-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ven5PgeMhrmhTaxswil7loGKPvDLnFkWahbUtOekpynUHB3Hw117P3pnyB2ljKER L6coih9u5BzSy821bwLGVg== 0000912057-96-004520.txt : 19960315 0000912057-96-004520.hdr.sgml : 19960315 ACCESSION NUMBER: 0000912057-96-004520 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 14 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960314 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLTEC INDUSTRIES INC CENTRAL INDEX KEY: 0000201493 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 131846375 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 001-07568 FILM NUMBER: 96534854 BUSINESS ADDRESS: STREET 1: 430 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129400400 MAIL ADDRESS: STREET 1: 430 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: COLT INDUSTRIES INC DATE OF NAME CHANGE: 19900913 FORMER COMPANY: FORMER CONFORMED NAME: PENN TEXAS CORP DATE OF NAME CHANGE: 19680318 FORMER COMPANY: FORMER CONFORMED NAME: FAIRBANKS WHITNEY CORP DATE OF NAME CHANGE: 19680318 10-K 1 10-K - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] FOR THE TRANSITION PERIOD FROM TO COMMISSION FILE NUMBER 1-7568
-------------------------- COLTEC INDUSTRIES INC (Exact name of registrant as specified in its charter) PENNSYLVANIA 13-1846375 (State of Incorporation) (I.R.S. Employer Identification No.) 430 PARK AVENUE, NEW YORK, N.Y. 10022 (Address of principal (Zip Code) executive offices)
Registrant's telephone number, including area code: (212) 940-0400 -------------------------- Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE TITLE OF EACH CLASS ON WHICH REGISTERED - ---------------------------------------------- ----------------------------- Common Stock, par value $.01 per share New York Stock Exchange Pacific Stock Exchange 11 1/4% Debentures Due December 1, 2015 Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None -------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes _X_ No ____ -------------------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by referenced in Part III of this Form 10-K or any amendment to this Form 10-K. _X_ On March 1, 1996, there were outstanding 70,168,963 shares of the registrant's Common Stock, par value $.01 per share. On March 1, 1996, the aggregate market value of the registrant's voting stock (based on a closing price of $13.50 per share held by non-affiliates was $942,077,750. For purposes of the foregoing calculation, all directors and officers of the registrant have been deemed to be affiliates, but the registrant disclaims that any of such directors or officers is an affiliate. DOCUMENTS INCORPORATED BY REFERENCE Portions of the registrant's 1995 Annual Report to its shareholders are incorporated by reference into Part I (Item 1), Part II (Items 6, 7 and 8) and Part IV (Item 14) hereof. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART 1 ITEM 1. BUSINESS. Coltec Industries Inc and its consolidated subsidiaries (together referred to as "Coltec") manufacture and sell a diversified range of highly-engineered aerospace, automotive and industrial products in the United States and, to a lesser extent, abroad. Coltec's operations are conducted through three principal segments: Aerospace/Government, Automotive and Industrial. Set forth below is a description of the business conducted by the respective divisions within Coltec's three industry segments. The tabular five-year presentation of financial information in respect of each industry segment under the caption "Industry Segment Information" of Coltec's 1995 Annual Report to its shareholders and the information in Note 10 of the Notes to Financial Statements of Coltec's 1995 Annual Report to its shareholders are incorporated herein by reference. AEROSPACE/GOVERNMENT Through its Aerospace/Government segment, Coltec is a leading manufacturer of landing gear systems, engine fuel controls, turbine blades, fuel injectors, nozzles and related components for commercial and military aircraft, and also produces high-horsepower diesel engines for naval ships and diesel, gas and dual-fuel engines for electric power plants. The operating units, principal products and principal markets of the Aerospace/Government segment are as follows:
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS - ------------------------------- -------------------------------------- -------------------------------------- Menasco Aircraft landing gear systems and Aircraft manufacturers, domestic and components, flight control actuation foreign airlines systems, other aircraft components and repair and overhaul Chandler Evans Control Systems Fuel pumps and control systems for Aircraft engine manufacturers aircraft engines Walbar Blades, vanes and discs for jet and Aircraft engine and stationary gas other gas turbine engines; protec- turbine manufacturers tive coatings for gas turbine en- gines Delavan Gas Turbine Products Fuel injectors, spraybars and other Aircraft engine manufacturers components for gas turbine engines Lewis Engineering Cockpit instrumentation and sensors Commercial and military aircraft and engine manufacturers Fairbanks Morse Engine Large engines powered by diesel fuel U.S. Navy, electric utilities or natural gas
With reductions in domestic military spending, Coltec has placed an increasing emphasis on sales by its Aerospace/Government segment to commercial aircraft manufacturers. In addition to producing landing gear and flight control actuation systems for various Boeing, McDonnell Douglas, Lockheed Martin, Fokker, Bombardier, and other aircraft, Coltec has been awarded contracts to supply a completely integrated landing gear system for the Boeing 737-700 aircraft and derivatives and the Bombardier Dash 8-400 commuter aircraft. Coltec has also been successful in increasing its penetration of the commercial aircraft engine market, including the commuter aircraft and general aviation markets, through its Chandler Evans Control Systems Division, Walbar and Delavan subsidiaries. See "Aerospace Controls", "Aircraft Engine Components" and "Gas Turbine Products" below. In most of the operating units in this segment, Coltec is a leading manufacturer in the markets it services and has focused its efforts on manufacturing quality products involving a high engineering content or proprietary technology. In many cases in which Coltec developed components for use in a specific aircraft, Coltec has become the primary source for replacement parts and, in some cases, 1 service for these products in the aftermarket. Many of the programs for which Coltec has been awarded a contract or for which Coltec has been selected as a manufacturer are subject to termination or modification. See "-- Contract Risks". LANDING GEAR AND FLIGHT CONTROL SYSTEMS Coltec, through its Menasco Aerosystems Division and its Menasco Aerospace Division of its Canadian subsidiary, Coltec Aerospace Canada Ltd. (together referred to as "Menasco"), designs, manufactures and markets landing gear systems, parts and components for medium-to-heavy commercial aircraft and for military aircraft and provides spare parts and overhaul services for these products. Menasco is one of the leading suppliers of landing gear for medium-to-heavy commercial and military aircraft. It also designs and manufactures aircraft flight control actuation systems. Landing gear, including components, parts, and overhaul services for landing gear, accounted for 84% of Menasco's sales and 11% of Coltec's sales during 1995. For the years 1995, 1994 and 1993, commercial sales accounted for 77%, 64% and 62%, respectively, of Menasco's total sales. Menasco has been awarded contracts to supply the main and nose landing gear for the Boeing 777 aircraft and during 1995, 20 shipsets were delivered to The Boeing Company ("Boeing"). Delivery of landing gear for the Boeing 777 aircraft commenced in 1993. Boeing has announced that 230 firm orders and options for an additional 140 of its 777 aircraft have been placed as of December 31, 1995. Menasco has been selected by Bombardier as the supplier of the complete landing gear system for the Dash 8-400 commuter aircraft. Other commercial programs for which Menasco is currently producing landing gear and flight controls include the main and nose landing gear for the Boeing 757 aircraft, the main landing gear for the existing Boeing 737 aircraft and the new 737-600/700/800 aircraft, the nose landing gear for the Boeing 767 aircraft, the main landing gear for the McDonnell Douglas MD-80/90 aircraft and Fokker 70/100 aircraft, and nose landing gear components for the Airbus Industrie 330/340 aircraft. Menasco supplies flight controls for the Canadair RJ-601 aircraft and Fokker 70/100 aircraft. Menasco's military products include the main and nose landing gear for the Taiwanese Indigenous Defense Fighter being built for the Taiwanese government and it is developing the main and nose landing gear for the Lockheed F-22 Air Superiority Fighter. In addition, Menasco is supplying the nose landing gear and drag brace for the Bell/Boeing V-22 Osprey including engineering and test support. Other military programs for which Menasco is currently producing landing gear include the main and tail landing gear for the McDonnell Douglas AH-64 Apache helicopter, the F-15 aircraft and the new F/A-18E/F Navy fighter aircraft currently under development for the U.S. Navy. The latter two programs were part of the 1995 acquisition of the AlliedSignal landing gear business. Other programs include the flight controls for the McDonnell Douglas C-17 military transport and the main and nose landing gear for the F-16 and C-130 aircraft produced by Lockheed Martin Corp. Landing gear and flight controls are designed for specific aircraft and produced by a single manufacturer. Menasco has been the sole production supplier of this equipment for each program it has been awarded. The price of a landing gear system constitutes approximately 2% of the total cost of an aircraft. In addition to manufacturing and marketing aircraft landing gear and flight controls, Menasco provides complete overhaul services on a worldwide basis for landing gear and actuation systems through its overhaul facilities. The market for landing gear is highly competitive, with a small number of airframe manufacturers evaluating potential suppliers based on design, price and record of past performance. Menasco has made significant investments in long-term marketing to promote working relationships with customers and to enhance Menasco's engineering department's understanding of customer requirements. Menasco believes it is this engineering expertise, together with its record of on-time delivery, quality and price, which has made Menasco one of the leading producers of medium-to heavy-aircraft landing gear worldwide. Menasco's primary domestic competitor is Cleveland Pneumatic Division of The 2 B.F. Goodrich Company and the principal foreign competitor is Messier-Dowty of France, England and Canada. The overhaul business has become increasingly competitive. Menasco believes its competitive strengths in the overhaul business include its name, which carries a reputation for quality and service. Raw materials and finished products essential to Menasco's manufacturing operations are available in sufficient quantity from a reliable supplier base. AEROSPACE CONTROLS Coltec, through its Chandler Evans Control Systems Division ("Chandler Evans"), manufactures a variety of aircraft engine fuel control systems, fuel pumps and engine and aircraft components for the aerospace industry. Chandler Evans' products are highly engineered and contain proprietary technology. Principal customers for the products include gas turbine engine manufacturers, aircraft manufacturers, domestic and foreign airlines, commercial fleet operators and the military services. For the years 1995, 1994 and 1993, commercial sales accounted for 80%, 74% and 67%, respectively, of Chandler Evans' total sales. For the commercial aircraft engine market, Chandler Evans produces the main fuel pump for certain models of the General Electric CF-6 and CF-34 engines, both used on various commercial aircraft, and the Full Authority Digital Electronic Fuel Control System ("FADEC") for the AlliedSignal Engines LF507 engine used on the British Aerospace BAE 146 aircraft. Chandler Evans has developed a FADEC for the Allison 250 engine and deliveries began in mid-1995. Also, Chandler Evans has developed a FADEC for the LHTEC T800 helicopter engine, a joint venture of Allison Engine Company and AlliedSignal Garrett and was selected to develop the FADEC for the Allison LTS-800 commercial engine. For the military aircraft engine market, Chandler Evans produces the main and afterburner fuel pumps for the General Electric F-404 engine used on the McDonnell Douglas F-18 aircraft and the main fuel pump for the General Electric F-414 engine. FADEC systems are produced for AlliedSignal Engine's T-55 engines for the Boeing Chinook helicopters in service with the U.S. Army, the UK Royal Air Force and the Royal Netherlands Air Force. The hydromechanical fuel control systems for AlliedSignal Engine's T-53 engine continues in service on the Bell UH-1, Cobra and Kaman K-MAX helicopters. Chandler Evans is the sole source for the pumps and fuel systems described above and supports these products with aftermarket sales of spare units, parts and overhaul service. For the year 1995, 43% of Chandler Evans revenues were attributable to the aftermarket. Aftermarket sales are very significant, because proprietary programs allow Chandler Evans to realize favorable operating margins. Chandler Evans competes with Argo-Tech and the Aviation Division of Sundstrand Corporation in fuel pumps and with the AlliedSignal Bendix Division of AlliedSignal Inc. ("AlliedSignal") and the Hamilton Standard Division of United Technologies Corporation in fuel controls. AIRCRAFT ENGINE COMPONENTS Coltec, through its Walbar Inc subsidiary and Walbar Canada Division of Coltec Aerospace Canada Ltd. (together referred to as "Walbar"), manufactures turbine components and turbine and compressor rotating parts primarily for aircraft gas turbine engines and for land-based, marine and industrial gas turbine applications, and performs services including repairs and protective coatings for these products. Coltec believes that Walbar is one of the leading independent manufacturers of blades, turbine vanes and nozzle segments, impellers and rotating components for jet engines. Walbar manufactures products for various commercial engines used on commercial and military aircraft manufactured by Boeing, Airbus Industrie, McDonnell Douglas, Bombardier, Cessna, Beech, Lear Jet and others. Walbar's blades, vanes and discs are employed on many of the leading models of turboprop, business jet and commuter aircraft currently in service. Walbar supplies a number of different turbine blades for most of the Pratt & Whitney Canada, AlliedSignal and General Electric 3 Company ("General Electric") engine families. These engines are designed for use on several business and regional commuter aircraft and also have military applications. Targeting the commuter aircraft market is part of Walbar's strategy of emphasizing the production of turbine engine components for commercial aircraft applications. For the years 1995, 1994 and 1993, commercial sales accounted for approximately 84%, 78% and 85%, respectively, of Walbar's total sales. Following the reduction in military aircraft engine funding, Walbar has focused on non-aerospace applications and has significant market share in the locomotive turbo charger and gas turbine power generation markets. Chromalloy American Corporation and Howmet Turbine Components Corporation provide competition in all aspects of this industry. In addition, Walbar's principal customers possess, in varying degrees, integrated production capacity for producing and servicing the components that Walbar supplies. In the aftermarket, Walbar is providing repair and overhaul services of various gas turbine components to the airlines. Walbar's proprietary protective coating technology are used by most gas turbine manufacturers. GAS TURBINE PRODUCTS Coltec, through its Delavan Inc subsidiary operating as the Delavan Gas Turbine Products Division ("Delavan"), manufactures custom engineered fuel injectors, afterburner spraybars and other fuel distribution accessories for commercial and military gas turbine engines. The primary market niche is injection equipment for the commuter and regional airline engine market. Delavan's products are designed and developed to customer specifications using computer-aided design and manufacturing processes and are marketed directly to engine manufacturers pursuant to production orders. Principal customers for this business segment include General Electric, AlliedSignal Engine, Pratt & Whitney Canada and Rolls Royce's Allison Engine Division. Delavan supports these products with aftermarket sales of spare parts and overhaul services, both to the engine manufacturers and the airline users, and this is the fastest growing segment of the business. Another business segment involves the sale of fuel injection components and spare parts directly to military logistics commands in support of gas turbine engines currently in the Defense Department inventory. For the years 1995, 1994 and 1993, commercial sales accounted for 75%, 78% and 69%, respectively, of Delavan's total sales. Delavan competes worldwide with Parker-Hannifin Corporation and Fuel Systems Textron. Competitive pressure is focused on price in the original equipment manufacturer ("OEM") segment of the business and on price and delivery in the aftermarket segment. While not a major factor in the large, commercial airline engine market, Delavan has, by far, the leading market share position in the commuter, business jet and regional airline engine fuel injection market segment. AIRCRAFT INSTRUMENTATION Coltec, through its Lewis Engineering Company, designs, develops and produces electro-mechanical and electronic instrumentation for aircraft cockpits and temperature sensors for aircraft and engine systems. Lewis competes with several manufacturers of aircraft instruments. ENGINES Coltec, through its Fairbanks Morse Engine Division ("Fairbanks Morse"), manufactures and markets large, heavy-duty diesel, gas and dual-fuel engines and parts for such engines. Fairbanks Morse manufactures engines in conventional "V" and in-line opposed piston configurations which are used as power drives for compressors, large pumps and other industrial machinery, for marine propulsion and for stationary and marine power generation. Engines are offered from 4 to 18 cylinders, ranging from 640 to 29,320 horsepower. Such products are sold in the domestic market primarily through regional sales offices and field sales engineers and in foreign markets through the domestic sales network and foreign sales representatives. Parts are sold primarily through factory and regional sales offices. In 1995, 59% of Fairbanks Morse's sales were for replacement parts and service for Fairbanks Morse engines. 4 Large heavy-duty diesel engines are sold to shipbuilders for the U.S. Navy and Coast Guard and to electric utilities, municipal power plants, oil and gas producers, firms engaged in commercial marine, offshore drilling activities and local, state and federal governments. Under a license agreement with Societe d'Etudes de Machines Thermiques, S.A. groupe Alsthom, a French company, Fairbanks Morse has the right to manufacture the Colt-Pielstick PC2 and PC4 lines of large diesel engines, which operate on oil fuel (including heavy oil) and, in the case of the PC2, dual-fuel, and range in size from 4,400 to 29,320 horsepower. Engines manufactured under this license are used for primary power by electric utilities, standby power for nuclear electric generating plants and ship propulsion. Under the U.S. Navy Sealift program, Fairbanks Morse has received orders valued at approximately $80 million to produce sixteen PC4.2 engines and related equipment that will propel four ships with options to produce engines for two to four additional ships. Two of these engines were shipped in 1995 and the remaining engines are scheduled to be delivered through 1998. In 1994, Fairbanks Morse acquired the Alco engine business from General Electric Transportation Systems to provide parts and service for approximately 8,000 existing engines worldwide and obtained a preferred supplier agreement to manufacture these engines and parts for General Electric's locomotive needs. In 1995, 22 Alco locomotive engines built by Fairbanks Morse were delivered to the Pakistan Railway. Contracts are awarded in the heavy-duty diesel engine market based on price and successful operation in similar applications. Coltec attributes its strong position in this market to its history as a supplier to the U.S. Navy in a variety of propulsion and generator set applications and its ability to meet the U.S. Navy's military specification requirements. Management believes that Fairbanks Morse and its primary competitor, the Cooper-Bessemer Reciprocating Products Division of Cooper Industries, Inc., lead the field of four domestic manufacturers serving the market for heavy-duty diesel engines in power ranges from 5,000 to 30,000 horsepower. Fairbanks Morse competes with six domestic manufacturers in the medium speed (1,000 to 5,000 horsepower) engine market, dominated by General Motors Corporation ("General Motors") and Caterpillar Inc., and with several foreign manufacturers. Numerous domestic and foreign manufacturers compete in the under 1,500 horsepower engine market. AUTOMOTIVE Coltec's Automotive segment manufactures and markets fuel injection assemblies and components, transmission controls, engine induction systems and components, steering controls, suspension controls, emission control air pumps, oil pumps and seals for original equipment manufacturers and the replacement parts market. The operating units, principal products and principal markets of the Automotive segment are as follows:
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS - ------------------------------- -------------------------------------- -------------------------------------- Holley Automotive Engine induction system components, Automotive manufacturers transmission controls, electronic actuators, suspension controls, steering controls and air and oil pumps Holley Performance Products New, replacement, remanufactured and Automotive manufacturers, wholesale performance carburetors, and distributors and retailers in electronic fuel injection components replacement markets Farnam Sealing Systems Gaskets and seals Automotive industry Stemco Truck Products Oil seals, exhaust systems and Fleet truck operators, truck parts hubodometers distributors Performance Friction Products Transmission synchronizers Automotive and truck manufacturers
5 Coltec's principal automotive products have strong brand name recognition. Coltec has targeted the development of highly-engineered components for fuel injection systems, modulators and electronic solenoid actuators, transmission controls, suspension controls and air and oil pumps. By forming close, interactive relationships with the domestic automotive manufacturers, Coltec has taken advantage of a shift by these manufacturers from internal sourcing to procurement of components from outside suppliers. AUTOMOTIVE PRODUCTS Coltec, through its Holley Automotive Inc and Coltec Automotive Inc subsidiaries operating as the Holley Automotive Division ("Holley"), designs and manufactures engine induction components and systems, electrohydraulic control devices for transmissions, suspensions and steering systems, transmission modulators, air and oil pumps and other automotive products used on passenger cars and trucks. These products are sold directly to original equipment manufacturers, Chrysler Corporation ("Chrysler"), Ford Motor Company ("Ford") and General Motors. Holley currently produces all of the multi-point throttle bodies used on Chrysler's 2.4L, 3.0L and 3.3L engines. These six-cylinder engines propel vehicles including Plymouth Voyager, Chrysler Town and Country and Dodge Caravan minivans. Holley also is the sole source of the upper intake module assembly for the Chrysler LH mid-size sedans (the Chrysler Concorde and LHS, Dodge Intrepid and Eagle Vision) equipped with the 3.5L engine. Holley supplies the throttle body assemblies for the four-cylinder 2.4L and six-cylinder 2.5L Chrysler Stratus and Dodge Cirrus. Holley is the sole supplier of two-bore throttle body assemblies for Chrysler's Dodge Ram pick-up truck and large vans for the 3.9L, 5.2L, 5.9L and 8.0L engines. Holley also manufactures the 5.2L throttle body assembly for the Jeep Grand Cherokee. In the non-fuel area, Holley currently supplies aneroid and non-aneroid modulators to the General Motors Powertrain Division. Applications in the transmission controls area include Saturn vehicles equipped with automatic transmission, Ford Mondeo, Contour and Mercury Mystique and General Motors Cadillac, Aurora, light trucks and front-wheel drive passenger cars. Holley produces mechanical and electric air pumps that supply additional air to the exhaust system which enhances the oxidation process and reduces pollutants emitted into the atmosphere designed to meet federal clean air regulations. The mechanical air pump is presently used in full size truck and van applications. The electric air pump is presently used on the Ford Taurus, Mercury Sable, Ford Mustang, Lincoln Continental and Mark VIII. Holley is a supplier of oil pumps to Ford. Current sourcing includes modular V-8 pumps used on vans and medium and light trucks. Car applications include all large Ford and Mercury/Lincoln vehicles as well as the Lincoln Continental and Mark VIII. Holley oil pumps are also used on the Contour/Mystique, Taurus/Sable and Escort. In addition, Holley provides the oil pump that is used on the Zetec engine in Mexico, Germany and the United Kingdom. Coltec, through its Holley Performance Products Inc subsidiary operating as the Holley Performance Products Division, manufactures and markets fuel injection components and other fuel metering devices and controls such as intake manifolds, electric fuel pumps, emission control devices, and engine and road speed governors, new and remanufactured automotive and marine carburetors, remanufactured automotive air conditioning units, carburetor parts and repair kits, mechanical fuel pumps, valve covers and related engine components under the Holley name. Holley carburetors and components are used in domestic and foreign vehicles and marine engines and are sold directly to OEM's, principally Chrysler, Ford, General Motors and Outboard Marine Corporation, and, through distributors and mass merchandisers to the parts and replacement market. In the domestic market, these Divisions compete principally with Ford, General Motors and several independent manufacturers. To date, Coltec has not been a significant supplier to foreign vehicle manufacturers. 6 TRUCK PRODUCTS AND SEALING SYSTEMS Coltec, through its Stemco Inc subsidiary operating as the Stemco Truck Products Division ("Stemco"), is one of the leading domestic manufacturers of wheel lubrication systems for heavy-duty trucks. Stemco also produces mileage recording devices (hubodometers) and exhaust systems for the heavy-duty truck, medium-duty truck and school bus markets and manufactures moisture ejectors and other related products for vehicle and stationary air systems. Approximately 80% of Stemco revenues are derived from replacement parts. Stemco, through its Performance Friction Products Operation, manufactures a line of fluorocarbon friction materials, a line of carbon-based friction materials and synchronizers and clutch plates for transmissions, transfer cases and wet brakes for use in trucks, off highway equipment and passenger cars. Coltec, through its Farnam Sealing Systems Inc subsidiary operating as the Farnam Sealing Systems Division, manufactures and markets automotive and industrial gaskets, seals and other sealing system products for engines, fuel systems and transmissions. Stemco's truck products and Farnam's sealing systems include highly-engineered proprietary products. INDUSTRIAL In the Industrial segment, Coltec, through its Garlock Inc, Coltec Industrial Products Inc and Garlock Bearings Inc subsidiaries, is a leading manufacturer of industrial seals, gaskets, packing products and self-lubricating bearings and, through its Delavan Inc and Delavan-Delta, Inc. subsidiaries, is a producer of technologically advanced spray nozzles for agricultural, home heating and industrial applications. Coltec also produces air compressors for manufacturers. The operating units, principal products and principal markets of the Industrial segment are as follows:
OPERATING UNITS PRINCIPAL PRODUCTS PRINCIPAL MARKETS - ------------------------------- -------------------------------------- -------------------------------------- Garlock Mechanical Packing Seals, gaskets, packings and ex- Chemical, pulp and paper, utilities pansion joints and industrial manufacturers Garlock Valves & Industrial Valves, PTFE sheet and tape Chemical, pulp and paper, utilities Plastics and industrial manufacturers France Compressor Products Compressor valves and seals Compressor manufacturers and users and energy and refining industries Garlock Bearings Self-lubricating metal backed bearings Industrial and automotive manu- and materials factures Delavan Commercial Products Industrial, agricultural, and heating Industrial and agricultural opera- unit spray nozzles tions, oil burner manufacuters and replacement market Ortman Fluid Power Hydraulic and pneumatic cylinders Industrial manufacturers and users Haber and Sterling Cold-forming dies and thread-rolling Fastener and automotive manufacturers dies FMD Electronics Electronic ignition systems and level Industrial manufacturers control instruments Quincy Compressor Helical screw and reciprocating air Manufacturing and oil and gas compressors industries
Coltec's Industrial segment manufactures and markets a wide range of products for use in various industries. In this segment, Coltec's strategy has involved developing high quality products, capitalizing on brand name recognition, targeting specific, well-defined markets and building good distribution systems. 7 SEALS, PACKINGS AND GASKETING MATERIAL Garlock Inc operating as the Garlock Mechanical Packing Division ("Garlock") is a leading manufacturer of industrial seals, gasketing material and gasket assemblies and packing products. Manufacturing processes involve rubbers, metals, textiles, chemicals, aramid fibers, carbon fibers, or a combination of the same. Garlock has been a leader in using advanced technology to develop new products, including its GYLON line of products, and in converting to asbestos-free products. Approximately 95% of the gasketing and packing materials currently manufactured by Garlock worldwide are asbestos-free. Because the raw materials for Garlock's products are widely available, the seals, gasketing materials and packings business of Garlock is not dependent on a limited number of suppliers. Garlock's seals, gasketing material and packings are marketed through sales personnel, sales representatives, agents and distributors to numerous industrial customers involved principally in the petroleum, steel, chemical, food processing, power generation and pulp and paper industries. Most seals, gasketing material and packings wear out during the life of the product in which they are incorporated. Accordingly, the service and replacement market for these products is significant. In 1995, the service and replacement market accounted for approximately 80% of Garlock's sales of seals, gasketing material and packings. Manufacturers in this market compete on the basis of price and aftermarket services. Garlock's extensive distribution network, and its leadership in product development, have contributed to the establishment of what Coltec believes to be its leading position in the market for seals, gasketing products and packings. BEARINGS, VALVES, COMPRESSOR PRODUCTS, PLASTICS, NOZZLES, CYLINDERS, FORMING TOOLS, IGNITION SYSTEMS AND LEVEL CONTROLS Coltec, through its 80% owned subsidiary Garlock Bearings Inc, is a leading manufacturer of steel-backed and fiberglass-backed self-lubricating bearings and bearing materials primarily for the automotive, truck, agricultural and construction markets. Coltec, through its Coltec Industrial Products Inc subsidiary operating as the Garlock Valves & Industrial Plastics Division, manufactures polytetrafluoroethylene ("PTFE") lined butterfly and plug valves and components and PTFE tapes. Coltec, through its Coltec Industrial Products Inc subsidiary operating as the France Compressor Products Division ("France"), manufactures and markets rod packings, piston rings, valves and components for reciprocating gas and air compressors used primarily in the hydrocarbon and petrochemical processing industries. These products withstand high temperature, corrosive environments, prevent leakage, limit fugitive emissions and exclude contaminants from rotating and reciprocating machinery and seal joints. France believes it is a leading supplier of premium components in the aftermarket, where it competes primarily with C. Lee Cook and Cook Manley, subsidiaries of Dover Corporation, and Hoerbinger Corporation of America Inc. Coltec, through its Delavan Inc and Delavan-Delta, Inc. subsidiaries operating as the Delavan Commercial Products Division, manufactures and markets spray nozzles and accessories for the agricultural, industrial and home heating markets. These products are sold to OEM's, distributors and other end-users. Coltec believes that Delavan Commercial Products Division is one of the leading manufacturers of spray nozzles for residential oil-fired burners. Coltec, through its Coltec Industrial Products Inc subsidiary operating as the Ortman Fluid Power Operation, manufactures hydraulic and pneumatic cylinders in bore diameter sizes from 1 1/2 to 24 inches. Coltec, under the Sterling and Haber names, manufactures and markets a wide variety of thread rolling dies and metal forming tools. Sales of these products are primarily made directly to consumers. Competition for such products is provided by numerous companies. 8 Coltec, through its FMD Electronics Operation, manufactures magnetos, ignition systems and level control instruments. These products are sold to OEM's and through factory and regional sales forces to various accounts for resale. AIR COMPRESSORS Coltec, through its Quincy Compressor Division ("Quincy"), manufactures and markets reciprocating and helical screw air compressors and vacuum pumps. Helical screw air compressors are manufactured and sold under a non-exclusive license and technical assistance agreement with Svenska Rotor Maskiner Aktiebolag, a Swedish licensor. Reciprocating and helical screw air compressors have a wide range of industrial applications, providing compressed air for general plant services, pneumatic climate and instrument control, dry-type sprinkler systems, air loom weaving, paint spray processes, diesel and gas engine starting, pressurization, pneumatic tools and other air-actuated equipment. Engine-driven skid-mounted models of helical screw air compressors are used in energy related services, such as air-assisted deep-hole drilling, both on offshore drilling platforms and in tertiary recovery schemes involving on-site combustion approaches. Quincy air compressors are marketed through a well-developed distribution network consisting of field sales personnel and distributors to OEM's located in major industrial centers throughout the United States, Canada, Mexico and the Pacific Rim. In the domestic market for small, industrial, reciprocating air compressors, competitors include the Gardner-Denver Division of Cooper Industries, Inc., Sullair Corp., Ingersoll-Rand Company, Atlas Copco Compressor Inc, Le Roi Industries Inc. and Campbell-Hausfeld Division of The Scott Fetzer Co. INTERNATIONAL OPERATIONS Coltec's international operations, mainly in Canada, are conducted through foreign-based manufacturing or sales subsidiaries, or both, and by export sales of domestic divisions to unrelated foreign customers. Export sales of products of the Automotive segment and diesel engines are made either directly or through foreign representatives. Compressors are sold through foreign distributors. Certain products of the Industrial segment are sold in foreign countries through salesmen and sales representatives or sales agents. Coltec's manufacturing and marketing activities in Canada are carried on through subsidiaries. Coltec Aerospace Canada Ltd., an indirect wholly owned subsidiary of Coltec, manufactures landing gear systems and aircraft flight controls, provides overhaul service for these systems and controls for Canadian and other customers and manufactures turbine components and turbine and compressor rotating parts primarily for aircraft gas turbine engines. Garlock of Canada Ltd., a wholly owned subsidiary of Garlock Inc, manufactures and markets seals, gasketing material, packings and truck products. It also markets parts for Fairbanks Morse diesel engines and accessories as well as other products for use in Canada and for export to other countries. Through wholly owned or majority controlled foreign subsidiaries, Coltec operates 16 plants in Canada, Mexico, France, the United Kingdom, Australia and Germany. In addition, Coltec occupies leased office and warehouse space in various foreign countries. Devaluations or fluctuations relative to the United States dollar in the exchange rates of the currency of any country where Coltec has foreign operations could adversely affect the profitability of such operations in the future. For financial information on operations by geographic segments, see Note 10 of the Notes to Financial Statements of Coltec's 1995 Annual Report to its shareholders incorporated herein by reference. Coltec's contracts with foreign nations for delivery of military equipment, including components, are subject to deferral or cancellation by United States Government regulation or orders regulating sales of military equipment abroad. Any such action on the part of the United States Government could have an adverse effect on Coltec. 9 SALES TO THE MILITARY AND BY CLASS OF PRODUCTS Sales to the military and other branches of the United States Government, primarily in the Aerospace/Government segment, were 10%, 11% and 14% of total Coltec sales in 1995, 1994 and 1993, respectively. During the last three fiscal years, landing gear systems was the only class of similar products that accounted for at least 10% of total Coltec sales. In each of 1995, 1994 and 1993, sales of landing gear systems constituted 11% of total Coltec sales. BACKLOG At December 31, 1995, Coltec's backlog of firm unfilled orders was $727.7 million compared with $668.8 million at December 31, 1994. Of the $727.7 million backlog at December 31, 1995, approximately $268.3 million is scheduled to be shipped after 1996. CONTRACT RISKS Coltec, through its various operating units, primarily Menasco, Chandler Evans, Walbar and Delavan Gas Turbine Products, produces products for manufacturers of commercial aircraft pursuant to contracts that generally call for deliveries at predetermined prices over varying periods of time and that provide for termination payments intended to compensate for certain costs incurred in the event of cancellation. In addition, certain commercial aviation contracts contain provisions for termination for convenience similar to those contained in United States Government contracts described below. Longer-term agreements normally provide for price adjustments intended to compensate for deferral of delivery depending upon market conditions. A significant portion of the business of Coltec's Menasco, Chandler Evans, Walbar and Delavan Gas Turbine Products divisions has been as a subcontractor and as a prime contractor in supplying products in connection with military programs. Substantially all of Coltec's government contracts are firm fixed-price contracts. Under firm fixed-price contracts, Coltec agrees to perform certain work for a fixed price and, accordingly, realizes all the benefit or detriment occasioned by decreased or increased costs of performing the contracts. From time to time, Coltec accepts fixed-price contracts for products that have not been previously developed. In such cases, Coltec is subject to the risk of delays and cost over-runs. Under United States Government regulations, certain costs, including certain financing costs, portions of research and development costs, and certain marketing expenses related to the preparation of competitive bids and proposals, are not allowable. The Government also regulates the methods under which costs are allocated to Government contracts. With respect to Government contracts that are obtained pursuant to an open bid process and therefore result in a firm fixed price, the Government has no right to renegotiate any profits earned thereunder. In Government contracts where the price is negotiated at a fixed price rather than on a cost-plus basis, as long as the financial and pricing information supplied to the Government is current, accurate and complete, the Government similarly has no right to renegotiate any profits earned thereunder. If the Government later conducts an audit of the contractor and determines that such data were inaccurate or incomplete and that the contractor thereby made an excessive profit, the Government may take action to recoup the amount of such excessive profit, plus treble damages, and take other enforcement actions. United States Government contracts are, by their terms, subject to termination by the Government either for its convenience or for default of the contractor. Fixed-price-type contracts provide for payment upon termination for items delivered to and accepted by the Government, and, if the termination is for convenience, for payment of the contractor's costs incurred plus the costs of settling and paying claims by terminated subcontractors, other settlement expenses, and a reasonable profit on its costs incurred. However, if a contract termination is for default, (a) the contractor is paid such amount as may be agreed upon for completed and partially-completed products and services accepted by the Government, (b) the Government is not liable for the contractor's costs with respect to unaccepted items, and is entitled for repayment of advance payments and progress payments, if any, related to the terminated portions of the contracts, and (c) the contractor may be liable for excess costs incurred by the Government in procuring undelivered items from another source. 10 In addition to the right of the Government to terminate, Government contracts are conditioned upon the continuing availability of Congressional appropriations. Congress usually appropriates funds on a fiscal-year basis even though contract performance may take many years. Consequently, at the outset of a major program, the contract is usually partially funded, and additional monies are normally committed to the contract by the procuring agency only as appropriations are made by Congress for future fiscal years. A substantial portion of Coltec's automotive products are sold pursuant to the terms and conditions (including termination for convenience provisions) of the major domestic automotive manufacturers' purchase orders, and deliveries are subject to periodic authorizations which are based upon the production schedules of such automotive manufacturers. RESEARCH AND PATENTS Most divisions of Coltec maintain staffs of manufacturing and product engineers whose activities are directed at improving the products and processes of Coltec's operations. Manufactured and development products are subject to extensive tests at various divisional plants. Total research and development cost, including product development, was $25.6 million for 1995, $23.8 million for 1994 and $22.1 million for 1993. Coltec presently has approximately 410 employees engaged in research, development and engineering activities. Coltec owns a number of United States and other patents and trademarks and has granted licenses under some of such trademarks. Management does not consider the business of Coltec as a whole to be materially dependent upon any patent, patent right or trademark. EMPLOYEE RELATIONS As of December 31, 1995, Coltec had approximately 9,600 employees, of whom approximately 4,000 were salaried. Approximately 40% of the hourly employees are represented by unions for collective bargaining purposes. Union agreements relate, among other things, to wages, hours and conditions of employment, and the wages and benefits furnished are generally comparable to industry and area practices. Two collective bargaining agreements covering approximately 365 hourly employees were renegotiated in 1995. In 1996, one collective bargaining agreement covering approximately 510 hourly employees has been renegotiated and seven collective bargaining agreements covering approximately 1,090 hourly employees are due to expire. Coltec considers the labor relations of Coltec to be satisfactory, although Coltec does experience work stoppages from time to time. Coltec is subject to extensive Government regulations with respect to many aspects of its employee relations, including increasingly important occupational health and safety and equal employment opportunity matters. Failure to comply with certain of these requirements could result in ineligibility to receive Government contracts. These conditions are common to the various industries in which Coltec participates and entail the risk of financial and other exposure. For litigation relating to labor and other matters, see Item 3. "Legal Proceedings -- Other Litigation." 11 EXECUTIVE OFFICERS OF THE REGISTRANT Because the Proxy Statement for Coltec's Annual Meeting of Shareholders will not contain information with respect to all executive officers of Coltec, set forth below is the information with respect to the executive officers of Coltec required by Item 401 of Regulation S-K. Unless otherwise indicated, each occupation set forth opposite an individual's name refers to employment with Coltec.
