Division of Walbar Inc
Peabody Industrial Center, Fifth Street
Peabody, MA 01960-3369
Walbar Metals,
a Division of Walbar Inc
5502 Highway 25 North
Hodges, SC 29653
<PAGE>
EXHIBIT 10.5(a)
FIRST AMENDMENT TO THE
JULY 15, 1998 EMPLOYMENT AGREEMENT
This First Amendment dated as of this 1st day of November, 1998 between Nishan
Teshoian (the "Executive") and Coltec Industries Inc, a Pennsylvania Corporation
(the "Corporation").
WHEREAS, The employment agreement dated July 15, 1998 between the Executive and
the Corporation (the "Agreement") does not properly reflect the intent of the
parties in one provision of the Agreement, and
WHEREAS, the Executive and the Corporation desire to modify the agreements to
conform the Agreement to the actual understanding of the parties.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein
contained, the parties agree to amend the Agreement as follows:
1. Section 6.6.e shall be amended by the addition of the following subsection
iii.
"Should the Date of Termination occur during the calendar year 1998,
1999 or 2000, the number of Performance Units used to calculate the
cash payment described in subsection 6.6.e.ii shall be limited to
25,000 units in the case of a Date of Termination occurring in 1998,
50,000 units in the case of a Date of Termination occurring in 1999 and
75,000 units for a Date of Termination occurring in 2000."
2. Section 6.7.f shall be amended by the addition of the following subsection
iv.
"Should the Date of Termination occur during the calendar year 1998,
1999 or 2000, the number of Performance Units used to calculate the
cash payment described in subsection 6.7.f.ii shall be limited to
25,000 units in the case of a Date of Termination occurring in 1998,
50,000 units in the case of a Date of Termination occurring in 1999 and
75,000 units for a Date of Termination occurring in 2000."
3. In all other respects, the Agreement shall remain in full force and effect
and unmodified except as set forth herein.
IN WITNESS WHEREOF, the parties hereto have executed this amendment as of the
date and year first above written.
COLTEC INDUSTRIES INC EXECUTIVE
By: /s/ Laurence H. Polsky /s/ Nishan Teshoian
----------------------------- -----------------------
Laurence H. Polsky
Executive Vice President, Administration
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
-------------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earnings from continuing
operations before
extraordinary item................... 122,293 94,874 54,570 34,521 48,446
Add (deduct)
Income taxes:
Federal and Foreign.............. 64,898 48,875 28,111 17,615 27,251
State and local..................... 7,601 6,241 5,121 2,601 2,105
Portion of rents representative
of interest factor (1)............... 3,023 2,983 3,321 2,868 3,979
Interest Expense...................... 59,954 54,613 76,182 91,208 90,337
-------------------------------------------------------------
Earnings from continuing
operations before
extraordinary item,
as adjusted............................ 257,769 207,586 167,305 148,813 172,118
=============================================================
Fixed Charges:
Interest expense..................... 59,954 54,613 76,182 91,208 90,337
Capitalized interest................. 1,585 1,455 1,139 997 689
Portion of rents representative
of interest factor (1)............... 3,023 2,983 3,321 2,868 2,979
-------------------------------------------------------------
Fixed charges.......................... 64,562 59,051 80,642 95,073 94,005
=============================================================
Ratio of earnings to
fixed charges.......................... 4.0 3.5 2.1 1.6 1.8
=============================================================
</TABLE>
Note:
(1) Estimated to be 1/3 of total rent expenses.
