SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act of 1934
For the quarterly period ended October 2, 1994
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.)
430 PARK AVENUE, NEW YORK, N.Y. 10022
(Address of principal executive offices) (Zip code)
(212) 940-0400
(Registrant's telephone number, including area code)
________________________________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes (X) No ( )
____________________________________
On October 30, 1994, there were outstanding 69,922,435 shares of common
stock, par value $.01 per share.
Page 1 of 23
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 2, December 31,
1994 1993
___________ ____________
(Unaudited)
(In thousands, except
share data)
A S S E T S
Current assets -
Cash and cash equivalents $ 9,500 $ 5,749
Accounts and notes receivable - net 184,357 161,521
Inventories -
Finished goods 42,555 39,206
Work in process and finished parts 123,755 103,166
Raw materials and supplies 24,602 25,405
___________ ___________
190,912 167,777
Deferred income taxes 23,140 17,036
Other current assets 11,469 8,587
___________ ___________
Total current assets 419,378 360,670
Property, plant and equipment 646,312 657,237
Less accumulated depreciation and
amortization 430,577 431,908
___________ ___________
215,735 225,329
Costs in excess of net assets acquired,
net of amortization 131,205 132,550
Other assets 91,102 87,863
___________ ___________
$ 857,420 $ 806,412
=========== ===========
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 2, December 31,
1994 1993
___________ ____________
(Unaudited)
(In thousands, except
share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities -
Current maturities of long-term debt $ 533 $ 1,543
Accounts payable 69,467 64,791
Accrued expenses 150,465 127,208
Current portion of liabilities of
discontinued operations 4,000 4,000
___________ ___________
Total current liabilities 224,465 197,542
Long-term debt 986,280 1,032,089
Deferred income taxes 31,039 27,543
Other liabilities 142,243 132,367
Liabilities of discontinued operations 28,445 42,361
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, 70,016,384 and
69,943,341 shares issued at October 2, 1994
and December 31, 1993, respectively
(excluding 25,000,000 shares held by
a wholly owned subsidiary) 700 699
Capital in excess of par value 638,393 636,846
Retained earnings (deficit) (1,184,594) (1,251,465)
Unearned compensation - restricted stock awards (4,392) (5,552)
Minimum pension liability (4,205) (4,205)
Foreign currency translation adjustments 1,181 1,077
___________ ___________
(552,917) (622,600)
Less: Cost of 131,949 and 179,309 shares
of common stock in treasury at
October 2, 1994 and December 31, 1993,
respectively (2,135) (2,890)
___________ ___________
(555,052) (625,490)
___________ ___________
$ 857,420 $ 806,412
=========== ===========
The accompanying notes to financial statements are an integral part of this
statement.
2.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended Nine Months Ended
__________________ __________________
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
________ ________ ________ ________
(In thousands, except per share data)
Net sales $317,507 $316,077 $986,375 $990,602
________ ________ ________ ________
Costs and expenses -
Cost of sales 211,259 211,492 665,712 670,385
Selling and administrative 48,417 47,785 147,462 146,191
Restructuring charge - - - 25,219
________ ________ ________ ________
Total costs and expenses 259,676 259,277 813,174 841,795
________ ________ ________ ________
Operating income 57,831 56,800 173,201 148,807
Interest and debt expense, net 21,836 27,601 66,853 83,449
________ ________ ________ ________
Earnings before income taxes and
extraordinary item 35,995 29,199 106,348 65,358
Provision for income taxes 12,958 10,709 38,285 23,365
________ ________ ________ ________
Earnings before extraordinary item 23,037 18,490 68,063 41,993
Extraordinary item (177) (378) (1,192) (1,017)
________ ________ ________ ________
Net earnings $ 22,860 $ 18,112 $ 66,871 $ 40,976
======== ======== ======== ========
Earnings per common share -
Before extraordinary item $ .33 $ .27 $ .98 $ .60
Extraordinary item - (.01) (.02) (.01)
_____ _____ _____ _____
Net earnings $ .33 $ .26 $ .96 $ .59
===== ===== ===== =====
Weighted average number of common
and common equivalent shares 69,832 69,614 69,809 69,580
====== ====== ====== ======
The accompanying notes to financial statements are an integral part of this
statement.
3.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Nine Months Ended
______________________
October 2, October 3,
1994 1993
_________ ________
(In thousands)
Cash flows from operating activities -
Net earnings $ 66,871 $ 40,976
Adjustments to reconcile net earnings to cash -
Extraordinary item 1,192 1,017
Restructuring charge - 25,219
Depreciation and amortization 32,695 37,583
Deferred income taxes 3,496 (10,438)
Receivable from insurance carriers 19,946 2,540
Payment of liabilities of discontinued operations (3,337) (3,525)
Other operating items (2,679) (8,771)
_________ ________
118,184 84,601
_________ ________
Changes in assets and liabilities -
Accounts and notes receivable (22,223) (16,123)
Inventories (26,220) (15,606)
Deferred income taxes (6,104) 2,521
Other current assets (3,161) (2,631)
Accounts payable 7,181 4,882
Accrued expenses 2,518 1,653
_________ ________
Changes in assets and liabilities (48,009) (25,304)
_________ ________
Cash provided by operating activities 70,175 59,297
_________ ________
Cash flows from investing activities -
Capital expenditures (22,973) (22,894)
Other - net 1,123 6,501
_________ ________
Cash used in investing activities (21,850) (16,393)
_________ ________
Cash flows from financing activities -
Issuance of long-term debt 331,000 43,952
Payments of long-term debt (375,574) (79,388)
Distribution to Holdings pursuant to tax
sharing procedure - (4,624)
_________ ________
Cash used in financing activities (44,574) (40,060)
_________ ________
Cash and cash equivalents -
Increase 3,751 2,844
At beginning of period 5,749 7,155
_________ ________
At end of period $ 9,500 $ 9,999
========= ========
The accompanying notes to financial statements are an integral part of this
statement.