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT/MATERIAL NAME AND AGE POSITIONS HELD DURING PAST FIVE YEARS - ------------------------- ------------------------------------------------------------ John M. Cybulski (59) Senior Vice President, Aerospace since May 1991. Group President from prior to 1991 to May 1991. President of Menasco Aerospace Ltd., a subsidiary of Coltec, from prior to 1990 to June 1991. Richard L. Dashnaw (59) Senior Vice President, Group Operations and President of the Fairbanks Morse Engine Division since January 1994. Group President and President of the Fairbanks Morse Engine Division from February 1991 to December 1993. President of the Fairbanks Morse Engine Division from prior to 1991 to February 1991. John W. Guffey, Jr. (58) Chairman of the Board of Directors, Chief Executive Officer and President since February 1995. President and Chief Operating Officer from May 1991 to January 1995. President of the Mechanical Packing Division of Garlock Inc from prior to 1991 to May 1991. Group President from prior to 1991 to May 1991. Laurence H. Polsky (52) Executive Vice President, Administration since January 1994. Senior Vice President, Administration from April 1992 to December 1993. Vice President, Personnel for Cooper Industries, Inc., a diversified manufacturing company, from prior to 1991 to April 1992. Paul G. Schoen (51) Executive Vice President, Finance; Treasurer and Chief Financial Officer since January 1994. Senior Vice President, Finance; Treasurer and Chief Financial Officer from May 1991 to December 1993. Senior Vice President and Controller from January 1991 to May 1991. Robert J. Tubbs (48) Senior Vice President, General Counsel and Secretary since November 1995. Senior Vice President and General Counsel since March 1995. General Counsel-Operations of Olin Corporation ("Olin"), a chemical and metals manufacturing company, from May 1993 to February 1995. Deputy General Counsel of Olin from prior to 1991 to May 1993.
All officers serve at the pleasure of the Board. None of the executive officers or directors of Coltec is related to any other executive officer or director by blood, marriage or adoption. ITEM 2. PROPERTIES. Coltec operates 62 manufacturing plants in 22 states and in Canada, Mexico, France, the United Kingdom, Australia and Germany. In addition, Coltec has other facilities throughout the United States and in various foreign countries, which include sales offices, repair and service shops, light manufacturing and assembly facilities, administrative offices and warehouses. 12 Certain information with respect to Coltec's principal manufacturing plants that are owned in fee, all of which (other than Palmyra, New York) are encumbered pursuant to the 1994 Credit Agreement between Coltec and certain banks and related security documents, is set forth below:
APPROXIMATE NUMBER OF APPROXIMATE SEGMENT LOCATION SQUARE FEET ACREAGE - -------------------------- -------------------------------- -------------- -------------- Aerospace/Government...... Beloit, Wisconsin 856,000 73 West Hartford, Connecticut (a) 492,000 79 Ft. Worth, Texas 394,000 43 Oakville, Ontario 238,000 14 Mississauga, Ontario 141,000 7 Automotive................ Bowling Green, Kentucky 480,000 60 Longview, Texas 265,000 52 Water Valley, Mississippi 221,000 59 Sallisaw, Oklahoma 220,000 53 Industrial................ Palmyra, New York 691,000 139
- ------------------------ (a) Approximately 238,000 square feet are utilized by the Aerospace/Government segment with the balance leased. In addition to above facilities, certain manufacturing activities of some industry segments are conducted within leased premises, the largest of which is in the Industrial segment, located in Quincy, Illinois, and covers approximately 173,000 square feet. Some of these leases provide for options to purchase or to renew the lease with respect to the leased premises. Coltec's total manufacturing facilities presently being utilized aggregate approximately 6,200,000 square feet of floor area of which approximately 5,400,000 square feet of area are owned in fee and the balance is leased. Coltec leases approximately 39,000 square feet at 430 Park Avenue, New York, New York, for its executive offices, and has renewal options under such lease through 2001. In the opinion of management, Coltec's principal properties, whether owned or leased, are suitable and adequate for the purposes for which they are used and are suitably maintained for such purposes. See Item 3. "Legal Proceedings -- Environmental Regulations" for a description of proceedings under applicable environmental laws regarding certain of Coltec's properties. ITEM 3. LEGAL PROCEEDINGS. ASBESTOS LITIGATION As of December 31, 1995 and 1994, two subsidiaries of Coltec were among a number of defendants (typically 15 to 40) in approximately 105,300 and 76,700 actions, respectively, (including approximately 4,900 and 3,300 actions, respectively, in advanced stages of processing) filed in various states by plaintiffs alleging injury or death as a result of asbestos fibers. Through December 31, 1995, approximately 131,200 of the approximately 236,500 total actions brought have been settled or otherwise disposed. The damages claimed for personal injury or death vary from case to case and in many cases plaintiffs seek $1 million or more in compensatory damages and $2 million or more in punitive damages. Although the law in each state differs to some extent, it appears, based on advice of counsel, that liability for compensatory damages would be shared among all responsible defendants, thus limiting the potential monetary impact of such judgments on any individual defendant. Following a decision of the Pennsylvania Supreme Court, in a case in which neither Coltec nor any of its subsidiaries were parties, that held insurance carriers are obligated to cover asbestos-related bodily injury actions if any injury or disease process, from first exposure through manifestation, occurred during a covered policy period (the "continuous trigger theory of coverage"), Coltec settled 13 litigation with its primary and most of its first-level excess insurance carriers, substantially on the basis of the Court's ruling. Coltec has negotiated a final agreement with most of its excess carriers that are in the layers of coverage immediately above its first layer. Coltec is currently receiving payments pursuant to this agreement. Coltec believes that, with respect to the remaining carriers, a final agreement can be achieved without litigation, and on substantially the same basis that it has resolved the issues with its other carriers. Settlements are generally made on a group basis with payments made to individual claimants over periods of one to four years. During 1995, 1994 and 1993, two subsidiaries of Coltec received approximately 44,000, 29,800 and 27,400 new actions, respectively. Payments were made with respect to asbestos liability and related costs aggregating $56,739,000 in 1995, $46,374,000 in 1994, and $38,677,000 in 1993, substantially all of which were covered by insurance. In accordance with Coltec's internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions have progressed to a stage where Coltec can reasonably estimate the cost to dispose of these actions. As of December 31, 1995, Coltec estimates that the aggregate remaining cost of the disposition of the settled actions for which payments remain to be made and actions in advanced stages of processing, including associated legal costs, is approximately $59,241,000 and Coltec expects that this cost will be substantially covered by insurance. With respect to the 100,400 outstanding actions as of December 31, 1995 which are in preliminary procedural stages, Coltec lacks sufficient information upon which judgments can be made as to the validity or ultimate disposition of such actions, thereby making it difficult to estimate with reasonable certainty the potential liability or costs to Coltec. When asbestos actions are received they are typically forwarded to local counsel to ensure that the appropriate preliminary procedural response is taken. The complaints typically do not contain sufficient information to permit a reasonable evaluation as to their merits at the time of receipt, and in jurisdictions encompassing a majority of the outstanding actions, the practice has been that little or no discovery or other action is taken until several months prior to the date set for trial. Accordingly, Coltec generally does not have the information necessary to analyze the actions in sufficient detail to estimate the ultimate liability or costs to Coltec, if any, until the actions appear on a trial calendar. A determination to seek dismissal, to attempt to settle or to proceed to trial is typically not made prior to the receipt of such information. It is also difficult to predict the number of asbestos lawsuits that Coltec's subsidiaries will receive in the future. Coltec has noted that, with respect to recently settled actions or actions in advanced stages of processing, the mix of the injuries alleged and the mix of the occupations of the plaintiffs have been changing from those traditionally associated with Coltec's asbestos-related actions. Coltec is not able to determine with reasonable certainty whether this trend will continue. Based upon the foregoing, and due to the unique factors inherent in each of the actions, including the nature of the disease, the occupation of the plaintiff, the presence or absence of other possible causes of a plaintiff's illness, the availability of legal defenses, such as the statute of limitations or state of the art, and whether the lawsuit is an individual one or part of a group, management is unable to estimate with reasonable certainty the cost of disposing of outstanding actions in preliminary procedural stages or of actions that may be filed in the future. However, Coltec believes that its subsidiaries are in a favorable position compared to many other defendants because, among other things, the asbestos fibers in its asbestos-containing products were encapsulated. Considering the foregoing, as well as the experience of Coltec's subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, and the significant amount of insurance coverage that Coltec expects to be available from its solvent carriers, Coltec believes that pending and reasonably anticipated future actions are not likely to have a material effect on Coltec's results of operations and financial condition. Although the insurance coverage which Coltec has is substantial, it should be noted that insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. Coltec's subsidiaries continue to be named as defendants in new cases, some of which allege initial exposure after July 1, 1984. 14 In addition to claims for personal injury, Coltec's subsidiaries have been involved in an insignificant number of property damage claims based upon asbestos-containing materials found in schools, public facilities and private commercial buildings. Based upon the proceedings to date, the overwhelming majority of these claims have been resolved without a material adverse impact on Coltec, Likewise, the insignificant number of claims remaining to be resolved are not expected to have a material effect on Coltec's results of operations and financial condition. ENVIRONMENTAL REGULATIONS Coltec and its subsidiaries are subject to numerous federal, state and local environmental laws. For example, the Clean Air Act Amendments regulate emissions at certain of Coltec's facilities. In connection with the Clean Air Act Amendments, Coltec will be required to make capital expenditures for equipment to control emissions of hazardous air pollutants. In addition, certain of Coltec's facilities will be required to obtain air emission control permits. Coltec has made a determination of the impact on its operations of the Clean Air Act Amendments. Based upon this determination, Coltec believes that it will not be at a competitive disadvantage in complying with the Clean Air Act Amendments and that any costs to comply with the Clean Air Act Amendments will not have a material effect on Coltec's results of operations and financial condition. Coltec and its subsidiaries also incur costs on a recurring basis for the treatment, storage and disposal of hazardous materials generated at Coltec's facilities in order to comply with the federal Resource Conservation and Recovery Act of 1976, and its analogous state statutes. Coltec does not believe that such costs have, nor will they have, a material effect on Coltec's results of operations and financial condition. Coltec has been notified that it is among the Potentially Responsible Parties ("PRPs") under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or similar state laws, for the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. CERCLA imposes joint and several liability for the costs of investigating and remediating properties contaminated by hazardous materials. Liability for these costs can be imposed on present and former owners or operators of the properties or on parties who generated the wastes that contributed to the contamination. The process of investigating and remediating contaminated properties can be lengthy and expensive. The process is also subject to the uncertainties occasioned by changing legal requirements, developing technological applications and liability allocations among PRPs. Among the sites where Coltec or its subsidiaries have been designated a PRP are: Clare Municipal Well Fields, Clare, Michigan; Quincy Municipal Landfills #2 and #3, Quincy, Illinois; Byron Barrel and Drum, Byron, New York; Operating Industries, Inc., Monterey Park, California; San Fernando Valley Site, Glendale, California; Lake of Isles, Connecticut and Hardage Landfill, Criner, Oklahoma. Coltec is also working with various state authorities to investigate and remediate certain properties that are or were the site of Coltec's operations. Among such sites are: Liberty Industrial Finishing Site, Farmingdale, New York; Holley Automotive properties in Water Valley, Mississippi and Paris, Tennessee; Fairbanks Morse Engine property, Beloit, Wisconsin; Walbar Inc, Arizona Tempe Facility in Chandler, Arizona; former Pratt & Whitney Cutting Tool property, Hinsdale, New Hampshire; former Precision Seals property, Gastonia, North Carolina; and former Central Moloney properties in Arcadia, Florida, and Pine Bluff, Arkansas. Based on the progress to date in the investigation, cleanup and allocation of responsibility for these sites, Coltec has estimated that its costs in connection with these sites approximates $20.0 million at December 31, 1995, and has accrued for this amount in the Consolidated Balance Sheet as of December 31, 1995. Although Coltec is pursuing insurance recovery in connection with certain of these matters, Coltec has not recorded a receivable with respect to any potential recovery of costs in connection with any environmental matter. OTHER LITIGATION In September 1983, the local employees' union at Menasco Canada Ltee. (now Coltec Aerospace Canada Ltd.) ("Menasco Canada"), a federation of trade unions and several member-employees filed a 15 complaint in the Province of Quebec Superior Court against Menasco Canada, alleging, among other things, an illegal lock-out, failure to negotiate in good faith, interference with the affairs of the union and various violations of local law. The plaintiffs are collectively seeking approximately Cdn. $14.0 million in damages, and Menasco Canada has filed a cross-claim for Cdn. $21.0 million and has closed its operations in Quebec Province. Coltec does not believe that this action will have a material effect on Coltec's results of operations and financial condition. On September 24, 1986, approximately 150 former salaried employees of Crucible Inc (a former subsidiary of Coltec) commenced an action claiming benefits under a plant shutdown plan that had been created in 1969 (George Henglein v. Colt Industries Operating Corporation Informal Plan for Plant Shutdown Benefits for Salaried Employees, U.S. District Court for the Western District of Pennsylvania, 86-cv-02021). Future eligibility of any employee for such Plan was eliminated by Crucible Inc in November 1972. Plaintiffs claim that they did not receive notice of such termination and therefore were entitled to benefits in 1982 when the Midland steel-making facility closed. Following a non-jury trial in the U.S. District Court for the Western District of Pennsylvania, defendant's motion to dismiss was granted and the plaintiffs appealed. The Court of Appeals for the Third Circuit remanded the case to the District Court directing it to make specific findings of fact and conclusions of law and also found for the defendant on the jurisdiction of the District Court. The defendants' motion to dismiss was granted by the District Court, appealed to the Third Circuit Court of Appeals and remanded to the District Court for additional findings of fact. On February 10, 1994, the District Court dismissed the plaintiffs' complaint and the plaintiffs appealed to the Third Circuit Court of Appeals. On September 26, 1994, the Third Circuit Court of Appeals remanded the case to the District Court and on November 4, 1994 denied the defendant's request for a rehearing. Defendant's petition to the U.S. Supreme Court for a writ of certiorari and its motion to dismiss were denied in 1995. The District Court has ordered a new trial to commence in May 1996 or, alternatively, in July 1996. Coltec does not believe that this action will have a material effect on Coltec's results of operations and financial condition. In addition to the litigation described above, there are various pending legal proceedings involving Coltec which are routine in nature and incidental to the business of Coltec. Coltec does not believe that these proceedings will have a material effect on Coltec's results of operations and financial condition. The United States Government conducts investigations into procurement of defense contracts as a part of a continuing process. Under current federal law, if such investigations establish such improper activities, among other matters, debarment or suspension of a company from participating in the procurement of defense contracts could result. These conditions are common to the aerospace and government industries in which Coltec participates and entail the risk of financial and other exposure. Coltec is not aware of any such investigation, nor is Coltec aware of any facts which, if known to investigators, might prompt any investigation. PRODUCT LIABILITY INSURANCE Coltec has product liability insurance coverage for liabilities arising from aircraft products which Coltec believes to be in adequate amounts. In addition, with respect to other products, (exclusive of liability for exposure to asbestos products) Coltec has product liability insurance in amounts exceeding $2.5 million per occurrence, which Coltec believes to be adequate. Coltec has been self-insured with respect to liability for exposure to asbestos products since third party insurance became unavailable in July 1984. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. Not applicable. 16 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS. Coltec's Common Stock (symbol COT) is listed on the New York and Pacific Stock Exchanges. The high and low prices of the stock for each quarter during 1995 and 1994 were as follows:
1995 1994 ---------------- ---------------- HIGH LOW HIGH LOW ------- ------- ------- ------- First quarter........................... 17 3/8 15 3/8 21 7/8 18 3/4 Second quarter.......................... 18 3/4 16 3/4 20 1/2 18 1/4 Third quarter........................... 18 1/8 11 1/8 19 7/8 18 1/8 Fourth quarter.......................... 12 1/4 10 1/8 19 16
At December 31, 1995, there were 493 shareholders of record. No dividends were paid in 1995 and 1994, and no dividends are expected to be paid in 1996. ITEM 6. SELECTED FINANCIAL DATA. The five year tabular presentation under the caption "Selected Financial Data" of Coltec's 1995 Annual Report to its shareholders is incorporated herein by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION. The information under the caption "Financial Review" of Coltec's 1995 Annual Report to its shareholders is incorporated herein by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The "Quarterly Sales and Earnings" information in Note 12 of the Notes to Financial Statements of Coltec's 1995 Annual Report to its shareholders and the Consolidated Balance Sheet, the Consolidated Statement of Earnings, the Consolidated Statement of Cash Flows, the Consolidated Statement of Shareholders' Equity, the Notes to Financial Statements, Report of Management and the Report of Independent Public Accountants of Coltec's 1995 Annual Report to its shareholders are incorporated herein by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. None. 17 PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The information under the caption "Election of Directors" in Coltec's Proxy Statement for its 1996 Annual Meeting of Shareholders is herein incorporated by reference. In respect of information as to Coltec's executive officers, see the information under the caption "Executive Officers of the Registrant" under Item 1 of Part I hereof. ITEM 11. EXECUTIVE COMPENSATION. The text and tabular information under the caption "Executive Compensation and Other Information" in Coltec's Proxy Statement for its 1996 Annual Meeting of Shareholders is herein incorporated by reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The information under the captions "Security Ownership of Certain Beneficial Owners" and "Security Ownership of Management" in Coltec's Proxy Statement for its 1996 Annual Meeting of Shareholders is herein incorporated by reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The information under the caption "Compensation Committee Interlocks and Insider Participation" in Coltec's Proxy Statement for its 1996 Annual Meeting of Shareholders is herein incorporated by reference. 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K. (a) The following documents are filed as part of this report: (1) Financial Statements (incorporated by reference from the 1995 Annual Report to Shareholders): Consolidated Balance Sheet at December 31, 1995 and 1994; Consolidated Statement of Earnings for the Three Years ended December 31, 1995; Consolidated Statement of Cash Flows for the Three Years ended December 31, 1995; Consolidated Statement of Shareholders' Equity for the Three Years Ended December 31, 1995; Notes to Financial Statements; Report of Management; and Report of Independent Public Accountants. (2) Financial Statement Schedules listed in the Index to Financial Statement Schedules on page S-1 hereof. (3) The exhibits required by Item 601 of Regulation S-K as listed in the accompanying exhibit index commencing on page I-1 hereof. (b) No reports on Form 8-K were filed by Coltec during the last quarter of the period ending December 31, 1995. (c) Exhibits 4.16, 4.17, 10.8, 10.9, 10.10, 10.17, 10.20, 10.21, 12.1, 13.1, 21.1, 23.1 and 27.1 are filed herewith. 19 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Coltec Industries Inc (Registrant) Date: March 14, 1996 By: /s/ PAUL G. SCHOEN ---------------------------------------- Paul G. Schoen EXECUTIVE VICE PRESIDENT FINANCE AND TREASURER
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in the capacities noted on March 14, 1996.
