-----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, AhW1ywefSWPBTx+x7TCJkDOu8UizvJBfDdcUTvl4LnU1k4CoYTk3ESEQF+1Kcara j5iLaqQFNPqkVW2UyCp4vQ== 0000950144-98-012333.txt : 19981113 0000950144-98-012333.hdr.sgml : 19981113 ACCESSION NUMBER: 0000950144-98-012333 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19980927 FILED AS OF DATE: 19981112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLTEC INDUSTRIES INC CENTRAL INDEX KEY: 0000201493 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] IRS NUMBER: 131846375 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07568 FILM NUMBER: 98744149 BUSINESS ADDRESS: STREET 1: 3 COLISEUM CENTRE STREET 2: 2550 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217 BUSINESS PHONE: (704) 423 7000 MAIL ADDRESS: STREET 1: 3 COLISEUM CENTRE STREET 2: 2550 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217 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-Q 1 COLTEC INDUSTRIES FORM 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) [X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 27, 1998 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from ______________ to _______________ Commission file number: 1-7568 COLTEC INDUSTRIES INC (Exact name of registrant as specified in its charter) PENNSYLVANIA 13-1846375 (State or other jurisdiction of incorporation (IRS Employer or organization) Identification No.) 3 Coliseum Centre 2550 West Tyvola Road Charlotte, North Carolina 28217 28217 (Address of principal executive offices) (Zip code) (704)423-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) ---------------------------------------- On November 5, 1998, there were outstanding 63,052,035 shares of common stock, par value $.01 per share. 2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data)
Three Months Ended Nine Months Ended Sept. 27 Sept. 28 Sept. 27 Sept. 28 1998 1997 1998 1997 -------- -------- -------- -------- Net sales $ 360,398 $ 324,453 $ 1,129,593 $ 955,852 Cost of sales 249,329 221,472 821,333 650,284 --------- --------- ----------- --------- Gross profit 111,069 102,981 308,260 305,568 Selling and administrative 54,968 53,787 180,097 162,692 --------- --------- ----------- --------- Operating income 56,101 49,194 128,163 142,876 Gain on divestiture -- -- 56,194 -- Interest expense and other, net (12,620) (13,859) (40,930) (38,905) --------- --------- ----------- --------- Earnings before income taxes, minority interest and extraordinary item 43,481 35,335 143,427 103,971 Income taxes (14,783) (12,014) (48,765) (35,350) Minority interest in net loss of subsidiaries (1,300) -- (2,385) -- --------- --------- ----------- --------- Earnings before extraordinary item 27,398 23,321 92,277 68,621 Extraordinary item (net of tax) -- -- (4,326) -- --------- --------- ----------- --------- Net earnings $ 27,398 $ 23,321 $ 87,951 $ 68,621 ========= ========= =========== ========= Basic earnings per common share Before extraordinary item $ .42 $ .36 $ 1.40 $ 1.04 Extraordinary item -- -- (.07) -- --------- --------- ----------- --------- Net earnings $ .42 $ .36 $ 1.33 $ 1.04 ========= ========= =========== ========= Basic weighted-average common shares 65,050 65,428 65,639 65,977 ========= ========= =========== ========= Diluted earnings per common share Before extraordinary item $ .41 $ .35 $ 1.36 $ 1.03 Extraordinary item -- -- (.06) -- --------- --------- ----------- --------- Net earnings $ .41 $ .35 $ 1.30 $ 1.03 ========= ========= =========== ========= Diluted weighted-average common and common equivalent shares 70,419 66,596 69,620 67,007 ========= ========= =========== =========
See notes to consolidated financial statements. 2 3 COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
Sept. 27 Dec. 31 1998 1997 ---------- -------- ASSETS Current assets: Cash and cash equivalents $ 18,032 $ 14,693 Accounts and notes receivable, net of allowance of $3,078 in 1998 and $2,394 in 1997 180,956 120,311 Inventories Finished goods 40,927 53,748 Work in process and finished parts 159,615 158,937 Raw materials and supplies 37,096 44,051 ---------- -------- 237,638 256,736 Deferred income taxes 17,218 15,195 Other current assets 14,475 20,508 ---------- -------- Total current assets 468,319 427,443 Property, plant and equipment, net 298,799 287,619 Costs in excess of net assets acquired, net 216,826 157,751 Other assets 101,863 60,221 ---------- -------- $1,085,807 $933,034 ========== ========
See notes to consolidated financial statements. 3 4 COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In thousands, except share data)
Sept. 27 Dec. 31 1998 1997 ---------- -------- LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 3,220 $ 1,811 Accounts payable 93,463 93,799 Accrued expenses 226,077 138,969 Current portion of liabilities of discontinued operations 4,999 4,999 ---------- -------- Total current liabilities 327,759 239,578 Long-term debt 607,583 757,578 Deferred income taxes 88,828 79,229 Other liabilities 81,973 60,892 Liabilities of discontinued operations 146,671 154,918 Commitments and contingencies -- -- Company-obligated, mandatorily redeemable convertible preferred securities of subsidiary Coltec Capital Trust holding solely convertible junior subordinated debentures of the Company 144,966 -- Shareholders' equity: Preferred stock, $.01 par value, 2,500,000 shares authorized, shares outstanding - none -- -- Common stock, $.01 par value, 100,000,000 shares authorized, 70,595,495 and 70,501,948 shares issued at September 27, 1998 and December 31, 1997, respectively (excluding 25,000,000 shares held by a wholly-owned subsidiary) 705 705 Capital surplus 643,729 642,828 Retained deficit (824,535) (912,029) Unearned compensation (3,370) (2,721) Minimum pension liability (1,646) (1,646) Foreign currency translation adjustments (16,755) (6,745) ---------- -------- (201,872) (279,608) Less cost of 6,461,985 and 4,666,406 shares of common stock in treasury at September 27, 1998 and December 31, 1997, respectively (110,101) (79,553) ---------- -------- (311,973) (359,161) ---------- -------- $1,085,807 $933,034 ========== ========
See notes to consolidated financial statements. 4 5 COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Nine Months Ended ----------------------- Sept. 27 Sept. 28 1998 1997 --------- -------- Cash flows from operating activities: Net earnings $ 87,951 $ 68,621 Adjustments to reconcile net earnings to cash provided by operating activities: Gain on divestiture (56,194) -- Extraordinary item 6,554 -- Depreciation and amortization 36,948 28,327 Deferred income taxes 8,781 10,209 Payments of liabilities of discontinued operations (8,247) (19,196) Foreign currency translation adjustment (10,010) (4,062) Other operating items (12,453) (30,825) Changes in assets and liabilities (net of effects from acquisitions and divestiture): Accounts and notes receivable (60,525) (10,604) Inventories 16,141 (28,314) Other current assets 3,268 (504) Accounts payable (1,114) 11,934 Accrued expenses 77,404 4,748 --------- -------- Cash provided by operating activities 88,504 30,334 --------- -------- Cash flows from investing activities: Capital expenditures (36,700) (46,004) Proceeds from divestiture 100,000 -- Acquisition of businesses, net (93,842) (23,778) --------- -------- Cash used in investing activities (30,542) (69,782) --------- -------- Cash flows from financing activities: Increase (decrease) in revolving facility, net (432,000) 25,000 Repayment of long-term debt (22,067) (8,117) Issuance of long-term debt, net 292,151 -- Issuance of convertible preferred securities, net 144,472 -- Sale of accounts receivable -- 62,000 Purchase of treasury stock (33,308) (42,695) Payments for unclaimed stock (3,871) -- --------- -------- Cash provided by (used in) investing activities (54,623) 36,188 --------- -------- Increase (decrease) in cash and cash equivalents 3,339 (3,260) Cash and cash equivalents - beginning of period 14,693 15,029 --------- -------- Cash and cash equivalents - end of period $ 18,032 $ 11,769 ========= ======== Supplemental cash flow data: Cash paid for interest $ 32,412 $ 35,025 Cash paid for income taxes 21,589 13,827
See notes to consolidated financial statements. 5 6 COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (in thousands)
Three Months Ended Nine Months Ended Sept. 27 Sept. 28 Sept. 27 Sept. 28 1998 1997 1998 1997 --------- --------- ----------- --------- Net earnings $ 27,398 $ 23,321 $ 87,951 $ 68,621 --------- --------- ----------- --------- Other comprehensive income (loss), net of tax: Foreign currency translation adjustment (1,603) 978 (10,010) (4,062) Unearned compensation (1,220) (712) (649) (1,041) Amortization of preferred stock issuance costs (196) -- (494) -- --------- --------- ----------- --------- Other comprehensive income (loss), net of tax (3,019) 266 (11,153) (5,103) --------- --------- ----------- --------- Comprehensive income $ 24,379 $ 23,587 $ 76,798 $ 63,518 ========= ========= =========== =========
See notes to consolidated financial statements. 6 7 COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) 1. SUMMARY OF ACCOUNTING POLICIES Financial Information: The unaudited consolidated financial statements included herein reflect in the opinion of the management of Coltec Industries Inc (the "Company") all normal recurring adjustments necessary to present fairly the consolidated financial position and results of operations for the periods indicated. The unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The Consolidated Balance Sheet as of December 31, 1997 has been extracted from the audited consolidated financial statements as of that date. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report to shareholders for the year ended December 31, 1997. 2. ACQUISITIONS AND DIVESTITURES On January 30, 1998, the Company acquired certain Marine and Petroleum Mfg. Inc.'s manufacturing facilities based in Texas for approximately $17,000. The plants acquired produce flexible graphite and polytetrafluoroethylene (PTFE) fluid sealing products used in the petrochemical industry. Combined annual sales for these facilities are expected to approximate $18,000. The Company also acquired Tex-o-Lon and Repro-Lon for approximately $25,000. These two Texas businesses have combined annual sales of $15,000. Tex-o-Lon manufactures, machines and distributes PTFE products, primarily for the semiconductor industry. Repro-Lon reprocesses PTFE compounds for the chemical and semiconductor industries. The acquisitions were accounted for as purchases; accordingly, the purchase price, which was financed through available cash resources, was allocated to the acquired assets based upon their fair market values. On February 2, 1998, the Company purchased the Sealing Division of Groupe Carbone Lorraine for $45,600. This division, with facilities in France and South Carolina, produces high-technology metallic gaskets used in the nuclear, petroleum and chemical industries. Sales are expected to approximate $38,000. This acquisition was accounted for as a purchase and the purchase price, also financed through available cash resources, was allocated to the acquired assets based upon their fair market values. In May 1998, the Company sold the capital stock of its Holley Performance Products subsidiary to Kohlberg & Co., L.L.C., a private merchant banking firm located in Mount Kisco, New York, for $100 million in cash. The sale resulted in a pre-tax gain of $56,194, net of liabilities retained. In August 1998, the Company acquired from Federal-Mogul Corporation the 20% of Garlock Bearings that it did not previously own for approximately $12,000. Garlock Bearings, a producer of self-lubricating bearings, has annual sales of approximately $50,000. 3. FINANCINGS In April 1998, the Company privately placed, with institutional investors, $300,000 principal amount of 7 1/2% Senior Notes due 2008 ("Senior Notes") and $150,000 (3,000,000 shares at liquidation value of $50 per Convertible Preferred 7 8 Security) of 5 1/4% Trust Convertible Preferred Securities ("Convertible Preferred Securities"). The placement of the Convertible Preferred Securities was made through the Company's wholly-owned subsidiary, Coltec Capital Trust ("Trust"), a newly-formed Delaware business trust. The Convertible Preferred Securities represent undivided beneficial ownership interests in the Trust. Substantially all the assets of the Trust are the 5 1/4% Convertible Junior Subordinated Deferrable Interest Debentures Due April 15, 2028 which were acquired with the proceeds from the private placement of the Convertible Preferred Securities. The Company's obligations under the Convertible Junior Subordinated Debentures, the Indenture pursuant to which they were issued, the Amended and Restated Declaration of Trust of the Trust, and the Guarantee of the Company, taken together, constitute a full and unconditional guarantee by the Company of amounts due on the Convertible Preferred Securities. The Convertible Preferred Securities are convertible at the option of the holders at any time into the common stock of the Company at an effective conversion price of $29 5/16 per share and are redeemable at the Company's option after April 20, 2001 at 102.63% of the liquidation amount declining ratably to 100% after April 20, 2004. The net proceeds of the Senior Notes and the Convertible Preferred Securities of approximately $436,623 were used by the Company to reduce indebtedness under its credit facility. Dividends on the Convertible Preferred Securities were $1.3 million and $2.4 million after tax, in the three months and nine months ended September 27, 1998, respectively. 4. EXTRAORDINARY ITEM The Company incurred an extraordinary charge of $4,326, net of income taxes of $2,228, in the second quarter of 1998 in connection with early debt repayment. 5. EARNINGS PER SHARE In 1997, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share, effective December 15, 1997. The Company's reported earnings per common share for the three months and nine months ended September 27, 1997 equaled diluted earnings per share as set forth in SFAS No. 128. As a result, the Company's reported earnings per share for the three months and nine months ended September 27, 1997 were not restated. Basic earnings per common share are computed by dividing net income by the weighted-average number of shares of common stock outstanding during the year. 8 9 Diluted earnings per common share is computed by using the treasury stock method to determine shares related to stock options and restricted stock.