4.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 2, 1994
(Unaudited)
1. The unaudited financial statements, included herein, reflect in the opinion
of Coltec Industries Inc ("Coltec") all normal recurring adjustments
necessary to present fairly the financial position and results of
operations, for the periods indicated. The unaudited financial statements
have been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information required by generally accepted
accounting principles for complete financial statements. The consolidated
balance sheet as of December 31, 1993 has been derived from the audited
financial statements as of that date. For further information, refer to
the financial statements and footnotes included in Coltec's annual report
to shareholders for the year ended December 31, 1993.
2. In the first quarter of 1994, Coltec adopted the requirements of Financial
Accounting Standards Board Interpretation No. 39, "Offsetting of Amounts
Related to Certain Contracts." In accordance with Interpretation No. 39,
Coltec recorded 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 separately recorded an asset
equal to the amount expected to be recovered by insurance. In addition,
Coltec has recorded a receivable for that portion of payments previously
made for asbestos product liability actions and related litigation costs
that is recoverable from its insurance carriers. Liabilities for asbestos
related matters and the receivable from insurance carriers included in the
Consolidated Balance Sheet are as follows:
October 2, December 31,
1994 1993
_________ ___________
(In thousands)
Accounts and notes receivable - net $43,972 $35,838
Other assets 31,198 23,697
Accrued expenses 23,530 -
Other liabilities 18,953 -
3. Coltec recorded a restructuring charge of $25,219,000 in the second quarter
1993 to cover the cost of consolidation and rearrangement of certain
manufacturing facilities and related reductions in work force by
approximately 570 employees, primarily in the Aerospace/Government segment,
as well as at Central Moloney.
As of October 2, 1994, the objectives of the restructuring program were
completed and the liability for the restructuring charge was fully
utilized. During the nine months of 1994, the liability was reduced
primarily by cash expenditures and there were no revisions in the original
estimates.
5.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 2, 1994
(Unaudited)
4. Interest paid and federal and state income taxes paid and refunded were as
follows:
Nine Months Ended
_________________
Oct. 2, Oct. 3,
1994 1993
_______ _______
(In thousands)
Interest paid $53,173 $83,424
Income taxes:
Paid 38,743 25,409
Refunded 1,706 2,547
5. During the third quarter and nine months 1994, Coltec incurred
extraordinary charges of $177,000, net of a $95,000 tax benefit, and
$1,192,000, net of a $642,000 tax benefit, respectively, in connection with
the early retirement of debt.
During the third quarter and nine months 1993, Coltec incurred
extraordinary charges of $378,000, net of a $220,000 tax benefit, and
$1,017,000, net of a $548,000 tax benefit, respectively, in connection with
a debt refinancing and the early retirement of debt.
6. On January 11, 1994, Coltec entered into a $415,000,000 reducing revolving
credit facility (the "1994 Credit Agreement"), with a syndicate of banks,
which expires June 30, 1999. The facility also provides up to $100,000,000
for the issuance of letters of credit and will be reduced $50,000,000 on
both January 11, 1997 and 1998. Obligations under the facility are secured
by substantially all of Coltec's assets. Borrowings under the facility
bear interest, at Coltec's option, at an annual rate equal to (i) the base
rate or (ii) the Eurodollar rate plus 1%. The base rate is the higher of
(x) 1/2 of 1% in excess of the Federal Reserve reported certificate of
deposit rate, and (y) the prime lending rate, as in effect from time to
time. Letter of credit fees of 1% are payable on outstanding letters of
credit and a commitment fee of 3/8 of 1% is payable on the unutilized
facility.
The facility contains various restrictions and conditions. The most
restrictive of these require that the fixed charge coverage ratio be at
least 2.25 to 1 for any period of four consecutive quarters to and
including the fourth quarter of 1994 and thereafter 2.5 to 1. The ratio of
current assets to current liabilities must be at least 1.25 to 1. In
addition, the facility limits or restricts purchases of Coltec's common
stock, payment of dividends, capital expenditures, indebtedness, liens,
mergers, asset acquisitions and dispositions, investments, prepayment of
certain debt and transactions with affiliates.
6.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 2, 1994
(Unaudited)
Minimum payments on long-term debt, after reflecting the bank refinancing
completed in January, 1994, due within five years from December 31, 1993,
are as follows:
(In thousands)
______________________________
1994 $ 1,543
1995 941
1996 522
1997 50,750
1998 50,814
7. Coltec and certain of its subsidiaries are defendants in various lawsuits,
including actions involving asbestos-containing products and certain
environmental proceedings. With respect to asbestos product liability and
related litigation costs, as of October 2, 1994, two subsidiaries of Coltec
were among a number of defendants (typically 15 to 40) in approximately
67,400 actions (including approximately 3,000 actions in advanced stages
of processing) filed in various states by plaintiffs alleging injury or
death as a result of exposure to asbestos fibers. Through October 2, 1994,
approximately 107,200 of the approximately 174,600 total actions brought
have been settled or otherwise disposed of.