NAME AND TITLE NAME AND TITLE - ------------------------------------ ---------------------------------------- /s/ JOSEPH R. COPPOLA /s/ JOEL MOSES - ------------------------------------ ---------------------------------------- Joseph R. Coppola Joel Moses DIRECTOR DIRECTOR /s/ JOHN W. GUFFEY, JR. /s/ PAUL G. SCHOEN - ------------------------------------ ---------------------------------------- John W. Guffey, Jr. Paul G. Schoen DIRECTOR, CHAIRMAN OF THE BOARD, DIRECTOR, EXECUTIVE VICE PRESIDENT CHIEF EXECUTIVE OFFICER AND FINANCE AND TREASURER (PRINCIPAL PRESIDENT FINANCIAL AND ACCOUNTING OFFICER) /s/ DAVID I. MARGOLIS /s/ RICHARD A. STUCKEY - ------------------------------------ ---------------------------------------- David I. Margolis Richard A. Stuckey DIRECTOR DIRECTOR /s/ J. BRADFORD MOONEY, JR. - ------------------------------------ J. Bradford Mooney, Jr. DIRECTOR
20 INDEX TO FINANCIAL STATEMENT SCHEDULES
PAGE FINANCIAL STATEMENT SCHEDULES NUMBER - ------------------------------------------------------------------ ------ II Valuation and Qualifying Accounts for the three years ended - -- December 31, 1995.......................................... S-3
S-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Coltec Industries Inc: We have audited in accordance with generally accepted auditing standards, the consolidated financial statements included in Coltec Industries Inc and subsidiaries' annual report to shareholders incorporated by reference in this Form 10-K, and have issued our report thereon dated January 22, 1996. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed in the index to financial statement schedules is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole. ARTHUR ANDERSEN LLP New York, N.Y. January 22, 1996 S-2 SCHEDULE II 1995, 1994 AND 1993 COLTEC INDUSTRIES INC AND SUBSIDIARIES SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS FOR THE THREE YEARS ENDED DECEMBER 31, 1995 (IN THOUSANDS)
COLUMN C ----------------------- COLUMN B ADDITIONS COLUMN E ---------- ----------------------- ---------- COLUMN A BALANCE AT CHARGED TO CHARGED TO COLUMN D BALANCE AT - -------------------------------------------------- BEGINNING COSTS AND OTHER ------------- END OF DESCRIPTION OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS (1) PERIOD - -------------------------------------------------- ---------- ---------- ---------- ------------- ---------- 1995 Valuation accounts deducted from assets -- Allowance for doubtful accounts............... $ 4,124 $ 327 $ -- $ 277 $ 4,174 ---------- ---------- --- ------------- ---------- ---------- ---------- --- ------------- ---------- Reserve for potential losses from excess and slow-moving inventories...................... $ 15,576 $ 7,794 $ -- $ 6,833 $ 16,537 ---------- ---------- --- ------------- ---------- ---------- ---------- --- ------------- ---------- 1994 Valuation accounts deducted from assets -- Allowance for doubtful accounts............... $ 4,170 $ 229 $ -- $ 275 $ 4,124 ---------- ---------- --- ------------- ---------- ---------- ---------- --- ------------- ---------- Reserve for potential losses from excess and slow-moving inventories...................... $ 18,086 $ 4,595 $ -- $ 7,105 $ 15,576 ---------- ---------- --- ------------- ---------- ---------- ---------- --- ------------- ---------- 1993 Valuation accounts deducted from assets -- Allowance for doubtful accounts............... $ 4,614 $ 335 $ -- $ 779 $ 4,170 ---------- ---------- --- ------------- ---------- ---------- ---------- --- ------------- ---------- Reserve for potential losses from excess and slow-moving inventories...................... $ 16,789 $ 6,379 $ -- $ 5,082 $ 18,086 ---------- ---------- --- ------------- ---------- ---------- ---------- --- ------------- ----------
- ------------------------ Note: (1) Deductions are for the purposes for which the valuation accounts were created. S-3 INDEX TO EXHIBITS
EXHIBITS - ------- 3.1 Amended and Restated Articles of Incorporation of Coltec, filed as Exhibit 3.1 to Coltec's Registration Statement on Form S-2 (No. 33-44846) (the "Form S-2 Registration Statement") and incorporated herein by reference. 3.2 By-laws of Coltec filed as Exhibit 3.2 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference. 4.1 Form of Senior Securities Indenture, dated as of December 1, 1985, between Coltec and Mellon Bank, N.A., as Trustee, filed as Exhibit 4.1 to Coltec's Registration Statement on Form S-3 (No. 33-1811) and incorporated herein by reference. 4.2 Agreement of Resignation, Appointment and Acceptance, dated as of May 10, 1991, by and among Coltec, Mellon Bank, N.A. and The Bank of New York, filed as Exhibit 4.3 to the Form S-2 Registration Statement and incorporated herein by reference. 4.3 Specimen certificate for 11 1/4% Debentures Due December 1, 2015, filed as Exhibit 4.14 to Coltec's Registration Statement on Form S-2 and S-3 (Nos. 33-8585 and 33-1811) the ("Form S-2/S-3 Registration Statement") and incorporated herein by reference. 4.4 Supplemental Indenture, dated as of April 1, 1992, between Coltec and The Bank of New York, as Trustee, relating to the Senior Securities Indenture, dated as of December 1, 1985, between Coltec and Mellon Bank, N.A., as the original Trustee, filed as Exhibit 6 to Coltec's Current Report on Form 8-K dated April 1, 1992 (the "Form 8-K") and incorporated herein by reference. 4.5 Credit Agreement, dated as of March 24, 1992 (the "Credit Agreement") among Coltec and the financial institutions party thereto, Bankers Trust Company, Manufacturers Hanover Trust Company, Barclays Bank PLC, New York Branch and Credit Lyonnais New York Branch, as Agents, and Bankers Trust Company, as Administrative Agent, filed as Exhibit 4.13 to Coltec Holdings Inc.'s Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference. 4.6 First Amendment, dated as of April 1, 1992, to the Credit Agreement, dated as of March 24, 1992, filed as Exhibit 3 to the Form 8-K and incorporated herein by reference. 4.7 Second Amendment, dated as of April 8, 1992, to the Credit Agreement, filed as Exhibit 4.7 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 4.8 Third Amendment and Waiver, dated as of September 3, 1992, to the Credit Agreement, filed as Exhibit 4.8 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 4.9 Fourth Amendment and Consent, dated as of September 25, 1992, to the Credit Agreement, filed as Exhibit 4.9 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 4.10 Fifth Amendment, dated as of May 26, 1993, to the Credit Agreement, filed as Exhibit 4.10 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 4.11 Sixth Waiver, dated as of August 3, 1993, to the Credit Agreement, filed as Exhibit 4.11 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference.
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EXHIBITS - ------- 4.12 Seventh Consent, dated as of October 27, 1993, to the Credit Agreement, filed as Exhibit 4.12 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 4.13 Eighth Waiver, dated as of December 23, 1993, to the Credit Agreement, filed as Exhibit 4.13 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 4.14 Credit Agreement among Coltec, Various Banks, The Co-Agents and Bankers Trust Company, as Administrative Agent dated as of March 24, 1992 and Amended and Restated as of January 11, 1994 (the "Amended Credit Agreement"), filed as Exhibit 4.14 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 4.15 First Waiver dated as of December 15, 1994 to the Amended Credit Agreement filed as Exhibit 4.15 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference. 4.16 Second Waiver dated as of June 5, 1995 to the Amended Credit Agreement. 4.17 Second Amendment dated as of November 17, 1995 to the Amended Credit Agreement. 4.18 Form of Indenture, dated as of October 26, 1992, between Coltec and United States Trust Company of New York, as Trustee, relating to Coltec's 9 3/4% Senior Notes Due 1999 (including the form of 9 3/4% Senior Note Due 1999), filed as Exhibit 4.1 to Coltec's Regis-tration Statement on Form S-3 (No. 33-52414) and incorporated herein by reference. 4.19 Indenture, dated as of April 1, 1992, between Coltec and United States Trust Company of New York, as Trustee, relating to Coltec's 9 3/4% Senior Notes Due 2000 (including the form of 9 3/4% Senior Note Due 2000), filed as Exhibit 4 to the Form 8-K and incorporated herein by reference. 4.20 Indenture, dated as of April 1, 1992, between Coltec and Norwest Bank Minnesota, National Association, as Trustee, relating to Coltec's 10 1/4% Senior Subordinated Notes Due 2002 (including the form of 10 1/4% Senior Subordinated Note Due 2002), filed as Exhibit 5 to the Form 8-K and incorporated herein by reference. Pursuant to paragraph (4)(iii) of Item 601(b) of Regulation S-K, there are omitted certain agreements, which the registrant hereby agrees to furnish to the Commission upon request. 10.1* Form of Family Protection Agreement used in connection with Coltec's Family Protection Program, filed as Exhibit 3.5.1 to Coltec's Registration Statement on Form 8-B, filed with the Securities and Exchange Commission on June 25, 1976 and incorporated herein by reference. 10.2* Benefits Equalization Plan of Coltec, filed as Exhibit 10.2 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference. 10.3* Amendment No. 1 to the Benefits Equalization Plan, filed as Exhibit 10.3 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 10.4* Supplemental Retirement Savings Plan of Coltec, filed as Exhibit 10.3 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1988 and incorporated herein by reference.
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EXHIBITS - ------- 10.5* Coltec's 1977 Long-Term Performance Plan, filed as Exhibit 10.5 to the Form S-2/S-3 Registration Statement and incorporated herein by reference. 10.6* Amendment to Coltec's 1977 Long-Term Performance Plan described in Proposal 2 of Coltec's Proxy Statement for its 1981 Annual Meeting of Shareholders, filed as Exhibit 10.6 to the Form S-2/S-3 Registration Statement and incorporated herein by reference. 10.7* Amendment No. 2 to Coltec's 1977 Long-Term Performance Plan, filed as Exhibit 10.7 to the Form S-2/S-3 Registration Statement and incorporated herein by reference. 10.8* Employment Agreement between Coltec and John W. Guffey, Jr. dated June 1, 1995. 10.9* Form of Employment Agreement between Coltec and Paul G. Schoen and Laurence H. Polsky dated June 1, 1995. 10.10* Form of Employment Agreement between Coltec and John M. Cybulski, Richard L. Dashnaw and Robert J. Tubbs dated June 1, 1995. 10.11* Resolutions adopted by the Board of Directors of Coltec on July 14, 1982 establishing a pension program for directors who are not otherwise entitled to a pension from Coltec, filed as Exhibit 10.16 to the Form S-2/S-3 Registration Statement and incor- porated herein by reference. 10.12* The Incentive Plan for Certain Employees of Coltec and Subsidiaries (the "Incentive Plan"), filed as Exhibit 10.22 to the Form S-2 Registration Statement and incorporated herein by reference. 10.13* Amendments to the Incentive Plan, filed as Exhibit 10.13 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 10.14* Coltec's 1992 Stock Option and Incentive Plan, filed as Exhibit 10.24 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference. 10.15* Amendment No. 1 to the Coltec 1992 Stock Option and Incentive Plan, filed as Exhibit 10.15 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 10.16* 1994 Long-Term Incentive Plan of Coltec, filed as Exhibit 10.16 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 10.17* Resolutions of the Board of Directors of Coltec on July 13, 1995 amending Section 6(a) of the 1994 Long-Term Incentive Plan. 10.18* Annual Incentive Plan For Certain Employees of Coltec Industries Inc and Its Subsidiaries, filed as Exhibit 10.17 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 10.19 1994 Stock Option Plan for Outside Directors, filed as Exhibit 10.18 to Coltec's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference. 10.20 Deferred Compensation Plan For Non-Employee Directors. 10.21 Resolution of the Board of Directors of Coltec on May 30, 1995 establishing a Change In Control arrangement for non-employee directors. 12.1 Computation of Ratio of Earnings to Fixed Charges. 13.1 Portions of Coltec's 1995 Annual Report to Shareholders.
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EXHIBITS - ------- 21.1 List of Subsidiaries of Coltec. 23.1 Consent of Arthur Andersen LLP. 27.1 Financial Data Schedule.
- ------------------------ *These exhibits are management contracts or compensatory plans or arrangements required to be filed as an exhibit to this Form 10-K pursuant to item 14(c) of Form 10-K. I-4 EX-4.16 2 EX-4.16 EXHIBIT 4.16 SECOND WAIVER SECOND WAIVER (the "Waiver"), dated as of June 5, 1995, among COLTEC INDUSTRIES INC (the "Company") and the financial institutions party to the Credit Agreement referred to below (the "Banks"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, the Company, the Banks, the Co-Agents and Bankers Trust Company, as Administrative Agent, are parties to a Credit Agreement, dated as of March 24, 1992 and amended and restated as of January 11, 1994, as amended, modified or supplemented through the date hereof (as so amended, modified or supplemented, the "Credit Agreement"); WHEREAS, the Company and the Collateral Agent are parties to a Pledge Agreement dated as of March 24, 1992, as amended, modified or supplemented, (as so amended, modified or supplemented, the "Company Pledge Agreement"); WHEREAS, the Company intends to create a new Foreign Subsidiary in (i) the United Kingdom (the "New U.K. Subsidiary"), (ii) the Republic of France (the "New French Subsidiary") and (iii) the Federal Republic of Germany (the "New German Subsidiary" and, together with the New U.K. Subsidiary and the New French Subsidiary, the "New Foreign Subsidiaries") each of which shall be a Wholly- Owned Subsidiary of the Company; WHEREAS, the New Foreign Subsidiaries will be engaged solely in the sale of automotive products and shall have no significant assets or liabilities; WHEREAS, the parties hereto wish to waive certain provisions of the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: 1. Notwithstanding anything to the contrary contained in Section 9.14(ii)(x)(ii) of the Credit Agreement, the Required Banks hereby waive compliance by the Company with the requirement contained therein that any Foreign Subsidiary created by the Company shall be a Wholly-Owned Subsidiary of another Foreign Subsidiary that is a Wholly-Owned Subsidiary of the Company, solely to the extent necessary to permit each New Foreign Subsidiary to be Wholly-Owned by the Company. 2. Notwithstanding anything to the contrary contained in the Credit Agreement or the Pledge Agreement, the Required Banks hereby waive compliance by the Company with the requirement to pledge 66% of the capital stock of each New Foreign Subsidiary so long as the sum of the capital contributions by the Company to all three New Foreign Subsidiaries does not exceed $1,000,000 in the aggregate, provided that the Company will be required to pledge 66% of the capital stock of each New Foreign Subsidiary when the sum of the capital contributions by the Company to all three New Foreign Subsidiaries exceeds $1,000,000 in the aggregate. 3. In order to induce the Banks to enter into this Waiver, the Company hereby (i) makes each of the representations, warranties and agreements contained in Section 7 of the Credit Agreement and (ii) represents and warrants that there exists no Default or Event of Default, in each case on the Waiver Effective Date (as defined herein) both before and after giving effect to this Waiver. 4. This Waiver is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 5. This Waiver may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Administrative Agent. 2 6. THIS WAIVER AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 7. This Waiver shall become effective on the date (the "Waiver Effective Date") when the Company and the Required Banks shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of facsimile) the same to the Administrative Agent at the Notice Office. 8. From and after the Waiver Effective Date, all references in the Credit Agreement and the other Credit Documents to the Credit Agreement shall be deemed to be references to such Credit Agreement as modified hereby. IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Waiver to be duly executed and delivered as of the date first above written. COLTEC INDUSTRIES INC By ---------------------- Title: BANKERS TRUST COMPANY, Individually, and as Administrative Agent By ---------------------- Title: 3 THE BANK OF MONTREAL Individually and as Co-Agent By ---------------------- Title: THE BANK OF NOVA SCOTIA, Individually, and as Co-Agent By ---------------------- Title: CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Co-Agent By ---------------------- Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, New York Branch, Individually, and as Co-Agent By ---------------------- Title: 4 CIBC, INC. By ---------------------- Title: ABN AMRO BANK N.V. By ---------------------- Title: By ---------------------- Title: COMERICA BANK By ---------------------- Title: THE SUMITOMO BANK, LIMITED By ---------------------- Title: BANK OF AMERICA ILLINOIS By ---------------------- Title: 5 SOCIETY NATIONAL BANK By ---------------------- Title: ROYAL BANK OF SCOTLAND By ---------------------- Title: THE BANK OF NEW YORK By ---------------------- Title: THE BANK OF TOKYO TRUST COMPANY By ---------------------- Title: BANQUE FRANCAISE DU COMMERCE EXTERIEUR By ---------------------- Title: By ---------------------- Title: 6 BANQUE PARIBAS By ---------------------- Title: By ---------------------- Title: THE FUJI BANK, LIMITED, New York Branch By ---------------------- Title: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By ---------------------- Title: THE NIPPON CREDIT BANK, LTD., New York Branch By ---------------------- Title: 7 UNION BANK OF FINLAND LIMITED, Grand Cayman Branch By ---------------------- Title: By ---------------------- Title: ARAB BANKING CORP. By ---------------------- Title: BANK OF IRELAND By ---------------------- Title: BANK OF SCOTLAND By ---------------------- Title: 8 EX-4.17 3 EX-4.17 EXHIBIT 4.17 SECOND AMENDMENT TO CREDIT AGREEMENT SECOND AMENDMENT (the "Second Amendment"), dated as of November 17, 1995, among COLTEC INDUSTRIES INC (the "Company") and the financial institutions party to the Credit Agreement referred to below (the "Banks"). All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, the Company, the Banks, the Co-Agents and Bankers Trust Company, as Administrative Agent, are parties to a Credit Agreement, dated as of March 24, 1992 and amended and restated as of January 11, 1994, as amended, modified or supplemented through the date hereof (as so amended, modified or supplemented, the "Credit Agreement"); WHEREAS, the parties hereto wish to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: 1. On the Second Amendment Effective Date (as hereinafter defined), the Total Commitment shall (and the parties hereto agree that it shall) be increased from $415,000,000 to $465,000,000 and the Commitment of each Bank shall on such date be equal to the respective amounts shown on Schedule I hereto, which on the Second Amendment Effective Date shall replace existing Schedule I to the Credit Agreement. 2. Notwithstanding anything to the contrary contained in the Credit Agreement (including without limitation Section 1.07 thereof), it is hereby agreed that, during the period from the Second Amendment Effective Date until the date which is 30 days after the Second Amendment Effective Date, all Borrowings of Eurodollar Rate Loans which were outstanding on the Second Amendment Effective Date shall remain outstanding as Loans by the Banks who originally made such Loans (or their subsequent assigns) and, as a result, such Loans may not be PRO RATA on the basis of the Commitments of the Bank as adjusted pursuant to this Second Amendment. On the date of the expiration of an Interest Period relating to any such outstanding Borrowing of Eurodollar Rate Loans, if such Borrowing is not to be repaid in full on such date, the Borrower in coordination with the Agent shall effect such repayments and reborrowings as are necessary so that any such Borrowing is thereafter made by the Banks pro rata on the basis of their Commitments as adjusted pursuant to this Second Amendment. Notwithstanding anything to the contrary contained in the immediately preceding sentence, not later than the date which is 30 days after the Second Amendment Effective Date, the Borrower shall, in coordination with the Agent and Banks, have repaid and, if necessary, incurred additional Revolving Loans in each case so that on such date the Banks participate in each Borrowing of Revolving Loans pro rata on the basis of their Commitments as then in effect (and after giving effect to this Amendment). 3. Notwithstanding anything to the contrary contained in the Credit Agreement or in this Second Amendment, the sum of (x) the outstanding principal amount of Loans pursuant to the Credit Agreement, (y) the Letter of Credit Outstandings pursuant to the Credit Agreement and (z) the amount of all Non- Facility Letter of Credit Outstandings pursuant to the Credit Agreement shall in no event exceed $415,000,000 until such time, if any, as the following conditions are satisfied (as determined in good faith by the Administrative Agent): (a) EXECUTION OF AMENDMENT; NOTES. (i) The Second Amendment Effective Date shall have occurred and (ii) there shall have been delivered to the Agent for the account of each Bank which has a changed Commitment as a result of this Amendment a new Revolving Note in the appropriate amount to reflect such new Commitment and as otherwise provided in the Credit Agreement. (b) OPINION OF COUNSEL. The Agent shall have received an opinion addressed to the Agent, the Collateral Agent and each of the Banks, which opinion shall cover matters (including without limitation no conflicts with existing Indebtedness), and shall be in form and substance, satisfactory to the Agent. 2 (c) CORPORATE DOCUMENTS; PROCEEDINGS; ETC. All corporate and legal proceedings and all instruments and agreements in connection with the transactions contemplated by this Second Amendment, shall be reasonably satisfactory in form and substance to the Agent, and the Agent shall have received all information and copies of all documents and papers, including records of corporate proceedings, governmental approvals, good standing certificates and bring-down telegrams or facsimiles, if any, which the Agent reasonably may have requested in connection therewith, such documents and papers where appropriate to be certified by proper corporate or governmental authorities. (d) MORTGAGES. The Collateral Agent shall have received fully executed counterparts of amendments (the "Mortgage Amendments"), in form and substance satisfactory to the Collateral Agent, to each of the Mortgages, together with evidence that counterparts of each of the Mortgage Amendments have been delivered to the title company ensuring the Lien on the existing Mortgages for recording in all places to the extent necessary or desirable, in the judgment of the Collateral Agent, effectively to maintain a valid and enforceable first priority mortgage lien on the Mortgaged Properties in favor of the Collateral Agent for the benefit of the Secured Creditors, and the Collateral Agent shall have received endorsements to the existing Mortgage Policies assuring the Collateral Agent that each Mortgage, after giving effect to the respective Mortgage Amendment, is a valid and enforceable first priority mortgage lien on the respective Mortgaged Properties, free and clear of all defects and encumbrances except Permitted Encumbrances. (e) CREDIT PARTY ACKNOWLEDGMENTS. The Agent shall have received such acknowledgments as it may have requested from the Credit Parties, acknowledging and agreeing that all obligations pursuant to the Credit Agreement (as amended by this Second Amendment, and with the increase to the Total Commitment contemplated herein) are entitled to the benefits of the respective Guaranties and Security Documents executed by them. (f) EXISTING SENIOR DEBENTURE REDEMPTION. (i) The Existing Senior Debenture Redemption shall have been effected or (ii) the amount needed to effect the Existing Senior Debenture 3 Redemption is then being drawn pursuant to the Credit Agreement (x) for deposit with the trustee under the Existing Senior Debenture Indenture for purposes of effecting the Existing Senior Debenture Redemption or (y) to reimburse the Borrower for amounts theretofore used by it to effect the Existing Senior Debenture Redemption. 4. Section 8 of the Credit Agreement is hereby amended by inserting the following new Section 8.15 immediately following Section 8.16 thereof: "8.16 REDEMPTION OF EXISTING SENIOR DEBENTURES. On or before March 31, 1996, the Company shall cause the Existing Senior Debenture Redemption to have occurred." 5. Section 9.10 of the Credit Agreement is hereby amended by inserting the following new sub-clause (v) immediately before sub-clause (w) of clause (i) thereof: "(v) the Existing Senior Debenture Redemption may be effected in accordance with the definition thereof contained herein, so long as, on or before the date of the consummation thereof, the conditions described in Section 3 of the Second Amendment have been satisfied,". 6. Section 11 of the Credit Agreement is hereby further amended by inserting the following new definitions in said Section 11 in the appropriate alphabetical order: "Existing Senior Debenture Redemption" shall mean the partial redemption, to occur after December 1, 1995 and on or before March 31, 1996 of a principal amount of $46,407,000 of the Existing Senior Debentures at 105.625% of their principal amount, plus accrued and unpaid interest thereon. "Second Amendment" shall mean the Second Amendment to this Agreement, dated as of November 17, 1995. 7. In order to induce the Banks to enter into this Second Amendment, the Company hereby (i) makes each of the representations, warranties and agreements contained in Section 7 of the Credit Agreement, (ii) represents and warrants that there exists no Default or Event of Default and (iii) represents and warrants that 4 the indebtedness of the Borrower as increased pursuant to the Second Amendment is permitted by (w) Section 4.04(d) of the Existing Senior Indenture, (x) Section 3.03(i) of the Senior Note Indenture without regard to the first parapraph thereof, (y) Section 3.03(i) of the Senior Refinancing Note Indenture without regard to the first paragraph thereof, and (z) Section 4.03(i) of the Senior Subordinated Note Indenture without regard to the first paragraph thereof, in each case on the Second Amendment Effective Date (as defined herein) both before and after giving effect to this Second Amendment. 8. This Second Amendment is limited as specified and shall not constitute a modification, acceptance or waiver of any other provision of the Credit Agreement or any other Credit Document. 9. This Second Amendment may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which counterparts when executed and delivered shall be an original, but all of which shall together constitute one and the same instrument. A complete set of counterparts shall be lodged with the Company and the Administrative Agent. 10. THIS SECOND AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAW OF THE STATE OF NEW YORK. 11. This Second Amendment shall become effective on the date (the "Second Amendment Effective Date") when the Company, the Required Banks and each Bank whose Commitment is being increased pursuant to this Second Amendment shall have signed a copy hereof (whether the same or different copies) and shall have delivered (including by way of facsimile) the same to the Administrative Agent at the Notice Office. 12. From and after the Second Amendment Effective Date, all references in the Credit Agreement and the other Credit Documents to the Credit Agreement shall be deemed to be references to such Credit Agreement as modified hereby. 5 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Second Amendment to be duly executed and delivered as of the date first above written. COLTEC INDUSTRIES INC By ______________________ Title: BANKERS TRUST COMPANY, Individually, and as Administrative Agent By ______________________ Title: THE BANK OF MONTREAL, Individually and as Co-Agent By ______________________ Title: THE BANK OF NOVA SCOTIA, Individually, and as Co-Agent By ______________________ Title: 6 CREDIT LYONNAIS NEW YORK BRANCH, Individually and as Co-Agent By ______________________ Title: THE INDUSTRIAL BANK OF JAPAN, LIMITED, New York Branch, Individually, and as Co-Agent By ______________________ Title: CIBC, INC. By ______________________ Title: ABN AMRO BANK N.V. By ______________________ Title: By ______________________ Title: 7 COMERICA BANK By ______________________ Title: THE SUMITOMO BANK, LIMITED By ______________________ Title: BANK OF AMERICA ILLINOIS By ______________________ Title: SOCIETY NATIONAL BANK By ______________________ Title: ROYAL BANK OF SCOTLAND By ______________________ Title: 8 THE BANK OF NEW YORK By ______________________ Title: THE BANK OF TOKYO TRUST COMPANY By ______________________ Title: BANQUE FRANCAISE DU COMMERCE EXTERIEUR By_______________________ Title: By_______________________ Title: 9 BANQUE PARIBAS By_______________________ Title: By_______________________ Title: THE FUJI BANK, LIMITED, New York Branch By_______________________ Title: THE LONG-TERM CREDIT BANK OF JAPAN, LIMITED, NEW YORK BRANCH By ______________________ Title: THE NIPPON CREDIT BANK, LTD., New York Branch By ______________________ Title: 10 MERITA BANK By ______________________ Title: By ______________________ Title: ARAB BANKING CORP. By ______________________ Title: BANK OF IRELAND By ______________________ Title: BANK OF SCOTLAND By ______________________ Title: 11 SCHEDULE I
COMMITMENTS ABN AMRO $ 15,000,000 Arab Banking $ 10,000,000 Bank of Ireland $ 10,000,000 Bank of Montreal $ 21,000,000 Bank of New York $ 33,000,000 Bank of Nova Scotia $ 33,000,000 Bank of Scotland $ 10,000,000 Bank of Tokyo Trust $ 15,000,000 Banque Francais $ 10,000,000 Banque Paribas $ 15,000,000 CIBC $ 20,000,000 Comerica Bank $ 10,000,000 Bank of America III $ 15,000,000 Credit Lyonnais $ 33,000,000 Fuji Bank $ 7,500,000 IBJ $ 33,000,000 LTCBJ $ 25,000,000 Merita Bank $ 5,000,000 Nippon Credit Bank $ 25,000,000 Royal Bank of Scotland $ 5,000,000 Society National $ 25,000,000 Sumitomo $ 15,000,000 BTCo $ 74,500,000 ------------ TOTAL $465,000,000
1 EX-10.8 4 EX-10.8 EXHIBIT 10.8 EMPLOYMENT AGREEMENT Agreement dated June 1, 1995, between JOHN W. GUFFEY, JR. (the "Executive") and COLTEC INDUSTRIES INC, a Pennsylvania corporation (the "Corporation"). WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. EMPLOYMENT TERM The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement, for a period of five years commencing on the date hereof and terminating on the fifth anniversary of the date hereof (the "Contract Period"). The Contract Period shall be subject to earlier termination in accordance with the provisions set forth in Section 6 below. 2. DUTIES 2.1 The Executive shall serve, subject to the supervision and control of the Board of Directors of the Corporation (the "Board"), as Chairman of the Board, President and Chief Executive Officer of the Corporation with the responsibilities and authority, and status and perquisites which have consistent with past practice, been delegated or granted by the Corporation to its Chairman, President and Chief Executive Officer or are customarily delegated or granted by similarly situated corporations to an employee holding these positions. If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such positions. 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity or, subject to approval by the Board, as (ii) a director of any corporation which is not a competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at the Company's headquarters at 430 Park Avenue, New York, New York, or at such other office or location within the New York metropolitan area as the Board may, from time to time, deem appropriate after consultation with Executive, except for travel reasonably required in the performance of Executive's responsibilities. 3. COMPENSATION AND BENEFITS Throughout the term hereof, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual salary which is not less than his annual salary on the date of this Agreement and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc, and the Coltec Industries Inc 1992 Stock Option and Incentive Plan 2 (the "Incentive Compensation Plans"); provided, however, that the Executive's participation in all incentive compensation plans shall be at a level customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the date of this Agreement. Any payout to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars and limousines, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, Benefits Equalization Plan (the "BE Plan") and Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for Corporation executives. 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities delegated in Section 2.1 above, provided that the Executive properly accounts for such expenses in accordance with the Corporation's established policies and the requirements of the Internal Revenue Code of 1986, as amended. 4. INDEMNIFICATION The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law in respect 3 of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. MANAGEMENT OF THE CORPORATION During the Contract Period and subject to its fiduciary duties, the Board shall not interfere with Executive's responsibilities in connection with the normal day-to-day management of the Corporation's business matters and will involve Executive, as a director, in determining the strategic direction of the Corporation consistent with the Board's past practice and its fiduciary duties to management and the Corporation's shareholders. 6. TERMINATION OF EMPLOYMENT The Contract Period shall terminate prior to its term on the Date of Termination as defined in Sections 6.2 and 6.3 below, following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination, as defined in Section 6.1 below. 6.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 9 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 6.2 "Date of Termination" shall mean: (a) thirty (30) days after Notice of Termination is given for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; 4 (b) the date of death in the event of Executive's death; (c) at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given for termination of employment for Good Reason in respect of a termination covered by Sections 7.6 or 7.7 below; (d) at least fifteen days (15) after Notice of Termination is given for termination of employment for Cause; (e) at least fifteen days (15) after Notice of Termination is given for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or (f) the date specified in the Notice of Termination for termination of employment for any other reason. 6.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the receipt by the Corporation of a Notice of Termination for Early Retirement as provided in Paragraph 6.2(e) above ("Retirement Termination"). 7. COMPENSATION UPON TERMINATION OR DURING DISABILITY 7.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: (a) DISABILITY - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". (b) CAUSE - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon: (i) the prolonged or repeated absence from duty without the consent of the Board for reasons other than the 5 Executive's incapacity due to physical or mental illness; (ii) the acceptance by Executive of a position with another employer which conflicts with his duties as an employee of the Corporation without the consent of the Board; (iii) the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; (iv) a willful material breach of an established written policy or procedure of the Corporation; (v) Executive's conviction for a crime involving moral turpitude; or (vi) the breach of Executive's Agreement set forth in Section 11.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. (c) GOOD REASON - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 6.2 above), specified in the Notice of Termination: (i) the terms of this Agreement are materially 6 adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; (ii) the failure of the Corporation to obtain a satisfactory agreement, required in Section 8 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); (iii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 6 above; for purposes of this Agreement, no such purported termination shall be effective; or (iv) Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board or their agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the Board which demand specifically identifies the manner in which Executive believes that such Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his day-to-day duties); provided, however, that appropriate involvement of Board members in regular reviews of those items which have, consistent with the Corporation's past practices, been normally within the purview of the Board's responsibilities shall not be taken into account by Executive in making his determination under this Agreement. (v) Relocation of the Executive's place of employment to a location outside New York City without the concurrence of Executive. 7 Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute waiver of Executive's rights under this Paragraph (c) nor constitute consent to any act or omission by the Corporation constituting Good Reason. (d) CHANGE-IN-CONTROL - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: (i) the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or (ii) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 8 14A promulgated under the Exchange Act); or (iii) Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 7.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid salary plus all amounts or benefits payable or due to him (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which the Disability occurs) under the Corporation's compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs; provided that such terms shall not be less advantageous to Executive than the terms in effect as of the date hereof. 