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 July 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 July 31, 1994, there were outstanding 69,815,968 shares of common stock,
par value $.01 per share.
Page 1 of 28
<PAGE>
PART I FINANCIAL INFORMATION
Item I Financial Statements
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
July 3, December 31,
1994 1993
___________ ____________
(Unaudited)
(In thousands, except
share data)
A S S E T S
Current assets -
Cash and cash equivalents $ 6,795 $ 5,749
Accounts and notes receivable - net 189,718 161,521
Inventories -
Finished goods 39,286 39,206
Work in process and finished parts 109,518 103,166
Raw materials and supplies 25,387 25,405
___________ ___________
174,191 167,777
Deferred income taxes 15,061 17,036
Other current assets 8,712 8,587
___________ ___________
Total current assets 394,477 360,670
Property, plant and equipment 639,249 657,237
Less accumulated depreciation and
amortization 424,420 431,908
___________ ___________
214,829 225,329
Costs in excess of net assets acquired,
net of amortization 132,479 132,550
Other assets 83,041 87,863
___________ ___________
$ 824,826 $ 806,412
=========== ===========
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities -
Current maturities of long-term debt $ 519 $ 1,543
Accounts payable 65,627 64,791
Accrued expenses 145,946 127,208
Current portion of liabilities of
discontinued operations 4,000 4,000
___________ ___________
Total current liabilities 216,092 197,542
Long-term debt 992,691 1,032,089
Deferred income taxes 33,401 27,543
Other liabilities 131,992 132,367
Liabilities of discontinued operations 31,832 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 637,016 636,846
Retained earnings (deficit) (1,207,454) (1,251,465)
Unearned compensation - restricted
stock awards (3,928) (5,552)
Minimum pension liability (4,205) (4,205)
Foreign currency translation adjustments (1,251) 1,077
___________ ___________
(579,123) (622,600)
Less: Cost of 127,373 and 179,309 shares
of common stock in treasury at
July 3, 1994 and December 31, 1993,
respectively (2,059) (2,890)
___________ ___________
(581,182) (625,490)
___________ ___________
$ 824,826 $ 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 Six Months Ended
__________________ __________________
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
________ ________ ________ ________
(In thousands, except per share data)
Net sales $337,018 $334,591 $668,868 $674,525
________ ________ ________ ________
Costs and expenses -
Cost of sales 226,812 226,862 454,453 458,893
Selling and administrative 49,515 45,470 99,045 98,406
Restructuring charge - 25,219 - 25,219
________ ________ ________ ________
Total costs and expenses 276,327 297,551 553,498 582,518
________ ________ ________ ________
Operating income 60,691 37,040 115,370 92,007
Interest and debt expense, net 22,593 27,789 45,017 55,848
________ ________ ________ ________
Earnings before income taxes and
extraordinary item 38,098 9,251 70,353 36,159
Provision for income taxes 13,715 3,238 25,327 12,656
________ ________ ________ ________
Earnings before extraordinary item 24,383 6,013 45,026 23,503
Extraordinary item (1,015) (375) (1,015) (639)
________ ________ ________ ________
Net earnings $ 23,368 $ 5,638 $ 44,011 $ 22,864
======== ======== ======== ========
Earnings per common share -
Before extraordinary item $ .35 $ .09 $ .65 $ .34
Extraordinary item (.02) (.01) (.02) (.01)
_____ _____ _____ _____
Net earnings $ .33 $ .08 $ .63 $ .33
===== ===== ===== =====
Weighted average number of common
and common equivalent shares 69,799 69,526 69,798 69,563
====== ====== ====== ======
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)
Six Months Ended
______________________
July 3, July 4,
1994 1993
_________ ________
(In thousands)
Cash flows from operating activities -
Net earnings $ 44,011 $ 22,864
Adjustments to reconcile net earnings to cash -
Extraordinary item 1,015 639
Restructuring charge - 25,219
Depreciation and amortization 21,721 25,375
Deferred income taxes 5,858 (5,254)
Receivable from insurance carriers 23,071 (9,873)
Payment of liabilities of discontinued operations (1,218) (2,627)
Other operating items (4,435) (812)
_________ ________
90,023 55,531
_________ ________
Changes in assets and liabilities -
Accounts and notes receivable (19,171) (11,923)
Inventories (9,499) (15,376)
Deferred income taxes 1,975 396
Other current assets (404) (1,269)
Accounts payable 3,341 1,418
Accrued expenses (13,667) (4,252)
_________ ________
Changes in assets and liabilities (37,425) (31,006)
_________ ________
Cash provided by operating activities 52,598 24,525
_________ ________
Cash flows from investing activities -
Capital expenditures (14,726) (11,985)
Other - net 1,282 6,925
_________ ________
Cash used in investing activities (13,444) (5,060)
_________ ________
Cash flows from financing activities -
Issuance of long-term debt 329,000 28,609
Payments of long-term debt (367,108) (41,678)
Distribution to Holdings pursuant to tax
sharing procedure - (4,624)
_________ ________
Cash used in financing activities (38,108) (17,693)
_________ ________
Cash and cash equivalents -
Increase 1,046 1,772
At beginning of period 5,749 7,155
_________ ________
At end of period $ 6,795 $ 8,927
========= ========
The accompanying notes to financial statements are an integral part of this
statement.
