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 April 3, 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 May 1, 1994, there were outstanding 69,802,681 shares of common stock,
par value $.01 per share.
Page 1 of 15
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PART I FINANCIAL INFORMATION
Item I Financial Statements
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 3, December 31,
1994 1993
___________ ___________
(Unaudited)
(In thousands, except per
share data)
A S S E T S
Current assets -
Cash and cash equivalents $ 5,297 $ 5,749
Accounts and notes receivable - net 196,706 161,521
Inventories -
Finished goods 37,677 39,206
Work in process and finished parts 102,758 103,166
Raw materials and supplies 25,268 25,405
___________ ___________
165,703 167,777
Deferred income taxes 16,273 17,036
Other current assets 8,393 8,587
___________ ___________
Total current assets 392,372 360,670
Property, plant and equipment 637,535 657,237
Less accumulated depreciation and
amortization 420,742 431,908
___________ ___________
216,793 225,329
Costs in excess of net assets acquired,
net of amortization 133,776 132,550
Other assets 107,864 87,863
___________ ___________
$ 850,805 $ 806,412
=========== ===========
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities -
Current maturities of long-term debt $ 535 $ 1,543
Accounts payable 57,576 64,791
Accrued expenses 139,754 127,208
Current portion of liabilities of
discontinued operations 4,000 4,000
___________ ___________
Total current liabilities 201,865 197,542
Long-term debt 1,047,866 1,032,089
Deferred income taxes 29,472 27,543
Other liabilities 135,607 132,367
Liabilities of discontinued operations 41,635 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,
69,943,341 shares issued
(excluding 25,000,000 shares
held by a wholly owned subsidiary) 699 699
Capital in excess of par value 637,008 636,846
Retained earnings (deficit) (1,230,822) (1,251,465)
Unearned compensation - restricted
stock awards (4,702) (5,552)
Minimum pension liability (4,205) (4,205)
Foreign currency translation adjustments (1,344) 1,077
___________ ___________
(603,366) (622,600)
Less: Cost of 140,660 and 179,309 shares
of common stock in treasury at
April 3, 1994 and December 31, 1993,
respectively (2,274) (2,890)
___________ ___________
(605,640) (625,490)
___________ ___________
$ 850,805 $ 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
____________________
April 3, April 4,
1994 1993
________ ________
(In thousands, except
per share data)
Net sales $331,850 $339,934
________ ________
Costs and expenses -
Cost of sales 227,641 232,031
Selling and administrative 49,530 52,936
________ ________
Total costs and expenses 277,171 284,967
________ ________
Operating income 54,679 54,967
Interest and debt expense, net 22,424 28,059
________ ________
Earnings before income taxes and extraordinary item 32,255 26,908
Provision for income taxes 11,612 9,418
________ ________
Earnings before extraordinary item 20,643 17,490
Extraordinary item - (264)
________ ________
Net earnings $ 20,643 $ 17,226
======== ========
Earnings per common share -
Before extraordinary item $ .30 $ .25
Extraordinary item - -
________ ________
Net earnings $ .30 $ .25
======== ========
Weighted average number of common and
common equivalent shares 69,797 69,599
======== ========
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)
Three Months Ended
______________________
April 3, April 4,
1994 1993
_________ ________
(In thousands)
Cash flows from operating activities
Net earnings $ 20,643 $ 17,226
Adjustments to reconcile net earnings to cash
Extraordinary item - 264
Depreciation and amortization 10,921 12,645
Deferred income taxes 1,929 227
Receivable from insurance carriers (3,089) (4,695)
Payment of liabilities of discontinued operations (726) (304)
Other operating items (2,521) 2,198
_________ ________
27,157 27,561
_________ ________
Changes in assets and liabilities
Accounts and notes receivable (15,989) (14,248)
Inventories (1,011) (15,715)
Deferred income taxes 763 146
Other current assets (85) (1,266)
Accounts payable (4,710) 543
Accrued expenses (16,886) 2,075
_________ ________
Changes in assets and liabilities (37,918) (28,465)
_________ ________
Cash used in operating activities (10,761) (904)
_________ ________
Cash flows from investing activities
Capital expenditures (7,146) (4,108)
Other - net (1,029) 1,891
_________ ________
Cash used in investing activities (8,175) (2,217)
_________ ________
Cash flows from financing activities
Proceeds from issuance of long-term debt 329,000 24,112
Retirement of long-term debt (310,516) (22,075)
_________ ________
Cash provided by financing activities 18,484 2,037
_________ ________
Cash and cash equivalents -
Decrease (452) (1,084)
At beginning of period 5,749 7,155
_________ ________
At end of period $ 5,297 $ 6,071
========= ========
The accompanying notes to financial statements are an integral part of this
statement.