(in thousands) Three Months Ended Nine Months Ended Sept. 27 Sept. 28 Sept. 27 Sept. 28 1998 1997 1998 1997 -------- -------- -------- -------- Income available to common shareholders before extraordinary item $ 27,398 $ 23,321 $ 92,277 $ 68,621 Dividends on convertible preferred securities, net of tax 1,300 -- 2,385 -- --------- --------- ----------- --------- Income available to common shareholders before extraordinary item plus assumed conversions 28,698 23,321 94,662 68,621 Extraordinary item, net of tax -- -- (4,326) -- --------- --------- ----------- --------- Net income available to common shareholders plus assumed conversions $ 28,698 $ 23,321 $ 90,336 $ 68,621 ========= ========= =========== ========= Basic weighted-average common shares 65,050 65,428 65,639 65,977 Stock options and restricted stock issued 252 1,168 854 1,030 Convertible preferred securities 5,117 -- 3,127 -- --------- --------- ----------- --------- Diluted weighted-average common and common equivalent shares 70,419 66,596 69,620 67,007 ========= ========= =========== =========
6. COMMITMENTS AND CONTINGENCIES Asbestos The Company and certain of its subsidiaries are defendants in various lawsuits, including actions involving asbestos-containing products and certain environmental proceedings. With respect to asbestos product liability and related litigation costs, as of September 27, 1998 two subsidiaries of the Company were among a number of defendants (typically 15 to 40) in approximately 102,000 actions (including approximately 17,400 actions in advanced stages of processing) filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. During the first nine months of 1998, two subsidiaries of the Company received approximately 28,700 new actions compared to approximately 31,400 new actions received during the first nine months of 1997. Through September 27, 1998, approximately 237,300 of the approximately 339,300 total actions brought have been settled or otherwise disposed. The damages claimed for personal injury or death vary from case to case, and in many cases plaintiffs seek $1,000 or more in compensatory damages and $2,000 or more in punitive damages from an extensive list of defendants. Although the law in each state differs to some extent, it appears, based on advice of counsel, 9 10 that liability for compensatory damages would be shared among all responsible defendants, thus limiting the potential monetary impact of such judgments on any individual defendant. Following a decision of the Pennsylvania Supreme Court, in a case in which neither the Company nor any of its subsidiaries were parties, that held insurance carriers are obligated to cover asbestos-related bodily injury actions if any injury or disease process, from first exposure through manifestation, occurred during a covered policy period (the "continuous trigger theory of coverage"), the Company settled litigation with its primary and most of its first-level excess insurance carriers, substantially on the basis of the Court's ruling. The Company has negotiated a final agreement with most of its excess carriers that are in the layers of coverage immediately above its first layer. The Company is currently receiving payments pursuant to this agreement. The Company believes that, with respect to the remaining carriers, a final agreement can be achieved without litigation and on substantially the same basis that it has resolved the issues with its other carriers. Payments were made with respect to asbestos liability and related costs aggregating $34,423 and $47,572 for the first nine months of 1998 and 1997, respectively, substantially all of which were covered by insurance. Settlements are generally made on a group basis with payments made to individual claimants over periods of one to four years. Related to payments not covered by insurance, the Company recorded charges to operations amounting to $6,000 for the first nine months of 1998 and 1997. The average cost to the Company for unreimbursed expenses and liability per case disposed was approximately $.3 for the nine months ended September 27, 1998 and the nine months ended September 28, 1997. In accordance with the Company's internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions have progressed to a stage where the Company can reasonably estimate the cost to dispose of these actions. As of September 27, 1998, the Company estimates that the aggregate remaining cost of the disposition of the settled actions for which payments remain to be made and actions in advanced stages of processing, including associated legal costs, is approximately $126,500 and the Company expects that this cost will be substantially covered by insurance. With respect to the 84,600 outstanding actions as of September 27, 1998, which are in preliminary procedural stages, the Company lacks sufficient information upon which judgments can be made as to the validity or ultimate disposition of such actions, thereby making it difficult to estimate with reasonable certainty the potential liability or costs to the Company. The lawsuits are disposed of over a period of one year to more than five years, with the majority being disposed of by the third year after filing. When asbestos actions are received, they are typically forwarded to local counsel to ensure that the appropriate preliminary procedural response is taken. The complaints typically do not contain sufficient information to permit a reasonable evaluation as to their merits at the time of receipt, and in jurisdictions encompassing a majority of the outstanding actions, the practice has been that little or no discovery or other action is taken until several months prior to the date set for trial. Accordingly, the Company generally does not have the information necessary to analyze the actions in sufficient detail to estimate the ultimate liability or costs to the Company, if any, until the actions appear on a trial calendar. A determination to seek dismissal, to attempt to settle or proceed to trial is typically not made prior to the receipt of such information. 10 11 The Company believes that it will continue to receive some number of asbestos lawsuits into the foreseeable future. It is also difficult, however, to predict the number of asbestos lawsuits that the Company's subsidiaries will receive or the timeframe in which they will be received. The Company has noted that, with respect to recently settled actions and actions in advanced stages of processing, the mix of the injuries alleged and the mix of the occupations of the plaintiffs have been changing from those traditionally associated with the Company's asbestos-related actions. The Company is not able to determine with reasonable certainty whether this trend will continue. Based upon the foregoing, and due to the unique factors inherent in each of the actions, including the nature of the disease, the occupation of the plaintiff, the presence or absence of other possible causes of a plaintiff's illness, the availability of legal defenses, such as the statute of limitations or state of the art, the jurisdiction in which a lawsuit is filed, the pendency of tort reform, and whether the lawsuit is an individual one or part of a group, management is unable to estimate with reasonable certainty the cost of disposing of outstanding actions in preliminary procedural stages or of actions that may be filed in the future. However, the Company believes that its subsidiaries are in a favorable position compared to many other defendants because, among other things, the asbestos fibers in its asbestos-containing products were encapsulated. Subsidiaries of the Company continue to distribute encapsulated asbestos-bearing product in the United States with annual sales of less than $1,500. All sales are accompanied by appropriate warnings. The end users of such product are sophisticated users, who utilize the product for critical applications where no known substitutes exist or have been approved. Insurance coverage of a small non-operating subsidiary formerly distributing asbestos-bearing products is nearly depleted. Considering the foregoing, as well as the experience of the Company's subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, and the substantial amount of insurance coverage that the Company expects to be available from its solvent carriers, the Company believes that pending and reasonably anticipated future actions are not likely to have a material effect on the Company's consolidated results of operations and financial condition. Although the insurance coverage, which the Company has, is substantial, it should be noted that insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. The Company's subsidiaries continue to be named as defendants in new cases, some of which allege initial exposure after July 1, 1984. In addition to claims for personal injury, the Company's subsidiaries have been involved in an insignificant number of property damage claims based upon asbestos-containing materials found in schools, public facilities and private commercial buildings. Based upon proceedings to date, the overwhelming majority of these claims have been resolved without a material adverse impact on the Company. Likewise, the insignificant number of claims remaining to be resolved are not expected to have a material effect on the Company's consolidated results of operations and financial condition. The Company has recorded an accrual for its liabilities for asbestos-related matters that are deemed probable and can be reasonably estimated (settled actions and actions in advanced stages of processing), and has separately recorded an asset equal to the amount of such liabilities that is expected to be recovered by insurance. In addition, the Company has recorded a receivable for that portion of payments previously made for asbestos product liability actions and related litigation costs that is recoverable from its insurance carriers. Liabilities for 11 12 asbestos-related matters and the receivable from insurance carriers included in the Consolidated Balance Sheets are as follows:
Sept. 27 Dec. 31 1998 1997 -------- -------- Accounts and notes receivable $ 98,253 $ 56,039 Other assets 44,097 16,249 Accrued expenses 96,416 50,688 Other liabilities 32,834 2,682
Environmental With respect to environmental proceedings, the Company has been notified that it is among the Potentially Responsible Parties under federal environmental laws, or similar state laws, relative to the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. Such laws impose joint and several liability for the costs of investigating and remediating properties contaminated by hazardous materials. Liability for these costs can be imposed on present and former owners or operators of the properties or on parties who generated the wastes that contributed to the contamination. The Company's policy is to accrue environmental remediation costs when it is both probable that a liability has been incurred and the amount can be reasonably estimated. The measurement of liability is based on an evaluation of currently available facts with respect to each individual situation and takes into consideration factors such as existing technology, presently enacted laws and regulations and prior experience in remediation of contaminated sites. Investigations have been completed for approximately 17 sites and continuing investigations are being done at approximately 11 sites. Accruals are provided for all sites based on the factors discussed above. As remediation plans are written and implemented, estimated costs become more fact-based and less judgment-based. As assessments and remediation progress at individual sites, these liabilities are reviewed periodically and adjusted to reflect additional technical and legal information. While it is often difficult to reasonably quantify future environmental-related expenditures, the Company currently estimates its future non-capital expenditures related to environmental matters to range between $25,000 and $53,000. In connection with these expenditures, the Company has accrued $37,000 at September 27, 1998 representing management's best estimate of probable non-capital environmental expenditures. These non-capital expenditures are estimated to be incurred over the next 10 to 20 years. In addition, capital expenditures aggregating $5,000 may be required during the next two years related to environmental matters. Although the Company is pursuing insurance recovery in connection with certain of these matters, no receivable has been recorded with respect to any potential recovery of costs in connection with any environmental matters. 7. OTHER MATTERS In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No 133 ("SFAS No. 133") Accounting for Derivative Instruments and Hedging Activities. The Statement established accounting and reporting standards requiring that every derivative instrument (including certain derivative instruments embedded in other contracts) be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized 12 13 currently in earnings unless specific hedge accounting criteria are met. Special accounting for qualifying hedges allows a derivative's gains and losses to offset related results on the hedged item in the income statement, and requires that a company must formally document, designate, and assess the effectiveness of transactions that receive hedge accounting. SFAS No. 133 is effective for fiscal years beginning after June 15, 1999. A company may also implement the Statement as of the beginning of any fiscal quarter after issuance. SFAS No. 133 cannot be applied retroactively. SFAS No. 133 must be applied to derivative instruments and certain derivative instruments embedded in hybrid contracts that were issued, acquired, or substantively modified after December 31, 1997. The Company has not yet quantified the impacts of adopting SFAS No. 133 on its consolidated financial statements and has not determined the timing of or method of adoption. However the statement could increase volatility in net income and other comprehensive income. 8. SUPPLEMENTAL GUARANTOR INFORMATION Substantially all the Company's subsidiaries incorporated in the United States (the "Subsidiary Guarantors") have fully and unconditionally guaranteed, on a joint and several basis, the Company's obligations to pay principal and interest with respect to the Senior Notes. Each subsidiary guarantor is wholly owned and management has determined that separate financial statements for the subsidiary guarantors are not material to investors. The subsidiaries of the Company that are not Subsidiary Guarantors are referred to in this note as the "Non-Guarantor Subsidiaries". The following supplemental consolidating condensed financial statements present balance sheets as of September 27, 1998 and December 31, 1997 and statements of earnings and of cash flows for the three months and nine months ended September 27, 1998 and September 28, 1997. In the consolidating financial statements, Coltec Industries Inc (the "Parent") accounts for its investments in wholly-owned subsidiaries using the equity method and the Subsidiary Guarantors account for their investments in Non-Subsidiary Guarantors using the equity method. Interest expense related to the indebtedness under the Company's credit agreement and its three series of senior notes is allocated to United States subsidiaries based on net sales. 13 14 Consolidating Condensed Statement of Earnings
Three Months Ended September 27, 1998 ------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------- ------------ ------------ Net sales $ 119,608 $ 146,084 $ 108,035 $ (13,329) $ 360,398 Cost of sales 84,234 98,031 80,393 (13,329) 249,329 --------- --------- --------- --------- --------- Gross Profit 35,374 48,053 27,642 111,069 Selling and administrative 14,937 30,701 9,330 -- 54,968 --------- --------- --------- --------- --------- Operating income 20,437 17,352 18,312 56,101 Equity earnings of affiliates 21,550 12,692 -- (34,242) -- Interest expense and other, net (12,743) (5,932) 6,287 (232) (12,620) --------- --------- --------- --------- --------- Earnings before income taxes and minority interest 29,244 24,112 24,599 (34,474) 43,481 Income taxes (1,846) (7,263) (5,674) (14,783) Minority interest in net loss of subsidiaries -- -- (1,300) -- (1,300) --------- --------- --------- --------- --------- Net earnings $ 27,398 $ 16,849 $ 17,625 $ (34,474) $ 27,398 ========= ========= ========= ========= ========= Consolidating Condensed Statement of Earnings Nine Months Ended September 27, 1998 ------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------- ------------ ------------ Net sales $ 363,616 $ 477,945 $ 325,290 $ (37,258) $1,129,593 Cost of sales 293,664 323,845 241,082 (37,258) 821,333 --------- --------- --------- --------- --------- Gross Profit 69,952 154,100 84,208 308,260 Selling and administrative 44,730 90,267 45,100 -- 180,097 --------- --------- --------- --------- --------- Operating income 25,222 63,833 39,108 128,163 Equity earnings of affiliates 61,533 30,115 -- (91,648) -- Gain on divestiture 56,194 -- -- 56,194 Interest expense and other, net (39,999) (24,089) 24,444 (1,286) (40,930) --------- --------- --------- --------- --------- Earnings before income taxes, minority interest and extraordinary item 102,950 69,859 63,552 (92,934) 143,427 Income taxes (10,673) (20,813) (17,279) (48,765) Minority interest in net loss of subsidiaries -- -- (2,385) -- (2,385) --------- --------- --------- --------- --------- Earnings before extraordinary item 92,277 49,046 43,888 (92,934) 92,277 Extraordinary item (net of tax) (4,326) -- -- -- (4,326) --------- --------- --------- --------- --------- Net earnings $ 87,951 $ 49,046 $ 43,888 $ (92,934) $ 87,951 ========= ========= ========= ========= =========