4.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
July 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:
July 3, December 31,
1994 1993
______ ___________
(In thousands)
Accounts and notes receivable - net $51,117 $35,838
Other assets 24,026 23,697
Accrued expenses 35,101 -
Other liabilities 10,580 -
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.
5.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
July 3, 1994
(Unaudited)
4. Interest paid and federal and state income taxes paid and refunded were as
follows:
Six Months Ended
_________________
July 3, July 4,
1994 1993
_______ _______
(In thousands)
Interest paid $47,219 $53,107
Income taxes:
Paid 18,886 22,851
Refunded 1,567 920
5. During the second quarter of 1994, Coltec incurred an extraordinary charge
of $1,015,000, net of a tax benefit of $547,000, in connection with the
early retirement of debt.
During the second quarter and six months of 1993, Coltec incurred
extraordinary charges of $375,000, net of a tax benefit of $193,000, and
$639,000, net of a tax benefit of $328,000, respectively, in connection
with the early retirement of debt.
6.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 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 six months ended July 3, 1994 and July 4, 1993.
Three Months Ended Six Months Ended
__________________ __________________
July 3, July 4, July 3, July 4,
1994 1993 1994 1993
_______ _______ _______ _______
(In millions)
Sales:
Aerospace/Government $105.3 $108.9 $204.4 $222.1
Automotive 133.7 114.2 262.1 227.3
Industrial 98.5 111.7 203.2 225.7
Intersegment elimination (.5) (.2) (.8) (.6)
______ ______ ______ ______
Total $337.0 $334.6 $668.9 $674.5
====== ====== ====== ======
Operating income:
Aerospace/Government $ 16.4 $ .5 $ 30.0 $ 18.2
Automotive 31.2 28.2 59.5 54.4
Industrial 22.6 17.7 44.9 38.5
______ ______ ______ ______
Total segments 70.2 46.4 134.4 111.1
Corporate unallocated (9.5) (9.4) (19.0) (19.1)
______ ______ ______ ______
Operating income $ 60.7 $ 37.0 $115.4 $ 92.0
====== ====== ====== ======
Operating income for the second quarter 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, 1993 operating income by industry
segment would have been as follows:
Three Six
Months Months
______ ______
(In millions)
Aerospace/Government $18.2 $ 35.9
Automotive 32.0 58.2
Industrial 21.4 42.2
_____ ______
Total segments $71.6 $136.3
_____ ______
7.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Results of Operations
Three Months Ended July 3, 1994 Compared With Three Months Ended July
4, 1993.
Earnings per share before extraordinary item increased to $.35 in the
second quarter of 1994 from $.09 per share in the 1993 second quarter,
or $.31 cents per share excluding a restructuring charge. Sales for
the 1994 second quarter were $337.0 million compared with $334.6
million in the comparable period last year. Operating income was $60.7
million compared with $37.0 million in the 1993 second quarter and the
operating margin was 18.0%, compared with 11.1% last year. Excluding a
restructuring charge of $25.2 million recorded in the second quarter of
1993, operating income was $62.3 million and the operating margin was
18.6% in the second quarter of 1993.
In the Aerospace/Government segment, 1994 second quarter operating
income increased significantly over the like quarter last year on a 3%
sales decline. Operating income in the Automotive segment improved 11%
on a 17% sales increase and, in the Industrial segment, operating
income was higher by 28% on a 12% decline in sales. Excluding the 1993
restructuring charge, operating income in the second quarter of 1994
declined 10% in the Aerospace/Government segment and 3% in the
Automotive segment. Included in 1993 second quarter 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 was up 9%.
Excluding the 1993 restructuring charge and the operating results of
Central Moloney, which was sold in January 1994, Industrial segment
sales were up 2% and operating income improved 6% in the second quarter
of 1994. For Coltec, excluding the 1993 restructuring charge and
Central Moloney, operating income in the 1993 second quarter was $62.1
million on sales of $319.7 million. Coltec sold Central Moloney at a
price approximating book value. Coltec believes that this divestiture
will contribute to improved results in the Industrial segment.