The damages claimed for personal injury or death vary from case to case and
in many cases plaintiffs seek $1 million or more in compensatory damages
and $2 million or more in punitive damages. Although the law in each state
differs to some extent, it appears, based on advice of counsel, that
liability for compensatory damages would be shared among all responsible
defendants, thus limiting the potential monetary impact of such judgments
on any individual defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither Coltec nor any of its subsidiaries were parties, that held
insurance carriers are obligated to cover asbestos-related bodily injury
actions if any injury or disease process, from first exposure through
manifestation, occurred during a covered policy period (the "continuous
trigger theory of coverage"), Coltec settled litigation with its primary
and most of its first-level excess insurance carriers, substantially on the
basis of the Court's ruling. Coltec is currently negotiating with its
remaining excess carriers to determine, on behalf of its subsidiaries, how
payments will be made with respect to such insurance coverage for asbestos
claims. Coltec is currently receiving payments pursuant to an interim
agreement with certain of its excess carriers. Coltec believes that a
final agreement can be achieved without litigation, and on substantially
the same basis that it has resolved the issues with its primary and first-
level excess carriers. Coltec believes it will have available to it a
significant amount of coverage from its solvent carriers for asbestos
claims.
7.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 2, 1994
(Unaudited)
Settlements are generally made on a group basis with payments made to
individual claimants over periods of one to four years. In the first nine
months of 1994, two subsidiaries of Coltec received approximately 14,500
new actions. Payments were made with respect to asbestos liability and
related costs aggregating $26,592,000 in the first nine months of 1994,
substantially all of which were covered by insurance. In accordance with
Coltec's internal procedures for the processing of asbestos product
liability actions and due to the proximity to trial or settlement, certain
outstanding actions have progressed to a stage where Coltec can reasonably
estimate the cost to dispose of these actions. As of October 2, 1994,
Coltec estimates that the aggregate remaining cost of the disposition of
the settled actions for which payments remain to be made and actions in
advanced stages of processing, including associated legal costs, is
approximately $42,483,000 and Coltec expects that this cost will be
substantially covered by insurance.
With respect to the 64,400 outstanding actions as of October 2, 1994 which
are in preliminary procedural stages, Coltec lacks sufficient information
upon which judgments can be made as to the validity or ultimate disposition
of such actions, thereby making it difficult to estimate with reasonable
certainty the liability or costs to Coltec. When asbestos actions are
received they are typically forwarded to local counsel to ensure that the
appropriate preliminary procedural response is taken. The complaints
typically do not contain sufficient information to permit a reasonable
evaluation as to their merits at the time of receipt, and in jurisdictions
encompassing a majority of the outstanding actions, the practice has been
that little or no discovery or other action is taken until several months
prior to the date set for trial. Accordingly, Coltec generally does not
have the information necessary to analyze the actions in sufficient detail
to estimate the ultimate liability or costs to Coltec, if any, until the
actions appear on a trial calendar. A determination to seek dismissal, to
attempt to settle or to proceed to trial is typically not made prior to the
receipt of such information.
It is also difficult to predict the number of asbestos lawsuits that
Coltec's subsidiaries will receive in the future. Coltec has noted that,
with respect to recently settled actions or actions in advanced stages of
processing, the mix of the injuries alleged and the mix of the occupations
of the plaintiffs have been changing from those traditionally associated
with Coltec's asbestos-related actions. Coltec is not able to determine
with reasonable certainty whether this trend will continue. Based upon the
foregoing, and due to the unique factors inherent in each of the actions,
including the nature of the disease, the occupation of the plaintiff, the
presence or absence of other possible causes of a plaintiff's illness, the
availability of legal defenses, such as the statute of limitations or state
of the art, and whether the lawsuit is an individual one or part of a
8.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 2, 1994
(Unaudited)
group, management is unable to estimate with reasonable certainty the cost
of disposing of outstanding actions in preliminary procedural stages or of
actions that may be filed in the future. However, Coltec believes that its
subsidiaries are in a favorable position compared to many other defendants
because, among other things, the asbestos fibers in its asbestos-containing
products were encapsulated. Considering the foregoing, as well as the
experience of Coltec's subsidiaries and other defendants in asbestos
litigation, the likely sharing of judgments among multiple responsible
defendants, and the significant amount of insurance coverage that Coltec
expects to be available from its solvent carriers, Coltec believes that
pending and reasonably anticipated future claims are not likely to have a
material effect on Coltec's results of operations and financial condition.
Although the insurance coverage which Coltec has is substantial, it should
be noted that insurance coverage for asbestos claims is not available to
cover exposures initially occurring on and after July 1, 1984. Coltec's
subsidiaries continue to be named as defendants in new cases.