14 15 Consolidating Condensed Statement of Earnings
Three Months Ended September 28 1998 ------------------------------------- Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------- ------------ ------------ Net sales $ 104,673 $ 147,278 $ 83,470 $ (10,968) $ 324,453 Cost of sales 71,373 99,337 61,730 (10,968) 221,472 --------- --------- --------- --------- --------- Gross Profit 33,300 47,941 21,740 102,981 Selling and administrative 15,898 33,769 4,120 -- 53,787 --------- --------- --------- --------- --------- Operating income 17,402 14,172 17,620 49,194 Equity earnings of affiliates 16,134 5,729 -- (21,863) -- Interest expense and other, net (13,623) (159) (77) -- (13,859) --------- --------- --------- --------- --------- Earnings before income taxes 19,913 19,742 17,543 (21,863) 35,335 Income taxes 3,408 (8,636) (6,786) -- (12,014) --------- --------- --------- --------- --------- Net earnings $ 23,321 $ 11,106 $ 10,757 $ (21,863) $ 23,321 ========= ========= ========= ========= ========= Consolidating Condensed Statement of Earnings Nine Months Ended September 28, 1998 ------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------- ------------ ------------ Net sales $ 312,009 $ 428,901 $ 246,566 $ (31,624) $ 955,852 Cost of sales 214,855 285,934 181,119 (31,624) 650,284 --------- --------- --------- --------- --------- Gross Profit 97,154 142,967 65,447 305,568 Selling and administrative 50,513 95,429 16,750 -- 162,692 --------- --------- --------- --------- --------- Operating income 46,641 47,538 48,697 142,876 Equity earnings of affiliates 56,439 13,952 -- (70,391) -- Interest expense and other, net (38,556) 32 (381) -- (38,905) --------- --------- --------- --------- --------- Earnings before income taxes 64,524 61,522 48,316 (70,391) 103,971 Income taxes 4,097 (20,074) (19,373) -- (35,350) --------- --------- --------- --------- --------- Net earnings $ 68,621 $ 41,448 $ 28,943 $ (70,391) $ 68,621 ========= ========= ========= ========= =========
15 16 Consolidating Condensed Balance Sheet
September 27, 1998 ------------------------------------------------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------- ------------ ------------ Cash and cash equivalents $ 10,470 $ 5,575 $ 1,987 $ 18,032 Accounts and notes receivable, net -- 21,210 159,746 180,956 Inventory, net 80,669 60,583 96,386 237,638 Deferred income taxes 9,023 8,065 130 17,218 Other current assets 4,182 5,456 4,837 14,475 --------- --------- --------- ----------- ---------- Total current assets 104,344 100,889 263,086 -- 468,319 Intercompany, net (810,822) 286,108 524,714 -- Investments in affiliates 1,023,051 94,523 865 $(1,118,439) -- Property, plant and equipment 95,984 116,224 86,591 298,799 Cost in excess of net assets acquired, net 25,033 136,154 55,639 216,826 Other assets 45,596 2,525 53,742 101,863 --------- --------- --------- ----------- ---------- Total assets $ 483,186 $ 736,423 $ 984,637 $(1,118,439) $1,085,807 ========= ========= ========= =========== ========== Total current liabilities $ 130,578 $ 52,756 $ 144,425 $ 327,759 Long-term debt 513,299 2,969 91,315 607,583 Deferred income taxes (30,499) 101,987 17,340 88,828 Other liabilities 35,110 12,143 38,687 $ (3,967) 81,973 Liabilities of discontinued operations 146,671 -- -- -- 146,671 Company-obligated mandatorily redeemable convertible preferred securities of subsidiary Coltec Capital Trust holding solely convertible junior subordinated debentures of the Company -- -- 144,966 -- 144,966 Shareholders' equity (311,973) 566,568 547,904 (1,114,472) (311,973) --------- --------- --------- ----------- --------- Total liabilities and shareholders' equity $ 483,186 $ 736,423 $ 984,637 $(1,118,439) $1,085,807 ========= ========= ========= =========== ==========
16 17 Consolidating Condensed Balance Sheet
December 31, 1997 ------------------------------------------------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------- ------------ ------------ Cash and cash equivalents $ 9,912 $ 722 $ 4,059 $ 14,693 Accounts and notes receivable, net -- 60,881 59,430 120,311 Inventory, net 99,100 71,958 85,678 256,736 Deferred income taxes 4,535 10,689 (29) 15,195 Other current assets 4,540 10,406 5,562 20,508 --------- --------- --------- ----------- -------- Total current assets 118,087 154,656 154,700 -- 427,443 Intercompany, net (741,897) 10,933 730,964 -- Investments in affiliates 1,057,890 355,399 2,688 $(1,415,977) -- Property, plant and equipment 89,488 118,405 79,726 287,619 Cost in excess of net assets acquired, net 21,820 133,441 2,490 157,751 Other assets 40,266 3,490 16,465 60,221 --------- --------- --------- ----------- --------- Total assets $ 585,654 $ 776,324 $ 987,033 $(1,415,977) $ 933,034 ========= ========= ========= =========== ========= Total current liabilities $ 93,669 $ 49,494 $ 96,415 $ 239,578 Long-term debt 689,302 1,611 66,665 757,578 Deferred income taxes (32,780) 101,871 10,138 79,229 Other liabilities 39,706 12,844 10,544 $ (2,202) 60,892 Liabilities of discontinued operations 154,918 -- -- 154,918 Shareholders' equity (359,161) 610,504 803,271 (1,413,775) (359,161) --------- --------- --------- ----------- --------- Total liabilities and shareholders' equity $ 585,654 $ 776,324 $ 987,033 $(1,415,977) $ 933,034 ========= ========= ========= =========== =========
17 18 Consolidating Condensed Statement of Cash Flows
Nine Months Ended September 27, 1998 ------------------------------------------------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------- ------------ ------------ Cash provided by (used in) operating activities $ 85,723 $ 4,853 $ (2,072) -- $ 88,504 --------- --------- --------- --------- --------- Cash flows from investing activities: Capital expenditures (14,972) (13,568) (8,160) (36,700) Proceeds from divestiture 100,000 -- -- 100,000 Acquisition of business (26,260) (17,000) (50,582) (93,842) Cash from (to) Parent (89,310) 30,568 58,742 -- -- --------- --------- --------- --------- --------- Cash used in investing activities (30,542) -- -- -- (30,542) --------- --------- --------- --------- --------- Cash flows from financing activities: Increase (decrease) in revolving facility, net (472,000) -- 40,000 (432,000) Repayment of long-term debt (6,462) (234) (15,371) (22,067) Issuance of long-term debt 292,151 -- -- 292,151 Issuance of convertible preferred securities -- -- 144,472 144,472 Payments for unclaimed stock (3,871) -- -- (3,871) Purchase of treasury stock (33,308) -- -- (33,308) Cash from (to) Parent 168,867 234 (169,101) -- -- --------- --------- --------- --------- --------- Cash used in financing activities (54,623) -- -- -- (54,623) --------- --------- --------- --------- --------- Cash and cash equivalents: Increase (decrease) in cash and cash equivalents 558 4,853 (2,072) 3,339 Cash and cash equivalents - beginning of period 9,912 722 4,059 -- 14,693 --------- --------- --------- --------- --------- Cash and cash equivalents - end of period $ 10,470 $ 5,575 $ 1,987 -- $ 18,032 ========= ========= ========= ========= =========
18 19 Consolidating Condensed Statement of Cash Flows
Nine Months Ended September 28, 1997 ------------------------------------------------------------------------------ Guarantor Non-Guarantor Parent Subsidiaries Subsidiaries Eliminations Consolidated ------ ------------ ------------- ------------ ------------ Cash provided by (used in) operating activities $ 27,343 $ 315 $ 2,676 -- $ 30,334 --------- --------- --------- --------- --------- Cash flows from investing activities: Capital expenditures (16,650) (13,352) (16,002) (46,004) Acquisition of business (23,778) (23,778) Cash from (to) Parent (29,354) 13,352 16,002 -- -- --------- --------- --------- --------- --------- Cash used in investing activities (69,782) -- -- -- (69,782) --------- --------- --------- --------- --------- Cash flows from financing activities: Increase in revolving facility, net 25,000 -- -- 25,000 Repayment of long-term debt (4,045) -- (4,072) (8,117) Purchase of treasury stock (42,695) -- -- (42,695) Sale of accounts receivable -- -- 62,000 62,000 Cash from (to) Parent 57,928 -- (57,928) -- -- --------- --------- --------- --------- --------- Cash provided by financing activities 36,188 -- -- -- 36,188 --------- --------- --------- --------- --------- Cash and cash equivalents: Increase (decrease) in cash and cash equivalents (6,251) 315 2,676 (3,260) Cash and cash equivalents - beginning of period 10,248 722 4,059 -- 15,029 --------- --------- --------- --------- --------- Cash and cash equivalents - end of period $ 3,997 $ 1,037 $ 6,735 -- $ 11,769 ========= ========= ========= ========= =========
19 20 COLTEC INDUSTRIES INC AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following table shows financial information by industry segment for the three months and nine months ended September 27, 1998 and September 28, 1997.
Three Months Ended Nine Months Ended Sept. 27 Sept. 28 Sept. 27 Sept. 28 1998 1997 1998 1997 -------- -------- -------- -------- (in thousands) Sales: Aerospace $ 180,956 $ 142,775 $ 529,682 $ 390,532 Industrial 179,689 181,923 601,010 565,940 Intersegment elimination (247) (245) (1,099) (620) --------- --------- ----------- --------- Total $ 360,398 $ 324,453 $ 1,129,593 $ 955,852 ========= ========= =========== ========= Operating income: Aerospace (1) 29,866 $ 22,077 $ 57,352 $ 60,974 Industrial (2) 35,887 36,619 99,646 112,054 --------- --------- ----------- --------- Total segments 65,753 58,696 156,998 173,028 Corporate unallocated (9,652) (9,502) (28,835) (30,152) --------- --------- ----------- --------- Operating income $ 56,101 $ 49,194 $ 128,163 $ 142,876 ========= ========= =========== =========
(1) Operating income in the Aerospace Segment for the nine months ended September 27, 1998 included a charge of $25.0 million to recognize program costs associated with the development of Boeing programs and $2.0 million of expenses for Year 2000 compliance for new computer systems. Excluding these charges, Aerospace Segment operating income was $84.4 million for the nine months ended September 27, 1998. (2) Operating income in the Industrial Segment for the nine months ended September 27, 1998 included charges of $12.0 million to record additional warranty and legal reserves and $3.0 million of expenses for Year 2000 compliance for new and existing computer systems. Excluding these charges, Industrial Segment operating income was $114.6 million for the nine months ended September 27, 1998. Results of Operations Company Review Net sales for the third quarter of 1998 increased 11.1% to $360.4 million from $324.5 million for the third quarter of 1997 resulting from sales volume increases in the Aerospace Segment. Gross profit increased to $111.1 million for the third quarter 1998 from $103.0 million in third quarter 1997. The increase in gross profit resulted from increased sales in the Aerospace Segment. Selling and administrative expenses totaled $55.0 million, or 15.3% of sales, in third quarter 1998 compared to $53.8 million, or 16.6% of sales, in third quarter 1997. 20 21 Net sales for the nine months ended September 27, 1998 increased 18.2% to $1,129.6 million from $955.9 million for the nine months ended September 28, 1997 as a result of continued sales increases in the Aerospace Segment. Gross profit increased slightly to $308.3 million for the first nine months of 1998 from $305.6 million for the first nine months of 1997. Gross profit in 1998 was affected by a charge of $25.0 million to recognize program costs associated with the development of Boeing programs and a charge of $12.0 million to record additional warranty and legal reserves. Excluding these charges, gross profit was $344.3 million for the nine months ended September 27, 1998. Although selling and administrative expenses totaled $180.1 million for year to date 1998 ($175.1 million excluding a $5.0 million expense for Year 2000 compliance for new and existing computer systems) compared to $162.7 million for year to date 1997, selling and administrative expenses decreased as a percentage of sales, 15.9% for year to date 1998 (15.5% excluding Year 2000 expense) as compared to 17.0% for year to date 1997. In the second quarter of 1998, the Company performed a study of total revenue and costs for certain commercial aircraft programs. This study was performed on the Boeing 777 as the program reached its 200th shipset milestone. Based on this study which considered recent market conditions including normal market uncertainties related to shipping schedules beyond five years and expected future program efficiencies and related costs, the company revised its total estimated revenue and costs for the Boeing 777 program. In accordance with the Company's accounting policy for commercial jet aircraft, the Company reduced inventory by $25.0 million, which resulted in a charge of $25.0 million to current operations in the nine months ended September 27, 1998. Also in the second quarter of 1998, the Company recorded a $12.0 million charge to establish additional warranty and legal reserves for claims and outstanding cases. Based on first time production of commercial engine applications, warranty claims escalated during the first six months of 1998. Based on the liability for individual claims and cases being probable and estimable, the Company recorded a liability for these cases. None of these claims or cases is expected to be individually material to the Company's financial position or results of operations. In the second quarter 1998, selling and administrative expenses included expenses of $5.0 million for Year 2000 compliance. After reviewing costs incurred for new computer systems scheduled to start up in the second quarter of 1998, the Company determined that approximately $5.0 million of such costs related to items that should be expensed. These expenses primarily included certain consulting fees, software maintenance fees and training and travel costs. Operating income increased to $56.1 million in third quarter 1998 from $49.2 million in the third quarter of 1997. Operating margin was 15.6% for third quarter 1998 compared to 15.2% for the third quarter 1997. Operating income decreased to $128.2 million for the first nine months of 1998 from $142.9 million for the first nine months of 1997 as a result of $42.0 million of charges in the second quarter of 1998. Operating margin for year to date 1998 was 11.3% (15.1% excluding $42.0 million of charges) compared to 14.9% for year to date 1997. In May 1998, the Company sold the capital stock of its Holley Performance Products subsidiary to Kohlberg & Co., L.L.C., a private merchant-banking firm located in Mount Kisco, New York, for $100 million in cash. The sale resulted in a pre-tax gain of $56.2 million, net of liabilities retained. 21 22 Interest expense decreased slightly to $12.6 million in third quarter 1998 from $13.9 million for third quarter 1997 and increased to $40.9 million for year to date 1998 as compared to $38.9 million for year to date 1997. In April 1998, the Company privately placed $300.0 million principal amount of 7 1/2% Senior Notes due 2008 and $150.0 million liquidation value of 5 1/4% Trust Convertible Preferred Securities. Distributions on the Convertible Preferred Securities were $1.3 million after-tax and $2.4 million after-tax in the three months and nine months ended September 27, 1998, respectively, which is classified as minority interest in net loss of subsidiaries in the Company's consolidated statements of earnings. As a result of the foregoing, earnings before extraordinary item for the three months and nine months ended September 27, 1998 were $27.4 million and $92.3 million, respectively, as compared to $23.3 million and $68.6 million for the three months and nine months ended September 28, 1997, respectively. The Company incurred an extraordinary charge of $4.3 million, net of taxes, or $.06 per share in the nine months ended September 27, 1998 in connection with early debt repayment. Net earnings were $27.4 million in second quarter 1998, or $0.41 per share (diluted), compared to net earnings of $23.3 million, or $0.35 per share (diluted), in second quarter 1997. 