9 7.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: (a) The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's full base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which the Executive's death occurs). (b) After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs. 7.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year the Retirement Termination or Resignation occurs) and benefit plans and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms. 7.5 If Executive's employment shall be terminated by the Corporation for Cause, then Executive shall be entitled to the following benefits: 10 (a) The Corporation shall pay Executive, Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. (b) Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs only to the extent required by the terms of such plans, or to the extent required by Federal or state law. 7.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 7.7 below ("Section 7.7 Good Reason") then Executive shall be entitled to the following benefits: (a) The Corporation shall pay Executive, as soon as practicable following the date of termination a sum equal to Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated). (b) The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to the sum of Executive's full base salary plus the highest annual bonus received by the Executive or by any individual serving as Chairman and CEO of the Corporation during any of the three previous years multiplied by the higher of three (3) or the number of years (including fractions thereof) remaining under the Contract Period. (c) At Executive's option and as soon as practicable after 11 his request, the Corporation shall pay to Executive, a sum of money equal to the value of Executive's accrued balance of the BE Plan. (d) For the longer of three years from the Date of Termination or until the end of the Contract Period the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, for such period of time Executive shall, subject to Section 7.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to, the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. 7.7 If Executive's employment by the Corporation shall be terminated by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the benefits provided below. (a) The Corporation shall pay Executive his full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit 12 or compensation plan of the Corporation (including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated). (b) In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive as severance pay a lump sum equal to five times (5x) the sum of Executive's full base salary for one calendar year at the rate in effect immediately prior to the time Notice of Termination is given plus the highest annual bonus received by the Executive or any individual serving as Chairman and CEO of the Corporation during any of the three preceding calendar years. (c) In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. (d) At Executive's option and as soon as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. (e) For five years from the Date of Termination the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally , Executive shall, subject to Section 7.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but 13 not limited to, the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. 7.8 In addition to the benefits set forth in Sections 7.6 and 7.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 7.7 Good Reason, or (3) by Executive for Section 7.7 Good Reason then: (a) The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. (b) In the event that Executive becomes entitled to payments under the provisions of either Section 7.6 or 7.7 (the "Severance Payments"), if Executive will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the 14 Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (i) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance Payments and (ii) any additional federal, state and local income tax and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a Change-in-Control of the Corporation or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-in-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Severance Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i) above), (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred 15 payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (c) The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes; provided, however, that if the amounts of such payments cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, 16 of the minimum amount of such payments and shall pay the remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 7.9 Executive shall be required immediately after the Date of Termination to take reasonable steps to seek appropriate employment elsewhere; provided, however, that if Executive obtains employment that would result in a violation of the noncompetition provisions of Section 11 of this Agreement and if Executive is unable to accept such employment because the Corporation will not release Executive from Executive's noncompetition obligation, Executive shall nevertheless be deemed to have satisfied the requirement of this Section to seek other employment. Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis (or would have been reemployed but for the noncompetition provisions of Section 11 of this Agreement) benefits otherwise receivable by Executive pursuant to Subsections 7.6(d) or 7.7(e) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere, where the duties, status, responsibilities, compensation and benefits are not at least equal to that of his current position. 8. SUCCESSORS; BINDING AGREEMENT The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to expressly assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the 17 effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 9. NOTICE For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at Two Sutton Place South, Apt. 5D, New York, New York 10022, and to the Corporation at 430 Park Avenue, New York, New York 10022 to the attention of the Board with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 10. MODIFICATION; WAIVER No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 11. NONCOMPETITION 11.1 Until the Date of Termination, Executive agrees not to enter into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three 18 percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for ten percent (10%) or more of the Corporation's gross revenues or earnings before taxes or derives ten percent (10%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 11.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 6.1(b) hereof. 11.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to Sections 7.6(b) and 7.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which directly and substantially competes with a business of the Corporation accounting for ten percent (10%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 11. Also, during the Non- Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose such information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 19 11.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 11 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 14 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 12. VALIDITY The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 13. COUNTERPARTS This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 14. ARBITRATION Except as contemplated by Section 11.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York, or other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 15. GOVERNING LAW 20 This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. 16. ENTIRE AGREEMENT; SURVIVAL OF CERTAIN PROVISIONS This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not expressly set forth in this Agreement. The Employment Agreement dated July 1, 1991 between the Corporation and the Executive is hereby canceled and superseded by this Agreement. The obligations of the Corporation under Section 7 above and the Executive's obligations under Section 11 above shall survive the expiration of the term of this Agreement. 17. WITHHOLDING Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COLTEC INDUSTRIES INC By Laurence H. Polsky -------------------- /S/ John W. Guffey, Jr. ----------------------- JOHN W. GUFFEY, JR. EX-10.9 5 EX-10.9 EXHIBIT 10.9 EMPLOYMENT AGREEMENT Agreement dated June 1, 1995, between ______________ (the "Executive") and COLTEC INDUSTRIES INC, a Pennsylvania corporation (the "Corporation"). WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. EMPLOYMENT TERM The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement, for a period of four years commencing on the date hereof and terminating on the fourth anniversary of the date hereof (the "Contract Period"). The Contract Period shall be subject to earlier termination in accordance with the provisions set forth in Section 5 below. 2. DUTIES 2.1 The Executive shall serve, subject to the supervision and control of the Corporation's Chief Executive Officer, as Executive Vice President, Administration of the Corporation with the responsibilities and authority, and status and perquisites which have consistent with past practice, been delegated or granted by the Corporation to an employee holding such position(s) or which are customarily delegated or granted by similarly situated corporations to an employee holding these position(s). If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such position(s). Executive shall also perform any additional lawful services and assume any reasonable additional responsibilities, not inconsistent with his position, as shall from time to time be assigned to him by the Board of Directors of the Corporation (the "Board") or the Chief Executive Officer. 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity or, subject to approval by the Board, as (ii) a director of any corporation which is not a competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at the Company's headquarters at 430 Park Avenue, New York, New York, or at such other office or location within the continental United States as the Board may, from time to time, deem appropriate after consultation with Executive, except for travel reasonably required in the performance of Executive's responsibilities. 3. COMPENSATION AND BENEFITS Throughout the term hereof, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual salary which is not less than his annual salary on the date of this Agreement and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent 2 determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 1994 Long-Term Incentive Plan of Coltec Industries Inc and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the "Incentive Compensation Plans"), provided, however, that the Executive's participation in all incentive compensation plans shall be at a level customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the date of this Agreement. Any payment to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, Benefits Equalization Plan (the "BE Plan") and Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for the Corporation's executives. 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities delegated in Section 2.1 above, provided that the Executive properly accounts for such expenses in 3 accordance with the Corporation's established policies and the requirements of the Internal Revenue Code of 1986, as amended. 4. INDEMNIFICATION The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law in respect of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. TERMINATION OF EMPLOYMENT The Contract Period shall terminate prior to its term on the Date of Termination as defined in Sections 5.2 or 5.3 below following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination as defined in Section 5.1 below. 5.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 8 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 5.2 "Date of Termination" shall mean: (a) thirty (30) days after Notice of Termination is given for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; (b) the date of death in the event of Executive's death; 4 (c) at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given for termination of employment for Good Reason in respect of a termination covered by Sections 6.6 or 6.7 below; (d) at least fifteen days (15) after Notice of Termination is given for termination of employment for Cause; (e) at least fifteen days (15) after Notice of Termination is given for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or (f) the date specified in the Notice of Termination for termination of employment for any other reason. 5.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the receipt by the Corporation of a Notice of Termination for Early Retirement as provided in Paragraph 5.2(e) above ("Retirement Termination"). 6. COMPENSATION UPON TERMINATION OR DURING DISABILITY 6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: (a) DISABILITY - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". (b) CAUSE - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon: (i) the prolonged or repeated absence from duty without the consent of the Board for reasons other than the Executive's incapacity due to physical or mental illness; 5 (ii) the acceptance by Executive of a position with another employer which conflicts with his duties as an employee of the Corporation without the consent of the Board; (iii) the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; (iv) a willful material breach of an established written policy or procedure of the Corporation; (v) Executive's conviction for a crime involving moral turpitude; or (vi) the breach of Executive's Agreement set forth in Section 10.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. (c) GOOD REASON - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 5.2 above), specified in the Notice of Termination: (i) the terms of this Agreement are materially adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; 6 (ii) the failure of the Corporation to obtain a satisfactory agreement, required in Section 8 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); (iii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 5 above; for purposes of this Agreement, no such purported termination shall be effective; or (iv) Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board or their agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the Chief Executive Officer and to the Board which demand specifically identifies the manner in which Executive believes that such Chief Executive Officer or Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his day-to-day duties); provided, however, that appropriate involvement of the Chief Executive Officer or the Board members in regular reviews of those items which have, consistent with the Corporation's past practices, been normally within the purview of the Chief Executive Officer or Board's responsibilities as well as any bona fide business disagreements between the Executive and the Corporation shall not be taken into account by Executive in making his determination under this Agreement. (v) Relocation of the Executive's place of employment to a location outside the continental United States or relocation of the Executive's place of employment within the continental United States 7 without reimbursing Executive his cost of relocation at a level at least as favorable as that provided under the Corporation's policy and practice in effect on the date of this Agreement. Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute waiver of Executive's rights under this Paragraph (c) nor constitute consent to any act or omission by the Corporation constituting Good Reason. (d) CHANGE-IN-CONTROL - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: (i) the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or (ii) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or 8 threatened election contest relating to the election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 6.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid salary plus all amounts or benefits payable or due to him (including a pro rata share under Incentive Compensation Plans earned during the year in which the Disability occurs) under the Corporation's compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) in accordance with the terms 9 of such plans and programs; provided that such terms shall not be less advantageous to Executive than the terms in effect as of the date hereof. 6.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: (a) The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's full base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which Employee's death occurs. (b) After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs including, but not limited to, the 1992 Stock Option and Incentive Plan, in accordance with the terms of such plans and programs. 6.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to a pro rata share under Incentive Compensation Plans earned during the year the Retirement Termination or Resignation occurs) and benefit plans and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms. 10 6.5 If Executive's employment shall be terminated by the Corporation for Cause, then Executive shall be entitled to the following benefits: (a) The Corporation shall pay Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. (b) Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs, only to the extent required by the terms of such plans, or only to the extent required by Federal or state law. 6.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then Executive shall be entitled to the following benefits: (a) The Corporation shall pay Executive, as soon as practicable following the Date of Termination a sum equal to Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated). (b) The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to the sum of Executive's full base salary plus the highest annual bonus received by the Executive or by any individual serving as Executive Vice President, Administration of the Corporation during any of the three previous years multiplied by the higher of 11 two (2) or the number of years (including fractions thereof) remaining under the Contract Period. (c) At Executive's option and as soon as practicable after his request, the Corporation shall pay to Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. (d) For the longer of two years from the Date of Termination or until the end of the Contract Period the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, for such period of time Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. 6.7 If Executive's employment by the Corporation shall be terminated by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the benefits provided below. 12 (a) The Corporation shall pay Executive his full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated). (b) In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive as severance pay a lump sum equal to four times (4x) the sum of Executive's full base salary for one calendar year at the rate in effect immediately prior to the time Notice of Termination is given plus the highest annual bonus received by the Executive or any individual serving as Executive Vice President, Administration of the Corporation during any of the three preceding calendar years. (c) In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. (d) At Executive's option and as soon as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. (e) For four years from the Date of Termination the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company 13 Perquisites. Additionally, Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. 6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good Reason then: (a) The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. 14 (b) In the event that Executive becomes entitled to payments under the provisions of either Section 6.6 or 6.7 (the "Severance Payments"), if Executive will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (i) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance Payments and (ii) any additional federal, state and local income tax and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a Change-in-Control of the Corporation or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-in-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Severance Payments or (B) the amount of excess parachute payments within the meaning of 15 Section 280G(b)(1) (after applying clause (i) above), (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (c) The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes; 16 provided, however, that if the amounts of such payments cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 6.9 Executive shall be required immediately after the Date of Termination to take reasonable steps to seek appropriate employment elsewhere; provided, however, that if Executive obtains employment that would result in a violation of the noncompetition provisions of Section 10 of this Agreement and if Executive is unable to accept such employment because the Corporation will not release Executive from Executive's noncompetition obligation, Executive shall nevertheless be deemed to have satisfied the requirement of this Section to seek other employment. Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis (or would have been reemployed but for the noncompetition provisions of Section 10 of this Agreement) benefits otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere, where the duties, status, responsibilities, compensation and benefits are not at least equal to that of his current position. 7. SUCCESSORS; BINDING AGREEMENT The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to expressly assume and agree to perform this 17 Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 8. NOTICE For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at 150 East 69th Street, Apt. 3C, New York, New York 10021, and to the Corporation at 430 Park Avenue, New York, New York 10022 to the attention of the Board with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 9. MODIFICATION; WAIVER No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 10. NONCOMPETITION 10.1 Until the Date of Termination, Executive agrees not to enter 18 into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for ten percent (10%) or more of the Corporation's gross revenues or earnings before taxes or derives ten percent (10%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 10.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 5.1(b) hereof. 10.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to Sections 6.6(b) and 6.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which directly and substantially competes with a business of the Corporation accounting for ten percent (10%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 10. Also, during the Non-Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose 19 such information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 10.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 13 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 11. VALIDITY The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. COUNTERPARTS This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. ARBITRATION Except as contemplated by Section 10.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York, or other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such 20 award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 14. GOVERNING LAW This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. 15. ENTIRE AGREEMENT; SURVIVAL OF CERTAIN PROVISIONS This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not expressly set forth in this Agreement. The Employment Agreement dated July 1, 1991 between the Corporation and the Executive is hereby canceled and superseded by this Agreement. The obligations of the Corporation under Section 6 above and the Executive's obligations under Section 10 above shall survive the expiration of the term of this Agreement. 16. WITHHOLDING Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COLTEC INDUSTRIES INC By ------------------- --------------------- EXECUTIVE 21 EX-10.10 6 EX-10.10 EXHIBIT 10.10 EMPLOYMENT AGREEMENT Agreement dated June 1, 1995, between _____________ (the "Executive") and COLTEC INDUSTRIES INC, a Pennsylvania corporation (the "Corporation"). WHEREAS, the Executive and the Corporation desire to set forth the terms and conditions upon which the Executive shall be employed by the Corporation. NOW, THEREFORE, in consideration of the foregoing and the mutual promises herein contained, the parties agree as follows: 1. EMPLOYMENT TERM The Corporation agrees to employ the Executive and the Executive agrees to be employed by the Corporation, upon the terms and conditions contained in this Agreement, for a period of three years commencing on the date hereof and terminating on the third anniversary of the date hereof (the "Contract Period"). The Contract Period shall be subject to earlier termination in accordance with the provisions set forth in Section 5 below. 2. DUTIES 2.1 The Executive shall serve, subject to the supervision and control of the Corporation's Chief Executive Officer, as Senior Vice President, Aerospace of the Corporation with the responsibilities and authority, and status and perquisites which have consistent with past practice, been delegated or granted by the Corporation to an employee holding such position(s) or which are customarily delegated or granted by similarly situated corporations to an employee holding these position(s). If Executive is appointed to additional offices by the Corporation during the Contract Period, the Executive shall have the responsibilities and authority, and status and perquisites consistent with the past practices of the Corporation or which are customarily delegated or granted by similarly situated corporations to an employee holding such position(s). Executive shall also perform any additional lawful services and assume any reasonable additional responsibilities, not inconsistent with his position, as shall from time to time be assigned to him by the Board of Directors of the Corporation (the "Board") or the Chief Executive Officer. 2.2 Executive agrees that during the Contract Period, he shall devote substantially all of his full working time and attention and give his best effort, skill and abilities exclusively to the business and interests of the Corporation; provided, however, that the foregoing shall not be construed to prohibit Executive's service as a (i) director or officer of any trade association, civic, educational or charitable organization or governmental entity or, subject to approval by the Board, as (ii) a director of any corporation which is not a competitor of the Corporation, provided that such service by Executive does not materially interfere with the performance by Executive of the responsibilities delegated under Section 2.1 above. 2.3 Executive shall carry out all responsibilities delegated in Section 2.1 above at the Company's headquarters at 430 Park Avenue, New York, New York, or at such other office or location within the continental United States as the Board may, from time to time, deem appropriate after consultation with Executive, except for travel reasonably required in the performance of Executive's responsibilities. 3. COMPENSATION AND BENEFITS Throughout the term hereof, unless otherwise specifically provided elsewhere herein: 3.1 Executive shall receive an annual salary which is not less than his annual salary on the date of this Agreement and shall have the opportunity for periodic increases in accordance with the Corporation's regular practices. 3.2 Executive shall be entitled to participate, to the extent determined by the Board, in all currently existing and future incentive compensation plans of the Corporation including, but not limited to: the Annual Incentive Plan for Certain Employees of Coltec Industries Inc and Its Subsidiaries, the 2 1994 Long-Term Incentive Plan of Coltec Industries Inc and the Coltec Industries Inc 1992 Stock Option and Incentive Plan (the "Incentive Compensation Plans"), provided, however, that the Executive's participation in all incentive compensation plans shall be at a level customarily approved by the Board for an employee with Executive's responsibilities and shall not in any case be less than Executive's level of participation in such plans on the date of this Agreement. Any payment to Executive under an Incentive Compensation Plan shall be calculated and made in accordance with the provisions of the respective plan, except as elsewhere provided for in this Agreement. 3.3 Executive shall be entitled to receive all employee benefits, fringe benefits and perquisites (including but not limited to the use of company cars, club memberships and financial planning services ("Company Perquisites")) customarily made available to an employee with Executive's responsibilities, and Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs including, and not limited to, the Retirement Savings Plan, the Retirement Program, Benefits Equalization Plan (the "BE Plan") and Family Protection Plan as well as any other applicable Corporation benefit plans and programs maintained currently upon terms and at levels no less favorable than now exist or that shall be established or maintained in the future for employees generally or for the Corporation's executives. 3.4 Executive shall be entitled to annual vacation and holidays in accordance with the Corporation's established practice for its employees. 3.5 The Executive shall be entitled to receive reimbursement for all reasonable out-of-pocket expenses incurred in performing his responsibilities delegated in Section 2.1 above, provided that the Executive properly accounts for such expenses in accordance with the Corporation's established policies and the requirements of the Internal Revenue Code of 1986, as amended. 3 4. INDEMNIFICATION The Executive shall be entitled to indemnification by the Corporation to the fullest extent permitted by law in respect of any actions or omissions which Executive has taken or has failed to take as an employee, officer or director of the Corporation while carrying out the responsibilities delegated under Section 2.1 above. 5. TERMINATION OF EMPLOYMENT The Contract Period shall terminate prior to its term on the Date of Termination as defined in Sections 5.2 or 5.3 below following receipt by the Executive or the Corporation, as the case may be, of a Notice of Termination as defined in Section 5.1 below. 5.1 "Notice of Termination" shall mean any purported termination of Executive's employment by the Corporation or by Executive which shall be communicated by written notice to the other party hereto in accordance with Section 8 of this Agreement, and which shall (1) indicate the specific termination provision in this Agreement relied upon, (2) set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated, and (3) set forth the date on which the Executive's employment with the Corporation shall terminate. 5.2 "Date of Termination" shall mean: (a) thirty (30) days after Notice of Termination is given for termination of employment due to Disability; provided that Executive shall not have returned to the full-time performance of his duties during such thirty (30) day period; (b) the date of death in the event of Executive's death; (c) at least thirty days (30) but not more than sixty (60) days after Notice of Termination is given for termination of employment for Good Reason in respect of a termination 4 covered by Sections 6.6 or 6.7 below; (d) at least fifteen days (15) after Notice of Termination is given for termination of employment for Cause; (e) at least fifteen days (15) after Notice of Termination is given for retirement after the age of 55 years but before the age of 65 years to the extent such retirement is permitted under the Retirement Savings Plan, the Retirement Program or the BE Plan ("Early Retirement"); or (f) the date specified in the Notice of Termination for termination of employment for any other reason. 5.3 This Agreement shall automatically terminate upon the earlier of Executive's 65th birthday or the receipt by the Corporation of a Notice of Termination for Early Retirement as provided in Paragraph 5.2(e) above ("Retirement Termination"). 6. COMPENSATION UPON TERMINATION OR DURING DISABILITY 6.1 For purposes of this Agreement, "Disability", "Cause", "Good Reason" and "Change-in-Control" shall have the meanings set forth below: (a) DISABILITY - If, as a result of Executive's incapacity due to physical or mental illness, Executive shall have become eligible for benefits under the applicable long-term disability plan or policy of the Corporation, Executive's employment may be terminated by the Corporation for "Disability". (b) CAUSE - Termination by the Corporation of Executive's employment for "Cause" shall mean termination upon: (i) the prolonged or repeated absence from duty without the consent of the Board for reasons other than the Executive's incapacity due to physical or mental illness; (ii) the acceptance by Executive of a position with another employer which conflicts with his duties as 5 an employee of the Corporation without the consent of the Board; (iii) the willful engaging by Executive in conduct relating to the Corporation which is demonstrably and materially injurious to the Corporation after a written demand for cessation of such conduct is delivered to Executive by the Board, which demand specifically identifies the manner in which the Board believes the Executive has engaged in such conduct and the injury to the Corporation; (iv) a willful material breach of an established written policy or procedure of the Corporation; (v) Executive's conviction for a crime involving moral turpitude; or (vi) the breach of Executive's Agreement set forth in Section 10.1 below. For purposes of this Paragraph, no act, or failure to act, on Executive's part shall be deemed "willful" unless knowingly done, or omitted to be done, by Executive not in good faith and without reasonable belief that Executive's action or omission was in the best interests of the Corporation. (c) GOOD REASON - Executive shall be entitled to terminate his employment for Good Reason. For purposes of this Agreement, "Good Reason" shall mean the occurrence, without Executive's express written consent, of any of the following circumstances unless such circumstances are fully corrected prior to the Date of Termination (as defined in Section 5.2 above), specified in the Notice of Termination: (i) the terms of this Agreement are materially adversely altered by action of the Corporation or the Corporation breaches in any material respect any of its agreements set forth herein; (ii) the failure of the Corporation to obtain a 6 satisfactory agreement, required in Section 8 below, from any successor to assume and perform this Agreement (a copy of the agreement evidencing such assumption shall be provided by the Corporation to Executive); (iii) any purported termination of Executive's employment which is not effected pursuant to a Notice of Termination satisfying the requirements set forth in Section 5 above; for purposes of this Agreement, no such purported termination shall be effective; or (iv) Executive makes a determination in good faith that the cumulative effect of actions by one or more of the members of the Board or their agents or associates constitutes harassment or unreasonable interference with the performance of Executive's day-to-day duties under this Agreement (after a written demand for cessation of such actions is delivered by Executive to the Chief Executive Officer and to the Board which demand specifically identifies the manner in which Executive believes that such Chief Executive Officer or Board members (or their agents or associates) have harassed Executive or unreasonably interfered with Executive's ability to perform his day-to-day duties); provided, however, that appropriate involvement of the Chief Executive Officer or the Board members in regular reviews of those items which have, consistent with the Corporation's past practices, been normally within the purview of the Chief Executive Officer or Board's responsibilities as well as any bona fide business disagreements between the Executive and the Corporation shall not be taken into account by Executive in making his determination under this Agreement. (v) Relocation of the Executive's place of employment to a location outside the continental United States or relocation of the Executive's place of employment within the continental United States without reimbursing Executive his cost of 7 relocation at a level at least as favorable as that provided under the Corporation's policy and practice in effect on the date of this Agreement. Executive's right to terminate his employment pursuant to this Paragraph shall not be affected by his incapacity due to physical illness. In addition, Executive's continued employment with the Corporation shall not constitute waiver of Executive's rights under this Paragraph (c) nor constitute consent to any act or omission by the Corporation constituting Good Reason. (d) CHANGE-IN-CONTROL - A Change-in-Control shall be deemed to occur as of the date on which any of the following occur: (i) the acquisition, other than from the Corporation, by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities and Exchange Act of 1934, as amended (the "Exchange Act") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20 percent or more of either the then outstanding shares of common stock of the Corporation or the combined voting power of the then outstanding voting securities of the Corporation entitled to vote generally in the election of directors; or (ii) Individuals who, as of the date of this Agreement, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board, provided that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Corporation's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual was a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office is in connection with an actual or threatened election contest relating to the 8 election of the directors of the Corporation (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act); or (iii) Approval by the shareholders of the Corporation of (1) a reorganization, merger or consolidation, in each case, with respect to which the individuals and entities who were the respective beneficial owners of the common stock and voting securities of the Corporation immediately prior to such reorganization, merger or consolidation do not, following such reorganization, merger or consolidation, beneficially own, directly or indirectly, more than 50 percent of, respectively, the then outstanding shares of common stock, and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such reorganization, merger or consolidation; (2) a complete liquidation or dissolution of the Corporation; or of (3) the sale or other disposition of all or substantially all of the assets of the Corporation. 