In addition to claims for personal injury, the subsidiaries were among 40
or more defendants in 34 cases involving property damage claims based upon
asbestos-containing materials found in schools, public facilities and
private commercial buildings. The subsidiaries have been dismissed without
payment in 31 of these cases. One school case was settled for an amount
that is not material and two cases remain unresolved as against one
subsidiary only. However, based upon the proceedings to date in these
cases, it appears that the subsidiary has no liability in those two cases.
With respect to environmental proceedings, Coltec has been notified that it
is among the Potentially Responsible Parties ("PRPs") under the federal
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), or similar state laws, for the costs of
investigating, and in some cases remediating, contamination by hazardous
materials at several sites. CERCLA imposes joint and several liability for
the costs of investigating and remediating properties contaminated with
hazardous materials. Liability for these costs can be imposed on present
and former owners or operators of the properties or on parties who
generated the wastes that contributed to the contamination. The process of
investigating and remediating contaminated properties can be lengthy and
expensive. The process is also subject to the uncertainties occasioned by
changing legal requirements, developing technological applications and
liability allocations among PRPs. Coltec has estimated that its costs in
connection with all except one of these sites approximates $20,000,000 at
October 2, 1994, and has accrued for this amount in the Consolidated
Balance Sheet as of October 2, 1994. Although Coltec is pursuing insurance
recovery in connection with certain of these matters, the accrual has not
been reduced for potential recoveries from insurance companies or other
9.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 2, 1994
(Unaudited)
third parties. In addition, Coltec has not recorded a receivable with
respect to any potential recovery of costs in connection with any
environmental matter. While progress toward the investigation, cleanup and
responsibility allocation at the remaining site has not been sufficient to
allow Coltec at this time to determine the extent of its potential
financial responsibility, Coltec does not believe its costs in connection
with such site will have a material effect on Coltec's results of
operations and financial condition.
On March 22, 1990, Coltec sold substantially all of the assets of Colt
Firearms to the parent company of Colt's Manufacturing Company, Inc.
(collectively with its parent company, "Colt's Manufacturing"), a company
formed by a group of private investors, for cash and certain securities of
Colt's Manufacturing. On March 18, 1992, Colt's Manufacturing filed a
petition for bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code, and on January 19, 1993, the Official Committee of
Unsecured Creditors of Colt's Manufacturing Company, Inc. filed a
fraudulent conveyance action against Coltec and other defendants. On
September 30, 1994, Colt's Manufacturing's plan of reorganization was
approved by the United States Bankruptcy Court. Pursuant to this approval,
Coltec and Colt's Manufacturing entered into a settlement agreement which
included the dismissal of the fraudulent conveyance action against Coltec.
All liabilities assumed by Coltec in this settlement agreement were fully
reserved.
10.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
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 October 2, 1994 and October 3,
1993.
Three Months Ended Nine Months Ended
__________________ __________________
Oct. 2, Oct. 3, Oct. 2, Oct. 3,
1994 1993 1994 1993
_______ _______ _______ _______
(In millions)
Sales:
Aerospace/Government $101.1 $104.4 $305.5 $326.5
Automotive 119.5 103.8 381.5 331.1
Industrial 97.5 108.2 300.8 333.9
Intersegment elimination (.6) (.3) (1.4) (.9)
______ ______ ______ ______
Total $317.5 $316.1 $986.4 $990.6
====== ====== ====== ======
Operating income:
Aerospace/Government $ 17.5 $ 21.1 $ 47.6 $ 39.4
Automotive 26.8 23.6 86.3 78.0
Industrial 20.8 18.9 65.7 57.4
______ ______ ______ ______
Total segments 65.1 63.6 199.6 174.8
Corporate unallocated (7.3) (6.8) (26.4) (26.0)
______ ______ ______ ______
Total $ 57.8 $ 56.8 $173.2 $148.8
====== ====== ====== ======
Operating income for the nine months of 1993 included a restructuring
charge of $25.2 million. This charge included $17.7 million in the
Aerospace/Government segment, $3.8 million in the Automotive segment
and $3.7 million in the Industrial segment. Excluding the
restructuring charge, operating income for the nine months of 1993 by
industry segment would have been as follows (in millions):
Aerospace/Government $ 57.1
Automotive 81.8
Industrial 61.1
______
Total segments $200.0
======
11.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Results of Operations
Three Months Ended October 2, 1994 Compared with Three Months Ended
October 3, 1993.
Earnings per share before extraordinary item increased to $.33 in the
third quarter of 1994 from $.27 per share in the 1993 third quarter.
Sales for the 1994 third quarter were $317.5 million compared with
$316.1 million in the comparable period last year. Operating income
was $57.8 million compared with $56.8 million in the 1993 third quarter
and the operating margin was 18.2%, compared with 18.0% last year.
In the Aerospace/Government segment, 1994 third quarter operating
income declined 17% over the like quarter last year on a 3% sales
decline. Operating income in the Automotive segment improved 14% on a
15% sales increase and, in the Industrial segment, operating income was
higher by 10% on a 10% decline in sales. Excluding the operating
results of Central Moloney, which was sold in January 1994, Industrial
segment sales were up 6% and operating income improved 10% in the third
quarter of 1994. For Coltec, excluding Central Moloney, operating
income in the 1993 third quarter was $56.8 million on sales of $299.6
million. Coltec sold Central Moloney at a price approximating book
value.