1998 year to date net earnings were $88.0 million, or $1.30 per share (diluted), as compared to $68.6 million, or $1.03 per share (diluted) for 1997. Segment Review - Aerospace Sales in the third quarter of 1998 for the Aerospace Segment totaled $180.9 million increasing 26.7% from $142.8 million in the third quarter of 1997. For the nine months ended September 27, 1998 Aerospace sales increased 35.6% to $529.7 million from $390.5 million for the comparable 1997 period. At Menasco, sales increased by $21.8 million for the third quarter 1998 and $73.9 million for the nine months ended September 27, 1998 due to rising commercial aircraft production as well as improved military sales. Menasco deliveries of main landing gear systems for the Boeing 737 increased from 55 and 137 shipsets in the three months and nine months ended September 28, 1997, respectively, to 59 and 202 shipsets in the three months and nine months ended September 27, 1998, respectively. Sales increases in 1998 were also driven by higher sales volumes of the engine components businesses. The acquisition of AMI, on June 30, 1997, was a significant contributor to the increase in sales for 1998 year to date. Operating income for the Aerospace Segment increased to $29.9 million in third quarter 1998 from $22.1 million in third quarter of 1997 as a direct result of increased Aerospace sales. Operating income for year to date 1998 was $57.4 million ($84.4 million excluding 1998 second quarter charges totaling $27.0 million ($25.0 million to recognize program costs associated with development of Boeing programs and $2.0 million for Year 2000 compliance for new computer systems) as compared to $61.0 million for year to date 1997. The increase, excluding charges, was also driven by generally higher sales volumes thoughout the Segment. Operating margins increased slightly in the third quarter 1998, primarily due to productivity improvements. Segment Review - Industrial Industrial sales decreased slightly to $179.7 million in the three months ended September 27, 1998, from $181.9 in the three months ended September 28, 1997. Sales were unfavorably impacted by the effect of the second quarter divestiture of Holley Performance Products which was partially offset by the Company's first quarter acquisitions. Operating income for the Industrial Segment was $35.9 million and $99.6 million in the three months and nine months ended September 27, 1998, respectively, compared to $36.6 22 23 million and $112.1 million in the three and nine months ended September 28, 1997, respectively. Operating income for the nine months ended September 27, 1998 included charges of $12.0 million to record additional warranty and legal reserves and $3.0 million expense for Year 2000 compliance for new and existing computer systems. Excluding these charges, Industrial Segment operating income increased slightly to $114.6 million for the nine months ended September 27, 1998, as a result of increased sales. Operating margin excluding the second quarter charges decreased slightly from prior periods due to lower operating margins on the first quarter 1998 acquisitions, although such acquisitions were accretive. Liquidity and Capital Resources The Company generated $88.5 million of operating cash flows for the nine months ended September 27, 1998 compared with $30.3 million for the nine months ended September 28, 1997. The higher operating cash flows in 1998 were primarily due to the increase in earnings before depreciation and amortization and the Company's initiatives to reduce working capital requirements. The ratio of current assets to current liabilities at June 28, 1998 was 1.43, decreasing from 1.78 at December 31, 1997. Cash and cash equivalents increased to $18.0 million at September 27, 1998 from $14.7 million at December 31, 1997. In the first nine months of 1998, the Company invested $36.7 million in capital expenditures compared to $46.0 million during the same prior year period. Debt decreased by $148.6 million at September 27, 1998 compared to December 31, 1997. In April 1998, the Company sold $150.0 million of 5 1/4% Convertible Preferred Securities. The proceeds from the Convertible Preferred Securities, which are effectively guaranteed by the Company, were used to reduce the Company's indebtedness under its credit agreement. Year 2000 As is the case with most other companies, the Company recognizes the need to ensure that its operations will not be adversely impacted by the Year 2000 date transition and is faced with the task of addressing related issues. With senior management accountability and corporate staff guidance, all operating units have completed the assessment phase with respect to both information technology ("IT") and non-IT systems and are in varying stages of plan implementation to address the Company's Year 2000 issues. Overall, the Company has targeted Year 2000 compliance primarily by the end of 1998, with certain operating units targeting compliance by mid-1999. The testing phase has begun at various operating units and will be completed company-wide by late 1999. The Company is also evaluating whether the Year 2000 transition issues resulting from relationships with customers, suppliers and other constituents will have an impact on the Company's results of operations, financial condition or cash flows. The Company has recently initiated formal communication with its active suppliers to determine the extent to which the Company is vulnerable to suppliers and customers who fail to address their own Year 2000 issues. The Company estimates that total IT system expenditures (including all computer systems replaced since January 1, 1997) will approximate $30,000 which will be funded from operating cash flows. At September 27, 1998, approximately $24,000 of the $30,000 had been incurred, $19,000 of which has been capitalized since January 1, 1997 and $5,000 of Year 2000 costs was expensed in the nine months ended September 27, 1998. The remaining costs of modifying its existing software for the Year 2000 date transition should have an immaterial impact on consolidated operating 23 24 results. The costs of the project and the date on which the Company plans to complete Year 2000 compliance efforts are based on management's best estimates, which were derived from assumptions of future events including the continued availability of certain resources, third parties' Year 2000 readiness and other factors. There can be no assurance that these assumptions will prove to be accurate, and actual results could differ materially from those currently anticipated. Although the Company believes that its critical systems will be fully compliant prior to year end 1999, the Company also believes that prudent business practices call for the development of contingency plans. Currently, the Company does not have Year 2000 contingency plans in place; however, the Company is assessing areas which require contingency planning and expects to have necessary contingency plans in place by mid-1999. Such contingency plans will primarily address mitigating the impact of internal system and third party failures. Because the implementation of multiple computer systems and communication with critical third parties is on-going, the Company's reasonably likely worst case scenario is unknown at this time. The Company does not currently expect the Year 2000 transition to have a material adverse effect on its results of operation, financial position or cash flows. However, if all Year 2000 issues are not properly identified, or assessment, remediation and testing are not effected timely with respect to Year 2000 problems that are identified, there can be no assurance that the Year 2000 issue will not have a material adverse effect on the Company's results of operations, financial position or cash flows or adversely affect the Company's relationships with suppliers, customers or others. Additionally, there can be no assurance that the Year 2000 issues of other entities will not have a material adverse effect on the Company's results of operations, financial position or cash flows. Cautionary Statement Regarding Forward-Looking Statements This Management's Discussion and Analysis contains forward-looking statements within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon anticipated events or trends and expectations and beliefs relating to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those matters expressed in or implied by such forward-looking statements. For a discussion of various factors that may cause the Company's actual results to differ materially from those matters expressed in or implied by such forward-looking statements, see the Company's 1997 Annual Report on Form 10-K as well as the Company's 1998 filings with the Securities and Exchange Commission. 24 25 PART II - OTHER INFORMATION Item 1. Legal Proceedings. The Company and certain of its subsidiaries are defendants in various lawsuits involving asbestos-containing products. In addition, the Company has been notified that it is among Potentially Responsible Parties under federal environmental laws, or similar state laws, relative to the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. See note 6 to consolidated financial statements. Item 5. Other Information Any shareholder proposals intended to be presented at the 1999 Annual Meeting of Shareholders pursuant to Rule 14a-8 must be received by the Secretary of Coltec by November 20, 1998 to be considered for inclusion in the proxy statement and proxy relating to such meeting. Coltec's Bylaws require that any shareholder who intends to present a proposal at the 1999 Annual Meeting of Shareholders and has not sought inclusion of the proposal in the Company's proxy materials pursuant to Rule 14a-8 must (i) deliver written notice, including specified information, to the Secretary of Coltec by not earlier than February 5, 1999 and not later than March 7, 1999 and (ii) be a shareholder of record of Coltec on both the date on which such notice is given and on the record date for such meeting. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.2 Amended and Restated Bylaws. 4.27 Sixth Amendment to Credit Agreement dated as of September 9, 1998. 4.28 Family Protection Plan of Coltec Industries Inc. 27. Financial Data Schedule (for SEC use only) (b) Reports on Form 8-K No Current Reports on Form 8-K were filed by the Company during the quarter ended September 27, 1998. 25 26 S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLTEC INDUSTRIES INC (Registrant) by /s/ David D. Harrison ----------------------------- David D. Harrison Executive Vice President and Chief Financial Officer Date: November 12, 1998 26 EX-3.2 2 AMENDED & RESTATED BYLAWS 1 3.2 AMENDED AND RESTATED BYLAWS COLTEC INDUSTRIES INC BY-LAWS ARTICLE I OFFICES Section 1. Registered Office. The registered office of Coltec Industries Inc (hereinafter called the "Corporation") in the Commonwealth of Pennsylvania shall be in care of CT Corporation System, Oliver Building, Mellon Square, Pittsburgh, Pennsylvania 15222. Section 2. Other Offices. The Corporation may also have offices at such other places both within and without the Commonwealth of Pennsylvania as the Board of Directors may from time to time determine or the business of the Corporation may require. ARTICLE II MEETINGS OF SHAREHOLDERS Section 1. Place of Meetings. All meetings of the shareholders for the election of directors shall be held in the City of Charlotte, State of North Carolina, at such place as may be fixed from time to time by the Board of Directors, or at such other place either within or without the Commonwealth of Pennsylvania as shall be designated from time to time by the Board of Directors and specified in the notice of the meeting. Meetings of shareholders for any other purpose may be held at such time and place, within or without the Commonwealth of Pennsylvania, as shall be specified in the notice of the meeting. Section 2. Annual Meetings. Annual meetings of shareholders shall be held on the first Thursday of May of each year, if not a legal holiday, and, if a legal holiday, then on the next business day following, at 10:00 a.m., or at such other date and time as shall be designated from time to time by the Board of Directors and specified in the notice of the meeting. At the annual meeting, the shareholders shall elect in the manner herein provided a Board of Directors and transact such 2 other business as may properly be brought before the meeting. At the annual meeting, the shareholders shall elect by a plurality vote a Board of Directors and transact other business that may be properly brought before the meeting. Section 3. Notice of Annual Meeting. Written notice of the annual meeting stating the place, date and hour of the meeting shall be given not less than ten days before the date of the meeting to each shareholder entitled to vote at such meeting. Section 4. Shareholders List. The officer who has charge of the transfer books for shares of the Corporation shall prepare and make a complete list of the shareholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each shareholder and the number of shares registered in the name of each shareholder. The list shall be produced and kept open at the time and place of the meeting during the whole time thereof, and may be inspected by any shareholder who is present. In lieu of making such list, the Corporation may make the information therein available by any other means permitted by statute. Section 5. Action at Meetings. As provided in Article Six of the Amended Restated Articles of Incorporation of the Corporation (the "Articles") (i) any action required or permitted to be taken at any annual or special meeting of shareholders may be taken only upon the vote of the shareholders at an annual or special meeting duly noticed and called, as provided in these By-laws, and may not be taken by a written consent of the shareholders and (ii) special meetings of the shareholders of the Corporation for any purpose or purposes may be called at any time by the Chairman of the Board of Directors or by a majority of the members of the Board of Directors. Special meetings of shareholders of the Corporation may not be called by any other person or persons. Section 6. Notice of Special Meeting. Written notice of a special meeting stating the place, date and hour of the meeting and the purpose or purposes for which the meeting is called shall be given not less than ten days before the date of the meeting to each shareholder entitled to vote at such meeting. Section 7. Organization of Shareholders Meetings. At each meeting of the shareholders the Chairman of the Board of Directors, or, in the absence of the Chairman of the Board of 3 Directors, the President, or, in the absence of the President, a Vice Chairman of the Board of Directors, or, in their absence, a chairman chosen by a majority vote of the shareholders present in person or by proxy and entitled to vote thereat, shall act as chairman; and the Secretary, or, in his absence, an Assistant Secretary, or, in the absence of the Secretary and all Assistant Secretaries, a person whom the chairman of such meeting shall appoint, shall act as Secretary of such meeting and keep the minutes thereof. Section 8. Quorum. The presence, in person or represented by proxy, of shareholders entitled to cast at least a majority of the votes which all shareholders are entitled to cast on the particular matter shall constitute a quorum for the purpose of considering such matter at a meeting of the shareholders, except as otherwise provided by statute or by the Articles and in this Section 8. If, however, a meeting of shareholders cannot be organized because a quorum has not attended, the shareholders entitled to vote thereat, present in person or represented by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting at which the adjournment is taken of the time and place of the adjourned meeting, until a quorum shall be present or represented. In case of a meeting for the election of directors, such meeting may be adjourned only from day to day or for such longer periods, not exceeding fifteen days each, until such directors have been elected. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting as originally specified in the notice thereof. If the adjournment is for more than thirty days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 9. Vote Required. When a quorum is present at any meeting, the vote of a majority of the votes cast by all shareholders entitled to vote on the particular matter shall decide any question brought before such meetings, unless the question is one upon which, by express provision of the laws of the Commonwealth of Pennsylvania or of the Articles, a different vote is required, in which case such express provision shall govern and control the decision of such question, as in the case of the election of directors as provided in Section 2 hereof and in the Articles. 