Operating results for the Aerospace/Government segment in the second
quarter of 1994 continued to reflect the general weakness in the
aerospace industry and a gap in production and sales of engines for
U.S. Navy programs. 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, Delavan
Commercial Products and Garlock Mechanical Packing, while Garlock
Plastomer and France Compressor Products reported lower results. Order
input in the second quarter of 1994 increased over the same quarter
last year by 13% in the Automotive segment and 6% in the Industrial
segment, after excluding Central Moloney.
8.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Following is a discussion of the results of operations for the three
months ended July 3, 1994 compared with the three months ended July 4,
1993.
Sales. In the Aerospace/Government segment, sales were $105.3 million
compared with $108.9 million a year ago. This decline results from the
general weakness in the aerospace industry as reflected in lower sales
volume at Walbar, Chandler Evans Control Systems and Delavan Gas
Turbine. Sales were also down at Fairbanks Morse Engine due to a gap
in sales of engines for U.S. Navy programs. These declines were
partially offset by increased shipments of landing gear assemblies at
Menasco Aerosystems for the military market and for new commercial
programs, including the Boeing 777 jetliner.
Automotive segment sales increased 17% to $133.7 million in the three
months ended July 3, 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 auto maker's North American Operations.
Sales for the Industrial segment were $98.5 million for the three
months ended July 3, 1994, compared with $111.7 million last year.
Excluding the sales of Central Moloney, Industrial segment sales were
$96.8 million in the second 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 market, primarily reflecting
increased market penetration. Lower sales were reported in the second
quarter of 1994 by Garlock Mechanical Packing, Garlock Plastomer
Products and Garlock Valves & Industrial Plastics.
Cost of Sales. Cost of sales in the second quarter of 1994 remained at
the same level as in 1993; however, excluding Central Moloney, cost of
sales was 6% higher. This increase primarily reflects the higher sales
volume in the Automotive segment. As a percentage of sales, cost of
sales increased to 67.3% from 66.8%, after excluding Central Moloney.
Selling and Administrative Expense. Selling and administrative
expense, including other income and expense, increased 9% in the three
months ended July 3, 1994 and 13% excluding Central Moloney. This
increase was due to higher state and local income taxes and to the
recovery, in the second quarter of 1993, of $3.5 million of previously
incurred engineering expense. The increase in 1994 second quarter
9.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
selling and administrative expense was offset in part by reductions in
the sales force at Garlock Mechanical Packing. As a percent of sales,
selling and administrative expense was 14.7% in the second quarter of
1994 compared with 14.8% last year, 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. These
actions are intended to reduce annual operating costs, primarily
salaries, wages and related employee benefit costs by approximately
$10.0 million beginning in 1994 and thereby improve Coltec's
competitiveness. Coltec believes that the cost efficiencies gained
from the restructuring will permit Coltec to maintain or improve
operating margins. Significant progress has been made toward achieving
the objectives of the restructuring program, and the program is
expected to be completed in 1994.
Interest and Debt Expense, Net. Interest and debt expense, net
declined $5.2 million or 19%, in the three months ended July 3, 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 July 3, 1994 resulted in an effective income tax
rate of 36.0% compared with 35.0% for the like period last year.
Extraordinary Item. The extraordinary charges in both the second
quarters of 1994 and 1993 resulted from early retirement of debt.
Six Months Ended July 3, 1994 Compared With Six Months Ended July 4,
1993.
Earnings per share before extraordinary items for the six months ended
July 3, 1994 were $.65 compared with $.34 per share in 1993, or $.56
per share excluding the 1993 restructuring charge. Sales for the six
months of 1994 were $668.9 million compared with $674.5 million a year
ago. Operating income was $115.4 million and the operating margin was
17.2% compared with operating income of $92.0 million and an operating
margin of 13.6% for the like period last year. Excluding the 1993
restructuring charge, operating income was $117.2 million and the
operating margin was 17.4% for the six months of 1993.
10.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
For the six months ended July 3, 1994, operating income in the
Aerospace/Government segment increased significantly on an 8% decline
in sales. Automotive segment operating income improved 9% on a 15%
sales increase and in the Industrial segment, operating income was up
17% and sales were down 10%. Excluding the 1993 restructuring charge,
operating income in the six months of 1994 declined 16% in the
Aerospace/Government segment and increased 2% in the Automotive
segment. Excluding from 1993 the recovery of previously incurred
engineering expense and the 1993 restructuring charge, Automotive
segment operating income increased 9% in 1994. Excluding the 1993
restructuring charge and the operating results of Central Moloney,
Industrial segment sales and operating income increased 2% and 3%,
respectively, in the six months of 1994. For Coltec, excluding the
1993 restructuring charge and Central Moloney, sales and operating
income were $664.0 million and $115.3 million, respectively, in the six
months of 1994, compared with $643.9 million and $118.7 million,
respectively, in the like period last year.