Operating results for the Aerospace/Government segment in the third
quarter of 1994 continued to reflect the general weakness in the
aerospace industry and a gap in the production and sales of engines for
U.S. Navy programs as well as production problems at Walbar. Operating
results in the Automotive segment continue to benefit from a strong
automotive industry and increasing application for segment products.
In the Industrial segment, higher earnings were reported by Quincy
Compressor, Garlock Mechanical Packing, Garlock Bearings, Delavan
Commercial Products and France Compressor Products, while Garlock
Valves & Industrial Plastics and Garlock Plastomer Products reported
lower results. Order input in the third quarter of 1994 increased over
the same quarter last year by 6% in the Automotive segment and 11% in
the Industrial segment, after excluding Central Moloney.
Following is a discussion of the results of operations for the three
months ended October 2, 1994 compared with the three months ended
October 3, 1993.
Sales. In the Aerospace/Government segment, sales were $101.1 million
compared with $104.4 million a year ago. This decline results from the
general weakness in the aerospace industry as reflected in lower sales
volume at Chandler Evans Control Systems and Delavan Gas Turbine.
12.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Sales were also down at Fairbanks Morse Engine due to a gap in
shipments of engines for U.S. Navy programs. These declines were
partially offset by increased shipments of landing gear assemblies at
Menasco Aerosystems for the foreign military market and for new
commercial programs, including the Boeing 777 jetliner.
Automotive segment sales increased 15% to $119.5 million in the three
months ended October 2, 1994 as all divisions within the segment
reported higher sales. The sales improvement was due to higher new car
and truck production and increased applications for segment components.
Contributing to the higher sales at Coltec Automotive was the
acquisition in late 1993 of General Motors' air pump manufacturing
operations and this division becoming the sole source of these
components to the automaker's North American Operations.
Sales for the Industrial segment were $97.5 million for the three
months ended October 2, 1994, compared with $108.2 million last year.
Excluding the sales of Central Moloney, Industrial segment sales were
$91.7 million in the third quarter of 1993. Higher sales were reported
by Quincy Compressor on increased shipments of both reciprocating and
rotary screw air compressors and greater demand for compressor parts
and accessories. Sales were higher at Garlock Bearings, Sterling Die
and Haber on increased demand from the automotive market. At Delavan
Commercial Products, sales of fuel spray nozzles were up to the home
heating and industrial markets. Sales were higher at Garlock
Mechanical Packing and France Compressor Products reflecting improved
economic conditions. Lower sales were reported in the third quarter of
1994 by Garlock Valves & Industrial Plastics and Garlock Plastomer
Products.
Cost of Sales. Cost of sales in the third quarter of 1994 remained at
the same level as in 1993; however, excluding Central Moloney, cost of
sales was 8% higher. This increase primarily reflects the higher sales
volume in the Automotive segment and production problems at Walbar. As
a percentage of sales, cost of sales increased to 66.5% from 65.4%,
after excluding Central Moloney.
Selling and Administrative Expense. Selling and administrative
expense, including other income and expense, increased slightly in the
three months ended October 2, 1994 and 4%, after excluding Central
Moloney. As a percent of sales, selling and administrative expense was
15.2% in the third quarter of 1994 compared with 15.6% last year, after
excluding Central Moloney.
13.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Interest and Debt Expense, Net. Interest and debt expense, net
declined $5.8 million or 21%, in the three months ended October 2,
1994 due to lower borrowing costs, under the 1994 Credit Agreement
entered into in January 1994, and to repayments of long-term debt.
Provision for Income Taxes. The provision for income taxes for the
three months ended October 2, 1994 resulted in an effective income tax
rate of 36.0% compared with 36.7% for the like period last year.
Extraordinary Item. The extraordinary charge in the third quarter of
1994 resulted from early retirement of debt and in the third quarter of
1993, from early retirement of debt and a debt refinancing.
Nine Months Ended October 2, 1994 Compared with Nine Months Ended
October 3, 1993.
Earnings per share before extraordinary items for the nine months ended
October 2, 1994 improved to $.98 from $.60 per share in 1993, or $.82
per share excluding the 1993 restructuring charge. Sales for the nine
months of 1994 were $986.4 million compared with $990.6 million a year
ago. Operating income was $173.2 million and the operating margin was
17.6% compared with operating income of $148.8 million and an operating
margin of 15.0% for the like period last year. Excluding the 1993
restructuring charge, operating income was $174.0 million and the
operating margin was 17.6% for the nine months of 1993.
For the nine months ended October 2, 1994, operating income in the
Aerospace/Government segment increased 21% on a 6% decline in sales.
Automotive segment operating income improved 11% on a 15% sales
increase and in the Industrial segment, operating income was up 14% and
sales were down 10%. Excluding the 1993 restructuring charge,
operating income in the nine months of 1994 declined 17% in the
Aerospace/Government segment and increased 6% in the Automotive
segment. Included in the nine months of 1993 operating income for the
Automotive segment was a recovery of previously incurred engineering
expense. Excluding such recovery and the 1993 restructuring charge,
Automotive segment operating income increased 10% in 1994. Excluding
the 1993 restructuring charge and Central Moloney, Industrial segment
sales and operating income increased 3% and 5%, respectively, in the
nine months of 1994. For Coltec, excluding the 1993 restructuring
charge and Central Moloney, sales and operating income were $981.5
million and $173.1 million, respectively, in the nine months of 1994,
compared with $943.5 million and $175.5 million, respectively, in the
like period last year.