4 Section 10. Proxies; Appointment and Revocation. As provided in Article Fourth of the Articles, and in accordance with the provisions of Section 1763 of the Pennsylvania Business Corporation Law of 1988 (the "BCL"), each shareholder of record shall at every meeting of the shareholders be entitled to one vote for each share of the capital stock having voting power held by such shareholder in person or by proxy appointed by an instrument in writing, executed by such shareholder or by his attorney thereunto authorized, or by a telegram, cable or radiogram, filed with the Secretary of the Corporation; in no event shall a proxy, unless coupled with an interest, be voted on after three years from the date of its execution. A proxy, unless coupled with an interest, shall be revocable at will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective until notice thereof has been given to the Secretary of the Corporation. A proxy shall not be revoked by the death or incapacity of the maker unless, before the vote is counted or the authority is exercised, written notice of such death or incapacity is given to the Secretary of the Corporation. Section 11. Judges of Election. In advance of any meeting of shareholders, the Board of Directors may appoint judges of election who need not be shareholders, to act at such meeting or any adjournment thereof. If judges of election be not so appointed, the chairman of any such meeting may, and on the request of any shareholder or his proxy shall, make such appointment at the meeting. The number of judges shall be one or three as shall be determined by the Board of Directors, except that if appointed at the meeting on the request of one or more shareholders or proxies, the holders of a majority of the shares of the Corporation present and entitled to vote shall determine whether one or three judges are to be appointed. No person who is a candidate for office shall act as a judge. In case any person appointed as a judge fails to appear or fails or refuses to act, the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting, or at the meeting by the officer or person acting as chairman. The judges of election shall determine the number of shares outstanding and the voting power of each, the shares represented at the meeting, the existence of a quorum, the authenticity, validity and effect of proxies, receive votes or ballots, hear and determine all challenges and questions in any 5 way arising in connection with the right to vote, count and tabulate all votes, determine the result, and do such other acts as may be proper to conduct the election or vote with fairness to all shareholders. The judges of election shall perform their duties impartially, in good faith, to the best of their ability, and as expeditiously as is practical. If there be three judges of election, the decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all. On request of the chairman of the meeting, or of any shareholder or his proxy, the judges shall make a report in writing of any challenge or question or matter determined by them, and execute a certificate of any fact found by them. Any report or certificate made by them shall be prima facie evidence of the facts stated therein. Section 12. Advance Notification of Business to be Transacted at Shareholder Meetings. To be properly brought before the annual meeting of shareholders, or any special meeting of shareholder, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors (or any duly authorized committee thereof), (b) otherwise properly brought before the annual or special meeting by or at the direction of the Board of Directors (or any duly authorized committee thereof) or (c) otherwise properly brought before the annual or special meeting by any shareholder of the Corporation (i) who is a shareholder of record on the date of the giving of the notice provided for in this Section 12 and on the record date for the determination of shareholders entitled to vote at such annual or special meeting and (ii) who complies with the notice procedures set forth in this Section 12. In addition to any other applicable requirements, for business to be properly brought before an annual or special meeting by a shareholder, such shareholder must have given timely notice thereto in proper written form to the Secretary of the Corporation. To be timely, a shareholder's notice to the Secretary must be delivered to or mailed and received at the principal executive offices of the Corporation (a) in the case of an annual meeting, not less than sixty (60) days nor more than ninety (90) days prior to the date of the Corporation's proxy statement released to shareholders in connection with the annual meeting of shareholders provided, however, that if the 6 annual meeting is called for a date that is not within thirty (30) days before or after the anniversary date of the immediately preceding annual meeting, notice by the shareholder in order to be timely must be so received not later than the close of business on the tenth (10th) day following the day on which notice of the date of the annual meeting was mailed or public disclosure of the date of the annual meeting was made, whichever first occurs; and (b) in the case of a special meeting of shareholders, not later than the close of business on the tenth (10th) day following the day on which notice of the date of the special meeting was mailed or public disclosure of the date of the special meeting was made, whichever first occurs. To be in proper written form, a shareholder's notice to the Secretary must set forth as to each matter such shareholder proposes to bring before the annual or special meeting (i) a brief description of the business desired to be brought before the meeting and the reasons for conducting such business at the meeting, (ii) the name and record address of such shareholder, (iii) the class or series and number of shares of capital stock of the Corporation which are owned beneficially or of record by such shareholder, (iv) a description of all arrangements or understandings between such shareholder and any other person or persons (including their names) in connection with the proposal of such business by such shareholder and any material interest of such shareholder in such business and (v) a representation that such shareholder intends to appear in person or by proxy at the meeting to bring such business before the meeting. Notwithstanding anything in these By-laws to the contrary, no business shall be conducted at the annual meeting of shareholders or any special meeting of shareholders except business brought before such meeting in accordance with the procedures set forth in this Section 12; provided, however, that, nothing in this Section 12 shall be deemed to preclude discussion by any shareholder of any business properly brought before the meeting. The Chairman or other officer of the Corporation presiding at the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the foregoing procedures, and if he should so determine, the Chairman or other officer of the Corporation presiding at the meeting shall so declare to the meeting that the business was not properly brought before the meeting and such business shall not be transacted. 7 ARTICLE III DIRECTORS Section 1. Number of Directors. The number of directors which shall constitute the whole Board shall be not less than three nor more than fifteen. Within the limit above specified, the number of directors shall be determined by resolution of the Board of Directors. Except as provided in Section 2 of this Article, the directors shall be elected at the annual meeting of the shareholders in the manner provided in Article II, Section 2, of these By-Laws and in the Articles, and each director elected shall hold office until his successor is elected and qualified or until his death, resignation or removal. Directors need not be shareholders. Section 2. Vacancies; New Directorship. Vacancies and newly created directorships resulting from any increase in the authorized number of directors may be filled (subject to the provisions of Article III, Section 14, of these By-laws in the case of removal) by a majority of the directors then in office, though less than a quorum, or by a sole remaining director, and each director so chosen shall hold office until the next annual election and until his successor is duly elected and shall qualify or until his death, resignation, removal or disqualification. If there are no directors in office, then an election of directors may be held in the manner provided by statute. When one or more directors shall resign from the board effective at a future date, a majority of the directors then in office including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective; and each such director so chosen shall hold office as provided in this Section in the filling of other vacancies. Section 3. Management of Corporation. The business and affairs of the Corporation shall be managed under the direction of its Board of Directors which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles or by these By-Laws directed or required to be exercised or done by the shareholders. 8 Section 4. Place of Meetings of the Board of Directors. The Board of Directors of the Corporation may hold meetings, both regular and special, either within or without the Commonwealth of Pennsylvania. Section 5. Annual Meetings of Board of Directors. After each annual election of directors and on the same day, Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, at the place where such annual election is held. Notice of such meeting need not be given. Such meetings may be called and held at any other time and place which shall be specified in a notice or waiver of notice thereof as in the case of a special meeting of the Board of Directors. Section 6. Regular Meetings of the Board of Directors. The regular meetings of the Board of Directors shall be held quarterly at such time and place as shall be designated by the Board of Directors from time to time or at such other time and place as shall be set forth in a written notice given at least five days prior to the meeting date. Notice of regular meetings of the Board shall not be required to be given, except as otherwise expressly required herein or by law, except that whenever the time or place of regular meetings shall be initially fixed or changed, notice of such action shall be given promptly by telephone or otherwise to each director not participating in such action. Section 7. Special Meetings of the Board of Directors. Special meetings of the Board of Directors may be called by Chairman of the Board of Directors, the President, a Vice Chairman of the Board of Directors or by a majority of the Board of Directors on two days' notice to each director, either personally or by mail, telegram, cable or radiogram. Special meetings shall be called by the Chairman of the Board of Directors by the President, a Vice Chairman of the Board of Directors or by the Secretary in like manner and on like notice on the written request of a majority of directors and the place and time of such special meeting shall be designated in the notice of such meetings. Section 8. Quorum. At all meetings of the Board of Directors one-third of the directors in office shall constitute a quorum for the transaction of business and the act of a majority of the directors present and voting at any meeting at which there is a quorum shall be the act of the Board of 9 Directors, except as may be otherwise specifically provided by statute or by the Articles of by these By-laws. If a quorum shall not be present at any meeting of the Board of Directors, the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum shall be present. The directors at a duly organized meeting can continue to do business until adjournment notwithstanding the withdrawal of enough directors to leave is less than a quorum. Section 9. Organization of Meetings of Board of Directors. At each meeting of the Board of Directors the Chairman of the Board of Directors or, in his absence, the President, or, in the absence of the President, a Vice Chairman of the Board of Directors or, in their absence, a director chosen by a majority of the directors present shall act as chairman. The Secretary or, in his absence, an Assistant Secretary of the Corporation or, in the absence of the Secretary and all Assistant Secretaries, a person whom the chairman of such meeting shall appoint, shall act as secretary of such meeting and keep the minutes thereof. Section 10. Meetings by Telephone Conference. One or more directors of the Corporation may participate in any meeting of the Board of Directors or of any committee thereof by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Section 11. Action by Written Consent. Unless otherwise restricted by the Articles or these By-laws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if, prior or subsequent to the action so taken, all members of the Board or committee, as the case may be, sign a consent or consents in writing setting forth the action so taken, and the writing or writings are filed with the Secretary of the Corporation and the minutes of proceedings of the Board or committee . Section 12. Committees of Directors. The Board of Directors may, by resolution passed by a majority of the whole board, designate one or more committees, each committee to consist of one or more directors of the Corporation, and to have all of the power and authority of the Board of Directors except as limited by statute, and to perform such duties, as the resolution designating the committee shall prescribe. The Board 10 of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of any member and alternate of such committee or committees, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. Such committee shall have such name or names as may be determined from time to time by resolution adopted by the Board of Directors. Section 13. Minutes of Committee Meetings. Each committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. Section 14. Removal of Directors. Any director or directors may be removed, either with or without cause, at any time, by the affirmative vote of the shareholders entitled to cast at least a majority of the votes which all shareholders would be entitled to cast at any annual election of directors of the Corporation, at a special meeting of the shareholders called and held for that purpose; and the vacancy in the Board of Directors caused by any such removal may be filled, by such shareholders at such meeting, or, if the shareholders shall fail to fill such vacancy, as provided in these By-laws. Section 15. Compensation of Directors. The directors shall receive such compensation for their services as the Board of Directors may from time to time determine; provided, however, that directors who are also officers or employees of the Corporation or a subsidiary of the Corporation shall not be entitled to any such compensation as a director; and all directors shall be reimbursed for their expenses of attendance at each regular or special meeting of the Board of Directors. Members of any committee of directors may be allowed like compensation and reimbursement for expenses for serving as members of any such committee and for attending committee meetings. Section 16. Resignation. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Chairman of the Board of Directors, to the President, to a Vice Chairman of the Board of 11 Directors or to the Secretary. Such resignation shall take effect at the date of receipt of such notice by the Chairman of the Board of Directors, the President, a Vice Chairman of the Board of Directors or the Secretary, or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 17. Chairman of the Board Emeritus and Directors Emeritus. The Board of Directors from time to time may name, for such period as the Board may determine, a former Chairman of the Board of Directors to fill the honorary position of Chairman of the Board emeritus and one or more former directors to fill the honorary position of director emeritus. The positions of Chairman of the Board emeritus and director emeritus are honorary and persons named to such positions shall not be deemed officers or directors of the Corporation. The persons holding such honorary positions shall not attend meetings of the Board of Directors except as specifically invited by the Chairman of the Board. When attending meetings at the request of the Chairman of the Board, they may advise the Board of Directors of their views on such matters coming before the Board of Directors for consideration as requested by the Chairman of such meeting, but shall not be entitled to vote on any business coming before the Board of Directors or to exercise any of the other responsibilities of directors. Notice of meetings of the Board of Directors shall not be required to be given to the Chairman of the Board emeritus or directors emeritus under the provisions of the Articles of Incorporation or of these By-laws, nor shall the Chairman of the Board emeritus or directors emeritus be counted as directors of the Corporation for the purpose of determining a quorum of the Board of Directors. Chairman of the Board emeritus or directors emeritus shall be reimbursed for their reasonable expenses for attendance at meetings of the Board of Directors to which they have specifically been invited. Section 18. Interested Directors. No contract or transaction between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association, or other organization in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose if (i) the material facts as to his or their relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the committee, and the Board of Directors or committee in 12 good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (ii) the material facts as to his or their relationship or interest and as to the contract or transaction is specifically approved in good faith by vote of the shareholders; or (iii) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified, by the Board of Directors, a committee thereof or the shareholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a committee which authorizes the contract or transaction. ARTICLE IV NOTICES Section 1. Method of Giving Notice. Whenever, under the provisions of the statutes or of the Articles or of these By-laws, notice is required to be given to any director or shareholder, it shall not be construed to mean personal notice, but such notice may be given either personally or by mail, or by telegram (with messenger service specified), telex or TWX (with answer-back received), cable or radiogram or courier service, charges prepaid or by facsimile transmission, addressed to such director or shareholder, to his address as it appears on the books of the Corporation or supplied by him to the Corporation for the purpose of notice, and such notice shall be deemed to be given at the time when the same shall be deposited in the United States mail or with a telegraph office or courier service for transmission to such person. Section 2. Waiver of Notice. Whenever any notice is required to be given under the provisions of any statute, the Articles or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether given before or after the time stated therein, shall be deemed equivalent thereto. Attendance of a person at a meeting of shareholders, in person or by proxy, or at a meeting of the Board of Directors shall constitute a waiver of notice of such meeting, except when a person attends such meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Except in the case of a special meeting of shareholders, neither the business to be transacted at, nor the purpose of, any meeting 13 need be specified in any written waiver of notice unless so required by the Articles of these By-laws. ARTICLE V OFFICERS Section 1. Election. The officers of the Corporation shall be chosen by the Board of Directors at its first meeting after each annual meeting of shareholders and shall consist of a Chairman of the Board of Directors, a President, one or more Vice Chairmen of the Board of Directors, one or more Vice Presidents, a Secretary and a Treasurer. Any number of offices may be held by the same person, unless the Articles of these By-laws otherwise provide. Any Vice President may carry such further title as may be designated by the Board of Directors or by the President. Section 2. Term of Officer; Removal, Vacancies. The officers of the Corporation shall hold office until their successors are chosen and qualify or until their death, resignation or removal. Any officer elected or appointed by the Board of Directors may be removed at any time by the affirmative vote of a majority of the Board of Directors. Any vacancy occurring in any office of the Corporation shall be filled by the Board of Directors. Section 3. Chairman of the Board of Directors. The Chairman of the Board of Directors shall be chief executive officer of the Corporation and, subject to the authority of the Board of Directors, shall have the general control and management of the business and affairs of the Corporation. He shall preside at all meetings of the Board of Directors. Section 4. President. The President shall be the chief operating officer of the Corporation and he shall perform such duties and have such powers relating to the general control and management of the business and affairs of the Corporation as the Chairman of the Board of Directors shall determine, subject to the authority of the Board of Directors. Section 5. Vice Chairman of the Board of Directors. The Executive Vice Presidents and Senior Vice Presidents shall perform such duties and have such powers relating to general control and management of the business and affairs of the Corporation as the Chairman of the Board of Directors shall determine, subject to the authority of the Board of Directors. 14 Section 6. Vice Presidents. The Vice Presidents shall perform such duties and have such powers relating to the general control and management of the business and affairs of the Corporation as the President, subject to the authority of the Board of Directors, shall determine. Section 7. Secretary. The Secretary shall attend all meetings of the Board of Directors and all meetings of the shareholders and record all the proceedings of the meetings of the Corporation and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees of the Board of Directors, when required. He shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors or by the Chairman of the Board as to matters relating to the Board of Directors. He shall have custody of the corporate seal of the Corporation and he, or an Assistant Secretary, shall have authority to affix the same to any instrument requiring it and, when so affixed, it may be attested by his signature or by the signature of such Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing by his signature. The Secretary shall also have such other powers and perform such other duties as from time to time may be assigned to him by the President. Section 8. Treasurer. The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. He shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Board of Directors, at its regular meetings or when the Board of Directors so requires, and to the President and Chairman of the Board, an account of all his transactions as Treasurer and of the financial condition of the Corporation. If required by the Board of Directors, he shall give the Corporation a bond (which shall be renewed every six years) in such sum and with such surety or sureties as shall be satisfactory to the Board of Directors for the faithful performance of the duties in his office and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of 15 all books, papers, vouchers, money and other property or whatever kind in his possession or under his control belonging to the Corporation. Section 9. Subordinate Officer. In addition to the officers enumerated in this Article V, the Corporation may have such other officers, agents and employees as the Board of Directors may determine, including one or more Assistant Secretaries and one or more Assistant Treasurers, each of whom shall hold office for such period, have such authority and perform such duties as the Board of Directors may from time to time determine. The Board of Directors may delegate to any principa1 officer (that is, an officer whose office is enumerated in Sections 3, 4, 5, 6, 7 or 8 of this Article V) the power to appoint or remove any such subordinate officers, agents or employees. Section 10. Removal. Any officer may be removed, either with or without cause, by the vote of a majority of the directors then in office at a meeting called for the purpose or, except in case of any officer elected by the Board of Directors, by any officer upon whom the powers of removal may be conferred by the Board of Directors. Section 11. Resignation. Any officer may resign at any time by giving written notice to the Board of Directors or to the Chairman of the Board of Directors, the President, a Vice Chairman of the Board of Directors or the Secretary of the Corporation. Such resignation shall take effect on the date of receipt of such notice or at any later time specified therein; and unless specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 12. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled for the unexpired portion of the term in the manner prescribed in these By-laws for regular election or appointment to such office. Section 13. Officers' Salaries. The salaries of the officers shall be fixed from time to time by the Board of Directors, and none of such officers shall be prevented from receiving a salary by reason of the fact that he is also a director of the Corporation. The provisions of this Section 13 are subject to the provisions of Section 15 of Article III of these By-laws in the case of officers who are also directors. 16 Section 14. Staff and Group Officers. In addition to the corporate officers enumerated in this Article V (that is, officers whose offices are enumerated in Sections 3, 4, 5, 6, 7, 8 or 9 of this Article V), the Corporation may have such staff and group officers as the President may appoint including, but not by way of limitation, one or more group vice presidents and staff vice presidents. Each such staff and group officer appointed may carry such exact title as may be designated by the President and shall hold office for such period, have such executive authority as to a specific area designated by the President and perform such duties as the President may from time to time determine. ARTICLE VI CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. Section 1. Authority of Officers. The Board of Directors, except as otherwise provided in these By-laws, may authorize any officer or officers, agent or agents, or employee or employees of the Corporation to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation, and such authority may be general or confined to specific instances; and, unless so authorized by the Board of Directors, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniarily for any purpose or to any amount. Section 2. Authorized Loan; Security. No loan shall be contracted on behalf of the Corporation, and no negotiable paper shall be issued, endorsed or accepted in its name, unless authorized by the Board of Directors. Such authority may be general or confined to specific instances. When so authorized the officer or officers thereunto authorized may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, execute and deliver promissory notes or other evidences of indebtedness of the Corporation; and, when authorized as aforesaid, as security for the payment of any and all loans, advances, indebtedness and liabilities of the Corporation, such officers may mortgage, pledge, hypothecate or transfer any real or personal property at any time owned or held by the Corporation, and to that end execute instruments of mortgage or pledge or otherwise transfer such property. 17 Section 3. Endorsement of Checks, etc. All checks, drafts, bills of exchange or other orders for the payment of money, obligations, notes or other evidences of indebtedness, bills of lading, warehouse receipts and insurance certificates of the Corporation shall be signed or endorsed by such officer or officers, agent or agents, attorney or attorneys or employee or employees of the Corporation as shall from time to time be determined by resolution of the Board of Directors. Each of such officers and employees shall give such bond, if any, as the Board of Directors may require. Section 4. Deposit of Funds. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may from time to time designate, or as may be designated by any officer or officers, agent or agents, attorney or attorneys or employee or employees of the Corporation to whom such power may be delegated by the Board of Directors. Section 5. Bank Accounts. The Board of Directors may from time to time authorize the opening and keeping of general and special bank accounts with such banks, trust companies or other depositories as it may designate or as may be designated by any officer or officers, agent or agents, attorney or attorneys or employee or employees of the Corporation to whom power in that respect shall have been delegated by the Board of Directors. The Board may make such special rules and regulations with respect to such bank accounts, not inconsistent with the provisions of these By-laws, as it may deem expedient. Section 6. Rights of Corporation as Stockholder. Unless otherwise provided by resolution adopted by the Board of Directors, the Chairman of the Board of Directors, the President, a Vice Chairman of the Board of Directors or any Vice President may from time to time appoint an attorney or attorneys, or agent or agents, to exercise in the name and on behalf of the Corporation the powers and rights which the Corporation may have as the holder of stock or other securities in any other corporation, to vote or to consent in respect of such stock or other securities; the Chairman of the Board of Directors, the President, a Vice Chairman of the Board of Directors or any Vice President may instruct the person or persons so appointed as to the manner of exercising such powers rights and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies, powers of attorney or other 18 written instruments as he may deem necessary in order that the Corporation may exercise such powers and rights. ARTICLE VII CERTIFICATES OF STOCK Section 1. Shareholder Entitled to Certificates. Every holder of stock shall have a certificate, signed by, or in the name of the Corporation by, the Chairman of the Board of Directors, the President or a Vice Chairman of the Board of Directors and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, certifying the number of shares owned by him in the Corporation. Each such certificate shall be sealed with the corporate seal, which may be facsimile, engraved or printed. If the Corporation shall be authorized to issue more than one class or series of stock, every certificate representing shares shall set forth upon the face or back of the certificate, or shall state that the Corporation will furnish to any shareholder upon request and without charge, a full or summary statement of the designations, voting rights, preferences, limitations and relative rights of the shares of each class authorized to be issued and, if the Corporation is authorized to issue any preferred or special class in series, the variations in the relative rights and preferences between the shares of each such series so far as the same have been fixed and determined and the authority of the Board of Directors to fix and determine designations, voting rights, preferences, limitations, and special rights of the classes and series of shares of the Corporation. Section 2. Facsimile Signatures. Where a certificate is countersigned (1) by a transfer agent other than the Corporation or its employee or (2) by a registrar other than the Corporation or its employee, any other signature on the certificate may be facsimile, engraved or printed. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate, shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue. Section 3. Lost Certificates. The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost, stolen or destroyed 19 upon the making of an affidavit to that fact by the person claiming the certificate of stock to be lost, stolen or destroyed. When authorizing such issue of a new certificate or certificates, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost, stolen or destroyed certificates or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnify against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost, stolen or destroyed. Section 4. Transfers of Stock. Upon surrender to the Corporation or the transfer agent or agents of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall by the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books. Section 5. Fixing Record Date. In order that the Corporation may determine the shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which shall not be more than ninety days before the date of such meeting or any other action. If no record date is fixed, then (a) the record date for determining shareholders shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held and (b) the record date for determining shareholders for any other purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating hereto. A determination of shareholders of record entitled to notice of, or to vote at, a meeting of shareholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting in which case notice of the adjourned meeting shall be given to each shareholder of record entitled to vote at the meeting. Section 6. Registered Shareholders. The Corporation shall be entitled to recognize the exclusive right of a person 20 registered on its books as the owner of shares to receive dividends, and to vote as such owner, and to hold liable for calls and assessments a person registered on its books as the owner of shares, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Pennsylvania. ARTICLE VIII GENERAL PROVISIONS Section 1. Dividends. Dividends upon the capital stock of the Corporation, subject to the provisions of the Articles, if any, may be declared by the Board of Directors at any regular or special meeting, pursuant to law. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Articles. Section 2. Reserves. Before payment of any dividend, there may be set aside out of any funds of the Corporation available for dividends such sum or sums as the directors from time to time in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purposes as the directors shall think conductive to the interest of the Corporation, and the directors may modify or abolish any such reserve in the manner in which it was created. Section 3. Fiscal Year. The fiscal year of the Corporation shall end on the thirty-first day of December in each year. Section 4. Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Pennsylvania". The seal may be issued by causing it or a facsimile thereof to be impressed or affixed or in any manner reproduced. ARTICLE IX AMENDMENTS These by-laws may be altered, amended or repealed and new by-laws may be adopted by the vote of shareholders entitled 21 to cast at least a majority of the votes which all shareholders are entitled to cast thereon or by the majority vote of the members of the Board of Directors at any regular or special meeting of the shareholders or the Board of Directors duly convened after notice to the shareholders or directors of the purpose. ARTICLE X APPLICABILITY OF CERTAIN PENNSYLVANIA STATUTES Subchapter 25E and Subchapters 25G through 25J of the BCL shall not be applicable to the Corporation, Subchapter 25F and all other provisions of the BCL which have not been rendered inapplicable to the Corporation by the first paragraph of this Article X shall be applicable to the Corporation. EX-4.27 3 6TH AMENDMENT TO CREDIT AGREEMENT 1 4.27 SIXTH AMENDMENT TO CREDIT AGREEMENT DATED AS OF SEPTEMBER 9, 1998 SIXTH AMENDMENT TO CREDIT AGREEMENT SIXTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment"), dated as of September 9, 1998, among COLTEC INDUSTRIES INC, a corporation organized and existing under the laws of the State of Pennsylvania (the "Company"), Coltec Aerospace Canada Ltd., an Ontario corporation (the "Canadian Borrower"), the various Subsidiaries of the Company that are Credit Parties on the date of this Amendment, the various Banks party to the Credit Agreement referred to below, BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION (as successor by merger to Bank of America Illinois), as Documentation Agent, THE CHASE MANHATTAN BANK, as Syndication Agent, BANKERS TRUST COMPANY, as Administrative Agent, and BANK OF MONTREAL, as Canadian Paying Agent. All capitalized terms used herein and not otherwise defined shall have the respective meanings provided such terms in the Credit Agreement. W I T N E S S E T H : WHEREAS, the Company, the Canadian Borrower, the Banks, the Documentation Agent, the Syndication Agent and the Administrative Agent are parties to a Credit Agreement, dated as of March 24, 1992, amended and restated as of January 11, 1994 and further amended and restated as of December 18, 1996, (as amended, modified or supplemented to the date hereof, the "Credit Agreement"); and WHEREAS, the parties hereto have agreed to amend the Credit Agreement as herein provided; NOW, THEREFORE, it is agreed: I. Amendments to Credit Agreement. 1. Section 3.03(e) of the Credit Agreement is hereby amended by inserting immediately after sub-clause (E) appearing in the second parenthetical thereof the following: "and (F) the sale of the Burbank Property, if consummated prior to June 30, 1999 pursuant to the requirements of Section 9.02(xxvi)". 2. Section 7.08 of the Credit Agreement is hereby amended by deleting clause (b) thereof in its entirety and inserting in lieu thereof the following new clause (b): 2 "(b) No Credit Party nor any of its Subsidiaries is engaged, directly or indirectly, principally, or as one of its important activities, in the business of extending, or arranging for the extension of, credit for the purpose of purchasing or carrying Margin Stock. No part of any Credit Event (or the proceeds thereof) will be used to purchase or carry any Margin Stock or to extend credit for the purpose of purchasing or carrying any Margin Stock except for (i) purchases of Company Common Stock in compliance with Section 9.03 and (ii) purchases of up to $2,500,000 in the aggregate at any time outstanding with respect to Permitted Investments made under Section 9.05(vi). Neither the making of any Loan hereunder, nor the use of the proceeds thereof, nor the occurrence of any other Credit Event, will violate or be inconsistent with the provisions of the Margin Regulations. At the time of each Credit Event and after giving effect thereto, less than 25% of the value (as determined by any reasonable method) of the assets of the Company and its Subsidiaries taken as a whole will constitute Margin Stock." 3. Section 7 of the Credit Agreement is hereby amended by inserting the following new Section 7.29 at the end thereof: "7.29 Year 2000. All Information Systems and Equipment are either Year 2000 Compliant, or any reprogramming, remediation or any other corrective action, including the internal testing of all such Information Systems and Equipment, are expected to be completed by June 30, 1999. Furthermore, to the extent that such reprogramming, remediation or other corrective action is required, the cost thereof, as well as the cost of the reasonably foreseeable consequences of failure to become Year 2000 Compliant, to the Company and its Subsidiaries (including, without limitation, reprogramming errors and the failure of other systems or equipment) is not reasonably expected to result in a Default, an Event of Default or a materially adverse effect on the business, property, assets, condition (financial or otherwise) or prospects of the Company (or of the Company and its Subsidiaries taken as a whole) or on the rights or remedies of the Banks or any Agent under any Credit Document or on the ability of the Company and its Subsidiaries to perform their obligations to the Banks under any Credit Document." 3 4. Section 8 of the Credit Agreement is hereby amended by inserting the following new Section 8.17 at the end thereof: "8.17 Margin Regulations. Except as provided in the second succeeding sentence, neither the Company nor any of its Subsidiaries shall acquire any Margin Stock (other than shares of Company Common Stock acquired in compliance with Section 9.03) if, after giving effect to such acquisition, the aggregate purchase price of all Margin Stock (other than shares of Company Common Stock held by the Company and its Subsidiaries) owned by the Company and its Subsidiaries exceeds $2,500,000. So long as the covenant contained in the immediately preceding sentence is complied with, all Margin Stock at any time owned by the Company and its Subsidiaries shall not constitute Collateral and no security interest shall be granted (or required to be granted) therein pursuant to any Credit Document. If at any time the aggregate purchase price of all Margin Stock owned by the Company and its Subsidiaries exceeds $2,500,000 (exclusive of shares of Company Common Stock held by the Company or any of its Subsidiaries), then (x) all Margin Stock owned by the Credit Parties (other than shares of Company Common Stock) shall be pledged, and delivered for pledge, pursuant to the respective Pledge Agreement (but only to the extent that the aggregate purchase price of such Margin Stock exceeds $2,500,000) and (y) the Company shall execute and deliver to the Banks appropriately completed forms (including, without limitation, Form U-1) establishing compliance with the Margin Regulations. If at any time any Margin Stock is required to be pledged as a result of the provisions of the immediately preceding sentence, repayments of outstanding Obligations may be required (and subsequent Credit Events may be restricted but only to the extent necessary) in order to be in compliance with the applicable provisions of the Margin Regulations." 5. Section 9.02 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (xxiv) thereof, (ii) deleting the period appearing at the end of clause (xxv) thereof and inserting "; and" in lieu thereof and (iii) inserting in appropriate order the following new clause (xxvi): "(xxvi) the Company (or its Subsidiary that is the fee owner of the Burbank Property) shall be permitted to agree to sell, and to consummate the sale of, the Burbank 4 Property so long as such sale is for fair market value (as determined in good faith by the Board of Directors of the Company) and results in consideration consisting of cash (it being understood and agreed that such consideration may consist of one or more promissory notes so long as such notes shall be due and payable in cash within 180 days after the issuance thereof), and notwithstanding anything to the contrary herein, the Net Sale Proceeds from the sale of the Burbank Property need not be applied in accordance with Section 3.03(e)." 6. Section 9.03 of the Credit Agreement is hereby amended by adding the following new sentence immediately at the end thereof: "In addition to the purchases of Company Common Stock permitted pursuant to the preceding provisions of this Section 9.03, during the eighteen-month period commencing on September 1, 1998 and ending on March 1, 2000, the Company shall be permitted to purchase additional shares of Company Common Stock so long as (i) there shall exist no Default or Event of Default (both before and after giving effect thereto) and (ii) the aggregate purchase price of Company Common Stock acquired by the Company pursuant to this sentence in such eighteen-month period does not exceed $75,000,000." 7. Section 9.05 of the Credit Agreement is hereby amended by (i) deleting the word "and" appearing at the end of clause (xxi) thereof, (ii) deleting the period appearing at the end of clause (xxii) thereof and inserting "; and" in lieu thereof and (iii) inserting in appropriate order the following new clause (xxiii): "(xxiii) the Company may purchase Company Common Stock to the extent permitted by Section 9.03." 8. Section 11 of the Credit Agreement is hereby amended by inserting in appropriate order the following new definitions: "'Burbank Property' shall mean those certain parcels of land (and the improvements thereon) located at 100 East Cedar Avenue, Burbank, California. `Information Systems and Equipment' shall mean all computer hardware, firmware and software, as well as other information processing systems, or any equipment containing 5 embedded microchips, whether directly owned, licensed, leased, operated or otherwise controlled by the Company or any of its Subsidiaries, including through third-party service providers, and which, in whole or in part, are used, operated, relied upon, or integral to, the Company's or any of its Subsidiaries' conduct of their business. 'Margin Regulations' shall mean and include each of Regulation T, Regulation U and Regulation X. `Regulation T' shall mean Regulation T of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. `Regulation X' shall mean Regulation X of the Board of Governors of the Federal Reserve System as from time to time in effect and any successor to all or a portion thereof. `Year 2000 Compliant' means, with respect to any Information Systems and Equipment, that such Information Systems and Equipment accurately process date data (including, but not limited to, calculating, comparing and sequencing), before, during and after the year 2000, as well as same and multi-century dates, or between the years 1999 and 2000, taking into account all leap years, including the fact that the year 2000 is a leap year, and further, that when used in combination with, or interfacing with, other Information Systems and Equipment, shall accurately accept, release and exchange date data, and shall in all material respects continue to function in the same manner as it performs as of September 9, 1998 and shall not otherwise impair the accuracy or functionality of Information Systems and Equipment." II. Miscellaneous. 1. In order to induce the Banks to enter into this Amendment, the Company and the Canadian Borrower hereby represent and warrant that (i) all representations and warranties contained in Section 7 of the Credit Agreement (as amended by this Amendment) are true and correct in all material respects on and as of the Sixth Amendment Effective Date and after giving effect to the Amendment (unless such representations and warranties relate to a specific earlier date, in which case such representations and warranties shall be true and correct as of such earlier date) and (ii) there exists 6 no Default or Event of Default on the Sixth Amendment Effective Date after giving effect to this Amendment. 2. This 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. 3. This 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. 4. THIS 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. 5. This Amendment shall become effective on the date (the "Sixth Amendment Effective Date") when each Credit Party (including without limitation, the Company, the Canadian Borrower and each Subsidiary Guarantor) and the Required Banks shall have signed a counterpart hereof (whether the same or different counterparts) and shall have delivered (including, without limitation, by usage of facsimile transmission) the same to the Administrative Agent at its Notice Office. This Amendment and the agreements contained herein shall be binding on the successors and assigns of the parties hereto. 6. From and after the Sixth Amendment Effective Date, all references in the Credit Agreement and each of the Credit Documents to the Credit Agreement shall be deemed to be references to the Credit Agreement as amended hereby. * * * 7 IN WITNESS WHEREOF, the parties hereto have caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. COLTEC INDUSTRIES INC By /s/ Thomas B. Jones -------------------------------------- Title: Treasurer COLTEC AEROSPACE CANADA LTD. By /s/ Robert J. Tubbs -------------------------------------- Title: Vice President 8 BANKERS TRUST COMPANY, Individually and as Administrative Agent By /s/ G. Andrew Keith -------------------------------------- Title: Vice President BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION Individually and as Documentation Agent By /s/ Michale J. Mullaney -------------------------------------- Title: Vice President THE CHASE MANHATTAN BANK, Individually and as Syndication Agent By /s/ -------------------------------------- Title: Vice President BANK OF MONTREAL, Individually and as Canadian Paying Agent and Canadian Documentation Agent By /s/ Bruce A. Pietka -------------------------------------- Title: Director ALLIED IRISH BANK, PLC, CAYMAN ISLANDS BRANCH By /s/ William J. Strickland -------------------------------------- /s/ Tracey Duffy -------------------------------------- Title: Sr. Vice President Asst. Vice President 9 BANK COMMERCIALE ITALIANA NEW YORK BRANCH By /s/ C. Dougherty -------------------------------------- Title: V.P. By /s/ Karen Purelis -------------------------------------- Title: V.P. BANK OF IRELAND By /s/ -------------------------------------- Title: Corporate Officer THE BANK OF NEW YORK By /s/ Ann Marie Hughes -------------------------------------- Title: Vice President BANK OF TOKYO-MITSUBISHI TRUST COMPANY By /s/ Freidrich N. Wilmar -------------------------------------- Title: Vice President NATEXIS BANQUE BFCE, formerly BANQUE FRANCAISE DU COMMERCE EXTERIEUR By /s/ -------------------------------------- Title: /s/ By /s/ G. Kevin Dooley -------------------------------------- Title: Vice President CIBC INC. By /s/ Thor Zaluckyj -------------------------------------- Title: Executive Director CIBC Oppenheimer Corp., as AGENT 10 ROYAL BANK OF CANADA By -------------------------------------- Title: COMMERCIAL LOAN FUNDING TRUST I By Lehman Commercial Paper Inc., not in its individual capacity but solely as administrative agent. By /s/ Michale Swanson -------------------------------------- Title: Authorized Signatory MELLON BANK CANADA By /s/ -------------------------------------- Title: Vice President CREDIT LYONNAIS ATLANTA AGENCY By /s/ David M. Caunn -------------------------------------- Title: First Vice President CREDIT LYONNAIS NEW YORK BRANCH By /s/ Robert Ivosevich -------------------------------------- Title: Senior Vice President THE DAI-ICHI KANGYO BANK, LTD. By /s/ -------------------------------------- Title: Account Officer FIRST UNION NATIONAL BANK (f/k/a First Union National Bank of North Carolina) By /s/ Patrick D. Finn -------------------------------------- Title: Senior Vice President 11 THE FUJI BANK, LIMITED, ATLANTA AGENCY By /s/ Toshihiro Mitsui -------------------------------------- Title: Senior Vice President & Joint General Manager ERSTE BANK DER OESTERREICHISCHEN SPARKASSEN AG (f/k/a Girocredit Bank AG Der Sparkassen, Grand Cayman Island Branch) By /s/ Arcinee Hovanessian -------------------------------------- Title: Vice President - Erste Bank New York By /s/ Paul Judicke -------------------------------------- Title: Vice President - Erste Bank New York THE INDUSTRIAL BANK OF JAPAN, LIMITED By /s/ Kenji Tsugami -------------------------------------- Title: General Manager LLOYDS BANK PLC By /s/ David C. Rodwky -------------------------------------- Title: Assistant Vice President R156 By /s/ Mela Dorgan -------------------------------------- Title: Assistant Vice President Structured Finance D094 MELLON BANK, N.A. By /s/ M. Johnst -------------------------------------- Title: AVP 12 NATIONSBANK, N.A. By /s/ -------------------------------------- Title: Senior Vice President BANK LEUMI TRUST COMPANY