Operating results for the Aerospace/Government segment in the six
months of 1994 continued to reflect the general weakness in the
aerospace industry and a gap in production and sales of engines for
U.S. Navy programs. 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 Plastomer and France
Compressor Products reported lower results.
Following is a discussion of the results of operations for the six
months ended July 3, 1994 compared with the six months ended July 4,
1993.
Sales. In the Aerospace/Government segment, sales were $204.4 million
compared with $222.1 million a year ago. This decline results from the
general weakness in the aerospace industry as reflected in lower sales
volume at Walbar, Chandler Evans Control Systems and Delavan Gas
Turbine. Sales were also down at Fairbanks Morse Engine due to a gap
in sales of engines for U.S. Navy programs. These declines were
partially offset by increased shipments of landing gear assemblies at
Menasco Aerosystems for the military market and for new commercial
programs, including the Boeing 777 jetliner.
Automotive segment sales were $262.1 million for the six months of 1994
compared with $227.3 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.
11.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Sales for the Industrial segment were $203.2 million compared with
$225.7 in 1993. Excluding the sales of Central Moloney, Industrial
segment sales were $198.4 million in the six months of 1994 compared
with $195.0 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 market, primarily reflecting increased market penetration.
Lower sales were reported in the six months of 1994 by Garlock
Mechanical Packing, Garlock Plastomer Products and Garlock Valves &
Industrial Plastics.
Cost of Sales. Cost of sales declined 1% during the six months ended
July 3, 1994, however excluding Central Moloney, cost of sales was 5%
higher. This increase primarily reflects the higher sales volume in
the Automotive segment. Cost of sales as a percent of sales increased
to 67.7% from 66.8%, after excluding Central Moloney.
Selling and Administrative Expense. Selling and administrative
expense, including other income and expense, increased slightly in the
six months ended July 3, 1994 and 4%, 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 during the six months of
1994 was offset in part by reductions in the sales force at Garlock
Mechanical Packing. As a percent of sales, selling and administrative
expense was 14.9% in 1994 compared with 15.3% in 1993, after excluding
Central Moloney and the recovery of engineering expense.
Interest and Debt Expense, Net. Interest and debt expense, net
declined $10.8 million or 19% in the six 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 six
months of 1994 resulted in an effective income tax rate of 36.0%
compared with 35.0% for 1993.
Extraordinary Item. The extraordinary charges in both the six months
of 1994 and 1993 resulted from early retirement of debt.
12.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 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 July 3, 1994, borrowings of $295.0
million were outstanding and letters of credit of $30.3 million were
issued under the 1994 Credit Agreement leaving $89.7 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 separately recorded an asset equal to the amount
expected to be recovered by insurance. As of July 3, 1994, Coltec has
recorded a liability of $45.7 million, of which $35.1 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 July 3, 1994 and December
31, 1993, the receivable balance was $75.1 million and $59.5 million,
respectively, of which $51.1 million and $35.8 million, respectively,
is included in accounts and notes receivable - net, with the remaining
balance included in other assets.
During the six months ended July 3, 1994, Coltec generated $52.6
million of cash from operating activities compared with $24.5 million
for the six months of 1993. The improvement resulted primarily from
the net receipt in 1994 of $23.1 million from insurance carriers for
asbestos-related matters compared with a $9.9 million net payment to
claimants last year. Partially offsetting this improvement were higher
working capital requirements. The $52.6 million of cash generated in
1994 along with available cash were used to reduce indebtedness by
$38.1 million and invest $14.7 million in capital expenditures.
Excluding the current receivable due from insurance carriers of $51.1
million at July 3, 1994 and $35.8 million at December 31, 1993,
receivables increased 10% to $138.6 million compared with $125.7
million at the end of 1993 and receivable days outstanding were 39 days
at July 3, 1994 compared with 36 days at December 31, 1993.
13.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Inventories of $174.2 million at July 3, 1994 were 4% higher than at
December 31, 1993. Excluding Central Moloney, inventories were 6%
higher.
At July 3, 1994, total debt was $993.2 million compared with $1,033.6
million at year-end 1993. The negative balance in shareholders' equity
of $581.2 million compares with a negative balance of $625.5 million at
year-end 1993. Cash and cash equivalents at July 3, 1994 were $6.8
million compared with $5.7 million at December 31, 1993. Working
capital at July 3, 1994 was $178.4 million and the current ratio was
1.83. This compares with working capital of $163.1 million and a
current ratio of 1.83 at December 31, 1993.