14.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Operating results for the Aerospace/Government segment in the nine
months of 1994 continued to reflect the general weakness in the
aerospace industry and a gap in the production and sales of engines for
U.S. Navy programs as well as production problems at Walbar. Operating
results in the Automotive segment continue to benefit from a strong
automotive industry and increasing application for segment products.
In the Industrial segment, higher earnings were reported by Quincy
Compressor, Garlock Bearings and Delavan Commercial Products, while
Garlock Valves & Industrial Plastics and Garlock Plastomer Products
reported lower results.
Following is a discussion of the results of operations for the nine
months ended October 2, 1994 compared with the nine months ended
October 3, 1993.
Sales. In the Aerospace/Government segment, sales were $305.5 million
compared with $326.5 million a year ago. This decline results from the
general weakness in the aerospace industry as reflected in lower sales
volume at Chandler Evans Control Systems, Delavan Gas Turbine and
Walbar. Sales were also down at Fairbanks Morse Engine due to a gap in
shipments of engines for U.S. Navy programs. These declines were
partially offset by increased shipments of landing gear assemblies at
Menasco Aerosystems for the foreign military market and for new
commercial programs, including the Boeing 777 jetliner.
Automotive segment sales were $381.5 million for the nine months of
1994 compared with $331.1 million a year ago. The sales improvement
was due to higher new car and truck production and increased
applications for segment components. Contributing to the higher sales
at Coltec Automotive was the acquisition of General Motors' air pump
manufacturing operations and this division becoming the sole source of
these components to the auto- maker's North American Operations.
Sales for the Industrial segment were $300.8 million compared with
$333.9 million in 1993. Excluding Central Moloney, Industrial segment
sales were $295.9 million in the nine months of 1994 compared with
$286.7 million last year. Higher sales were reported by Quincy
Compressor on increased shipments of both reciprocating and rotary
screw air compressors and greater demand for compressor parts and
accessories. Sales were higher at Garlock Bearings, Sterling Die and
Haber on increased demand from the automotive market. At Delavan
Commercial Products, sales of fuel spray nozzles were up to the home
heating and industrial markets. Lower sales were reported in the nine
months of 1994 by Garlock Mechanical Packing, Garlock Plastomer
Products and Garlock Valves & Industrial Plastics.
15.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Cost of Sales. Cost of sales declined slightly during the nine months
ended October 2, 1994, however, excluding Central Moloney, cost of
sales was 6% higher. This increase primarily reflects the higher sales
volume in the Automotive segment and production problems at Walbar.
Cost of sales as a percent of sales increased to 67.3% from 66.3%,
after excluding Central Moloney.
Selling and Administrative Expense. Selling and administrative
expense, including other income and expense, increased slightly in the
nine months ended October 2, 1994 and increased 4%, after excluding
Central Moloney. This increase was due to higher state and local
income taxes and to the recovery in 1993 of previously incurred
engineering expense. The increase in selling and administrative
expense was offset in part by cost savings resulting from reductions in
the sales force at Garlock Mechanical Packing. As a percent of sales,
selling and administrative expense was 15.0% in 1994 compared with
15.4% in 1993, after excluding Central Moloney and the recovery of
engineering expense.
Restructuring Charge. The $25.2 million restructuring charge recorded
in the second quarter of 1993 covered the cost of consolidation and
rearrangement of certain manufacturing facilities and related
reductions in work force by approximately 570 employees, primarily in
the Aerospace/Government segment, as well as at Central Moloney.
As of October 2, 1994, the objectives of the restructuring program were
completed and the liability for the restructuring charge was fully
utilized. During the nine months of 1994, this liability was reduced
primarily by cash expenditures and there were no revisions in the
original estimates.
Interest and Debt Expense, Net. Interest and debt expense, net
declined $16.6 million or 20% in the nine months of 1994 due to lower
borrowing costs, under the 1994 Credit Agreement, and to repayments of
long-term debt.
Provision for Income Taxes. The provision for income taxes for the
nine months of 1994 resulted in an effective income tax rate of 36.0%
compared with 35.7% for 1993.
Extraordinary Item. The extraordinary charge in the nine months of
1994 resulted from early retirement of debt and in the nine months of
1993, from early retirement of debt and a debt refinancing.
16.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Liquidity and Financial Position
On January 11, 1994, Coltec entered into a $415.0 million reducing
revolving credit facility (the "1994 Credit Agreement"). This facility
was used to prepay borrowings outstanding and replace letters of credit
issued under a credit agreement entered into in 1992. On January 11,
1994, borrowings of $324.0 million were outstanding and letters of
credit of $43.6 million were issued under the 1994 Credit Agreement.
The remaining balance of the 1994 Credit Agreement is being used for
working capital and general corporate purposes. The 1994 Credit
Agreement, which expires June 30, 1999, provides up to $100.0 million
for issuance of letters of credit and will be reduced $50.0 million on
January 11, 1997 and 1998. On October 2, 1994, borrowings of $297.0
million were outstanding and letters of credit of $31.2 million were
issued under the 1994 Credit Agreement leaving $86.8 million available
for additional borrowings and issuances of letters of credit.