4.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
April 3, 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 and footnotes 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:
April 3, December 31,
1994 1993
________ ___________
(In thousands)
Accounts and notes receivable - net $61,287 $35,838
Other assets 37,952 23,697
Accrued expenses 31,581 -
Other liabilities 10,404 -
3. Interest paid and federal and state income taxes paid and refunded were as
follows:
Three Months Ended
______________________
April 3, April 4,
1994 1993
_______ _______
(In thousands)
Interest paid $29,718 $30,598
Income taxes:
Paid 12,512 4,992
Refunded 285 896
5.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
April 3, 1994
(Unaudited)
4. During the first quarter of 1993, Coltec incurred an extraordinary charge of
$264,000, net of a tax benefit of $135,000, in connection with the writeoff
of deferred financing costs from early extinguishment of debt.
6.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 3, 1994
PART I FINANCIAL INFORMATION
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 ended April 3, 1994 and April 4, 1993.
Three Months Ended
__________________
April 3, April 4,
1994 1993
_______ _______
(In millions)
Sales:
Aerospace/Government $ 99.1 $113.1
Automotive 128.4 113.1
Industrial 104.7 114.0
Intersegment elimination (.3) (.3)
______ ______
Total $331.9 $339.9
====== ======
Operating income:
Aerospace/Government $ 13.6 $ 17.7
Automotive 28.3 26.3
Industrial 22.3 20.8
______ ______
Total segments 64.2 64.8
Corporate unallocated (9.5) (9.8)
______ ______
Operating income $ 54.7 $ 55.0
====== ======
RESULTS of OPERATIONS
Three Months Ended April 3, 1994 Compared with Three Months Ended April
4, 1993.
Earnings before extraordinary item for the first quarter of 1994 were
$20.6 million, equal to $.30 per common share, compared with $17.5
million, or $.25 per common share in the first quarter of 1993. Sales
were $331.9 million compared with $339.9 million for the first quarter
last year. Operating income for the 1994 first quarter was $54.7
million and the operating margin was 16.5%. This compared with
operating income of $55.0 million and an operating margin of 16.2% in
the first quarter of 1993. Results for the first quarter of 1994 were
adversely impacted by the severe weather conditions in January and
February .
7.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 3, 1994
In the Aerospace/Government segment, operating income in the first
quarter of 1994 declined 23% on a 12% sales decline from the comparable
1993 period. Operating income in the Automotive segment improved 8% on
a 14% sales increase, and operating income in the Industrial segment
increased 7% on an 8% decline in sales.
Operating results for the Aerospace/Government segment continued to
reflect the weakness in demand for commercial aircraft and delayed
receipt of orders for engines for U.S. Navy programs. The improved
performance in the Automotive segment reflects the increasing strength
in the automotive industry and rising demand for segment products. In
the Industrial segment, results were mixed in the first quarter of
1994, with higher sales and earnings reported by Quincy Compressor and
Garlock Bearings, while Garlock Mechanical Packing, France Compressor
Products and Delavan Commercial Products reported lower results. Order
input in the Industrial segment increased in the first quarter of 1994
over the 1993 fourth quarter.
Excluding the operating results of Central Moloney, which was sold in
January 1994, sales were up slightly to $327.0 million from $324.2
million and operating income was $54.6 million compared with $56.6
million in the first quarter of 1993. Excluding Central Moloney,
operating income for the Industrial segment was level and sales were up
2% for the first quarter of 1994.
Following is a discussion of the results of operations for the three
months ended April 3, 1994 compared with the three months ended April
4, 1993.
Sales. In the Aerospace/Government segment, sales were $99.1 million
compared with $113.1 million a year ago. The sales decline continued
to reflect the weakness in demand for commercial aircraft. Shipments
of Menasco landing gear were down reflecting schedule reductions early
in 1993 that were in response to customer cutbacks. Sales were down at
Fairbanks Morse Engine on lower shipments of engines reflecting
completion of certain U.S. Navy programs; and at Chandler Evans Control
Systems, sales were down on lower demand for spare parts from both the
commercial and military markets.
Sales for the Automotive segment increased from $113.1 million last
year to $128.4 million in the first quarter of 1994 reflecting higher
new car and truck production. Sales at Holley Automotive were higher
on increased demand for manifold assemblies, transmission solenoids and
transmission modulators. Shipments of oil pumps and both mechanical
and electrical emission-control air pumps were up at Coltec Automotive.
The higher sales of electric air pumps reflected the acquisition late
in 1993 of General Motor's air pump manufacturing operation. Farnam
Sealing Systems reported higher sales on strong demand for gaskets and
seals from both original equipment manufacturers and the aftermarket.
Sales were lower at Holley Replacement Parts reflecting a decline in
demand for carburetors in the aftermarket.
8.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 3, 1994
In the Industrial segment, sales were $104.7 million for the first
quarter of 1994 compared with $114.0 million last year. Excluding
Central Moloney, sales were $99.8 million compared with $98.2 million
in the first quarter of 1993. Quincy Compressor reported higher sales
on increased shipments of 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. Lower sales were reported in the first quarter of
1994 by Garlock Mechanical Packing, Garlock Valves & Industrial
Plastics and France Compressor Products.