14.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
As of July 3, 1994, two subsidiaries of Coltec were among a number of
defendants (typically 15 to 40) in approximately 65,400 actions
(including approximately 11,700 actions in advanced stages of
processing) filed in various states by plaintiffs alleging injury or
death as a result of asbestos fibers. Through July 3, 1994,
approximately 104,400 of the approximately 169,800 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
six months of 1994, two subsidiaries of Coltec received approximately
10,200 new actions. Payments were made with respect to asbestos
liability and related costs aggregating $19.0 million in the first six
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
15.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 1. Legal Proceedings. (cont.)
actions. As of July 3, 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 $45.7
million and Coltec expects that this cost will be substantially
covered by insurance.
With respect to the 53,700 outstanding actions as of July 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
16.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 1. Legal Proceedings. (cont.)
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.
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 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of the shareholders of Coltec was held on June
21, 1994.
(b) At the annual meeting of shareholders held on June 21, 1994,
shareholders voted for:
1. The election of a Board of Directors consisting of six
members.
2. The 1994 Long-Term Incentive Plan.
3. Amendment to 1992 Stock Option and Incentive Plan.
4. Amended and Restated Annual Incentive Plan.
5. 1994 Stock Option Plan For Outside Directors.
6. Appointment of Arthur Andersen & Co. as the independent
auditors for 1994.
There were 69,802,681 shares of Coltec Common Stock, par value
$.01 per share, outstanding and entitled to one vote per share as
of the record date for said meeting. The voting results were as
follows:
17.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 4. Submission of Matters to a Vote of Security Holders. (cont.)
1. Election of Directors
Number of Votes
____________________________
Name of Candidates For Withheld
_______________________ __________ ________
John W. Guffey, Jr. 63,971,508 585,512
David I. Margolis 63,974,230 582,790
J. Bradford Mooney, Jr. 64,080,430 476,590
Joel Moses 64,155,930 401,090
Paul G. Schoen 63,976,030 580,990
Richard A. Stuckey 64,082,430 474,590
2. The 1994 Long-Term Incentive Plan
For Against Abstain
__________ __________ _______
53,422,826 10,836,217 151,424
3. Amendment to 1992 Stock Option and Incentive Plan
For Against Abstain
__________ _________ _______
56,821,251 6,238,654 170,135
4. Amended and Restated Annual Incentive Plan
For Against Abstain
__________ _________ _______
56,077,368 8,145,214 187,885
5. 1994 Stock Option Plan For Outside Directors
For Against Abstain
__________ _________ _______
62,279,739 791,883 158,418
6. Appointment of Arthur Andersen & Co. as the independent auditors
for 1994.
For Against Abstain
__________ _________ _______
64,130,496 332,010 94,514
18.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information
In response to comments from the Securities and Exchange Commission,
the following financial data supplements the Management's Discussion
and Analysis of Financial Condition and Results of Operation and the
Financial Statements incorporated by reference in Coltec's Form 10-K
for the year ended December 31, 1993.
Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
Year Ended December 31, 1993 Compared With Year Ended December 31,
1992.
Earnings before extraordinary item for 1993 were $65.2 million, equal
to $.94 per common share, or $80.5 million, equal to $1.16 per common
share, excluding the 1993 restructuring charge of $25.2 million
recorded by Coltec in the second quarter of 1993. This compared with
earnings before extraordinary item of $64.7 million, or $1.11 per
common share, in 1992. In January 1994, Coltec entered into the 1994
Credit Agreement. Had this facility been entered into at the
beginning of 1993, earnings before extraordinary item for 1993 would
have increased by $10.1 million, or $.14 per common share. Sales were
$1,334.8 million in 1993 compared with $1,368.7 million in 1992.
Operating income for 1993 was $211.7 million and the operating margin
was 15.9%. Excluding the 1993 restructuring charge, operating income
was $236.9 million and the operating margin was 17.7%. For 1992,
operating income was $243.1 million and the operating margin was
17.8%. Although sales and operating income declined slightly in 1993,
Coltec was able to maintain its operating margin, excluding the 1993
restructuring charge, at about the same level as in 1992. This
performance was achieved despite 1993 being a difficult year for two
of the major markets served by Coltec. The aerospace industry
continued to be impacted by declining orders for new commercial
aircraft and cuts in defense spending; and the nation's manufacturing
sector, the primary market for the Industrial segment, remained weak.