In the first quarter of 1994, Coltec adopted the requirements of
Financial Accounting Standards Board Interpretation No. 39, "Offsetting
of Amounts Related to Certain Contracts." In accordance with
Interpretation No. 39, Coltec has recorded 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
expected to be recovered by insurance. As of October 2, 1994, Coltec
has recorded a liability of $42.5 million, of which $23.5 million is
included in accrued expenses, with the balance in other liabilities in
the Consolidated Balance Sheet. In addition, Coltec has recorded a
receivable for that portion of payments previously made for asbestos
product liability actions and related litigation costs that is
recoverable from its insurance carriers. At October 2, 1994 and
December 31, 1993, the receivable balance was $75.2 million and $59.5
million, respectively, of which $44.0 million and $35.8 million,
respectively, is included in accounts and notes receivable net, with
the remaining balance included in other assets.
During the nine months ended October 2, 1994, Coltec generated $70.2
million of cash from operating activities compared with $59.3 million
for the nine months of 1993. The improvement resulted primarily from
the net receipt in 1994 of $19.9 million from insurance carriers for
asbestos-related matters compared with a $2.5 million net receipt last
year. Higher working capital requirements reduced the overall
improvement in cash generated from operating activities. The $70.2
million of cash generated in 1994 was used to reduce indebtedness by
$44.6 million and invest $23.0 million in capital expenditures.
Excluding the current receivable due from insurance carriers of $44.0
million at October 2, 1994 and $35.8 million at December 31, 1993,
receivables increased 12% to $140.4 million compared with $125.7
17.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
million at the end of 1993 and receivable days outstanding were 38 days
at October 2, 1994 compared with 36 days at December 31, 1993.
Inventories of $190.9 million at October 2, 1994 were 14% higher than
at December 31, 1993.
At October 2, 1994, total debt was $986.8 million compared with
$1,033.6 million at year-end 1993. The negative balance in
shareholders' equity of $555.1 million compares with a negative balance
of $625.5 million at year-end 1993. Cash and cash equivalents at
October 2, 1994 were $9.5 million compared with $5.7 million at
December 31, 1993. Working capital at October 2, 1994 was $194.9
million and the current ratio was 1.87 . This compares with working
capital of $163.1 million and a current ratio of 1.83 at December 31,
1993.
18.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Asbestos Litigation
As of October 2, 1994, two subsidiaries of Coltec were among a number
of defendants (typically 15 to 40) in approximately 67,400 actions
(including approximately 3,000 actions in advanced stages of
processing) filed in various states by plaintiffs alleging injury or
death as a result of exposure to asbestos fibers. Through October 2,
1994, approximately 107,200 of the approximately 174,600 total actions
brought have been settled or otherwise disposed of.
The damages claimed for personal injury or death vary from case to
case and in many cases plaintiffs seek $1 million or more in
compensatory damages and $2 million or more in punitive damages.
Although the law in each state differs to some extent, it appears,
based on advice of counsel, that liability for compensatory damages
would be shared among all responsible defendants, thus limiting the
potential monetary impact of such judgments on any individual
defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in
which neither Coltec nor any of its subsidiaries were parties, that
held insurance carriers are obligated to cover asbestos-related bodily
injury actions if any injury or disease process, from first exposure
through manifestation, occurred during a covered policy period (the
"continuous trigger theory of coverage"), Coltec settled litigation
with its primary and most of its first-level excess insurance
carriers, substantially on the basis of the Court's ruling. Coltec is
currently negotiating with its remaining excess carriers to determine,
on behalf of its subsidiaries, how payments will be made with respect
to such insurance coverage for asbestos claims. Coltec is currently
receiving payments pursuant to an interim agreement with certain of
its excess carriers. Coltec believes that a final agreement can be
achieved without litigation, and on substantially the same basis that
it has resolved the issues with its primary and first-level excess
carriers. Coltec believes it will have available to it a significant
amount of coverage from its solvent carriers for asbestos claims.
Settlements are generally made on a group basis with payments made to
individual claimants over periods of one to four years. In the first
nine months of 1994, two subsidiaries of Coltec received approximately
14,500 new actions. Payments were made with respect to asbestos
liability and related costs aggregating $26.6 million in the first
nine months of 1994, substantially all of which were covered by
insurance. In accordance with Coltec's internal procedures for the
19.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Item 1. Legal Proceedings. (cont.)
processing of asbestos product liability actions and due to the
proximity to trial or settlement, certain outstanding actions have
progressed to a stage where Coltec can reasonably estimate the cost to
dispose of these actions. As of October 2, 1994, Coltec estimates
that the aggregate remaining cost of the disposition of the settled
actions for which payments remain to be made and actions in advanced
stages of processing, including associated legal costs, is
approximately $42.5 million and Coltec expects that this cost will be
substantially covered by insurance.
With respect to the 64,400 outstanding actions as of October 2, 1994
which are in preliminary procedural stages, Coltec lacks sufficient
information upon which judgments can be made as to the validity or
ultimate disposition of such actions, thereby making it difficult to
estimate with reasonable certainty the liability or costs to Coltec.