<PAGE>
Exhibit 21.1
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
STATE OF PERCENT
NAME OF SUBSIDIARY INCORPORATION DIRECT OWNER OWNERSHIP
- - ------------------ ------------- ------------ ---------
<S> <C> <C> <C>
AMI INDUSTRIES, INC. COLORADO COLTEC INDUSTRIES INC 100
AMI INDUSTRIES FSC, INC. VIRGIN ISLANDS AMI INDUSTRIES, INC. 100
THE ANCHOR PACKING COMPANY DELAWARE GARLOCK INC 100
APOLLO INSURANCE COMPANY VERMONT COLTEC INDUSTRIES INC 100
CII HOLDINGS INC DELAWARE COLTEC INDUSTRIES INC 100
CNC MEMBER INC NORTH CAROLINA COLTEC NORTH CAROLINA INC 100
CNC FINANCE LLC NORTH CAROLINA COLTEC NORTH CAROLINA INC 99
CNC MEMBER INC 1
CEFILAC S.A. FRANCE COLTEC INDUSTRIES FRANCE S.A.S. 100
COLTEC AEROSPACE CANADA LTD. CANADA COLTEC CANADA INC 100
COLTEC AUTOMOTIVE INC DELAWARE COLTEC INDUSTRIES INC 100
COLTEC CANADA INC DELAWARE CII HOLDINGS INC 89
WALBAR INC 11
COLTEC DO BRASIL PRODUTOS BRAZIL COLTEC INDUSTRIES INC 89
INDUSTRIAS LTDA. COLTEC INTERNATIONAL 11
COLTEC (GIBRALTAR)* GIBRALTAR COLTEC AEROSPACE CANADA LTD. 100
COLTEC (GREAT BRITAIN LIMITED) UNITED KINDOM COLTEC INDUSTRIES INC 85
COLTEC AEROSPACE CANADA LTD. 15
COLTEC HOLDINGS INC DELAWARE COLTEC INDUSTRIES INC 100
COLTEC INDUSTRIAL PRODUCTS INC DELAWARE GARLOCK INC 100
COLTEC INDUSTRIES INTERNATIONAL INC BARBADOS COLTEC INDUSTRIES INC 100
COLTEC INDUSTRIES FRANCE SAS* FRANCE HOLLEY AUTOMOTIVE SYSTEMS GmbH 75
COLTEC AEROSPACE CANADA LTD. 25
COLTEC INDUSTRIES KOREA KOREA COLTEC INDUSTRIES INC 89
COLTEC INTERNATIONAL SERVICES CO 11
COLTEC INDUSTRIES PACIFIC PTE LTD SINGAPORE COLTEC INDUSTRIES INC 100
COLTEC INTERNATIONAL SERVICES CO DELAWARE COLTEC INDUSTRIES INC 100
COLTEC LUXEMBOURG S.A.* LUXEMBOURG COLTEC AEROSPACE CANADA 99
COLTEC (GIBRALTAR) 1
COLTEC NORTH CAROLINA INC NORTH CAROLINA COLTEC INDUSTRIES INC 100
COLTEC TECHNICAL SERVICES INC DELAWARE COLTEC INDUSTRIES INC 100
DM & T, INC. MICHIGAN COLTEC INDUSTRIES INC 100
DELAVAN EUROPEAN MARKETING UNITED KINGDOM DELAVAN LIMITED 100
COMPANY LIMITED
DELAVAN INC* DELAWARE COLTEC INDUSTRIES INC 100
DELAVAN LIMITED UNITED KINGDOM COLTEC (GREAT BRITAIN) 100
DELAVAN WATSON LTD UNITED KINGDOM DELAVAN EUROPEAN 100
FARNAM SEALING SYSTEMS INC DELAWARE COLTEC INDUSTRIES INC 100
GARLOCK BEARINGS INC DELAWARE GARLOCK INC 80
T&N 20
GARLOCK DE MEXICO, S.A. DE C.V. MEXICO GARLOCK INC 65.7
COLTEC INTERNATIONAL 34.3
SERVICES CO
GARLOCK GmbH GERMANY HOLLEY AUTOMOTIVE SYSTEMS GmbH 100
GARLOCK (GREAT BRITAIN) LIMITED UNITED KINGDOM COLTEC (GREAT BRITAIN LIMITED) 100
GARLOCK INC OHIO COLTEC INDUSTRIES INC 100
GARLOCK INTERNATIONAL INC DELAWARE GARLOCK INC 100
</TABLE>
<PAGE>
SUBSIDIARIES
------------
<TABLE>
<CAPTION>
STATE OF PERCENT
NAME OF SUBSIDIARY INCORPORATION DIRECT OWNER OWNERSHIP
- - ------------------ ------------- ------------ ---------
<S> <C> <C> <C>
GARLOCK OF CANADA LTD. CANADA GARLOCK INTERNATIONAL SERVICES 100
GARLOCK OVERSEAS CORPORATION DELAWARE GARLOCK INC 100
GARLOCK PTY. LIMITED AUSTRALIA GARLOCK INC 80
CATALA INVESTMENTS 10
LEIGH MITCHELL 10
GARLOCK S.A. PANAMA GARLOCK INC 100
GARRISON LITIGATION MANAGEMENT DELAWARE COLTEC INDUSTRIES INC 93.3
GROUP, LTD. GLM INVESTMENTS, INC.