6.2 During any period of Disability and until the earlier of the end of the Contract Period or Executive's death, Executive shall receive all accrued but unpaid salary plus all amounts or benefits payable or due to him (including a pro rata share under Incentive Compensation Plans earned during the year in which the Disability occurs) under the Corporation's compensation and benefit plans and programs in which Executive is participating at the commencement of any such period, plus an additional payment from the Corporation (if necessary) such that the aggregate amount received by Executive in the nature of salary continuation from all sources equals Executive's base salary at the rate in effect at the commencement of any such period. Thereafter, Executive shall be entitled to participate in all applicable group, life, Family Protection Plan, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) in accordance with the terms of such plans and programs; provided that such terms shall not 9 be less advantageous to Executive than the terms in effect as of the date hereof. 6.3 If Executive's employment shall be terminated by reason of Executive's death, the Executive shall be entitled to the benefits provided below: (a) The Corporation shall pay to Executive's estate as soon as practicable after the date of Executive's death, Executive's full base salary through the date of Executive's death, at the rate in effect at the time of Executive's death, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation including, but not limited to, a pro rata share under Incentive Compensation Plans earned during the year in which Employee's death occurs. (b) After Executive's death, Executive's beneficiaries shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs including, but not limited to, the 1992 Stock Option and Incentive Plan, in accordance with the terms of such plans and programs. 6.4 If Executive's employment shall be terminated as a result of a Retirement Termination or as a result of a voluntary resignation for other than Good Reason ("Resignation"), then Executive shall receive all accrued but unpaid salary plus all amounts payable to him under the Corporation's compensation (including, but not limited to a pro rata share under Incentive Compensation Plans earned during the year the Retirement Termination or Resignation occurs) and benefit plans and programs in which Executive is participating at the time the Retirement Termination or Resignation becomes effective. In the event of a Retirement Termination, Executive shall be entitled to participate in all retirement and other plans and programs effective on the Date of Termination to which he is eligible in accordance with their terms. 6.5 If Executive's employment shall be terminated by the 10 Corporation for Cause, then Executive shall be entitled to the following benefits: (a) The Corporation shall pay Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation, excluding any bonus, other incentive compensation and vacation pay, if any, otherwise payable to Executive pursuant to the terms of the applicable plan or program of the Corporation, at the time such payments are due. (b) Executive shall be entitled to participate in all applicable group, life, health, disability and accident insurance plans and programs, only to the extent required by the terms of such plans, or only to the extent required by Federal or state law. 6.6 If Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Good Reason as specified in Section 6.7 below ("Section 6.7 Good Reason") then Executive shall be entitled to the following benefits: (a) The Corporation shall pay Executive, as soon as practicable following the date of termination a sum equal to Executive's full base salary through the Date of Termination at the rate in effect at the time Notice of Termination is given plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated). (b) The Corporation shall pay Executive as soon as practicable following the Date of Termination an additional payment equal to the sum of Executive's full base salary plus the highest annual bonus received by the Executive or by any individual serving as Senior Vice President, Aerospace of the Corporation during any of the three previous years multiplied by the higher of one (1) or the number of years (including fractions thereof) 11 remaining under the Contract Period. (c) At Executive's option and as soon as practicable after his request, the Corporation shall pay to Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. (d) For the longer of one year from the Date of Termination or until the end of the Contract Period the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, for such period of time Executive shall, subject to Section 6.9, be allowed to participate in all applicable group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. 6.7 If Executive's employment by the Corporation shall be terminated by Executive for Good Reason where Executive has given Notice of Termination to the Corporation within two years from the occurrence of an event constituting a Change-of-Control, then Executive shall be entitled to the benefits provided below. (a) The Corporation shall pay Executive his full base salary 12 through the Date of Termination at the rate in effect at the time Notice of Termination is given, plus all other amounts to which Executive is entitled under any benefit or compensation plan of the Corporation (including but not limited to a pro rata share under Incentive Compensation Plans earned during the year in which employment is terminated). (b) In lieu of any further base salary payments to Executive for period subsequent to the Date of Termination, the Corporation shall pay to Executive as severance pay a lump sum equal to three times (3x) the sum of Executive's full base salary for one calendar year at the rate in effect immediately prior to the time Notice of Termination is given plus the highest annual bonus received by the Executive or any individual serving as Senior Vice President, Aerospace of the Corporation during any of the three preceding calendar years. (c) In lieu of any further participation by Executive in the Family Protection Plan, the Corporation shall transfer to Executive a fully paid up insurance policy or policies then insuring the life of the Executive pursuant to the terms of the Family Protection Plan, plus an amount of money (the "Tax Adjustment") calculated to reimburse Executive for any local, state or Federal income or other taxes which he may be liable as a result of receiving the insurance policy or policies and the Tax Adjustment amount. (d) At Executive's option and as soon as practicable after his request, the Corporation shall pay Executive a sum of money equal to the value of Executive's accrued balance of the BE Plan. (e) For three years from the Date of Termination the Corporation shall continue to make available to Executive all Company Perquisites, or, in the alternative, the Corporation shall pay to Executive as soon as practicable after the Date of Termination a sum of money reasonably approximating the cash value of the Company Perquisites. Additionally, Executive shall, subject to Section 6.9, be allowed to participate in all applicable 13 group, life, health, disability and accident insurance plans and programs as well as any other applicable Corporation benefit plans and programs (including, but not limited to the 1992 Stock Option and Incentive Plan) as if he were an active employee (limited, in the case of coverage under life insurance plans, to the level of coverage that the Corporation is able to obtain on Executive's behalf based upon the annual premium cost of providing Executive with life insurance during Executive's last twelve months of employment with the Corporation), in which Executive was participating 30 days prior to the time Notice of Termination is given or comparable plans substituted therefor; provided, however, that if Executive is ineligible (e.g., by operation of law or the terms of the applicable plan) to continue to participate in any such plan, the Corporation will provide Executive with a comparable level of compensation or benefit. 6.8 In addition to the benefits set forth in Sections 6.6 and 6.7, in the event that Executive's employment shall be terminated (1) by the Corporation for other than Cause, (2) by Executive for Good Reason other than Section 6.7 Good Reason, or (3) by Executive for Section 6.7 Good Reason then: (a) The Company shall also pay to Executive all reasonable legal fees and expenses incurred by Executive as a result of such termination (including all such fees and expenses, if any, incurred in contesting or disputing any such termination (including cost associated with legal consultation even if no actual contest or dispute results) or in seeking to obtain or enforce any right or benefit provided by this Agreement or in connection with any tax audit or proceeding to the extent attributable to the application of Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), to any payment or benefit provided hereunder), except any such fees or expenses incurred by Executive in seeking to enforce a claim which is determined by an arbitrator, pursuant to Section 14 below, to have been frivolous in nature or not brought or pursued in good faith. (b) In the event that Executive becomes entitled to payments 14 under the provisions of either Section 6.6 or 6.7 (the "Severance Payments"), if Executive will be subject to the tax (the "Excise Tax") imposed by Section 4999 of the Code, the Corporation shall pay to Executive at the time or times specified in Paragraph (h) below, an additional amount (the "Gross-Up Payment") such that the net amount retained by Executive, after deduction of (i) any additional Excise Tax payable by Executive as a result of Executive's receipt of the Severance Payments and (ii) any additional federal, state and local income tax and Excise tax payable by Executive as a result of Executive's receipt of the Gross-Up Payments shall be equal to the Severance Payments. For purposes of determining whether any of the Severance Payments will be subject to the Excise Tax and the amount of such Excise Tax, (i) the Severance Payments, payments provided for in this paragraph and any other payments or benefits received or to be received by Executive in connection with a Change-in-Control of the Corporation or Executive's termination of employment (whether pursuant to the terms of this Agreement or any other plan, arrangement or agreement with the Corporation, any person whose actions result in a Change-in-Control or any person affiliated with the Corporation or such person) shall be treated as "parachute payments" within the meaning of Section 280G(b)(2) of the Code, and all "excess parachute payments" within the meaning of Section 280G(b)(1) shall be treated as subject to the Excise Tax, unless and to the extent that in the opinion of tax counsel selected by the Corporation's independent auditors and acceptable to Executive, such other payments or benefits (in whole or in part) do not constitute parachute payments, or such excess parachute payments (in whole or in part) and represent reasonable compensation for services actually rendered within the meaning of Section 280G(b)(4) of the Code in excess of the base amount within the meaning of Section 280G(b)(3) of the Code, or are otherwise not subject to the Excise Tax, (ii) the amount of the Severance Payments which shall be treated as subject to the Excise Tax shall be equal to the lesser of (A) the total amount of the Severance Payments or (B) the amount of excess parachute payments within the meaning of Section 280G(b)(1) (after applying clause (i) above), 15 (iii) any payment pursuant to this Paragraph shall be treated as subject to the Excise Tax in its entirety and (iv) the value of any non-cash benefits or any deferred payment of benefit shall be determined by the Corporation's independent auditors in accordance with the principles of Sections 280G(d)(3) and (4) of the Code. For purposes of determining the amount of the Gross-Up Payment, Executive shall be deemed to pay federal income taxes at the highest marginal rate of federal income taxation in the calendar year in which the Gross-Up Payment is to be made and state and local income taxes at the highest marginal rate of taxation in the state and locality of Executive residence on the Date of Termination, not of the maximum reduction in federal income taxes which could be obtained from deduction of such state and local taxes. In the event that the Excise Tax is subsequently determined to be less than the amount taken into account hereunder at the time of termination of Executive's employment, Executive shall repay to the Corporation at the time that the amount of such reduction in Excise Tax is finally determined, the portion of the Gross-Up Payment attributable to such reduction (plus the portion of the Gross-Up Payment attributable to the Excise Tax and federal and state and local income tax imposed on the Gross-Up Payment being repaid by Executive) plus interest accrued from the date such Gross-Up Payment is made to Executive to the date of such repayment on the amount of such repayment at the rate provided in Section 1274(b)(2)(B) of the Code. In the event that the Excise Tax is determined to exceed the amount taken into account hereunder at the time of the termination of Executive's employment (including by reason of any payment the existence or amount of which cannot be determined at the time of the Gross-Up Payment), the Corporation shall make an additional gross-up payment in respect of such excess (plus any interest payable with respect to such excess) at the time that the amount of such excess is finally determined. (c) The payments provided for in Paragraph (b) above shall be made at any time during the 90-day period preceding each due date for making payment of such Excise Taxes; provided, however, that if the amounts of such payments 16 cannot be finally determined on or before each such date, the Corporation shall pay to Executive on such date an estimate, as determined in good faith by the Corporation, of the minimum amount of such payments and shall pay the remainder of such payments then due as soon as the amount thereof can be determined. In the event that the amount of the estimated payments exceeds the amount subsequently determined to have been due, such excess shall constitute a loan by the Corporation to Executive on the fifth day after demand by the Corporation (together with interest at the rate provided in Section 1274(b)(2)(B) of the Code). 6.9 Executive shall be required immediately after the Date of Termination to take reasonable steps to seek appropriate employment elsewhere; provided, however, that if Executive obtains employment that would result in a violation of the noncompetition provisions of Section 10 of this Agreement and if Executive is unable to accept such employment because the Corporation will not release Executive from Executive's noncompetition obligation, Executive shall nevertheless be deemed to have satisfied the requirement of this Section to seek other employment. Upon receipt of written notice from Executive that Executive has been reemployed by another company or entity on a full-time basis (or would have been reemployed but for the noncompetition provisions of Section 10 of this Agreement) benefits otherwise receivable by Executive pursuant to Subsections 6.6(d) or 6.7(e) shall be reduced to the extent comparable benefits are made available to Executive at his new employment and any such benefits actually received by Executive shall be reported to the Corporation. Nothing herein contained shall obligate Executive to accept employment elsewhere, where the duties, status, responsibilities, compensation and benefits are not at least equal to that of his current position. 7. SUCCESSORS; BINDING AGREEMENT The Corporation will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business and/or assets of the Corporation to expressly assume and agree to perform this 17 Agreement in the same manner and to the same extent that the Corporation would be required to perform it if no such succession had taken place. Failure of the Corporation to obtain such assumption and agreement prior to the effectiveness of any such succession shall be a breach of this Agreement and shall entitle Executive to terminate this Agreement for Good Reason. As used in this Agreement, "Corporation" shall mean the Corporation and any successor to its business and or assets as aforesaid which assumes and agrees to perform this Agreement by operation of law, or otherwise. 8. NOTICE For the purpose of this Agreement, notices and all other communications provided for in the Agreement shall be in writing and shall be deemed to have been duly given when delivered or mailed by United States registered mail, return receipt requested, postage prepaid, addressed to the Executive at 10 Westhaven Lane, White Plains, New York 10605, and to the Corporation at 430 Park Avenue, New York, New York 10022 to the attention of the Board with a copy to the Secretary of the Corporation or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt. 9. MODIFICATION; WAIVER No provision of this Agreement may be modified, waived or discharged unless such waiver, modification or discharge is agreed to in writing and signed by Executive and such officer of the Corporation as may be specifically designated by the Board. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. 10. NONCOMPETITION 10.1 Until the Date of Termination, Executive agrees not to enter 18 into competitive endeavors and not to undertake any commercial activity which is contrary to the best interests of the Corporation or its affiliates, including becoming an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of (a) any firm or person engaged in the operation of a business engaged in the acquisition of industrial businesses or (b) any firm or person which either directly competes with a line or lines of business of the Corporation accounting for ten percent (10%) or more of the Corporation's gross revenues or earnings before taxes or derives ten percent (10%) or more of such firm's or person's gross revenues or earnings before taxes from a line or lines of business which directly compete with the Corporation. Notwithstanding any provision of this Agreement to the contrary, Executive agrees that his breach of the provisions of this Section 10.1 shall permit the Corporation to terminate Executive's employment for Cause in accordance with Section 5.1(b) hereof. 10.2 After the Date of Termination and for a period of time equal in years to the multiple of annual salary received by Executive pursuant to Sections 6.6(b) and 6.7(b) (the "Non-Competition Period"), Executive agrees not to become an employee, owner (except for passive investments of not more than three percent of the outstanding shares of, or any other equity interest in, any company or entity listed or traded on a national securities exchange or in an over-the-counter securities market), officer, agent or director of any firm or person which directly and substantially competes with a business of the Corporation accounting for ten percent (10%) or more of the Corporation's gross revenues or earnings before taxes. During the Non-Competition Period, Executive will be available to answer questions and provide advice to the Corporation; provided, however, that such requirement shall not unreasonably interfere with any other of Executive's activities which Executive is then pursuing and which are not otherwise prohibited by this Section 10. Also, during the Non-Competition Period, Executive will retain in confidence any and all confidential information known to him concerning the Corporation and its business and shall not use or disclose 19 such information without the approval of the Corporation except to the extent such information becomes public or as may be required by law. 10.3 Executive acknowledges and agrees that damages for breach of the covenant not to compete in this Section 10 will be difficult to determine and will not afford a full and adequate remedy, and therefore Executive agrees that the Corporation, in addition to seeking actual damages pursuant to the procedures set forth in Section 13 below, may seek specific enforcement of the covenant not to compete in any court of competent jurisdiction, including, without limitation, by the issuance of a temporary or permanent injunction, without the necessity of a bond. Executive and the Corporation agree that the provisions of this covenant not to compete are reasonable. However, should any court or arbitrator determine that any provision of this covenant not to compete is unreasonable, either in period of time, geographical area, or otherwise, the parties agree that this covenant not to compete should be interpreted and enforced to the maximum extent which such court or arbitrator deems reasonable. 11. VALIDITY The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. COUNTERPARTS This Agreement may be executed in several counterparts, each of which shall be deemed to be an original but all of which together will constitute one and the same instrument. 13. ARBITRATION Except as contemplated by Section 10.3 of this Agreement, any dispute or controversy arising under or in connection with this Agreement shall be settled exclusively by arbitration in New York, New York, or other location mutually agreed upon by the parties to the arbitration, in accordance with rules of the American Arbitration Association, and judgment upon such 20 award rendered by the arbitrator may be entered in any court having jurisdiction over such proceeding. 14. GOVERNING LAW This Agreement shall be governed by and construed and enforced in accordance with the laws of the State of New York. 15. ENTIRE AGREEMENT; SURVIVAL OF CERTAIN PROVISIONS This Agreement constitutes the whole agreement of the Corporation and the Executive. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this Agreement have been made by either party which are not expressly set forth in this Agreement. The obligations of the Corporation under Section 6 above and the Executive's obligations under Section 10 above shall survive the expiration of the term of this Agreement. 16. WITHHOLDING Any payments made to Executive under this Agreement shall be paid net of any applicable withholding required under Federal, state or local law. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. COLTEC INDUSTRIES INC By _______________________ __________________________ EXECUTIVE 21 EX-10.17 7 EX-10.17 EXHIBIT 10.17 WHEREAS, the Corporation has previously adopted the 1994 Long-Term Incentive Plan of Coltec Industries Inc (the "Plan"); WHEREAS, the Plan is intended to meet the requirements of Section 162(m) of the Internal Revenue Code of 1986 (the "Code"), and was drafted to comply with the then outstanding provisions of proposed treasury Regulation 1.162-27 ("Proposed Regulation 1.162-27"); WHEREAS, the Proposed Regulation 1.162-27 has been amended and the Corporation now desires to amend the Plan to conform to the provisions of paragraph (e)(2)(i) of the amended Proposed Regulation 1.162-27; and WHEREAS, Section 11 of the Plan confers upon the Board the right to amend the Plan at any time in whole or in part; NOW, THEREFORE, BE IT RESOLVED, that, effective as of January 1, 1994, Section 6(a) of the Plan is amended by deleting the first sentence thereof and replacing it with the following: "The Committee shall grant Performance Units to eligible persons for a given Performance Cycle by no later than 90 days after the commencement of such Performance Cycle." RESOLVED, that each officer of the Corporation is hereby authorized, empowered and directed to take any such further action by and on behalf of the Corporation as such officer may deem necessary or advisable in order to effect the intent of the foregoing resolution. EX-10.20 8 EX-10.20 EXHIBIT 10.20 COLTEC INDUSTRIES INC DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS 1. PARTICIPANTS. Any director of Coltec Industries Inc (the "Company"), other than a director which is also a salaried officer or employee of the Company or any of its subsidiaries, may elect to become a participant ("Participant") under this Plan by written notice to the Company in substantially the form attached as Exhibit A hereto ("Notice"). 2. DEFERRED COMPENSATION. Following the date on which Notice is received by the Company, a Participant may defer all or part of his/her compensation as a director for services rendered during all calendar quarters subsequent to such date (the "Deferred Amount"). In the Notice, the Participant shall indicate whether the Deferred Amount shall be credited to (i) a Share Unit Account ("Share Account"), (ii) a Cash Account ("Cash Account"), or (iii) a combination of both. Any participant may increase, reduce, suspend or reallocate between accounts future deferments by submitting an amended Notice to the Company; provided that no such Participant may make any such change more than once during any twelve (12) month period. 3. SHARE ACCOUNTS. At the end of each calendar quarter a Participant's Share Account shall be credited with a number of units ("Share Units") equal to (i) the portion of the Deferred Amount for such quarter designated in such Notice to be credited to the Participant's Share Account divided by (ii) the closing price of the Company's Common Stock ("Stock") as reported on the New York Stock Exchange Transactions report ("NYSE") on the last trading business day immediately preceding the end of such calendar quarter. Whenever cash dividends are paid by the Company on outstanding Stock, there shall be credited to the Share Account additional Share Units equal to (i) the aggregate dividend that would be payable on a number of outstanding shares of Stock equal to the number of Share Units in the Share Account on the record date for the dividend divided by (ii) the closing price of the Company Stock as reported on the NYSE on the last trading business day immediately preceding the date of payment of the dividend. The number of Share Units credited to a Share Account shall be adjusted as appropriate in the event of any changes in the outstanding Company Stock by reason of any stock dividend, stock split, recapitalization, merger, consolidation, combination or exchange of stock or other similar corporate change. 4. CASH ACCOUNTS. At the end of each calendar quarter a Participant's Cash Account shall be credited with the portion of the Deferred Amount for such quarter designated in the Notice to be credited to the Participant's Cash Account. A Participant's Cash Account balance at the beginning of each calendar quarter shall be credited at the end of such quarter with interest for the quarter at an annual rate equal to the sum obtained by (i) adding together the yield on ninety (90)-day Treasury Bills in effect on the last day of each of the twelve (12) preceding calendar months and (ii) dividing by twelve (12). 5. NO ACCOUNT TRANSFER. A Participant may not transfer or convert a Share Account to a Cash Account or vice versa. 6. DISTRIBUTIONS. Upon an election to defer, a Participant shall select from the following options the method by which the Share Account and/or Cash Account balance(s) shall be paid: OPTION A. The balance(s) may be paid in one lump sum, payable on the first business day of the calendar year following the year during which the Participant ceases to be a director of the Company; or OPTION B. The balance(s) may be paid in up to ten (10) annual installments commencing on the first business day of the calendar year following the year during which the Participant ceases to be a director of the Company. All payments made pursuant to this Plan shall be made in cash. The Share Units credited to a Share Account shall be converted to cash in the manner described below and credited to a Cash Account on the following date ("Valuation Date"): 2 A. In the case of Option A, on the date of payment. B. In the case of Option B, on the date of the first such installment payment. The amount credited to the Cash Account upon such conversion shall equal (i) the Number of Share Units credited to the Share Account on the Valuation Date, multiplied by (ii) the average of the reporting closing prices of the Stock as reported on NYSE for the twenty (20) consecutive trading business days immediately preceding the Valuation Date. In the case of annual installments, the Cash Account shall continue to be credited with interest pursuant to Paragraph 4 above. By submitting an amended Notice to the Company, a Participant may amend the method by which distributions are made under this Paragraph 6 and Part III of the Notice; PROVIDED, HOWEVER, that such amendments may be made only with respect to future deferments. 7. FUNDING AND PARTICIPANTS' RIGHTS. This Plan shall be non-funded. The right of any Participant to receive a distribution hereunder shall be an unsecured claim against the general assets of the Company. 8. BENEFICIARY. A Participant may designate a beneficiary or beneficiaries to receive payments due under the Plan in the event of the Participant's death. Such designation must be in writing and be received by the Company prior to the Participant's death. The Participant's Share Account and/or Cash Account balance(s) shall be paid to the Participant's beneficiary or beneficiaries in a lump sum as soon as practicable after the Participant's death. Any Share Units credited to a Share Account shall be converted to cash and credited to a Cash Account in the manner described in Paragraph 6 above, in which case the Valuation Date shall be the date of the Participant's death. In the absence of an effective beneficiary designation, the Participant's Share Account and/or Cash Account balance(s) shall be paid to the Participant's estate. 9. ASSIGNMENT. Neither the Participant, the Participant's beneficiary, nor the Participant's estate shall have any right or power to transfer, assign, pledge, encumber or 3 otherwise dispose of any rights or any distributions payable hereunder and any such attempted assignment, transfer, pledge, or other conveyance shall not be recognized by the Company. 10. AMENDMENTS OF THE PLAN. The Board of Directors of the Company may amend the Plan at any time, without the consent of the Participants or their beneficiaries; provided, however, that no amendment shall divest any Participant of rights to which he/she would have been entitled if the Plan had been terminated on the effective date of such amendment. 11. TERMINATION OF PLAN. The Board of Directors of the Company may terminate the Plan at any time. Upon termination of the Plan, distributions in respect of credits to Participants' Cash Account and/or Share Accounts as of the date of termination shall be made in the manner and at the time chosen in the Notice with respect to distributions pursuant to Paragraph 6 hereof. 12. ADMINISTRATION AND EXPENSES. The Plan shall be administered by the Chief Executive Officer of the Company who shall be empowered to carry out the Plan and make interpretations of the Plan; provided that such interpretations shall not affect the obligations of the Company to pay Participants their Share Account and/or Cash Account balance(s). Costs of administration of the Plan will be paid by the Company. 4 EXHIBIT A NOTICE OF ELECTION TO DEFER FEES UNDER COLTEC INDUSTRIES INC DEFERRED COMPENSATION PLAN FOR NON-EMPLOYEE DIRECTORS ------------------------------------------------------ The undersigned, being a non-employee director of Coltec Industries Inc (the "Company"), hereby elects to participate in the Company's Deferred Compensation Plan for Non-Employee Directors (the "Deferred Compensation Plan") on the terms and conditions set forth in such Plan and pursuant to the specific instructions below: I. Percentage of Directors' Fees to be Deferred for services rendered during all calendar quarters subsequent to the date hereof. (Please list percentage of fees you wish to defer) A. Annual Retainer Fee ------------ B. Board and Committee Fee ------------ NOTE: The sum of fees deferred is hereinafter referred to as the "Deferred Amount". II. Percentage of Deferred Amount to be credited to Share Account and/or Cash Account. A. Share Account ------------- B. Cash Account ------------- III. Method by which Share Account and/or Cash Account Balance(s) shall be paid. (Please check one) A. . One lump-sum, payable on first business day of the ------------- calendar year following the year during which you cease to be a director of the Company. B. . In 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 (please circle ------------- ----------------------------- one number) annual installments commencing on the first business day of the calendar year following the year during which you cease to be a director of the Company. NOTE: You should review the Deferred Compensation Plan for information as to how and when Share Units held in the Share Account will be converted to cash and distributed. IV. Designation of Beneficiary under the Deferred Compensation Plan, if any. Name and Address of Beneficiary: --------------------------------- --------------------------------- --------------------------------- --------------------------------- Made and executed as of this day of , 19 . ---- --------- -- ------------------------------ Director EX-10.21 9 EX-10.21 EXHIBIT 10.21 WHEREAS, the Board of Directors of the Corporation deems it advisable to make certain provisions in the event that a change in control of the Corporation occurs; and WHEREAS, for purposes of the following resolutions, a change in control shall be deemed to have occurred if any partnership, corporation or any person, group or entity shall acquire beneficial ownership of a majority of the outstanding shares of capital stock of the Corporation entitled to vote together without regard to class for the election of directors ("Change in Control"); NOW, THEREFORE, BE IT RESOLVED, that if a Change in Control occurs, each director of the Corporation who is not an employee of the Corporation or a subsidiary thereof and who does not continue to serve as a director of the Corporation during any part of the two year period following such Change in Control for reasons other than voluntary resignation or voluntary choice not to stand for re-election: 1. Shall be paid a lump sum amount equal to five times the amount of the director's annual retainer being paid by the Corporation at the time he or she shall cease to be a director, to be paid within 90 days of ceasing membership as a director of the Corporation; 2. Shall have five years as a director added to his completed years as a director for purposes of calculating benefits to be paid pursuant to the pension arrangement for directors established by resolution of the Board of Directors on July 14, 1982, excluding any director who shall have a right to a pension provided by the Corporation or any subsidiary. EX-12.1 10 EX-12.1 EXHIBIT 12.1 COLTEC INDUSTRIES INC AND SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (IN THOUSANDS)
Year Ended December 31, --------------------------------------------------------------------- 1995 1994 1993 1992 1991 --------------------------------------------------------------------- Earnings from continuing operations before extraordinary item. . . . . . . . . . . . . $ 71,160 $ 93,989 $ 65,226 $ 64,683 $ 2,209 Add (deduct): Income taxes: Federal and foreign . . . . . . . . . . . 36,658 52,869 36,293 42,577 28,300 State and local . . . . . . . . . . . . . 3,611 4,931 1,877 1,886 1,538 Portion of rents representative of interest factor (1). . . . . . . . . . 3,334 3,369 4,078 4,283 4,268 Interest expense. . . . . . . . . . . . . . 91,208 90,337 111,497 137,797 201,954 --------------------------------------------------------------------- Earnings from continuing operations before extraordinary item, as adjusted . . . . . . . . . . . . . . . . $205,971 $245,495 $218,971 $251,226 $238,269 --------------------------------------------------------------------- --------------------------------------------------------------------- Fixed charges: Interest expense. . . . . . . . . . . . . . $ 91,208 $ 90,337 $111,497 $137,797 $201,954 Capitalized interest. . . . . . . . . . . . 997 689 1,140 1,196 955 Portion of rents representative of interest factor (1). . . . . . . . . . 3,334 3,369 4,078 4,283 4,268 --------------------------------------------------------------------- Fixed charges. . . . . . . . . . . . . . . . . $ 95,539 $ 94,395 $116,715 $143,276 $207,177 --------------------------------------------------------------------- --------------------------------------------------------------------- Ratio of earnings to fixed charges . . . . . . . . . . . . . . . 2.2 2.6 1.9 1.8 1.2 --------------------------------------------------------------------- ---------------------------------------------------------------------
- --------------- Note: (1) Estimated to be 1/3 of total rent expense. EX-13.1 11 EX-13.1 SELECTED FINANCIAL DATA Coltec Industries Inc 1995 Annual Report The following table sets forth selected financial data of Coltec for the five years ended December 31, 1995. The selected financial data, with the exception of order backlog and employee data, were derived from the financial statements of Coltec, certain of which statements have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report included elsewhere herein.