The Aerospace/Government segment reported a 34% decline in operating
income in 1993 on a 13% sales decline and an operating margin of 15.0%
compared with 19.5% last year. Excluding the 1993 restructuring
charge, operating income declined 16% in 1993 and the segment's
operating margin was 18.9%. Operating income for 1993 was $67.8
million, $85.5 million excluding the 1993 restructuring charge, on
sales of $453.3 million, compared with operating income of $102.1
million on sales of $523.7 million in the prior year. The Automotive
segment achieved a record 23.0% operating margin in 1993, compared
19.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information (cont.)
with 21.1% in 1992, a 20% improvement in operating income and an 11%
increase in sales. Excluding the 1993 restructuring charge, the
Automotive segment's operating margin was 23.8% and operating income
improved 25%. Operating income was $102.4 million, $106.2 million
excluding the 1993 restructuring charge, on sales of $445.7 million
compared with operating income of $85.1 million on sales of $402.6
million in 1992. This strong performance reflects higher new car and
truck production, increased applications for segment components and
the introduction of new automotive products. In the Industrial
segment, operating income and sales were down 10% and 2%,
respectively, and segment operating margin declined to 17.4% from
19.0% in 1992. Excluding the 1993 restructuring charge, Industrial
segment operating income was down 6% and the operating margin for 1993
was 18.2%. Segment operating income was $75.9 million, $79.6 million
excluding the 1993 restructuring charge, and sales were $436.7
million, compared with operating income of $84.4 million and sales of
$443.8 million in 1992. Record sales and earnings performances were
reported by the Quincy Compressor and Garlock Bearings Divisions,
while the Central Moloney, Garlock Mechanical Packing and France
Compressor Products Divisions and FMD Electronics reported lower
results in 1993. Excluding Central Moloney, which was sold in January
1994, sales were up 2% to $372.5 million compared with $365.3 million
in 1992, operating income was $80.3 million, down 2% from $81.9
million in 1992, and segment operating margin for 1993 was 21.5%
compared with 22.4% in 1992. Excluding the 1993 restructuring charge
and Central Moloney , 1993 operating income was $80.7 million, down
slightly from 1992, and the operating margin was 21.7%.
Sales. For 1993, Automotive segment sales increased 11% to $445.7
million, reflecting the recovery of the domestic automotive industry
that began last year and continued to accelerate in 1993. Also
contributing to the sales improvement were increased applications for
segment components and the introduction of new automotive products.
Higher volume, including increased applications for segment
components, and new product sales, contributed 7% and 4%,
respectively, to the total sales increase.
Selling and Administrative Expense. Selling and administrative
expense, including other income and expense, increased 6% in 1993.
This increase results primarily from a full year of amortization
expense on restricted stock awards granted in 1992 and from the
inclusion in 1992 of a nonrecurring reduction in insurance cost and
receipt of an $8.7 million license fee by Menasco Aerosystems. The
increase in 1993 selling and administrative expense was offset in part
by recovery of previously incurred engineering expense by Coltec
Automotive. As a percent of sales, selling and administrative expense
increased to 14.4% from 13.2% in 1992.
20.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information (cont.)
Restructuring Charge. The 1993 restructuring charge of $25.2 million
recorded in the second quarter of 1993 covers 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. These actions are intended to reduce annual operating costs,
primarily salaries, wages and related employee-benefit costs by
approximately $10 million beginning in 1994 and thereby improve
Coltec's competitiveness. Coltec believes that the cost efficiencies
gained from the restructuring will permit Coltec to maintain or
improve operating margins. Key elements of the restructuring program
include closing a landing gear manufacturing facility and
consolidation of landing gear production at two existing Menasco
facilities, closing a turbine engine components facility and
consolidating production of these components at three existing Walbar
facilities, and closing one of two Central Moloney plants. At
Chandler Evans Control Systems, the manufacturing area was reduced;
and at Holley Replacement Parts, administrative offices and the
distribution operation are being relocated to one of the division's
manufacturing facilities. During 1993, significant progress was made
toward achieving the objectives of the restructuring program, and the
program is expected to be completed in 1994. Substantially all of the
1993 restructuring charge consists of provisions made in anticipation
of cash expenditures to be funded from operations in approximately
equal amounts in 1993 and 1994.
In January 1994, Coltec sold Central Moloney at a price approximating
book value. Coltec believes that this divestiture will contribute to
improved results in the Industrial segment. The 1993 operating margin
for the Industrial segment was 17.4%. Excluding the operating results
of Central Moloney, the 1993 operating margin for the Industrial
segment would have improved to 21.5%, or 21.7% excluding the 1993
restructuring charge.