1005 CORP.
H. T. WATSON LIMITED UNITED KINGDOM DELAVAN WATSON LIMITED 100
HOLLEY AUTOMOTIVE GROUP LIMITED UNITED KINGDOM DELAVAN LIMITED 100
HOLLEY AUTOMOTIVE INC DELAWARE COLTEC INDUSTRIES INC 100
HOLLEY AUTOMOTIVE SYSTEMS GmbH GERMANY COLTEC INDUSTRIES INC 85
COLTEC AEROSPACE CANADA LTD. 15
JAMCO PRODUCTS, LLC TEXAS GARLOCK INC 100
LIARD S.A. FRANCE COLTEC INDUSTRIES FRANCE SAS 100
LOUIS MULAS SVCS, S.A. DE C.V. MEXICO GARLOCK INC 65.7
MAINLAND SEALING PRODUCTS, LLC. NORTH CAROLINA GARLOCK INC 100
MENASCO AEROSYSTEMS INC DELAWARE COLTEC INDUSTRIES INC 100
MENASCO-KROSNO POLAND COLTEC AEROSPACE CANADA LTD. 90.4
SALT LICK RAILROAD COMPANY PENNSYLVANIA COLTEC INDUSTRIES INC 100
SPRAY FABRICATIONS LTD. UNITED KINGDOM DELAVAN WATSON LIMITED 100
STEMCO INC TEXAS GARLOCK INC 100
STEMCO TRUCK PRODUCTS PTY. LIMITED AUSTRALIA GARLOCK OVERSEAS CORPORATION 100
WALBAR INC DELAWARE DELAVAN INC 100
</TABLE>
<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 report included in this Form 10-K, into Coltec Industries Inc.'s
previously filed Registration Statement File No.'s 33-46934, 33-54641,
333-27595 and 333-52975 and into The B.F. Goodrich Company's previously filed
Registration Statement File No. 333-74067.
/s/ Arthur Andersen LLP
Charlotte, North Carolina,
March 22, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER
31, 1998 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE YEAR ENDED
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 21,785
<SECURITIES> 0
<RECEIVABLES> 151,294
<ALLOWANCES> 3,109
<INVENTORY> 236,003
<CURRENT-ASSETS> 442,049
<PP&E> 704,832
<DEPRECIATION> 398,190
<TOTAL-ASSETS> 1,055,648
<CURRENT-LIABILITIES> 272,805
<BONDS> 577,478
145,293
0
<COMMON> 706
<OTHER-SE> (301,028)
<TOTAL-LIABILITY-AND-EQUITY> 1,055,648
<SALES> 1,504,054
<TOTAL-REVENUES> 1,504,054
<CGS> 1,080,731
<TOTAL-COSTS> 1,315,935
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 53,438
<INCOME-PRETAX> 190,875
<INCOME-TAX> 64,898
<INCOME-CONTINUING> 122,293
<DISCONTINUED> 0
<EXTRAORDINARY> (4,326)
<CHANGES> 0
<NET-INCOME> 117,967
<EPS-PRIMARY> 1.81
<EPS-DILUTED> 1.75
</TABLE>