YEAR ENDED DECEMBER 31, (DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA) 1995 1994 1993 1992 1991 STATEMENT OF EARNINGS DATA: Sales $1,401.9 $1,326.8 $1,334.8 $1,368.7 $1,373.0 Operating income(a) 197.7 236.3 211.7 243.1 229.0 Earnings before interest, income taxes and extraordinary item 197.7 236.3 211.7 243.1 230.4 Interest and debt expense, net 89.9 89.5 110.2 135.8 199.9 Provision for income taxes 36.6 52.8 36.3 42.6 28.3 Earnings before extraordinary item(a) 71.2 94.0 65.2 64.7 2.2 Extraordinary item(b) (.3) (1.5) (17.8) (106.9) .6 Net earnings (loss) 70.9 92.5 47.4 (42.2) 2.8 Earnings (loss) per common share: Before extraordinary item 1.02 1.35 .94 1.11 .09 Extraordinary item -- (.02) (.26) (1.83) .02 Net earnings (loss) 1.02 1.33 .68 (.72) .11 Ratio of earnings to fixed charges(c) 2.2 2.6 1.9 1.8 1.2 BALANCE SHEET DATA (AT END OF PERIOD): Working capital 208.9 189.6 163.1 95.3 168.8 Total assets 894.5 847.5 796.5 817.9 823.2 Long-term debt (including current portion) 945.8 970.1 1,033.6 1,122.1 1,622.9 Shareholders' equity (453.8) (525.6) (625.5) (666.6) (1,194.5) OTHER OPERATING DATA: Operating margin(a) 14.1% 17.8% 15.9% 17.8% 16.7% Cash provided by operating activities 91.0 98.2 105.2 119.9 149.2 Capital expenditures 42.5 38.2 38.6 25.0 26.2 Depreciation of property, plant and equipment 32.5 31.1 33.2 35.3 36.9 Order backlog (at end of period) 727.7 668.8 669.7 709.1 808.8 Number of employees (at end of period) 9,600 9,800 10,000 10,700 11,400
(A) OPERATING INCOME FOR 1995 INCLUDED A SPECIAL CHARGE OF $27.0 MILLION PRIMARILY TO COVER THE COSTS OF CLOSING THE WALBAR COMPRESSOR BLADE FACILITY IN CANADA. IT IS ANTICIPATED THAT THIS FACILITY WILL BE CLOSED BY THE END OF 1996. THE CHARGE ALSO COVERED SELECTED REDUCTIONS IN WORK FORCE THROUGHOUT THE COMPANY. IF THE SPECIAL CHARGE WAS EXCLUDED, OPERATING INCOME, EARNINGS BEFORE EXTRAORDINARY ITEM AND THE OPERATING MARGIN WOULD HAVE BEEN $224.7 MILLION, $88.7 MILLION AND 16.0%, RESPECTIVELY, IN 1995. OPERATING INCOME FOR 1993 INCLUDED A SPECIAL CHARGE OF $25.2 MILLION TO COVER THE COST OF CONSOLIDATION AND REARRANGEMENT OF CERTAIN MANUFACTURING FACILITIES AND RELATED REDUCTIONS IN WORK FORCE, PRIMARILY IN THE AEROSPACE/GOVERNMENT SEGMENT, AS WELL AS AT CENTRAL MOLONEY TRANSFORMER DIVISION. IF THE SPECIAL CHARGE WAS EXCLUDED, OPERATING INCOME, EARNINGS BEFORE EXTRAORDINARY ITEM AND THE OPERATING MARGIN WOULD HAVE BEEN $236.9 MILLION, $80.5 MILLION AND 17.7%, RESPECTIVELY, IN 1993. CENTRAL MOLONEY WAS SOLD IN JANUARY 1994. (B) COLTEC RECOGNIZED EXTRAORDINARY CHARGES IN EACH OF THE FIVE YEARS ENDED DECEMBER 31, 1995, IN CONNECTION WITH DEBT REFINANCINGS AND EARLY RETIREMENT OF DEBT AND, IN 1992 IN CONNECTION WITH A RECAPITALIZATION. (C) FOR PURPOSES OF CALCULATING THE RATIO OF EARNINGS TO FIXED CHARGES, EARNINGS ARE DETERMINED BY ADDING FIXED CHARGES (EXCLUDING CAPITALIZED INTEREST) AND INCOME TAXES TO EARNINGS BEFORE EXTRAORDINARY ITEM. FIXED CHARGES CONSIST OF INTEREST EXPENSE, CAPITALIZED INTEREST AND THAT PORTION OF RENTAL EXPENSE DEEMED TO BE REPRESENTATIVE OF THE INTEREST FACTOR. 19 FINANCIAL REVIEW COLTEC INDUSTRIES INC 1995 ANNUAL-REPORT RESULTS OF OPERATIONS YEAR ENDED DECEMBER 31, 1995, COMPARED WITH YEAR ENDED DECEMBER 31, 1994 Earnings before extraordinary item for 1995 were $71.2 million, equal to $1.02 per common share, or $88.7 million and $1.27 per common share, excluding the $27.0 million special charge. This compared with earnings before extraordinary item of $94.0 million, or $1.35 per common share, in 1994. Sales were $1,401.9 million compared with $1,326.8 million in 1994. Operating income for 1995 was $197.7 million and the operating margin was 14.1%. However, excluding the special charge, operating income was $224.7 million and the operating margin was 16.0%. This compared with operating income of $236.3 million and an operating margin of 17.8% in 1994. The 1995 earnings decline was due to weakness in the Automotive segment which more than offset the improved performances in the Aerospace/Government and Industrial segments and the lower effective tax rate in 1995. The Aerospace/Government segment reported a 29% decline in operating income in 1995 on a 15% sales increase and an operating margin of 9.9% compared with 16.0% in 1994. Excluding the special charge, operating income improved 6% and the segment's operating margin was 14.7%. For 1995, operating income was $48.1 million, $71.5 million excluding the special charge, on sales of $486.5 million. This compared with operating income of $67.7 million on sales of $422.1 million in 1994. The segment benefited from increasing strength in the aerospace industry, as divisions serving this market reported increases of 9% in operating income, 12% in sales and 52% in order input. However, the segment's operating margin was impacted by continued start-up costs on the Alco engine product line and lower aftermarket sales to standby nuclear generator facilities at Fairbanks Morse Engine. The Automotive segment saw its sales and operating income slip 4% and 19%, respectively, from a very strong 1994, but still achieved a 19.0% operating margin. The 1994 margin of 22.4% was the second highest in the segment's history. Operating income for the Automotive segment was $92.8 million in 1995 on sales of $487.8 million compared with $114.2 million of operating income in 1994 on sales of $508.7 million. Operating results for the segment were affected by the adverse industry pricing environment and a decline in sales of vehicles that use Coltec components. The Industrial segment reported strong sales and operating income increases in 1995, with improvement coming from most of its businesses. The segment achieved a record 22.5% operating margin, compared with 22.2% in 1994, a 9% improvement in operating income and an 8% increase in sales. Segment operating income was $96.5 million and sales were $428.9 million, compared with operating income of $88.4 million and sales of $397.7 million in 1994. The higher operating results in the Industrial segment were driven by a strong domestic industrial economy and new product introductions. Sales and earnings gains were reported by Quincy Compressor, Garlock Bearings, Garlock Mechanical Packing, France Compressor Products, Garlock Valves & Industrial Plastics, Plastomer Products, Ortman Fluid Power, Haber Tool and Sterling Die. Following is a discussion of the results of operations for the year ended December 31, 1995, compared with the year ended December 31, 1994. SALES. For 1995, sales totaled $1,401.9 million or 6% higher than the $1,326.8 million in 1994. In the Aerospace/Government segment, sales increased to $486.5 million from $422.1 million in 1994 reflecting the strengthening conditions in the aerospace industry as well as higher engine shipments at Fairbanks Morse Engine. At Menasco, sales were higher on increased shipments of landing gear systems for the Boeing 777, Fokker 70 and 100, and McDonnell Douglas MD-80 aircraft; and flight controls for the Fokker 100 and Canadair RJ aircraft. In 1995, Menasco delivered 20 shipsets of landing gear systems for the Boeing 777 compared with 13 in 1994 and 3 in 1993. In addition, Menasco began deliveries in 1995 of landing gear for the McDonnell Douglas F-15 fighter. This business was acquired in June 1995 from AlliedSignal Inc ('AlliedSignal'). Fairbanks Morse Engine reported higher shipments of engines for the U.S. Navy Landing Ship Dock and Sealift programs and began deliveries in 1995 of Alco engines, a business acquired in 1994. Sales were higher at Delavan Gas Turbine Products on increased demand for fuel nozzles and overhaul services to regional airlines. At Walbar, sales were up on increased shipments of turbine blades and vanes for commercial aircraft engines, and components and assemblies for the locomotive turbocharger market. The sales improvement at Chandler Evans Control Systems was due to higher selling prices and to increased shipments of fuel pumps for the Taiwanese Fighter program and spare units to the foreign military market. Automotive segment sales declined to $487.8 million from $508.7 million in 1994, reflecting the adverse industry pricing environment and a decline in sales of vehicles that use Coltec components. At Holley Automotive, sales were down due to pricing concessions; lower demand for throttle bodies, transmission solenoids and manifold assemblies; and the continuing phaseout of the mechanical emission- control air pump. The division's sales decline was offset in part by higher sales of oil pumps and electric emission-control air pumps. Sales were lower for Stemco Truck Products' wheel lubrication systems to the truck and trailer aftermarket; and for Farnam 20 Sealing Systems' gaskets to original equipment manufacturers and the automotive aftermarket. Holley Performance Products reported higher sales in 1995 on increased consumer demand and market penetration for high-performance and remanufactured carburetors. Sales were up at Performance Friction Products on increased shipments of synchronizer kits to the truck aftermarket. For 1995, sales for the Industrial segment were $428.9 million compared with $397.7 million in 1994. The higher sales reflected the strength of the industrial sector of the U.S. economy, new product introductions and improved market conditions in Europe. Quincy Compressor reported record sales in 1995 on strong demand for rotary screw air compressors and on the increased level of compressor parts and accessories business. At Garlock Mechanical Packing, sales were higher on improved pricing and increased demand in the U.S. market for KLOZURE oil seals, cut gaskets and GYLON gasketing products. Also contributing to the division's sales improvement was higher international sales. In December 1995, Garlock Mechanical Packing acquired certain assets of Furon Company's ('Furon') metallic gasket business. This business manufactures gaskets for high- temperature applications, primarily as replacement components in the chemical processing industry. Garlock Bearings reported record sales in 1995 on the continued development of new applications for its DU bearings and on strong demand for both DU and DX bearings from the automotive and truck markets. Sales were higher at Haber Tool due mainly to increased demand from the automotive market and at Plastomer Products on increased shipments of PTFE insulating tape to the aerospace market. The higher sales at France Compressor Products and Garlock Valves & Industrial Plastics reflected improved conditions in both the U.S. and European economies. COST OF SALES. Cost of sales increased 10% in 1995 and, as a percent of sales, increased to 69.9% from 67.2% in 1994. This increase reflected the higher sales volume in the Aerospace/Government and Industrial segments, and higher than expected start-up costs on the Alco engine product line at Fairbanks Morse Engine. Also contributing to the increase were higher material cost and depreciation expense, increased spending to develop new products and competitive pressures limiting price increases. These adverse cost factors were offset in part by manufacturing efficiencies and other savings achieved as part of Coltec's cost-reduction efforts. SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense, including other income and expense, was level in 1995 compared with 1994, but as a percent of sales, selling and administrative expense declined to 14.1% from 15.0% in 1994. Coltec's continued emphasis on controlling costs kept these expenses comparable to prior year levels. SPECIAL CHARGE. In the third quarter of 1995, Coltec recorded a special charge of $27.0 million, primarily to cover the costs of closing the Walbar compressor blade facility in Canada. It is anticipated that this facility will be closed by the end of 1996. The charge also covered selected reductions in work force throughout Coltec covering approximately 520 employees, all of whom have been terminated or notified of their termination at December 31, 1995. The special charge includes $9.1 million for the cancellation of contractual obligations resulting from the decision to close the Walbar facility, $7.8 million for asset writedowns, $5.1 million for severance and employee-related costs and $5.0 million for other costs necessary to implement the shutdown of the Walbar facility and other actions. Charges of $8.9 million were recorded against this reserve in 1995. INTEREST AND DEBT EXPENSE. The $.4 million increase in interest and debt expense in 1995 was due to higher interest rates offset in part by repayment of long- term debt. PROVISION FOR INCOME TAXES. The effective income tax rate for 1995 was 34% compared with 36% in 1994. The lower effective tax rate for 1995 was due to the adjustment of reserves and the utilization of tax credits. EXTRAORDINARY ITEM. In 1995, Coltec incurred extraordinary charges of $.3 million in connection with the early retirement of debt. YEAR ENDED DECEMBER 31, 1994, COMPARED WITH YEAR ENDED DECEMBER 31, 1993 For 1994, earnings before extraordinary item were $94.0 million compared with $65.2 million in 1993; and earnings per share before extraordinary item were $1.35 per common share compared with 94 cents per common share in 1993. Excluding a special charge of $25.2 million, earnings before extraordinary item in 1993 were $80.5 million, equal to $1.16 per common share. The higher 1994 earnings were due to a significant reduction in interest expense which resulted from refinancing bank debt in January 1994, as well as to strong performances by the Automotive and Industrial segments. Sales of $1,326.8 million were slightly less than the $1,334.8 million in 1993. However, excluding the sales of the Central Moloney Transformer Division, sales were up 4% from $1,270.6 million last year. Operating income was $236.3 million and the operating margin was 17.8% in 1994 compared with operating income of $211.7 million and an operating margin of 15.9% in 1993. Excluding the $25.2 million special charge and Central Moloney Transformer, operating income was $238.0 million and the operating margin was 18.7% in 1993. Central Moloney Transformer was sold in January 1994 at a price approximating book value. 21 Aerospace/Government segment operating income was level compared with 1993 on a 7% decline in sales, and the operating margin was 16.0% compared with 15.0% in 1993. Excluding the special charge, operating income was down 21% and the 1993 operating margin was 18.9%. Operating income for the Aerospace/ Government segment was $67.7 million on sales of $422.1 million, compared with operating income of $67.8 million, $85.5 million excluding the special charge, on sales of $453.3 million in 1993. The Aerospace/Government segment continued to be affected in 1994 by the difficult market conditions in the aerospace industry, reflecting fewer deliveries of commercial aircraft and the downward trend in military spending. Also contributing to the lower segment results were a gap in shipments for U.S. Navy programs at the Fairbanks Morse Engine and production inefficiencies at Walbar. In the Automotive segment, operating income improved 12% on a 14% sales increase and the operating margin was 22.4% compared with 23.0% in 1993. Excluding the special charge, operating income improved 8% and the operating margin was 23.8% in 1993. Operating income and sales for the Automotive segment were $114.2 million and $508.7 million, respectively, in 1994. This compared with operating income of $102.4 million, $106.2 million excluding the special charge, and sales of $445.7 million in 1993. The operating results for the Automotive segment benefited from a strong automotive industry and from increased applications for segment components. The Industrial segment reported a 16% improvement in operating income and a 22.2% operating margin in 1994, compared with 17.4% in 1993. Sales for the Industrial segment declined 9%, in 1994; however, excluding the special charge and Central Moloney Transformer, sales were up 5%; operating income improved 9%, and the operating margin was 22.4% compared with 21.7% in 1993. Segment operating income was $88.4 million, and sales were $397.7 million compared with operating income of $75.9 million and sales of $436.7 million in 1993. Excluding the special charge and Central Moloney Transformer, operating income and sales were $80.7 million and $372.5 million, respectively, in 1993. Following is a discussion of the results of operations for the year ended December 31, 1994, compared with the year ended December 31, 1993. SALES. Sales of $1,326.8 million were slightly less than the $1,334.8 million in 1993 but 4% higher after excluding Central Moloney Transformer. Sales in the Aerospace/Government segment were $422.1 million compared with $453.3 million in 1993. The sales decline reflected the continued general weakness in the aerospace industry and lower military sales. Sales at Menasco were down in 1994 due to lower shipments of flight controls for the Fokker 100 aircraft and landing gear systems for the Boeing 757 and 767 aircraft. Sales of landing gear systems in total were slightly higher in 1994 reflecting shipments on new programs for the Boeing 777 aircraft and the Fokker 70 and 100 aircraft. Sales were lower at Fairbanks Morse Engine due to a gap in shipments for U.S. Navy programs. Sales were down at Chandler Evans Control Systems due to lower demand for fuel controls from both commercial and military markets; and at Walbar, due to lower shipments of blades and rotating parts for gas turbine engines to aircraft engine manufacturers. The sales decline at Walbar was offset in part by strong demand for repair and coating services for gas turbine engine components. Delavan Gas Turbine Products reported lower sales in 1994 on continued reductions in defense spending. Sales for the Automotive segment increased 14% to $508.7 million, reflecting a strong automotive industry and increased applications for segment components. All divisions within the Automotive segment reported increased sales in 1994. Sales were higher at Holley Automotive on strong market acceptance for new transmission solenoid products that were introduced in 1992 and 1993 and on increased demand for transmission modulators and manifold assemblies. Also contributing to the division's sales increase were higher shipments of oil pumps and both mechanical and electric emission-control air pumps. The higher sales of electric emission-control air pumps reflected the acquisition late in 1993 of General Motors' air pump manufacturing operation and Holley Automotive becoming sole source of these components to the automaker's North American operations. The sales improvement at Farnam Sealing Systems was due to strong demand for transmission gaskets and seals from both original equipment manufacturers and the aftermarket. Contributing to the higher sales at Stemco Truck Products were increased shipments of wheel lubrication systems and muffler and exhaust system components to manufacturers of heavy trucks and trailers and selected price increases. Shipments were up at Holley Performance Products on improved pricing and higher shipments of performance carburetors and fuel injection systems, reflecting increased consumer spending in 1994. Industrial segment sales were $397.7 million in 1994 compared with $436.7 million in 1993. However, excluding Central Moloney Transformer, sales increased 5% to $392.9 million from $372.5 million in 1993. The higher sales reflected continuing improvements in the markets served by our Industrial businesses, as well as selected price increases and new product introductions. Quincy Compressor reported increased sales of compressors on improved market conditions, increased market penetration and higher selling 22 prices. At Garlock Bearings, sales were higher as a result of new applications for DU bearings and greater demand for bearings from all markets served. The sales improvement at Delavan Commercial Products was due to higher shipments of oil burner nozzles to the home heating market, price increases and the introduction of new products. Strong demand for metal-cutting and metal-forming tools from the automotive industry resulted in the strong sales improvement at Sterling Die and Haber Tool. Sales at Garlock Mechanical Packing and France Compressor Products benefited from improved market conditions in the chemical and petroleum industries, higher selling prices and new product introductions. The increase in Industrial segment sales was offset in part by lower demand for Plastomer Products PTFE insulating tape from the aerospace market. COST OF SALES. Cost of sales declined slightly in 1994; however, excluding Central Moloney, cost of sales was 5% higher. This increase reflected the higher sales volume in the Automotive and Industrial segments as well as production inefficiencies at Walbar. Also contributing to the increase in cost of sales were higher manufacturing costs at Fairbanks Morse Engine attributable to the Alco engine business, increased spending for research and development, and higher maintenance costs. The higher cost was offset in part by benefits realized from cost-reduction programs and from the consolidation and rearrangement program that was completed in 1994. As a percent of sales, cost of sales increased to 67.2% from 66.6%, after excluding Central Moloney. SELLING AND ADMINISTRATIVE EXPENSE. Selling and administrative expense, including other income and expense, increased 3% in 1994 and, after excluding Central Moloney, the increase was 6%. This increase was due mainly to higher state and local income taxes and to the recovery in 1993 of previously incurred engineering expense by Holley Automotive. The higher selling and administrative expense was offset in part by cost savings resulting from reductions in the sales force at Garlock Mechanical Packing. As a percent of sales, selling and administrative expense increased to 15.0% in 1994 from 14.7% in 1993, after excluding Central Moloney. INTEREST AND DEBT EXPENSE, Net. Interest and debt expense, net declined $20.7 million or 19% in 1994 due to lower borrowing costs, under the new credit agreement entered into in January 1994, and to repayments of long-term debt. PROVISION FOR INCOME TAXES. The effective income tax rate for 1994 was 36.0% compared with 35.75% for 1993. EXTRAORDINARY ITEM. Coltec incurred extraordinary charges of $1.5 million in 1994 in connection with the early retirement of debt and $17.8 million in 1993 in connection with debt refinancings and the early retirement of debt. INDUSTRY SEGMENT INFORMATION Following are the major products in each industry segment: Aerospace/Government: Menasco landing gear and flight control actuation systems; Fairbanks Morse large diesel and dual-fuel engines; Walbar blades, vanes and discs for jet and other gas turbine engines; Chandler Evans fuel pumps and control systems; Delavan gas turbine products; Lewis Engineering cockpit instrumentation and sensors. Automotive: Holley Automotive fuel injection components and solenoids, air and oil pumps; Holley Performance carburetors and fuel injection components; Stemco truck products; Farnam gaskets and seals; Performance Friction gears, synchronizers and clutch plates. Industrial: Garlock seals, gaskets, packings, bearings, valves and tape; Quincy air compressors; Delavan spray nozzles; France compressor products; Haber and Sterling dies; Ortman Fluid Power cylinders. 23 The following table shows financial information by industry segment for the five years ended December 31, 1995.
YEAR ENDED DECEMBER 31, (DOLLARS IN MILLIONS) 1995 1994 1993 1992 1991 Sales: Aerospace/Government $ 486.5 $ 422.1 $ 453.3 $ 523.7 $ 562.8 Automotive 487.8 508.7 445.7 402.6 372.6 Industrial(a) 428.9 397.7 436.7 443.8 439.3 Intersegment elimination(b) (1.3) (1.7) (.9) (1.4) (1.7) Total $ 1,401.9 $ 1,326.8 $ 1,334.8 $ 1,368.7 $ 1,373.0 Operating income(c): Aerospace/Government $ 48.1 $ 67.7 $ 67.8 $ 102.1 $ 109.6 Automotive 92.8 114.2 102.4 85.1 59.3 Industrial(a) 96.5 88.4 75.9 84.4 80.2 Total segments 237.4 270.3 246.1 271.6 249.1 Corporate unallocated(d) (39.7) (34.0) (34.4) (28.5) (20.1) Operating income $ 197.7 $ 236.3 $ 211.7 $ 243.1 $ 229.0 Operating margin(c): Aerospace/Government 9.9% 16.0% 15.0% 19.5% 19.5% Automotive 19.0 22.4 23.0 21.1 15.9 Industrial(a) 22.5 22.2 17.4 19.0 18.3 Total 14.1% 17.8% 15.9% 17.8% 16.7% Return on total assets(c)(e): Aerospace/Government 10.8% 16.8% 17.6% 26.3% 26.7% Automotive 71.1 88.2 82.2 71.8 48.1 Industrial(a) 52.6 53.8 42.1 45.2 42.2 Total 22.1% 27.9% 26.6% 29.7% 27.8% Backlog(f): Aerospace/Government $ 611.7 $ 547.3 $ 524.5 $ 576.9 $ 697.2 Automotive 76.4 84.2 77.6 64.8 47.0 Industrial(a) 39.6 37.3 67.6 67.4 64.6 Total $ 727.7 $ 668.8 $ 669.7 $ 709.1 $ 808.8
(a) EXCLUDING THE CENTRAL MOLONEY TRANSFORMER DIVISION, WHICH WAS SOLD IN JANUARY 1994, AND THE 1993 SPECIAL CHARGE, INDUSTRIAL SEGMENT SALES, OPERATING INCOME, OPERATING MARGIN, RETURN ON TOTAL ASSETS AND BACKLOG WOULD HAVE BEEN AS FOLLOWS FOR THE FOUR YEARS ENDED DECEMBER 31, 1994:
(DOLLARS IN MILLIONS) 1994 1993 1992 1991 SALES $392.9 $372.5 $365.3 $349.7 OPERATING INCOME 88.3 80.7 81.9 75.9 OPERATING MARGIN 22.4% 21.7% 22.4% 21.7% RETURN ON TOTAL ASSETS 53.7% 50.2% 49.9% 46.0% BACKLOG 37.3 33.5 31.7 30.7
(b) REFLECTS ELIMINATION OF INTERCOMPANY SALES BETWEEN DIVISIONS IN DIFFERENT SEGMENTS. (c) OPERATING INCOME FOR 1995 INCLUDED A SPECIAL CHARGE OF $27.0 MILLION AS FOLLOWS: $23.4 MILLION IN THE AEROSPACE/GOVERNMENT SEGMENT AND $3.6 MILLION IN CORPORATE UNALLOCATED. EXCLUDING THE SPECIAL CHARGE, OPERATING INCOME, THE OPERATING MARGIN AND RETURN ON TOTAL ASSETS FOR 1995 WOULD HAVE BEEN $71.5 MILLION, 14.7% AND 16.0% FOR AEROSPACE/GOVERNMENT. OPERATING INCOME FOR 1993 INCLUDED A SPECIAL CHARGE OF $25.2 MILLION AS FOLLOWS: $17.7 MILLION IN AEROSPACE/GOVERNMENT, $3.8 MILLION IN AUTOMOTIVE AND $3.7 MILLION IN INDUSTRIAL. EXCLUDING THE SPECIAL CHARGE, OPERATING INCOME, THE OPERATING MARGIN AND RETURN ON TOTAL ASSETS FOR 1993 WOULD HAVE BEEN $85.5 MILLION, 18.9% AND 22.1% FOR AEROSPACE/GOVERNMENT, $106.2 MILLION, 23.8% AND 85.2% FOR AUTOMOTIVE AND $79.6 MILLION, 18.2% AND 44.2% FOR INDUSTRIAL. (d) REPRESENTS CORPORATE SELLING AND ADMINISTRATIVE EXPENSE, INCLUDING OTHER INCOME AND EXPENSE, THAT IS NOT ALLOCABLE TO INDIVIDUAL INDUSTRY SEGMENTS. (e) RETURN ON TOTAL ASSETS IS CALCULATED FOR EACH SEGMENT BY DIVIDING SEGMENT OPERATING INCOME BY SEGMENT TOTAL ASSETS AT DECEMBER 31, AND FOR TOTAL COLTEC BY DIVIDING TOTAL COLTEC OPERATING INCOME BY TOTAL ASSETS AT DECEMBER 31. (f) OF THE $727.7 MILLION BACKLOG AT DECEMBER 31, 1995, $268.3 MILLION WAS SCHEDULED TO BE SHIPPED AFTER 1996. 24 LIQUIDITY AND FINANCIAL POSITION Coltec ended 1995 with total debt of $945.8 million compared with $970.1 million in 1994. The negative balance in shareholders' equity of $453.8 million compares with a negative balance of $525.6 million at year-end 1994. Cash and cash equivalents were $4.0 million at December 31, 1995, and $4.2 million in 1994. Working capital of $208.9 million was higher by $19.3 million; and the current ratio was 1.87 compared with 1.79 at year-end 1994. Cash from operations amounted to $91.0 million in 1995 compared with $98.2 million in 1994 and $105.2 million in 1993. The lower cash generated from operations in 1995 was due to increased working capital requirements. Accrued expenses declined due to a lower interest and tax accruals, and to payments covering the special charge. Offsetting in part the decline in cash from operations were an increase in deferred income taxes and the net receipt of $15.5 million from insurance carriers for asbestos-related matters. This compared with the receipt of $10.8 million in 1994 and $3.1 million in 1993. The 1994 decrease in cash from operations compared with 1993 was attributable to higher levels of receivables and inventories. The $91.0 million of cash generated in 1995 was used to acquire AlliedSignal's aircraft landing gear business for $14.0 million and certain assets of Furon's metallic gasket business for $7.8 million, invest $42.5 million in capital expenditures and reduce indebtedness by $24.5 million. Included in receivables at December 31, 1995 and 1994 were $53.7 million and $68.2 million, respectively, of receivables due from insurance carriers for asbestos product liability claims and related litigation costs. Excluding these amounts, receivables increased 6% to $138.3 million and receivables days outstanding were 38 days at December 31, 1995, compared with 36 days at year-end 1994. Inventories increased 16% to $229.4 million, and inventory turnover was 4.02 times in 1995 compared with 4.61 times in 1994. The increase in inventories was due to the build up of inventory for the Boeing 777 and 737-600/700/800 programs at Menasco and the U.S. Navy Sealift program and Alco engine business at Fairbanks Morse Engine, and the acquisitions of the AlliedSignal aircraft landing gear and Furon metallic gasket businesses. At December 31, 1995, total debt was $945.8 million compared with $970.1 million at year-end 1994. In 1994, Coltec entered into a credit agreement with a syndicate of banks which expires June 30, 1999. In November 1995, the total commitment under the credit agreement was increased $50 million to $465.0 million. The additional commitment was used to redeem $46.4 million principal amount of the 11 1/4% debentures, in January 1996, at a redemption price of 105.625% plus accrued interest. The purpose of the redemption was to substitute the debentures for bank debt, at a lower interest rate. Excluding the $50.0 million of additional commitment, at December 31, 1995, $261.0 million of borrowings were outstanding and $45.8 million of letters of credit had been issued under the credit agreement, leaving $108.2 million of borrowings available for working capital and general corporate purposes. The credit agreement provides up to $100.0 million for the issuance of letters of credit and reductions in the total commitment of $50.0 million on both January 11, 1997 and 1998. Coltec's loan agreements contain various restrictions and conditions, with which Coltec is in compliance. Management believes that cash generated from operations and borrowings available under the credit agreement will be adequate to meet Coltec's operating needs, planned capital expenditures and debt service requirements through 1998. In 1999 and 2000, $628.0 million of debt matures and it is planned that a portion of this debt will be repaid from cash generated from operations with the remainder to be refinanced. During 1995, shareholders' equity increased by $71.8 million to a negative balance of $453.8 million at the end of 1995. This increase reflects $70.9 million of net earnings, $1.6 million of amortization of unearned compensation related to restricted shares, $.4 million of proceeds and tax benefits from the exercise of stock options and the expiration of restrictions on restricted stock, offset by a $1.1 million reduction in foreign currency translation adjustments. The $29.5 million in liabilities of discontinued operations at December 31, 1995, represented reserves to cover postretirement benefits for the former employees of the discontinued operations and other future estimated costs of the disposition of Crucible Materials Corporation in 1985, the steelmaking facility in Midland, Pennsylvania in 1982, and Colt Firearms in 1990. Payments covering the liabilities of discontinued operations in 1995, 1994 and 1993 were $2.5 million, $3.2 million and $4.4 million, respectively. Coltec expects future cash payments covering the liabilities of discontinued operations will extend over the remaining lives of the former employees at the discontinued operations. 25 CAPITAL EXPENDITURES Capital expenditures were $42.5 million in 1995 compared with $38.2 million in 1994 and $38.6 million in 1993, as Coltec continues to invest in capital improvements to increase efficiency, reduce costs, pursue new opportunities, expand production and improve facilities. The level of capital expenditures has and will vary from year to year, affected by the timing of capital spending for production equipment for new products, periodic plant and facility expansion as well as cost reduction and labor efficiency programs. Capital expenditures during 1995 included production equipment to manufacture a new engine oil pump at Holley Automotive, equipment to increase production capacity at Garlock Bearings and production equipment for new landing gear programs at Menasco. At December 31, 1995, Coltec had $39.6 million of planned capital expenditures that included production equipment to support new programs at Menasco and Holley Automotive. ENVIRONMENTAL Coltec and its subsidiaries are subject to numerous federal, state and local environmental laws. For example, the Clean Air Act Amendments regulate emissions at certain of Coltec's facilities. In connection with the Clean Air Act Amendments, Coltec will be required to make capital expenditures for equipment to control emissions of hazardous air pollutants. In addition, certain of Coltec's facilities will be required to obtain air emission control permits. Coltec has made a determination of the impact on its operations of the Clean Air Act Amendments. Based upon this determination, Coltec believes that it will not be at a competitive disadvantage in complying with the Clean Air Act Amendments and that any costs to comply with the Clean Air Act Amendments will not have a material effect on Coltec's results of operations and financial condition. Coltec and its subsidiaries also incur costs on a recurring basis for the treatment, storage and disposal of hazardous materials generated at Coltec's facilities in order to comply with the federal Resource Conservation and Recovery Act of 1976 ("RCRA"), and its analogous state statutes. Coltec does not believe that such costs have, nor will they have, a material effect on Coltec's results of operations and financial condition. Coltec has been notified that it is among the Potentially Responsible Parties ("PRPs") under the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended ("CERCLA"), or similar state laws, for the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. See Note 13 of the Notes to Financial Statements for information on the impact of CERCLA on Coltec. Coltec's annual expenditures (including capital expenditures) relating to environmental matters over the three years ended December 31, 1995 ranged from $6.5 million to $9.0 million, and Coltec expects such expenditures to approximate $12.5 million in 1996 and $10.0 million in 1997. Over the three years ended December 31, 1995, annual expenditures for recurring environmental matters approximated $2.5 million, annual capital expenditures ranged from $1.0 million to $2.5 million, and annual expenditures for remediation and other nonrecurring environmental matters ranged from $3.0 million to $4.0 million. Expenditures for recurring environmental matters are expected to approximate $3.0 million in each of 1996 and 1997, capital expenditures are expected to approximate $3.5 million in 1996 and $2.0 million in 1997, and expenditures for remediation and other nonrecurring environmental matters are expected to approximate $6.0 million in 1996 and $5.0 million in 1997. Capital expenditure requirements for 1996 and 1997 include estimates of annual expenditures pursuant to the Clean Air Act Amendments of $2.5 million and $2.0 million, respectively. The estimate of annual environmental expenditures for 1996 and 1997 is based upon the expected timing of expenditures pursuant to currently identified environmental matters. Because environmental laws and the related interpretations frequently change, Coltec is unable to estimate with certainty the future costs to comply with such laws; however, Coltec does not foresee a continuous upward trend in annual expenditures on environmental matters, nor does it believe that it will be at a competitive disadvantage in complying with any such laws. 26 ASBESTOS LITIGATION Coltec and certain of its subsidiaries are defendants in various lawsuits involving asbestos-containing products. See Note 13 of the Notes to Financial Statements for information on asbestos litigation. OTHER FINANCIAL INFORMATION EFFECTS OF INFLATION AND FOREIGN CURRENCY FLUCTUATIONS Inflation and foreign currency fluctuations have not had a material impact on the operating results and financial position of Coltec during the past three years. Coltec generally has been able to offset the effects of inflation with price increases, cost-reduction programs and operating efficiencies. Coltec's foreign operations are primarily located in Canada. DIVIDENDS No dividends were paid in 1995 and 1994, and no dividends are expected to be paid in 1996. COMMON STOCK DATA Coltec's common stock (symbol COT) is listed on the New York and Pacific Stock Exchanges. The high and low prices of the stock for each quarter during 1995 and 1994 were as follows:
1995 1994 High Low High Low First quarter 173/8 153/8 217/8 183/4 Second quarter 183/4 163/4 201/2 181/4 Third quarter 181/8 115/8 197/8 181/8 Fourth quarter 121/4 101/8 19 16
At December 31, 1995, there were 493 shareholders of record. ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION ON FORM 10-K AVAILABLE The annual report on Form 10-K, without exhibits, will be made available free of charge to interested shareholders upon written request to the Corporate Secretary, Coltec Industries Inc, 430 Park Avenue, New York, NY 10022-3597. 27 CONSOLIDATED BALANCE SHEET COLTEC INDUSTRIES INC AND SUBSIDIARIES
DECEMBER 31, (IN THOUSANDS) 1995 1994 ASSETS Current assets Cash and cash equivalents (Notes 1 and 6) $ 3,971 $ 4,188 Accounts and notes receivable (Notes 6 and 13) Trade 138,327 129,790 Other 57,858 72,483 196,185 202,273 Less allowance for doubtful accounts 4,174 4,124 192,011 198,149 Inventories (Note 1) Finished goods 55,533 46,316 Work in process and finished parts 146,916 126,097 Raw materials and supplies 26,987 25,790 229,436 198,203 Deferred income taxes (Note 4) 13,902 15,222 Other current assets 10,174 13,936 Total current assets 449,494 429,698 Property, plant and equipment, at cost (Note 1) Land and improvements 17,562 17,973 Buildings and equipment 134,320 133,940 Machinery and equipment 481,538 474,053 Leasehold improvements 10,028 8,071 Construction in progress 22,837 18,870 666,285 652,907 Less accumulated depreciation and amortization 435,812 429,793 230,473 223,114 Costs in excess of net assets acquired, net of amortization (Note 1) 140,811 131,024 Other assets (Notes 6 and 13) 73,724 63,614 $ 894,502 $ 847,450 28 DECEMBER 31, (IN THOUSANDS, EXCEPT SHARE DATA) 1995 1994 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities Current maturities of long-term debt (Notes 5 and 6) $ 226 $ 886 Accounts payable 72,735 76,648 Accrued expenses (Note 13) Salaries, wages and employee benefits 47,348 47,746 Taxes 25,008 33,157 Interest 14,918 18,616 Other 77,343 60,009 164,617 159,528 Current portion of liabilities of discontinued operations 3,000 3,000 Total current liabilities 240,578 240,062 Long-term debt (Notes 5 and 6) 945,606 969,261 Deferred income taxes (Note 4) 14,878 10,533 Other liabilities (Note 13) 120,670 124,159 Liabilities of discontinued operations 26,532 29,036 Commitments and contingencies (Note 13) Shareholders' equity (Notes 1 and 7) Preferred stock $.01 par value, 2,500,000 shares authorized, shares outstanding -- none -- -- Common stock $.01 par value, 100,000,000 shares authorized, 70,077,350 and 70,016,384 shares issued at December 31, 1995 and 1994, respectively (excluding 25,000,000 shares held by a wholly owned subsidiary) 701 700 Capital in excess of par value 639,419 638,407 Retained earnings (deficit) (1,088,042) (1,158,948) Unearned compensation -- restricted stock awards (2,408) (3,480) Foreign currency translation adjustments (1,816) (681) (452,146) (524,002) Less cost of 100,346 and 98,862 shares of common stock in treasury at December 31, 1995 and 1994, respectively (1,616) (1,599) (453,762) (525,601) $ 894,502 $ 847,450
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT. 29 CONSOLIDATED STATEMENT OF EARNINGS COLTEC INDUSTRIES INC AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1995 1994 1993 Net sales $ 1,401,884 $ 1,326,761 $ 1,334,829 Costs and expenses Cost of sales 979,229 891,942 905,464 Selling and administrative 197,951 198,489 192,437 Special charges (Note 2) 27,000 -- 25,219 Total costs and expenses 1,204,180 1,090,431 1,123,120 Operating income 197,704 236,330 211,709 Interest and debt expense, net 89,886 89,472 110,190 Earnings before income taxes and extraordinary item 107,818 146,858 101,519 Provision for income taxes (Note 4) 36,658 52,869 36,293 Earnings before extraordinary item 71,160 93,989 65,226 Extraordinary item (Note 3) (254) (1,472) (17,792) Net earnings $ 70,906 $ 92,517 $ 47,434 Earnings (loss) per common share (Note 1) Before extraordinary item $ 1.02 $ 1.35 $ .94 Extraordinary item -- (.02) (.26) Net earnings $ 1.02 $ 1.33 $ .68 Weighted average number of common and common equivalent shares 69,839 69,815 69,591
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT. 30 CONSOLIDATED STATEMENT OF CASH FLOWS COLTEC INDUSTRIES INC AND SUBSIDIARIES
YEAR ENDED DECEMBER 31, (IN THOUSANDS) 1995 1994 1993 Cash flows from operating activities Net earnings $ 70,906 $ 92,517 $ 47,434 Adjustments to reconcile net earnings to cash provided by operating activities Extraordinary item 254 1,472 17,792 Special charges 27,000 -- 25,219 Depreciation and amortization 42,086 42,131 49,092 Deferred income taxes 4,345 (19,274) (10,766) Receivable from insurance carriers 15,452 10,843 3,056 Payment of liabilities of discontinued operations (2,504) (3,174) (4,444) Other operating items (8,565) 3,644 (11,809) 148,974 128,159 115,574 Changes in assets and liabilities Accounts and notes receivable (6,632) (11,808) (2,007) Inventories (32,373) (33,511) (2,871) Deferred income taxes 1,320 1,814 3,501 Other current assets 3,762 (1,961) (877) Accounts payable (4,283) 14,362 4,067 Accrued expenses (19,760) 1,163 (12,169) Changes in assets and liabilities (57,966) (29,941) (10,356) Cash provided by operating activities 91,008 98,218 105,218 Cash flows from investing activities Capital expenditures (42,496) (38,191) (38,587) Acquisition of businesses (21,750) (4,048) -- Cash received in Holdings reorganization -- -- 26,749 Other -- net (2,512) 864 1,948 Cash used in investing activities (66,758) (41,375) (9,890) Cash flows from financing activities Issuance of long-term debt 44,662 335,042 46,069 Payment of long-term debt (69,129) (393,446) (138,179) Distribution to Holdings pursuant to preferred stock redemption and tax sharing procedure -- -- (4,624) Cash used in financing activities (24,467) (58,404) (96,734) Cash and cash equivalents Decrease (217) (1,561) (1,406) At beginning of period 4,188 5,749 7,155 At end of period $ 3,971 $ 4,188 $ 5,749
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT. 31 CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY COLTEC INDUSTRIES INC AND SUBSIDIARIES
THREE YEARS ENDED DECEMBER 31, 1995 UNEARNED FOREIGN CAPITAL IN RETAINED COMPENSATION- MINIMUM CURRENCY COMMON STOCK EXCESS OF EARNINGS RESTRICTED PENSION TRANSLATION TREASURY STOCK (IN THOUSANDS, EXCEPT SHARES AMOUNT PAR VALUE (DEFICIT) STOCK AWARDS LIABILITY ADJUSTMENTS SHARES AMOUNT TOTAL SHARE DATA) Balance, January 1, 1993 69,853,464 $ 699 $ 634,088 $ (1,298,899) $ (7,221) $ -- $ 4,689 -- $ -- $ (666,644) Net earnings 47,434 47,434 Issuance of restricted stock, net 89,877 1,389 1,669 (14,309) (229) 2,829 Exercise of stock options (4) 5,000 79 75 Tax benefit from stock option and incentive plan 133 133 Stock exchange in the Holdings reorganization 1,240 (170,000) (2,740) (1,500) Minimum pension liability (4,205) (4,205) Foreign currency translation adjustments (3,612) (3,612) Balance, December 31, 1993 69,943,341 699 636,846 (1,251,465) (5,552) (4,205) 1,077 (179,309) (2,890) (625,490) Net earnings 92,517 92,517 Issuance of restricted stock, net 73,043 1 1,370 2,072 (17,553) (293) 3,150 Exercise of stock options (114) 98,000 1,584 1,470 Tax benefit from stock option and incentive plan 305 305 Minimum pension liability 4,205 4,205 Foreign currency translation adjustments (1,758) (1,758) Balance, December 31, 1994 70,016,384 700 638,407 (1,158,948) (3,480) -- (681) (98,862) (1,599) (525,601) Net earnings 70,906 70,906 Issuance of restricted stock, net 60,966 1 1,006 1,072 (26,484) (422) 1,657 Exercise of stock options (30) 25,000 405 375 Tax benefit from stock option and incentive plan 36 36 Foreign currency translation adjustments (1,135) (1,135) BALANCE, DECEMBER 31, 1995 70,077,350 $ 701 $ 639,419 $ (1,088,042) $ (2,408) $ -- $ (1,816) (100,346) $ (1,616) $ (453,762)
THE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS ARE AN INTEGRAL PART OF THIS STATEMENT. 32 NOTES TO FINANCIAL STATEMENTS COLTEC INDUSTRIES INC AND SUBSIDIARIES 1. SUMMARY OF ACCOUNTING POLICIES PRINCIPLES OF CONSOLIDATION: Investments in which Coltec Industries Inc ("Coltec") has ownership of 50% or more of the voting common stock are consolidated in the financial statements. Intercompany accounts and transactions are eliminated. ACCOUNTING ESTIMATES: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. CONSOLIDATED STATEMENT OF CASH FLOWS: Cash equivalents consist of short-term, highly liquid investments with original maturities of three months or less. The effect of changes in foreign exchange rates on cash balances is not significant. Interest paid and federal and state income taxes paid and refunded were as follows:
(IN THOUSANDS) 1995 1994 1993 Interest paid $ 92,292 $ 92,304 $ 105,713 Income taxes -- Paid 45,799 42,308 31,873 Refunded 4,114 2,262 3,913
FOREIGN CURRENCY TRANSLATION: The financial statements of foreign subsidiaries were prepared in their respective local currencies and were translated into U.S. dollars at year-end rates for assets and liabilities and at monthly weighted average rates for income and expenses. Translation adjustments are included in shareholders' equity. Foreign currency transaction gains and losses are included in net earnings. For 1995, 1994 and 1993, such gains and losses were not significant. INVENTORIES: Inventories, including inventories under long-term commercial and government contracts and programs, are valued at the lower of cost or market. At December 31, 1995, and 1994, $36,750,000 and $34,411,000, respectively, of contract advances have been offset against inventories under long-term commercial and government contracts and programs in the Consolidated Balance Sheet. Losses on commercial and government contracts and programs are recognized in full when identified. At December 31, 1995, and 1994, an accrual for loss contracts and programs was not required. Cost elements included in inventory are material, labor and factory overhead, primarily using standard cost, which approximates actual cost. Cost on approximately 50% of the domestic inventory at December 31, 1995 was determined on the last-in, first-out basis. Cost on the remainder of the inventory is generally determined on the first-in, first-out basis. The excess of current cost over last-in, first-out cost at December 31, 1995, and 1994 was approximately $20,400,000 and $18,800,000, respectively. PROPERTY AND DEPRECIATION: Depreciation and amortization of plant and equipment are provided generally by using the straight-line method, based on estimated useful lives of the assets. For U.S. federal income tax purposes, most assets are depreciated using allowable accelerated methods. The ranges of estimated useful lives used in computing depreciation and amortization for financial reporting were as follows: Years Land improvements 5 -- 40 Buildings and equipment 10 -- 45 Machinery and equipment 3 -- 20 For leasehold improvements, the estimated useful life used in computing amortization is the lesser of the asset life or the lease term. Renewals and betterments are capitalized by additions to the related asset accounts, while repair and maintenance costs are charged against earnings. Coltec generally records retirements by removing the cost and accumulated depreciation from the asset and reserve accounts. ENVIRONMENTAL EXPENDITURES: Expenditures that relate to an existing condition caused by past operations, and which do not contribute to current or future revenue generation, are accrued when it is probable that an obligation has been incurred and the amount can be reasonably estimated. Expenditures incurred for environmental compliance with respect to pollution prevention and ongoing monitoring programs are expensed as incurred. Expenditures that increase the value of the property are capitalized. START-UP COSTS: Start-up costs related to new operations and new product lines are expensed as incurred. REVENUE RECOGNITION: Revenue, including revenue under long-term commercial and government contracts and programs, is recorded at the time deliveries or customer acceptances are made and Coltec has the contractual right to bill. COSTS IN EXCESS OF NET ASSETS ACQUIRED: It is Coltec's policy to amortize the excess costs arising from acquisitions on a straight-line basis over periods not to exceed 40 years. In evaluating the value and future benefits of the excess costs arising from acquisitions, the recoverability from operating income is measured. Under this approach, the carrying value would be reduced if it is probable that management's best estimate of future operating income from related operations before amortization will be less than the carrying amount of the excess costs arising from acquisitions over the remaining amortization period. At December 31, 1995, and 1994, accumulated amortization related to all completed acquisitions, was $62,275,000 and $57,186,000, respectively. 33 SHAREHOLDERS' EQUITY AND EARNINGS PER SHARE: In November 1993, the shareholders of Coltec Holdings Inc ("Holdings"), the former parent company of Coltec, exchanged their shares of common stock of Holdings for 35.5% or 24,830,000 shares of common stock of Coltec (the "Holdings Reorganization") in a transaction accounted for as a purchase. The net assets acquired consisted primarily of 25,000,000 shares of common stock of Coltec and $26,749,000 of cash. Earnings per common share are computed by dividing earnings by the weighted average number of common and common equivalent shares outstanding during each period. Common equivalent shares are shares issuable on the exercise of stock options and shares of restricted stock, net of shares assumed to have been purchased using the treasury stock method. IMPACT OF NEW ACCOUNTING STANDARDS: Coltec adopted Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," and AICPA Statement of Position 94-6, "Disclosure of Certain Significant Risks and Uncertainties," effective January 1, 1995. The adoption of these statements did not have a material effect on Coltec's results of operations and financial condition. Based on preliminary analyses, Coltec does not expect that the future adoption of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of," and No. 123, "Accounting for Stock-Based Compensation," will have a material effect on Coltec's results of operations and financial condition. 2. SPECIAL CHARGES In the third quarter of 1995, Coltec recorded a special charge of $27,000,000, primarily to cover the costs of closing the Walbar compressor blade facility in Canada. It is anticipated that this facility will be closed by the end of 1996. The charge also covered selected reductions in work force throughout the Company covering approximately 520 employees, all of whom have been terminated or notified of their termination at December 31, 1995. The special charge includes costs to cover the cancellation of contractual obligations resulting from the decision to close the Walbar facility, asset writedowns, severance and employee- related costs and other costs necessary to implement the shutdown of the Walbar facility and other actions. The components of the charge and its status at December 31, 1995 are as follows:
ORIGINAL 1995 BALANCE (IN THOUSANDS) RESERVE ACTIVITY DECEMBER 31, 1995 Cancellation of contractual obligations $ 9,065 $ (65) $ 9,000 Asset writedowns 7,845 (4,549) 3,296 Severance 5,084 (1,778) 3,306 Other 5,006 (2,553) 2,453 Total $ 27,000 $ (8,945) $ 18,055
In the second quarter of 1993, Coltec recorded a special charge of $25,219,000 to cover the cost of consolidation and rearrangement of certain manufacturing facilities and related reductions in work force, primarily in the Aerospace/Government segment, as well as at the Central Moloney Transformer Division. The objectives of this program were completed in 1994 and the liability was fully utilized as of December 31, 1994. 3. EXTRAORDINARY ITEM Coltec incurred extraordinary charges of $254,000, net of a $136,000 tax benefit; $1,472,000, net of a $792,000 tax benefit; and $17,792,000, net of a $9,581,000 tax benefit; in 1995, 1994 and 1993, respectively, in connection with the early retirement of debt, and in 1993 in connection with debt refinancings. 4. INCOME TAXES Effective January 1, 1993, Coltec adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes," which requires that the deferred tax provision be determined under the liability method. Under this method, deferred tax assets and liabilities are recognized based on differences between the financial statement and tax bases of assets and liabilities using presently enacted tax rates. The significant components of deferred tax assets and liabilities at December 31, 1995 and 1994 were as follows:
(IN THOUSANDS) 1995 1994 DEFERRED DEFERRED DEFERRED DEFERRED TAX TAX TAX TAX ASSETS LIABILITIES ASSETS LIABILITIES Excess tax over book depreciation $ -- $ (29,932) $ -- $ (30,076) Recognition of income on contracts reported on different methods for tax and financial reporting -- (29,299) -- (29,003) Employee benefit plans 22,011 -- 26,184 -- Accrued expenses and liabilities 12,527 -- 13,062 -- Foreign tax credit carryforwards 7,300 -- 6,000 -- Other 23,717 -- 24,522 -- 65,555 (59,231) 69,768 (59,079) Less -- Valuation allowance (7,300) -- (6,000) -- Total deferred taxes $ 58,255 $ (59,231) $ 63,768 $ (59,079)
34 The valuation allowance is attributable to foreign tax credit carryforwards, which expire in the years 1997 through 2000. Domestic and foreign components of earnings before income taxes and extraordinary item were as follows:
(IN THOUSANDS) 1995 1994 1993 Domestic $ 81,108 $ 126,254 $ 71,126 Foreign 26,710 20,604 30,393 Total $ 107,818 $ 146,858 $ 101,519 Provisions for income taxes were as follows: (IN THOUSANDS) 1995 1994 1993 Current -- Domestic $ 23,355 $ 56,812 $ 36,254 Foreign 7,638 11,253 9,568 30,993 68,065 45,822 Deferred -- Domestic 4,241 (12,503) (11,553) Foreign 1,424 (2,693) 2,024 5,665 (15,196) (9,529) Total $ 36,658 $ 52,869 $ 36,293
Reconciliation of tax at the U.S. statutory income tax rate of 35% to the provision for income taxes was as follows:
(IN THOUSANDS) 1995 1994 1993 Tax at U.S. statutory rate $ 37,736 $ 51,400 $ 35,532 Tax cost (benefit)- Repatriation of non-U.S. earnings 2,692 2,713 3,201 Non-U.S. rate differential (287) 1,349 954 Utilization of tax credits (1,500) -- -- Adjustment of reserves (6,197) (5,789) (6,692) Other (not individually significant) 4,214 3,196 3,298 Provision for income taxes $ 36,658 $ 52,869 $ 36,293 Effective tax rate 34.0% 36.0% 35.75%
5. LONG-TERM DEBT
(IN THOUSANDS) 1995 1994 Credit Agreement -- 7.2%* $ 261,000 $ 291,000 9 3/4% senior notes due 1999 150,000 150,000 9 3/4% senior notes due 2000 200,000 200,000 11 1/4% debentures due 1996-2015 67,782 67,782 10 1/4% senior subordinated notes due 2002 218,080 231,465 Other due 1996-2010 48,970 29,900 945,832 970,147 Less -- Amounts due within one year 226 886 $ 945,606 $ 969,261
* Indicates average interest rate for 1995. a) The reducing revolving credit facility (the "Credit Agreement"), entered into with a syndicate of banks, expires June 30, 1999. At December 31, 1995, $261,000,000 of borrowings were outstanding and $45,761,000 of letters of credit had been issued under the Credit Agreement. In November 1995, the total commitment under the Credit Agreement was increased by $50,000,000 to $465,000,000. The additional commitment was used to redeem $46,407,000 principal amount of the 11 1/4% debentures in January 1996 at a redemption price of 105.625% plus accrued interest. The Credit Agreement provides up to $100,000,000 for the issuance of letters of credit and the facility will be reduced by $50,000,000 on both January 11, 1997 and 1998. Obligations under the facility are secured by substantially all of Coltec's assets. Borrowings under the facility bear interest, at Coltec's option, at an annual rate equal to the base rate or the Eurodollar rate plus 1%. The base rate is the higher of 1/2 of 1% in excess of the Federal Reserve reported certificate of deposit rate and the prime lending rate. Letter of credit fees of 1% are payable on outstanding letters of credit and a commitment fee of 3/8 of 1% is payable on the unutilized facility. The facility contains various restrictions and conditions. The most restrictive of these requires that the fixed charge coverage ratio be at least 2.5 to 1 for any period of four consecutive quarters. The ratio of current assets to current liabilities must be at least 1.25 to 1. In addition, the facility limits or restricts purchases of Coltec's common stock, payment of dividends, capital expenditures, indebtedness, liens, mergers, asset acquisitions and dispositions, investments, prepayment of certain debt and transactions with affiliates. At December 31, 1995, Coltec was in compliance with the above covenants. b) The 9 3/4% senior notes due 1999 are not redeemable prior to maturity on November 1, 1999. c) The 9 3/4% senior notes due 2000 are not redeemable prior to maturity on April 1, 2000. d) Coltec has purchased in the open market $31,920,000 of the 10 1/4% senior subordinated notes. The remaining 10 1/4% senior subordinated notes are redeemable at the option of Coltec on or after April 1, 1997 at 105.125% of par, declining to 100% of par on or after April 1, 1999. 35 e) Coltec has purchased in the open market and redeemed $82,218,000 of its 11 1/4% debentures and in January 1996 redeemed an additional $46,407,000. The remaining 11 1/4% debentures are redeemable at the option of Coltec at 105.625% of par, declining to 100% of par on or after December 1, 2005. Mandatory annual sinking fund payments of $7,125,000 beginning December 1, 1996 are calculated to retire 90% of the debentures prior to maturity. Coltec, at its option, may redeem up to an additional $14,250,000 annually, beginning December 1, 1996 through 2014. f) Minimum payments on long-term debt due within five years from December 31, 1995 are as follows:
(IN THOUSANDS) 1996 $ 226 1997 2,524 1998 539 1999 427,601 2000 200,353
6. FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate the fair value of Coltec's financial instruments: CASH AND CASH EQUIVALENTS AND ACCOUNTS AND NOTES RECEIVABLE, OTHER: The carrying amount approximates fair value due to the short-term maturity of the investments and the short-term nature of the receivables. LONG-TERM RECEIVABLES AND INVESTMENTS: The fair value is based on quoted market prices for similar publicly traded securities or on the present value of estimated future cash flows. LONG-TERM DEBT: The fair value of Coltec's publicly traded long-term debt is based on the quoted market prices for such debt and for non-publicly traded long-term debt, on quoted market prices for similar publicly traded debt. FORWARD EXCHANGE CONTRACTS: The fair value is based on quoted market prices of similar contracts. The estimated fair value of Coltec's financial instruments at December 31, 1995 and 1994 is as follows:
(IN THOUSANDS) 1995 1994 CARRYING FAIR CARRYING FAIR VALUE VALUE VALUE VALUE Assets: Cash and cash equivalents $ 3,971 $ 3,971 $ 4,188 $ 4,188 Accounts and notes receivable, other 57,858 57,858 72,483 72,483 Long-term receivables and investments - Practical to estimate fair value 33,497 42,336 36,008 39,364 Not practical to estimate fair value 8,711 -- 8,711 -- Liabilities: Long-term debt 945,832 965,065 970,147 962,647 Forward exchange contracts -- 11,147 -- 21,026
It was not practicable to estimate the fair value of Coltec's stock investment in Crucible Materials Corporation ("Crucible"), a private corporation. The carrying value of the investment in Crucible is included in other assets in the Consolidated Balance Sheet. It is Coltec's policy to enter into forward exchange contracts to hedge U.S. dollar-denominated sales, under long-term contracts, of certain foreign subsidiaries. Coltec does not engage in speculation. Coltec's forward exchange contracts do not subject Coltec to risk due to exchange rate movements because gains and losses on these contracts offset losses and gains on the sales and related receivables being hedged. At December 31, 1995, and 1994 Coltec had $277,278,000 and $306,230,000, respectively, of forward exchange contracts, denominated in Canadian dollars, which had a fair value of $266,131,000 and $285,204,000, respectively. The contracts have varying maturities with none exceeding five years. Gains and losses on forward exchange contracts are deferred and recognized at the completion of the underlying long-term contract being hedged. Coltec has an outstanding contingent liability for guaranteed debt and lease payments of $30,816,000, and for letters of credit of $45,761,000. It was not practical to obtain independent estimates of the fair values for the contingent liability for guaranteed debt and lease payments and for letters of credit without incurring excessive costs. In the opinion of management, nonperformance by the other parties to the contingent liabilities will not have a material effect on Coltec's results of operations and financial condition. 36 7. STOCK OPTION AND INCENTIVE PLANS Coltec stock option plans provide for the granting of incentive stock rights, stock options, stock appreciation rights, restricted stock and dividend equivalents to officers and key employees and stock options to directors. In 1994, shareholders approved an increase in the number of shares of common stock that may be issued under the stock option plans to 7,468,000 shares. Stock options outstanding under the stock option plans were granted at a price equal to 100% of the market price on the date of grant and are exercisable in annual installments of 20%, commencing one year from date of grant. Information on stock options is as follows:
OPTION NUMBER PRICE RANGE OF SHARES PER SHARE Outstanding January 1, 1993 2,015,000 $15.00-18.25 Granted 290,000 16.38-18.75 Exercised (5,000) 15.00 Canceled (40,000) 15.00 Outstanding December 31, 1993 2,260,000 15.00-18.75 Granted 295,000 16.25-21.25 Exercised (98,000) 15.00 Canceled (140,000) 15.00-20.25 Outstanding December 31, 1994 2,317,000 15.00-21.25 Granted 2,960,000 10.75-18.08 Exercised (25,000) 15.00 Canceled (64,000) 15.00-18.25 Outstanding December 31, 1995 5,188,000 10.75-21.25 Exercisable December 31: 1993 398,000 15.00-18.25 1994 772,000 15.00-18.75 1995 1,188,000 15.00-21.25
In addition to the granting of stock options, Coltec has granted shares of restricted stock. Restrictions on certain shares lapse in annual installments of 33 1/3% commencing one or three years from date of grant. Restrictions on the remaining shares lapse 100% three years from the date of grant. The unearned compensation resulting from the grant of restricted shares is reported as a reduction to shareholders' equity in the Consolidated Balance Sheet and is being charged to earnings over the period the restricted shares vest. Information on restricted stock is as follows:
NUMBER OF SHARES 1995 1994 1993 Outstanding January 1 517,486 554,260 578,464 Granted 60,966 73,043 89,877 Restrictions expired (203,867) (92,264) (99,772) Forfeited (26,484) (17,553) (14,309) Outstanding December 31 348,101 517,486 554,260
Shares available for grant at December 31, 1995 and 1994 under the stock option plans were 1,349,650 and 4,306,616, respectively. 8. PENSION AND RETIREMENT PLANS Coltec and certain of its subsidiaries have in effect, for substantially all U.S. employees, pension plans under which funds are deposited with trustees. The benefits under these plans are based primarily on years of service and either final average salary or fixed amounts for each year of service. Coltec's funding policy is consistent with the funding requirements of the Employee Retirement Income Security Act ("ERISA") of 1974, as amended. Plan assets consist principally of publicly traded equity and fixed-income securities. Pension coverage for employees of non-U.S. subsidiaries is provided in accordance with local requirements and customary practices. For certain pension plans, the plan assets exceed the accumulated benefit obligations ("overfunded plans"); and in the remainder of the plans, the accumulated benefit obligations exceed the plan assets ("underfunded plans"). 37 As of December 31, 1995 and 1994, the status of Coltec's pension plans was as follows:
1995 1994* OVERFUNDED UNDERFUNDED OVERFUNDED UNDERFUNDED (IN THOUSANDS) PLANS PLANS PLANS PLANS Actuarial present value of projected benefit obligation, based on employment service to date and current salary levels: Vested employees $ 252,612 $ 125,481 $ 214,401 $ 101,658 Nonvested employees 6,527 5,259 5,489 4,564 Accumulated benefit obligation 259,139 130,740 219,890 106,222 Additional amounts related to projected salary increases 28,294 4,436 22,397 2,343 Total projected benefit obligation 287,433 135,176 242,287 108,565 Assets available for benefits: Funded assets 365,704 91,894 305,780 78,207 Accrued (prepaid) pension expense, per books (21,256) 40,389 (8,129) 30,127 Total assets 344,448 132,283 297,651 108,334 Assets in excess of (less than) projected benefit obligation $ 57,015 $ (2,893) $ 55,364 $ (231) Consisting of: Unamortized net asset existing at date of adoption of FAS No. 87 $ 1,747 $ 12,274 $ 11,260 $ 5,019 Unrecognized net gain (loss) 57,992 (4,220) 46,356 5,070 Unrecognized prior service cost (2,724) (10,947) (2,252) (10,320) $ 57,015 $ (2,893) $ 55,364 $ (231)
*RESTATED TO REFLECT FUNDING CLASSIFICATION AS OF DECEMBER 31, 1995. 38 For U.S. plans, discount rates of 7.5% and 9.0% were used as of December 31, 1995 and 1994, respectively, for the valuation of the actuarial present value of benefit obligations. In accordance with the requirements of Statement of Financial Accounting Standards No. 87, "Employers' Accounting for Pensions," Coltec recorded a minimum pension liability for underfunded plans of $2,044,000 at December 31, 1995, which is included in other liabilities in the Consolidated Balance Sheet. This liability represents the excess of the accumulated benefit obligation over plan assets and has been offset by an intangible asset, included in other assets in the Consolidated Balance Sheet, for previously unrecognized prior service cost. At December 31, 1994, a minimum pension liability was not required. Assumptions as of January 1 used to develop the net periodic pension cost for U.S. plans were:
1995 1994 1993 Discount rate for benefit obligations 9.0% 7.5% 8.0% Expected long-term rate of return on assets 9.0% 8.5% 8.5% Rate of increase in compensation levels 5.0% 5.0% 5.0%
For non-U.S. plans, which were not material, similar economic assumptions were used. The components of net periodic pension cost were as follows:
(IN THOUSANDS) 1995 1994 1993 Service cost -- benefits earned $ 7,618 $ 9,763 $ 9,423 Interest cost on projected benefit obligation 30,317 27,793 28,496 Actual return on assets (91,611) 7,353 (7,770) Amortization and deferral, net 52,953 (47,687) (30,968) Net periodic pension cost (credit) $ (723) $ (2,778) $ (819)
For discontinued operations, Coltec's total projected benefit obligation at December 31, 1995, and 1994 was $224,934,000 and $215,121,000, respectively, and is fully funded. Interest accrued for 1995, 1994 and 1993 on the projected benefit obligation was $19,609,000, $18,684,000, and $20,450,000, respectively, and was fully offset by return on assets resulting in no net periodic cost. 9. OTHER POSTRETIREMENT BENEFITS Coltec provides health care and life insurance benefits to its eligible retired employees, principally in the United States. Effective January 1, 1993, Coltec adopted Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," ("FAS 106") using the delayed recognition transition option whereby the transition obligation is being amortized on a straight-line basis over 20 years. FAS 106 requires that the cost of postretirement benefits be recognized in the financial statements during the years the employees provide services. Coltec's accumulated postretirement benefit obligation, none of which is funded, and the postretirement benefit cost liability were as follows:
(IN THOUSANDS) 1995 1994 1993 Actuarial present value of projected accumulated postretirement benefit obligation: Retirees $ 17,449 $ 16,224 $ 17,511 Fully eligible active participants 4,228 3,568 4,613 Other active participants 5,415 3,126 3,441 Total 27,092 22,918 25,565 Unamortized transition obligation (18,076) (19,736) (22,727) Unrecognized net loss (4,827) (1,279) (1,482) Unrecognized prior service cost (1,033) -- -- Postretirement benefit cost liability $ 3,156 $ 1,903 $ 1,356 The components of postretirement benefit cost were as follows: (IN THOUSANDS) 1995 1994 1993 Service cost -- benefits earned $ 198 $ 179 $ 249 Interest cost on accumulated postretirement benefit obligation 1,927 1,810 1,838 Amortization of transition obligation 1,373 1,101 1,196 Amortization and deferral, net (63) (127) -- Curtailment loss -- 427 -- Postretirement benefit cost $ 3,435 $ 3,390 $ 3,283
During 1994, Coltec recognized a curtailment loss in connection with a plan amendment which accelerated the recognition of the related unamortized transition obligation. 39 Discount rates of 7.5% and 9.0% were used in determining the accumulated postretirement benefit obligation at December 31, 1995 and 1994, respectively. The health care cost trend rates used in determining the accumulated postretirement benefit obligation at December 31, 1995 were 9.8% in 1996 gradually declining to 5.0% in 2005. The effect of a 1% increase in the health care cost trend rates in each year would be to increase the total service and interest cost components of the postretirement benefit cost for 1995 by approximately $207,000 and to increase the accumulated postretirement benefit obligation at December 31, 1995, by approximately $1,900,000. 10. SEGMENT INFORMATION Coltec's financial results are reported in three industry segments: Aerospace/Government, Automotive, and Industrial. Customers of the Aerospace/Government segment are principally aircraft and aircraft engine manufacturers. The principal customers of the Automotive segment are the domestic original equipment manufacturers and the automotive aftermarket. Information on the major products within each industry segment and on sales and operating income by industry segment for the years 1995, 1994 and 1993 included on pages 23 and 24 in the Financial Review is incorporated herein by reference. Information on total assets; depreciation of property, plant and equipment; and capital expenditures by industry segment is as follows:
(IN MILLIONS) 1995 1994 1993 Total assets: Aerospace/Government $ 446.2 $ 402.3 $ 386.2 Automotive 130.6 129.5 124.6 Industrial 183.4 164.4 180.1 Corporate unallocated 134.3 151.3 105.6 Total $ 894.5 $ 847.5 $ 796.5 Depreciation of property, plant and equipment: Aerospace/Government $ 15.8 $ 14.7 $ 16.1 Automotive 7.9 7.5 7.4 Industrial 8.6 8.7 9.5 Corporate unallocated .2 .2 .2 Total $ 32.5 $ 31.1 $ 33.2 Capital expenditures: Aerospace/Government $ 18.3 $ 21.3 $ 21.8 Automotive 10.1 7.0 9.6 Industrial 9.9 9.9 7.2 Corporate unallocated 4.2 -- -- Total $ 42.5 $ 38.2 $ 38.6 Information by geographic segment is as follows: OPERATING TOTAL (IN MILLIONS) SALES INCOME ASSETS 1995 Domestic operations $ 1,189.4 $ 227.1 $ 673.9 Foreign operations 245.6 10.3 205.4 Intersegment elimination (33.1) -- (119.1) Total segments 1,401.9 237.4 760.2 Corporate unallocated -- (39.7) 134.3 Total $ 1,401.9 $ 197.7 $ 894.5 1994 Domestic operations $ 1,148.3 $ 241.5 $ 629.2 Foreign operations 208.1 28.8 202.0 Intersegment elimination (29.6) -- (135.0) Total segments 1,326.8 270.3 696.2 Corporate unallocated -- (34.0) 151.3 Total $ 1,326.8 $ 236.3 $ 847.5 1993 Domestic operations $ 1,155.4 $ 215.9 $ 619.4 Foreign operations 206.7 30.2 207.6 Intersegment elimination (27.3) -- (136.1) Total segments 1,334.8 246.1 690.9 Corporate unallocated -- (34.4) 105.6 Total $ 1,334.8 $ 211.7 $ 796.5
11. SUPPLEMENTARY EARNINGS INFORMATION The following costs and expenses are included in the Consolidated Statement of Earnings:
(IN THOUSANDS) 1995 1994 1993 Maintenance $ 27,566 $ 27,224 $ 25,363 Taxes, other than federal income taxes Payroll 28,660 28,205 28,700 Property 4,685 4,565 4,764 State and local 6,816 7,688 4,785 Rent 9,589 10,106 12,235 Research and development costs 25,619 23,830 22,079
40 12. QUARTERLY SALES AND EARNINGS (UNAUDITED) The following table sets forth quarterly sales, gross profit and earnings for the three years ended December 31, 1995.