OF NEW YORK By /s/ Sami Ambar -------------------------------------- Title: Vice President THE SUMITOMO BANK, LIMITED By /s/ John C. Kissinger -------------------------------------- Title: General Manager THE TOKAI BANK, LIMITED NEW YORK BRANCH By /s/ -------------------------------------- Title: Assistant General Manager WACHOVIA BANK, N.A. By /s/ Timothy R. Hileman -------------------------------------- Title: Senior Vice President BT BANK OF CANADA By /s/ James E. Kellar -------------------------------------- Title: Principal By /s/ Brian S. Strauss -------------------------------------- Title: Principal BANK OF AMERICA CANADA By /s/ -------------------------------------- Title: /s/ 13 THE CHASE MANHATTAN BANK OF CANADA By /s/ Christine Chan -------------------------------------- Title: Vice President By /s/ Arun K. Bery -------------------------------------- Title: Vice President CREDIT LYONNAIS CANADA By /s/ Robert Dyck -------------------------------------- Title: Manager, Corporate Banking By /s/ David J. Farmer -------------------------------------- Title: First Vice President and Manager, Central Region 14 Acknowledged and agreed: AMI INDUSTRIES INC. CII HOLDINGS INC COLTEC CANADA INC COLTEC INDUSTRIAL PRODUCTS INC COLTEC INTERNATIONAL SERVICES CO COLTEC NORTH CAROLINA INC. COLTEC TECHNICAL SERVICES INC DELAVAN INC (F/K/A DELAVAN NEWCO INC.) GARLOCK INC GARLOCK INTERNATIONAL INC GARLOCK OVERSEAS CORPORATION HABER TOOL COMPANY INC JAMCO PRODUCTS, LLC MENASCO AEROSYSTEMS INC STEMCO INC WALBAR INC By /s/ Robert J. Tubbs ---------------------------------- Title: Vice President On behalf of each of the above Subsidiary Guarantors EX-4.28 4 FAMILY PROTECTION PLAN 1 4.28 FAMILY PRODUCTION PLAN OF COLTEC INDUSTRIES INC. COLTEC INDUSTRIES INC. FAMILY PROTECTION PLAN In recognition of the services provided to Coltec Industries Inc. (the "Company") by certain of its key executives and other key employees, the Company has maintained a family protection program since 1974 to provide those individuals with death benefit coverage from the Company's assets for their designated beneficiaries (the "Program"). Effective January 1, 1998, the Company's, Retirement Committee, as authorized by the Board of Directors, has determined to document a formal plan to provide for insurance protection for those individuals under the terms and conditions set forth below. Accordingly, the Family Protection Plan is hereby adopted to read, in its entirety, as follows: SECTION 1 Definitions As used herein, the following words and phrases shall have the meaning described below: 1.1 "Beneficiary" means the person(s) designated by a Participant to receive any benefits payable under this Plan subsequent to the Participant's death. In the event a Participant has not filed a beneficiary designation with the Company, the Beneficiary shall be the Participant's surviving spouse, or if there is no surviving spouse, his estate. 1.2 "Board" means the Board of Directors of Coltec Industries Inc. 1.3 "Effective Date" means January 1, 1998. 1.4 "Eligible Executive" means an Employee employed by the Company in an executive capacity, as designated by the Board. "Eligible Officer" means an Eligible Executive who is elected by the Board and is serving as an officer of the Company at the time of death, retirement or Separation from Employment. 1.5 "Employee" means any individual employed on a regular basis by the Company but excluding any non-resident alien and any leased employee within the meaning of Code Section 414(n)(2), or 2 any individual not characterized by the Company as an "employee," no matter how characterized by the Internal Revenue Service, other governmental agency or a court. Any change of characterization of an individual shall take effect on the actual date of such change without regard to any retroactive recharacterization. 1.6 "Employment Agreement" means an employment contract or change in control agreement entered into between the Company and a Participant and as the same may be amended or superseded from time to time. 1.7 "Interest" means all premiums the Company paid on the Policy for a Participant or the cash surrender value of the Policy at the time the Participant Separates from Employment if less. 1.8 "Participant" means any Employee who satisfies the requirements for eligibility set forth in Section 2 below and is designated as a Participant thereunder. 1.9 "Plan" means the Coltec Industries, Inc. Family Protection Plan as set forth herein. 1.10 "Plan Administrator" means the Company's Retirement Committee. 1.11 "Policy" means a whole life insurance policy or policies purchased in accordance with the provisions of Section 2.3. 1.12 "Retirement Date" means the first day of any month following a Participant's attainment of age 55 and completion of 10 Years of Service as an Employee. 1.13 "Separates from Employment" means a Participant's (i) termination of employment from the Company for any reason other than death, Retirement or "disability," as defined in the Company's long-term disability plan, or (ii) reduction in employment grade or status such that the Participant no longer qualifies as an Eligible Executive. Except as otherwise provided herein or in an Employment Agreement, a "Separation from Employment" shall be deemed to have occurred on the last day of the Participant's service to the Company. 1.14 "Years of Service" means a Participant's total service as an Employee of the Company, as credited to a Participant under the Company's Retirement Plan. 3 SECTION 2 Participation 2.1 Any Employee who was a Participant in the Program prior to the Effective Date shall participate in the Plan in accordance with its terms. 2.2 Each other Employee who becomes an Eligible Executive shall be eligible to become a Participant at the designation of the Company's Chief Executive Officer. All Participants shall be listed on Exhibit "A" hereto as they are so designated. 2.3 Upon becoming a Participant, each Eligible Executive shall purchase a Policy, from the insurance company or companies specified by the Plan Administrator, for an annual premium in an amount designated by the Company's Chief Executive Officer and which generally will be at least $20,000 (with the actual amount being listed opposite the Participant's name on Exhibit A hereto, as modified from time to time) for each of the succeeding 10 Plan Years; provided, however, that with respect to Participants on the Effective Date who have already purchased or otherwise own a Policy that the Company has authorized for use under the Plan, such Policy, and the premiums due thereunder, shall qualify for the purposes of this Section and shall be listed on Exhibit A hereto. The Participant shall be obligated to pay the so-called "P.S. 58" costs under the Policy, which shall be deducted from the Participant's wages if not otherwise paid on a timely basis, and the Company shall pay the balance of all premiums due under the Policy. The Policy shall have an initial face amount sufficient to provide a death benefit to the Participant's Beneficiary under Section 3.1 and to return to the Company, from the cash surrender value of the Policy, the Company's Interest under the Policy by the date on which the Eligible Executive attains age 65. Such Policy shall also contain a waiver of premium in the case of disability. In addition, the Participant (or the Participant's assignee(s) if all incidents of ownership have been transferred by the Participant) shall execute a collateral assignment split dollar agreement in the form specified by the Committee to secure the Company's Interest under the Policy. Notwithstanding anything herein to the contrary, the Company will continue to pay the annual premium for more than 10 Plan Years if required in order to make the Policy sufficient to provide both the death benefit and the Company's Interest. 4 2.4 Notwithstanding the above, no Employee shall be eligible to participate in this Plan nor will any benefits be paid hereunder on and after the date, if any, on which the Employee violates the terms and conditions of any Employment Agreement, service contract or any agreement relating to matters of confidentiality of the Company or competition with the Company, or if the Employee is terminated for "cause" as defined in the Company's personnel policies or, alternatively, in any Employment Agreement. In any such case, the Employee shall be deemed to have immediately Separated from Employment and not to have been an Eligible Officer. SECTION 3 Death Benefits, Termination Rules, Annual Bonus and Change of Control 3.1 Subject to the provisions of Section 4.5, upon the death of a Participant while an Eligible Executive, or thereafter if the Participant terminated employment on or after the Participant's Retirement Date, as provided in Section 3.3, the Beneficiary shall receive an insured death benefit under the Policy purchased upon entry of the Participant into the Plan as provided in Section 2.3. The benefit shall be paid as soon as practicable following the date of death and shall be the death benefit under the Policy. 3.2 If the Participant Separates from Employment prior to death, all payments of premium by the Company to the Policy shall immediately cease and the Participant must surrender the Policy to the Company. 3.3 Notwithstanding the provisions of Section 3.2: (a) A Participant who Separates from Employment prior to death may elect to continue a Policy by paying all premiums due thereafter under the Policy provided the Participant repays the Company its Interest within 60 days following the date of Separation from Employment. (b) A Participant who Separates from Employment on a Retirement Date but who is an Eligible Officer on that date may elect to (i) continue the Policy as described in subsection (a) or (ii) continue the Policy by causing the Policy to be converted, with no further premiums being paid by the Company, such that the cash surrender value of the Policy, and the death benefit, are 5 sufficient to return to the Company its Interest upon the Participant's death. 3.4 On an annual basis, no later than 30 days after the premium is paid on the Policy, the Company shall pay each Participant a bonus equal to the sum of the amount paid by the Participant pursuant to the second sentence of Section 2.3 and the taxes needed to be paid by the Participant, including all Federal, state and local taxes, by reason of the payments to the Participant under this Section 3.4 such that the amount received by the Participant net of any tax liability shall equal the amount paid by the Participant pursuant to the second sentence of Section 2.3 (and assuming that the Participant is in the maximum Federal, state and local income tax bracket). 3.5 Notwithstanding anything in this Plan to the contrary, in the event that the Participant has entered into an Employment Agreement and, thereafter, a "Change-in-Control" occurs, as such term is defined in the Employment Agreement, the provisions of the Employment Agreement shall control and shall not be superseded by this Plan and the Company hereby agrees that it shall take the action required by the Employment Agreement with respect to the Participant's Policy. In addition, actions under this Section 3.5 shall not abrogate the Participant's (or trustee's, if the Participant has transferred all of the rights under the Policy to a trust) obligations under the Plan; provided, however, that neither a Change-in-Control nor a Separation from Employment in connection therewith shall accelerate those obligations under the Plan. SECTION 4 Miscellaneous 4.1 Nothing contained herein (a) shall be deemed to exclude a Participant from any compensation, bonus, pension, insurance, severance pay or other benefit to which he otherwise is or might become entitled to as an Employee of the Company, or (b) shall be construed as conferring upon an Employee the right to continue in the employ of the company as an executive or in any other capacity. 4.2 Any amounts payable by the Company hereunder shall not be deemed salary or other compensation to a Participant for the purposes of computing benefits to which he may be entitled under 6 any retirement-type plan of the Company or any other arrangement of the Company for the benefit of its employees. 4.3 The Company's obligation to contribute to the Policies under this Plan shall constitute a general, unsecured obligation, payable solely out of its general assets, and no Participant shall have any right to any specific assets of the Company 4.4 The rights and obligations created hereunder shall be binding on a Participant's heirs, executors and administrators and on the successors and assigns of the Company. 4.5 Except as to the Chairman of the Company on the Amendment Effective Date, the Board, in its sole discretion, may amend, modify or terminate the Plan at any time; provided, however, that during the term of any Employment Agreement any such action as to a Participant covered by the Employment Agreement must be consistent with the provisions of the Employment Agreement applicable to such Participant. 4.6 The masculine pronoun whenever used shall include the feminine and the singular shall be construed as the plural, where applicable. 4.7 The rights of any Participant under this Plan are personal and may not be assigned, transferred, pledged or encumbered; provided, however, that nothing herein shall prevent or shall be construed to prevent a further transfer of the policy transferred to the Participant, if any, under Section 3.3 above. Any other attempt to do so shall be void. 4.8 The Plan Administrator, or its designee, shall have full power and authority to interpret and administer this Plan and his actions in so doing shall be final and binding on all persons interested in this Plan. The Plan Administrator may, from time to time, adopt rules and regulations governing the Plan. 4.9 Neither the Company nor any member of the Board shall be responsible or liable in any manner to any Participant, Beneficiary or any person claiming through them for any benefit or action taken or omitted in connection with the granting of benefits, the continuation of benefits, or the interpretation and administration of the Plan. 4.10 The Plan created hereby shall be construed in accordance with and governed by the laws of the State of North Carolina. 7 SECTION 5 Claims Procedure 5.1 The Plan Administrator will advise the Beneficiary of any benefit to which the Beneficiary is entitled under the Plan and shall have the power to interpret this Plan and make all required determinations including factual determinations. The Plan Administrator's decisions shall be final and binding on the Company, the Employee, the Beneficiary and all persons claiming an interest in this Plan through the Employee. If the Beneficiary believes that the Plan Administrator has failed to provide any benefit to which the Beneficiary is entitled, the Beneficiary may file a written claim with the Plan Administrator. The claim shall be reviewed, and a response provided, within a reasonable time after receiving the claim. The Beneficiary shall be provided with written notice setting forth in a manner calculated to be understood by the Beneficiary: (1) the specific reasons or reasons for the denial; (2) specific reference to pertinent Agreement provisions on which denial is based; (3) a description of any additional material or information necessary for the claimant to perfect the claim; and (4) an explanation of the claims review procedure set forth in paragraph (b), below. 5.2 Within 60 days of receipt by the Beneficiary of a notice denying a claim under the Agreement, the Beneficiary or duly authorized representative may request in writing a full and fair review of the claim by the Plan Administrator. The Plan Administrator may extend the 60-day period where the nature of the benefit involved or other attendant circumstances make such extension appropriate. In connection with such review, the Beneficiary or duly authorized representative may review pertinent documents and may submit issues and comments in writing. The Plan Administrator shall make a decision promptly, and not later than 60 days after the Plan Administrator's receipt of a request for review, unless special circumstances require an extension of time for processing, in which case a decision shall be rendered as soon as possible, but not later than 120 days after receipt of a request for review. The decision on review shall be in writing and shall include specific reasons for the decision, written in a 8 manner calculated to be understood by the Beneficiary, and specific references to the pertinent Agreement provisions on which the decision is based. EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE SEPTEMBER 27, 1998 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED SEPTEMBER 27, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1998 SEP-27-1998 18,032 0 184,034 3,078 237,638 468,319 708,062 409,263 1,085,807 327,759 610,803 144,966 0 705 (312,678) 1,085,807 1,129,593 1,129,593 821,333 1,001,430 0 0 40,930 143,427 48,765 92,277 0 (4,326) 0 87,951 1.33 1.30
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