Cost of Sales. Cost of sales decreased 2% in the first quarter of
1994; however, excluding Central Moloney, cost of sales was 3% higher.
This increase is related primarily to higher operating costs at
Chandler Evans Control Systems and Walbar resulting from production
delays and inefficiencies during the consolidation and relocation of
operations pursuant to the restructuring plan announced in 1993. Cost
of sales as a percent of sales increased to 68.2% from 66.7%, after
excluding Central Moloney.
Selling and Administrative. Selling and administrative expense,
including other income and expense, declined 6% in the first quarter of
1994. Excluding Central Moloney, selling and administrative expense
was down 4% due to lower sales and to reductions in the sales force at
Garlock Mechanical Packing. As a percent of sales, selling and
administrative expense declined to 15.1% from 15.8% in the first three
months of 1993, after excluding Central Moloney.
Interest and Debt Expense, Net. Interest and debt expense, net
declined $5.6 million, or 20%, primarily reflecting lower cost under
the 1994 Credit Agreement entered into in January 1994.
Provision for Income Taxes. The provision for income taxes for the
first three months of 1994 results in an effective income tax rate of
36.0% compared with 35.0% for the first three months of 1993.
Extraordinary Item. Coltec incurred an extraordinary charge of $.3
million, net of a $.1 million tax benefit, in the first three months of
1993 resulting from the write-off of deferred financing costs from
early extinguishment of debt.
9.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 3, 1994
Liquidity and Financial Position
In January 1994, Coltec entered into a $415.0 million reducing
revolving credit facility (the "1994 Credit Agreement"). This
agreement 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
million for issuance of letters of credit and will be reduced $50.0
million on both January 11, 1997 and 1998. On April 3, 1994,
borrowings of $329.0 million were outstanding and letters of credit of
$38.9 million were issued under the 1994 Credit Agreement leaving $47.1
million available for additional borrowings and the issuance 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 recorded liabilities ($31.6 million
included in accrued expenses and $10.4 million included in other
liabilities in the Consolidated Balance Sheet) 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. At April 3, 1994 and December 31, 1993, the
receivable balance was $99.2 million and $59.5 million, respectively,
of which $61.3 million and $35.8 million, respectively, is included in
accounts and notes receivable - net, with the remaining balance
included in other assets.
In the first three months of 1994, $10.8 million of cash was used in
operating activities compared with $.9 million last year. The $10.8
million of cash used in operating activities in 1994 reflects higher
working capital requirements, a lower interest accrual resulting from
the 1994 Credit Agreement, higher payments of income taxes and payments
covering the restructuring plan announced in 1993. The $.9 million of
cash used in operating activities in the first quarter of 1993 was due
to higher working capital requirements. Excluding the receivable due
from insurance carriers, receivables increased 8% to $135.4 million and
receivables days outstanding were 38 days at April 3, 1994 compared
with 36 days at year-end 1993. Inventories of $165.7 million at April
3, 1994 were slightly lower than at December 31, 1993, however,
excluding Central Moloney, inventories were slightly higher.
10.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 3, 1994
At April 3, 1994, total debt was $1,048.4 million compared with
$1,033.6 million at year-end 1993. The negative balance in
shareholders equity of $605.6 million compares with a negative balance
of $625.5 million at year-end 1993. Cash and cash equivalents at April
3, 1994 were $5.3 million compared with $5.7 million at December 31,
1993. Working capital at April 3, 1994 was $190.5 million and the
current ratio was 1.94. This compares with working capital of $163.1
million and a current ratio of 1.83 at December 31, 1993.
11.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 3, 1994
PART II OTHER INFORMATION
Item 1. Legal Proceedings
As of April 3, 1994, two subsidiaries of Coltec were among a number of
defendants (typically 15 to 40) in approximately 68,300 actions
(including approximately 6,000 actions in advanced stages of
processing) filed in various states by plaintiffs alleging injury or
death as a result of asbestos fibers. Through April 3, 1994,
approximately 98,800 of the approximately 167,100 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 believes that 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. On this basis, Coltec 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
quarter of 1994, two subsidiaries of Coltec received approximately
4,000 new actions. Payments were made with respect to asbestos
liability and related costs aggregating $10.1 million in the first
quarter 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 April 3, 1994, Coltec estimates that the aggregate
12.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 3, 1994
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 $42.0
million and Coltec expects that this cost will be substantially covered
by insurance.
With respect to the 62,300 outstanding actions as of April 3, 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 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.
13.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 3, 1994
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.
In addition to claims for personal injury, the subsidiaries were among
40 named defendants in a class action seeking recovery of the cost of
asbestos removal from school buildings. Twenty-nine similar school
building cases have been dismissed without prejudice to the plaintiffs
and without payment by Coltec's subsidiaries. Coltec's subsidiaries
continue to be named as defendants in new cases.
Item 6. Exhibits and Reports on Form 8-K
(b) No reports on Form 8-K were filed during the quarter ended
April 3,1994 by Coltec Industries Inc.
14.
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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: May 16, 1994
15.
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