When asbestos actions are received they are typically forwarded to
local counsel to ensure that the appropriate preliminary procedural
response is taken. The complaints typically do not contain sufficient
information to permit a reasonable evaluation as to their merits at
the time of receipt, and in jurisdictions encompassing a majority of
the outstanding actions, the practice has been that little or no
discovery or other action is taken until several months prior to the
date set for trial. Accordingly, Coltec generally does not have the
information necessary to analyze the actions in sufficient detail to
estimate the ultimate liability or costs to Coltec, if any, until the
actions appear on a trial calendar. A determination to seek
dismissal, to attempt to settle or to proceed to trial is typically
not made prior to the receipt of such information.
It is also difficult to predict the number of asbestos lawsuits that
Coltec's subsidiaries will receive in the future. Coltec has noted
that, with respect to recently settled actions or actions in advanced
stages of processing, the mix of the injuries alleged and the mix of
the occupations of the plaintiffs have been changing from those
traditionally associated with Coltec's asbestos-related actions.
Coltec is not able to determine with reasonable certainty whether this
trend will continue. Based upon the foregoing, and due to the unique
factors inherent in each of the actions, including the nature of the
disease, the occupation of the plaintiff, the presence or absence of
other possible causes of a plaintiff's illness, the availability of
legal defenses, such as the statute of limitations or state of the
art, and whether the lawsuit is an individual one or part of a group,
management is unable to estimate with reasonable certainty the cost of
disposing of outstanding actions in preliminary procedural stages or
of actions that may be filed in the future. However, Coltec believes
that its subsidiaries are in a favorable position compared to many
20.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Item 1. Legal Proceedings. (cont.)
other defendants because, among other things, the asbestos fibers in
its asbestos-containing products were encapsulated. Considering the
foregoing, as well as the experience of Coltec's subsidiaries and
other defendants in asbestos litigation, the likely sharing of
judgments among multiple responsible defendants, and the significant
amount of insurance coverage that Coltec expects to be available from
its solvent carriers, Coltec believes that pending and reasonably
anticipated future claims are not likely to have a material effect on
Coltec's results of operations and financial condition.
Although the insurance coverage which Coltec has is substantial, it
should be noted that insurance coverage for asbestos claims is not
available to cover exposures initially occurring on and after July 1,
1984. Coltec's subsidiaries continue to be named as defendants in new
cases.
In addition to claims for personal injury, the subsidiaries were among
40 or more defendants in 34 cases involving property damage claims
based upon asbestos-containing materials found in schools, public
facilities and private commercial buildings. The subsidiaries have
been dismissed without payment in 31 of these cases. One school case
was settled for an amount that is not material and two cases remain
unresolved as against one subsidiary only. However, based upon the
proceedings to date in these cases, it appears that the subsidiary has
no liability in those two cases.
Other Litigation
On September 24, 1986, approximately 150 former salaried employees of
Crucible Inc (a former subsidiary of Coltec) commenced an action
claiming benefits under a plant shutdown plan that had been created in
1969 (George Henglein v. Colt Industries Operating Corporation
Informal Plan for Plant Shutdown Benefits for Salaried Employees, U.S.
District Court for the Western District of Pennsylvania, (86-cv-
02021). Future eligibility of any employee for such Plan was
eliminated by Crucible Inc in November 1972. Plaintiffs claim that
they did not receive notice of such termination and therefore were
entitled to benefits in 1982 when the Midland steel-making facility
closed. Following a non-jury trial in the U.S. District Court for the
Western District of Pennsylvania, defendant's motion to dismiss was
granted and the plaintiffs appealed. The Court of Appeals for the
Third Circuit remanded the case to the District Court directing it to
make specific findings of fact and conclusions of law and also found
for the defendant on the jurisdiction of the District Court. The
defendants' motion to dismiss was granted by the District Court,
appealed to the Third Circuit Court of Appeals and remanded to the
21.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 2, 1994
Item 1. Legal Proceedings. (cont.)
District Court for additional findings of fact. On February 10, 1994,
the District Court dismissed the plaintiffs' complaint and the
plaintiffs appealed to the Third Circuit Court of Appeals. On
September 26, 1994, the Third Circuit Court of Appeals remanded the
case to the District Court and on November 4, 1994, denied the
defendant's request for a re-hearing. Coltec is reviewing the
appropriate course of action. Coltec does not believe that this
action will have a material effect on Coltec's results of operations
and financial condition.
On September 30, 1994, the CF Holding Corp. and Colt's Manufacturing
Company, Inc. plan of reorganization was approved by the United States
Bankruptcy Court. Pursuant to this approval Coltec and the related
parties entered into a settlement agreement which included the
dismissal of the proceeding entitled The Official Committee of
Unsecured Creditors of Colt's Manufacturing Company, Inc., Plaintiff
v. Coltec Industries Inc et al., U.S. Bankruptcy Court for the
District of Connecticut, Case No. 93-2020.
Item 6. Exhibits and Reports on Form 8-K.
(b) No reports on Form 8-K were filed during the quarter ended
October 2, 1994 by Coltec Industries Inc.
22.
<PAGE>
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 Paul G. Schoen
___________________________
Paul G. Schoen
Executive Vice President,
Finance
Treasurer and Chief Financial
Officer
Date: November 15, 1994
23.
<PAGE>
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
OCTOBER 2, 1994 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED OCTOBER 2, 1994 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
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