Liquidity and Financial Position
On November 18, 1993, Holdings became a wholly owned subsidiary of
Coltec as a result of a reorganization that resulted in the exchange
by the Holdings shareholders of their shares of common stock of
Holdings for 24,830,000 shares of common stock of Coltec (the
"Holdings Reorganization"), constituting 35.5% of the shares of common
stock outstanding after the exchange. Immediately before this
exchange, Holdings owned 35.7%, or 25,000,000 shares, of the common
stock of Coltec. The Holdings Reorganization simplified the equity
capital structures of Coltec and Holdings, and enabled the Holdings
stockholders to hold shares of Coltec common stock directly. The
$26.7 million of cash acquired by Coltec in the Holdings
Reorganization was used primarily to retire outstanding indebtedness
of Coltec.
21.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information (cont.)
Funds from operations continue to be the main source of financing for
Coltec's businesses and for repaying its debt. In 1993, cash provided
by operating activities was $105.2 million compared with $119.9
million in 1992 and $149.2 million in 1991. The lower cash from
operations in 1993 was due primarily to increased working capital
requirements, resulting from the buildup of inventory for new programs
and to meet increased customer requirements and from payments relating
to the restructuring program.
The $46.4 million in liabilities of discontinued operations at
December 31, 1993, represented reserves to cover postretirement
benefits for the former employees of the discontinued operations and
other future estimated costs of the dispositions of Crucible Materials
Corporation in 1985, the steelmaking facility in Midland, Pennsylvania
in 1982, and Colt Firearms in 1990. Payments covering the liabilities
of discontinued operations in 1993, 1992 and 1991 were $4.4 million,
$6.2 million and $4.2 million, respectively. Coltec expects future
cash payments will extend over the remaining lives of the former
employees of the discontinued operations.
Environmental
Coltec and its subsidiaries are subject to numerous federal, state and
local environmental laws, many of which are becoming increasingly
stringent, giving rise to increased compliance costs. For example,
the Clean Air Amendments will require abatement of chemical air
emissions that were previously unregulated and will require certain
existing, and many newly constructed or modified, facilities to obtain
air emission permits that were not previously required. Because many
of the regulations under the Clean Air Amendments have not yet been
promulgated, Coltec cannot estimate their impact at this time.
Coltec, however, believes that it will not be at a competitive
disadvantage in complying with the Clean Air Amendments and that any
increase in costs to comply with the Clean Air Amendments will not
have a material effect on its results of operations and financial
condition.
Many of the facilities of Coltec and its subsidiaries are subject to
the federal Resource Conservation and Recovery Act of 1976 ("RCRA"),
and its analogous state statutes.
Although the costs under RCRA for the treatment, storage and disposal
of hazardous materials generated at Coltec's facilities are
increasing, Coltec does not believe that such costs will have a
material effect on Coltec's results of operations and financial
condition.
22.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information (cont.)
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.
Based on the progress to date in the investigation, cleanup and
allocation of responsibility for these sites, Coltec has estimated
that its costs in connection with all except one of these sites
approximate $20 million at December 31, 1993, and has accrued for this
amount in the Consolidated Balance Sheet as of December 31, 1993.
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 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.
Coltec's annual expenditures (including capital expenditures) relating
to environmental matters over the three years ended December 31, 1993
ranged from $4 million to $6 million, and Coltec expects such
expenditures to approximate $11 million in 1994 and $8 million in
1995. Capital expenditures in each of 1994 and 1995 are expected to
approximate $2 million, and expenditures for recurring environmental
matters are expected to approximate $2 million in each of 1994 and
1995. The balance of the anticipated expenditures in each year is
expected to cover expenses for nonrecurring environmental matters.
The estimate of annual environmental expenditures for 1994 and 1995 is
based upon the expected timing of expenditures pursuant to currently
identified environmental sites. Because environmental laws are
becoming increasingly stringent, Coltec is unable to estimate future
costs to comply with such laws; however, Coltec does not foresee a
continuous upward trend in annual expenditures on environmental
matters.
23.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information (cont.)
Asbestos Litigation
Although the insurance coverage that Coltec has is substantial,
insurance coverage for asbestos claims is not available to cover
asbestos exposures initially occurring on and after July 1, 1984.
Other Financial Information
Effects of Inflation and Foreign Currency Fluctuations
Inflation and foreign currency fluctuations have not had a material
impact on the operating results and financial position of Coltec
during the past three years. Coltec generally has been able to offset
the effects of inflation with price increases, cost-reduction programs
and operating efficiencies. Coltec's foreign operations, which are
primarily located in Canada, do not operate in hyperinflationary
economies.
Notes to Financial Statements For the Year Ended December 31, 1993
1. Summary of Accounting Policies
Costs in Excess of Net Assets Acquired: It is Coltec's policy to
amortize the excess costs arising from acquisitions on a straight-
line basis over periods not to exceed 40 years. Excess costs
arising from all completed acquisitions are being amortized on a
straight-line basis over a 40 year period. At December 31, 1993
and 1992, accumulated amortization was $52,063,000 and
$47,036,000, respectively. In evaluating the value and future
benefits of the excess costs arising from acquisitions, the
recoverability from operating income is measured. Under this
approach, the carrying value would be reduced if it is probable
that management's best estimate of future operating income from
related operations before amortization will be less than the
carrying amount of the excess costs arising from acquisitions over
the remaining amortization period.