QUARTER (IN THOUSANDS, EXCEPT PER SHARE DATA) 1ST 2ND 3RD 4TH 1995 Net sales $ 356,344 $ 361,547 $ 332,134 $ 351,859 Gross profit 109,855 112,162 101,029 99,609 Operating income 58,133 60,351 25,094 54,126 Earnings before extraordinary item 23,486 24,069 1,804 21,801 Extraordinary item (82) -- -- (172) Net earnings 23,404 24,069 1,804 21,629 Earnings per common share Before extraordinary item .34 .34 .03 .31 Extraordinary item -- -- -- -- Net earnings .34 .34 .03 .31 1994 Net sales $ 331,850 $ 337,018 $ 317,507 $ 340,386 Gross profit 104,209 110,206 106,248 114,156 Operating income 54,679 60,691 57,831 63,129 Earnings before extraordinary item 20,643 24,383 23,037 25,926 Extraordinary item -- (1,015) (177) (280) Net earnings 20,643 23,368 22,860 25,646 Earnings per common share Before extraordinary item .30 .35 .33 .37 Extraordinary item -- (.02) -- -- Net earnings .30 .33 .33 .37 1993 Net sales $ 339,934 $ 334,591 $ 316,077 $ 344,227 Gross profit 107,903 107,729 104,585 109,148 Operating income 54,967 37,040 56,800 62,902 Earnings before extraordinary item 17,490 6,013 18,490 23,233 Extraordinary item (264) (375) (378) (16,775) Net earnings 17,226 5,638 18,112 6,458 Earnings per common share Before extraordinary item .25 .09 .27 .33 Extraordinary item -- (.01) (.01) (.24) Net earnings .25 .08 .26 .09
REFERENCE IS MADE TO NOTE 2 FOR SPECIAL CHARGES, NOTE 3 FOR EXTRAORDINARY ITEM AND NOTE 1 FOR EARNINGS PER SHARE. 41 13.COMMITMENTS AND CONTINGENCIES Coltec and certain of its subsidiaries are liable for lease payments and are defendants in various lawsuits, including actions involving asbestos-containing products and certain environmental proceedings. With respect to asbestos product liability and related litigation costs, as of December 31, 1995, and 1994, two subsidiaries of Coltec were among a number of defendants (typically 15 to 40) in approximately 105,300 and 76,700 actions, respectively, (including approximately 4,900 and 3,300 actions, respectively, in advanced stages of processing) filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. Through December 31, 1995, approximately 131,200 of the approximately 236,500 total actions brought have been settled or otherwise disposed of. The damages claimed for personal injury or death vary from case to case and in many cases plaintiffs seek $1,000,000 or more in compensatory damages and $2,000,000 or more in punitive damages. Although the law in each state differs to some extent, it appears, based on advice of counsel, that liability for compensatory damages would be shared among all responsible defendants, thus limiting the potential monetary impact of such judgments on any individual defendant. Following a decision of the Pennsylvania Supreme Court, in a case in which neither Coltec or any of its subsidiaries were parties, that held insurance carriers are obligated to cover asbestos-related bodily injury actions if any injury or disease process, from first exposure through manifestation, occurred during a covered policy period (the "continuous trigger theory of coverage"), Coltec settled litigation with its primary and most of its first-level excess insurance carriers, substantially on the basis of the Court's ruling. Coltec has negotiated a final agreement with most of its excess carriers that are in the layers of coverage immediately above its first layer. Coltec is currently receiving payments pursuant to this agreement. Coltec believes that, with respect to the remaining carriers, a final agreement can be achieved without litigation and on substantially the same basis that it has resolved the issues with its other carriers. Settlements are generally made on a group basis with payments made to individual claimants over periods of one to four years. During 1995, 1994 and 1993, two subsidiaries of Coltec received approximately 44,000, 29,800 and 27,400 new actions, respectively. Payments were made with respect to asbestos liability and related costs aggregating $56,739,000 in 1995, $46,374,000 in 1994, and $38,677,000 in 1993, substantially all of which were covered by insurance. In accordance with Coltec's internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions have progressed to a stage where Coltec can reasonably estimate the cost to dispose of these actions. As of December 31, 1995, Coltec estimates that the aggregate remaining cost of the disposition of the settled actions for which payments remain to be made and actions in advanced stages of processing, including associated legal costs, is approximately $59,241,000, and Coltec expects that this cost will be substantially covered by insurance. With respect to the 100,400 outstanding actions as of December 31, 1995, which are in preliminary procedural stages, Coltec lacks sufficient information upon which judgments can be made as to the validity or ultimate disposition of such actions, thereby making it difficult to estimate with reasonable certainty the potential liability or costs to Coltec. When asbestos actions are received they are typically forwarded to local counsel to ensure that the appropriate preliminary procedural response is taken. The complaints typically do not contain sufficient information to permit a reasonable evaluation as to their merits at the time of receipt, and in jurisdictions encompassing a majority of the outstanding actions, the practice has been that little or no discovery or other action is taken until several months prior to the date set for trial. Accordingly, Coltec generally does not have the information necessary to analyze the actions in sufficient detail to estimate the ultimate liability or costs to Coltec, if any, until the actions appear on a trial calendar. A determination to seek dismissal, to attempt to settle or to proceed to trial is typically not made prior to the receipt of such information. It is also difficult to predict the number of asbestos lawsuits that Coltec's subsidiaries will receive in the future. Coltec has noted that, with respect to recently settled actions or actions in advanced stages of processing, the mix of the injuries alleged and the mix of the occupations of the plaintiffs have been changing from those traditionally associated with Coltec's asbestos-related actions. Coltec is not able to determine with reasonable certainty whether this trend will continue. Based upon the foregoing, and due to the unique factors inherent in each of the actions, including the nature of the disease, the occupation of the plaintiff, the presence or 42 absence of other possible causes of a plaintiff's illness, the availability of legal defenses, such as the statute of limitations or state of the art, and whether the lawsuit is an individual one or part of a group, management is unable to estimate with reasonable certainty the cost of disposing of outstanding actions in preliminary procedural stages or of actions that may be filed in the future. However, Coltec believes that its subsidiaries are in a favorable position compared to many other defendants because, among other things, the asbestos fibers in its asbestos-containing products were encapsulated. Considering the foregoing, as well as the experience of Coltec's subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, and the significant amount of insurance coverage that Coltec expects to be available from its solvent carriers, Coltec believes that pending and reasonably anticipated future actions are not likely to have a material effect on Coltec's results of operations and financial condition. Although the insurance coverage which Coltec has is substantial, it should be noted that insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. Coltec's subsidiaries continue to be named as defendants in new cases, some of which allege initial exposure after July 1, 1984. In addition to claims for personal injury, Coltec's subsidiaries have been involved in an insignificant number of property damage claims based upon asbestos-containing materials found in schools, public facilities and private commercial buildings. Based upon proceedings to date, the overwhelming majority of these claims have been resolved without a material adverse impact on Coltec. Likewise, the insignificant number of claims remaining to be resolved are not expected to have a material effect on Coltec's results of operations and financial condition. Coltec has recorded an accrual for its liabilities for asbestos-related matters that are deemed probable and can be reasonably estimated (settled actions and actions in advanced stages of processing), and has separately recorded an asset equal to the amount of such liabilities that is expected to be recovered by insurance. In addition, Coltec has recorded a receivable for that portion of payments previously made for asbestos product liability actions and related litigation costs that is recoverable from its insurance carriers. Liabilities for asbestos related matters and the receivable from insurance carriers included in the Consolidated Balance Sheet are as follows:
DECEMBER 31, (IN THOUSANDS) 1995 1994 Accounts and notes receivable -- other $ 53,677 $ 68,179 Other assets 16,243 13,119 Accrued expenses -- other 47,791 34,099 Other liabilities 11,450 8,155
With respect to environmental proceedings, Coltec has been notified that it is among the Potentially Responsible Parties ("PRPs") under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or similar state laws, for the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. CERCLA imposes joint and several liability for the costs of investigating and remediating properties contaminated by hazardous materials. Liability for these costs can be imposed on present and former owners or operators of the properties or on parties who generated the wastes that contributed to the contamination. The process of investigating and remediating contaminated properties can be lengthy and expensive. The process is also subject to the uncertainties occasioned by changing legal requirements, developing technological applications and liability allocations among PRPs. Based on the progress to date in the investigation, cleanup and allocation of responsibility for these sites, Coltec has estimated that its costs in connection with these sites approximate $20,000,000 at December 31, 1995, and has accrued for this amount in the Consolidated Balance Sheet as of December 31, 1995. Although Coltec is pursuing insurance recovery in connection with certain of these matters, Coltec has not recorded a receivable with respect to any potential recovery of costs in connection with any environmental matter. Under operating lease commitments, expiring on various dates after December 31, 1996, Coltec and certain of its subsidiaries are obligated as of December 31, 1995, to pay rentals totaling $26,779,000 as follows: $6,097,000 in 1996, $5,392,000 in 1997, $4,536,000 in 1998, $3,657,000 in 1999, $2,752,000 in 2000, and $4,345,000 in later years. 43 REPORT OF MANAGEMENT The management of Coltec Industries Inc is responsible for the preparation of the financial statements and related financial information included in this Annual Report and for their integrity and objectivity. The financial statements have been prepared in conformity with generally accepted accounting principles and contain estimates and judgments by management as appropriate. The Company maintains a system of internal accounting control designed to provide reasonable assurance that assets are safeguarded, transactions are executed and recorded in accordance with management's authorization and accounting records may be relied upon for preparation of financial statements. Management is responsible for maintenance of these systems, which is accomplished through communication of established written codes of conduct, policies and procedures; selection of qualified personnel; and appropriate delegation of authority and segregation of responsibilities. Adherence to these controls, policies and procedures is monitored and evaluated by the Company's internal auditors. Coltec Industries Inc's financial statements have been audited by Arthur Andersen LLP, the Company's independent public accountants. In planning and performing their audit of the Company's financial statements, the independent public accountants consider the internal control structure in determining their auditing procedures. The independent public accountants also prepare recommendations for improving policies and procedures and such recommendations are communicated to management and the Audit Committee of the Board of Directors. The Audit Committee, composed solely of outside directors, meets periodically with management, the independent public accountants and the internal auditors, to review matters relating to the system of internal accounting control and the Company's financial statements. Both the independent public accountants and internal auditors have direct access to the Audit Committee, with or without the presence of management, to discuss the scope and results of their audits and their comments on the adequacy of the Company's internal accounting control system. /s/ John W. Guffey Jr. JOHN W. GUFFEY, JR. Chairman, President and Chief Executive Officer /s/ Paul G. Schoen PAUL G. SCHOEN Executive Vice President, Finance; Treasurer, and Chief Financial Officer REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF COLTEC INDUSTRIES INC: We have audited the accompanying consolidated balance sheets of Coltec Industries Inc (a Pennsylvania corporation) and subsidiaries as of December 31, 1995 and 1994, and the related consolidated statements of earnings, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1995. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Coltec Industries Inc and subsidiaries as of December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. /s/ Arthur Andersen LLP New York, N.Y. January 22, 1996 Directors top row, left to right Paul G. Schoen Executive Vice President, Finance; Treasurer, and Chief Financial Officer Coltec Industries Inc J. Bradford Mooney, Jr. Oceanography Consultant (Retired) Rear Admiral, U.S. Navy Professor Joel Moses Provost Massachusetts Institute of Technology Joseph R. Coppola Chairman, President and Chief Executive Officer Giddings & Lewis, Inc. bottom row, left to right John W. Guffey, Jr. Chairman, President and Chief Executive Officer Coltec Industries Inc David I. Margolis (Retired) Former Chairman and Chief Executive Officer Coltec Industries Inc Richard A. Stuckey Economic Consultant (Retired) Chief Economist of E.I. du Pont de Nemours & Co. Officers John W. Guffey, Jr. Chairman, President and Chief Executive Officer Laurence H. Polsky Executive Vice President, Administration Paul G. Schoen Executive Vice President, Finance; Treasurer, and Chief Financial Officer John M. Cybulski Senior Vice President, Aerospace Richard L. Dashnaw Senior Vice President, Group Operations Robert J. Tubbs Senior Vice President, General Counsel and Secretary Transfer Agent and Registrar Chemical Mellon Shareholder Services, L.L.C. Auditors Arthur Andersen LLP Executive Offices 430 Park Avenue New York, NY 10022-3597 (212) 940-0400 Affirmative Action In striving to develop and maintain an effective work force, the company provides employment, training and advancement opportunities without regard to race, color, religion, sex, age, national origin or disability. The company's affirmative action program covers the employment of minorities, women, disabled persons, Vietnam veterans or special disabled veterans. Domestic Operations Aerospace/Government Chandler Evans Control Systems Charter Oak Boulevard P.O. Box 330651 West Hartford, CT 06133-0651 860/236-0651 Delavan Gas Turbine Products P.O. Box 65100 811 Fourth Street West Des Moines, IA 50265-0100 515/274-1561 Fairbanks Morse Engine 701 White Avenue Beloit, WI 53511 608/364-4411 Lewis Engineering 238 Water Street Naugatuck, CT 06770-0231 203/597-6900 Menasco Aerosystems 4000 South Highway 157 Euless, TX 76040-7012 817/283-4471 Walbar Inc Peabody Industrial Center Fifth Street Peabody, MA 01960-3369 508/532-2350 Automotive Farnam Sealing Systems 650 Stephenson Highway Troy, MI 48083 810/588-0044 Holley Automotive 11955 East Nine Mile Road Warren, MI 48089-2003 810/497-4000 Holley Performance Products 1801 Russellville Road P.O. Box 10360 Bowling Green, KY 42102-7360 502/782-2900 Performance Friction Products Rt. 3, Box 168 Highway 349 P.O. Box 8326 Longview, TX 75607 903/643-7991 Stemco Truck Products 300 East Industrial Boulevard P.O. Box 1989 Longview, TX 75606-1989 903/758-9981 Industrial Delavan Commercial Products 20 Delavan Drive Lexington, TN 38351 901/968-8152 FMD Electronics 6402 Rockton Road Roscoe, IL 61073 815/389-3660 France Compressor Products 104 Pheasant Run Newtown, PA 18940 215/968-5959 Garlock Bearings 700 Mid Atlantic Parkway Thorofare, NJ 08086 609/848-3200 Garlock Mechanical Packing 1666 Division Street Palmyra, NY 14522 315/597-4811 Plastomer Products 23 Friends Lane Newtown, PA 18940 215/968-5011 Garlock Valves & Industrial Plastics 602 North 10th Street P.O. Box 648 Camden, NJ 08101-0648 609/964-0370 Haber Tool 12850 Inkster Road Detroit, MI 48239 313/255-1750 Ortman Fluid Power 19 143rd Street Hammond, IN 46327 219/931-1710 Quincy Compressor 3501 Wismann Lane P.O. Box C2 Quincy, IL 62301-1257 217/222-7700 Sterling Die 13811 Enterprise Avenue Cleveland, OH 44135-5196 216/267-1300 International Facilities of Domestic OperationsColtec Aerospace Canada Ltd Menasco Aerospace 1400 South Service Road West Oakville, Ontario, Canada L6L 5Y7 905/827-7777 Coltec Aerospace Canada Ltd Menasco Aviation Services 5415 North Service Road Burlington, Ontario, Canada L7L 5H7 905/319-3006 Coltec Aerospace Canada Ltd Walbar Canada 1865 Sharlyn Road Mississauga, Ontario, Canada L4X 1R2 905/602-1810 Delavan Ltd Gorsey Lane Widnes Cheshire WA8 ORJ England 44-151-424-6821 Garlock of Canada Ltd France Compressor Products P.O. Box 636 124 Shaver Street Brantford, Ontario Canada N3T 5P9 519/753-8671 Garlock of Canada Ltd Mechanical Packing 2860 Plymouth Drive Oakville, Ontario Canada L6H 5S8 905/829-3200 Garlock of Canada Ltd Mechanical Packing 4100 Rue Garlock Sherbrooke, Quebec Canada J1L 1W5 819/563-8080 Garlock of Canada Ltd Stemco Truck Products 400 Trader's Boulevard East Mississauga, Ontario Canada L4Z 1W7 905/890-1900 Garlock GmbH France Compressor Products Hans Boecklerstrasse 32 6080 Gross Gerau 64502 Neuss Germany 49-6152-93160 Garlock GmbH Mechanical Packing Postfach 21 04 64 41430 Neuss Germany 49-2131-3490 Garlock GmbH Valves & Industrial Plastics Gescheftsbereich Armaturen Postfach 10 05 49 41405 Neuss Germany 49-2131-31080 Garlock (Great Britain) Limited France Compressor Products Imperial Court - Unit 1 Magellan Close Andover Hants SP 10 5NT England 44-1264-357421 Garlock (Great Britain) Limited Mechanical Packing Unit 5 Pipers Court, Berkshire Drive Thatcham, Newbury Berkshire RG13 4ER England 44-1635-871778 Garlock (Great Britain) Limited Stemco Truck Products Hambridge Road Newbury Berkshire RG14 5TG England 44-1635-38668 Louis Mulas Sucs., S.A. de C.V. Mechanical Packing Apartado Postal 15-111 Poniente 116, No. 571 Colonia Industrial Vallejo Delegacion Azcapotzalco 02300 Mexico, D.F. 525/567-5600 Garlock de Mexico, S.A. de C.V. Mechanical Packing Division Apartado Postal 15-103 Poniente 116, No.571 Colonia Industrial Vallejo Delegacion Azcapotzalco 02300 Mexico, D.F. 525/567-7011 Garlock Pty. Ltd Mechanical Packing 10 Willis Street P.O. Box 54 Arncliffe, N.S.W. 2205 Australia 61-2-597-4422 Holley Automotive Group Limited Unit 2230 Kettering Parkway Kettering Venture Park North Hamptonshire NN156XP United Kingdom 44- 1536-534500 Holley Automotive Systems GmbH Scheffelstrasse 73 Falkenweg 1 41468 Neuss Germany 49-2131-3490 Liard S.A. France Compressor Products Route Nationale 49 BP 69-F-59570 Bavay Cedex France 33-2763-1664 Liard S.A. Stemco Truck Products Z1 La Petite Montagne SUD 1 Allee du Dauphine 91018 Evry Cedex France 33-1-6086-9717 EX-21.1 12 EX-21.1 EXHIBIT 21.1 COLTEC INDUSTRIES INC AND SUBSIDIARIES PARENTS AND SUBSIDIARIES DECEMBER 31, 1995 Set forth below is a list of Coltec's principal subsidiaries. All such subsidiaries are consolidated in Coltec's Consolidated Financial Statements. Percentage of State or Voting Securities Jurisdiction Owned by its Name Where Organized Immediate Parent - ---- --------------- ---------------- CII Holdings Inc ................. Delaware 100 Coltec Aerospace Canada Ltd. ..... Canada 89* Coltec Automotive Inc ............ Delaware 100 Coltec Canada Inc ................ Delaware 100 Coltec (Great Britain) Limited ... United Kingdom 100 Coltec Holdings Inc .............. Delaware 100 Coltec Industrial Products Inc ... Delaware 100 Delavan-Delta, Inc................ Tennessee 100 Delavan Inc ...................... Iowa 100 Delavan Limited................... United Kingdom 100 Farnam Sealing Systems Inc ....... Delaware 100 Garlock Bearings Inc. ............ Delaware 80 Garlock de Mexico, S.A. de C.V.... Mexico 65.7 Garlock GmbH ..................... Germany 100 Garlock (Great Britain) Ltd. ..... United Kingdom 100 Garlock Inc ...................... Ohio 100 Garlock of Canada Ltd. ........... Ontario, Canada 100 Garlock Overseas Corporation ..... Delaware 100 Garlock Pty. Limited ............. Australia 80 Garlock, S.A. .................... Panama 100 Holley Automotive Group Limited .. United Kingdom 100 Holley Automotive Inc ............ Delaware 100 Holley Automotive Systems GmbH ... Germany 100 Holley Performance Products Inc .. Delaware 100 Liard S.A. ....................... France 100 Louis Mulas, Sucs., S.A. de C.V... Mexico 65.7 Stemco Inc ....................... Texas 100 The Anchor Packing Company ....... Delaware 100 Walbar Inc ....................... Delaware 100 *11% owned by another subsidiary The names of certain other subsidiaries of Coltec have been omitted from the list above because such unnamed subsidiaries considered in the aggregate as a single subsidiary would not constitute a significant subsidiary. EX-23.1 13 EX-23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Shareholders of Coltec Industries Inc: As independent public accountants, we hereby consent to the incorporation of our reports included in and incorporated by reference into this Form 10-K, into the Company's previously filed Registration Statement File Nos. 33-45426, 33-52414, 33-1811 and 33-56139. ARTHUR ANDERSEN LLP New York, N.Y. January 22, 1996 EX-27 14 EX-27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE DECEMBER 31, 1995 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 YEAR DEC-31-1995 DEC-31-1995 3,971 0 196,185 4,174 229,436 449,494 666,285 435,812 894,502 240,578 945,606 0 0 701 (454,463) 894,502 1,401,884 1,401,884 979,229 1,204,180 0 0 89,886 107,818 36,658 71,160 0 (254) 0 70,906 1.02 1.02
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