Impact of New Accounting Standards: Coltec adopted Financial
Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions", and No. 109,
"Accounting for Income Taxes", effective January 1, 1993; and No.
112, "Employers' Accounting for Postemployment Benefits",
effective January 1, 1994. The adoption of these standards did
not have a material effect on Coltec's results of operations and
financial condition.
Based on preliminary analyses, Coltec does not expect that the
future adoption of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan", and No. 115,
"Accounting for Certain Investments in Debt and Equity
Securities", will have a material effect on Coltec's results of
operations and financial condition.
24.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information (cont.)
3. Restructuring Charge
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, primarily in the Aerospace/Government
segment, as well as at Central Moloney Transformer Division.
7. Financial Instruments
As of December 31, 1993, Coltec has outstanding interest rate
swap agreements with major financial institutions having a total
notional principal amount of $150,000,000, an average fixed
interest rate of 6.34% and an average remaining life of 1-1/4
years, the fair values of which are $4,522,000. Interest rate
swap agreements effectively hedge interest rate exposures and, as
such, the differential to be paid or received is accrued and
recognized in interest expense as market interest rates change.
If an agreement is terminated prior to maturity, Coltec
recognizes a gain or loss upon termination. Coltec has an
outstanding contingent liability for guaranteed debt and lease
payments of $27,140,000, and letters of credit, other than with
respect to guaranteed debt, of $40,733,000. It was not practical
to obtain independent estimates of the fair values for the
contingent liability for guaranteed debt and lease payments and
for letters of credit without incurring excessive costs. In the
opinion of management, nonperformance by the other parties to the
interest rate swap agreements and the contingent liabilities will
not have a material effect on Coltec's results of operations and
financial condition.
13. Related Party Transactions
On November 18, 1993, Holdings became a wholly owned subsidiary
of Coltec as a result of the exchange by all of the Holdings
shareholders of their shares of common stock of Holdings for
35.5% or 24,830,000 shares of common stock of Coltec (the
"Holdings Reorganization") in a transaction accounted for as a
purchase. The net assets acquired consisted primarily of
25,000,000 shares of common stock of Coltec and $26.7 million of
cash. Immediately before this exchange, Holdings owned 35.7% or
25,000,000 shares of common stock of Coltec. The 25,000,000
shares of common stock of Coltec which Holdings owned before this
exchange and continues to own after the exchange are reported in
the Consolidated Balance Sheet as a reduction of the total common
shares issued. Expenses of $1,500,000 incurred in connection
25.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information (cont.)
with this exchange were charged to capital in excess of par
value. As a result of the exchange, Morgan Stanley Group Inc.
became a direct shareholder of Coltec. In connection with an
industrial revenue bond refinancing in 1993, Morgan Stanley & Co.
Incorporated, a wholly owned subsidiary of Morgan Stanley Group
Inc., received a fee of $309,000.
15. Commitments and Contingencies
Coltec and certain of its subsidiaries are liable for lease
payments and are defendants in various lawsuits, including
actions involving asbestos-containing products, certain
environmental proceedings and a fraudulent conveyance action.
With respect to asbestos product liability and related litigation
costs, although the insurance coverage that Coltec has is
substantial, insurance coverage for asbestos claims is not
available to cover exposures initially occurring on and after
July 1, 1984.
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. Based on the progress to date in the investigation,
cleanup and allocation of responsibility for these sites, Coltec
has estimated that its costs in connection with all except one of
these sites approximates $20,000,000 at December 31, 1993, and
has accrued for this amount in the Consolidated Balance Sheet as
of December 31, 1993. 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 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
26.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
July 3, 1994
Item 5. Other Information (cont.)
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. At December 31, 1993, Coltec's investment in
Colt's Manufacturing was fully reserved.
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. Coltec believes that it has adequately provided for
any liabilities Coltec may incur with respect to Colt's
Manufacturing and accordingly does not believe that the Chapter
11 filing, the associated financial condition of Colt's
Manufacturing or the fraudulent conveyance action will have a
material effect on Coltec's results of operations and financial
condition.
Item 6. Exhibits and Reports on Form 8-K.
(b) Coltec filed three reports on Form 8-K during the second quarter
of 1994. The reports were dated April 14, May 24 and June 10,
1994 and each reported under Item 5. Other Information.
27.
<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: August 10, 1994
28.
<PAGE>
