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 2, 1995
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 April 30, 1995, there were outstanding 69,931,784 shares of common
stock, par value $.01 per share.
Page 1 of 14
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 2, December 31,
1995 1994
_________ ____________
(Unaudited)
(In thousands)
A S S E T S
Current assets -
Cash and cash equivalents $ 2,752 $ 4,188
Accounts and notes receivable - net 237,153 198,149
Inventories -
Finished goods 52,023 46,316
Work in process and finished parts 131,780 126,097
Raw materials and supplies 25,083 25,790
________ ________
208,886 198,203
Deferred income taxes 14,601 15,222
Other current assets 10,598 13,936
________ ________
Total current assets 473,990 429,698
Property, plant and equipment 651,953 652,907
Less accumulated depreciation and
amortization 429,954 429,793
________ ________
221,999 223,114
Costs in excess of net assets acquired,
net of amortization 129,752 131,024
Other assets 63,454 63,614
________ ________
$889,195 $847,450
======== ========
2.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
April 2, December 31,
1995 1994
___________ ____________
(Unaudited)
(In thousands, except
share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities -
Current maturities of long-term debt $ 551 $ 886
Accounts payable 67,410 76,648
Accrued expenses 184,766 159,528
Current portion of liabilities of
discontinued operations 3,000 3,000
___________ ___________
Total current liabilities 255,727 240,062
Long-term debt 982,631 969,261
Deferred income taxes 8,457 10,533
Other liabilities 117,461 124,159
Liabilities of discontinued operations 28,876 29,036
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
shares issued (excluding 25,000,000 shares
held by a wholly owned subsidiary) 700 700
Capital in excess of par value 638,505 638,407
Retained earnings (deficit) (1,135,544) (1,158,948)
Unearned compensation - restricted stock awards (2,902) (3,480)
Foreign currency translation adjustments (2,940) (681)
___________ ___________
(502,181) (524,002)
Less: Cost of 109,600 and 98,862 shares
of common stock in treasury at
April 2, 1995 and December 31, 1994,
respectively (1,776) (1,599)
___________ ___________
(503,957) (525,601)
___________ ___________
$ 889,195 $ 847,450
=========== ===========
The accompanying notes to financial statements are an integral part of this
statement.
3.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Three Months Ended
____________________
April 2, April 3,
1995 1994
________ ________
(In thousands, except
per share data)
Net sales $356,344 $331,850
________ ________
Costs and expenses -
Cost of sales 246,489 227,641
Selling and administrative 51,722 49,530
________ ________
Total costs and expenses 298,211 277,171
________ ________
Operating income 58,133 54,679
Interest and debt expense, net 22,001 22,424
________ ________
Earnings before income taxes and extraordinary item 36,132 32,255
Provision for income taxes 12,646 11,612
________ ________
Earnings before extraordinary item 23,486 20,643
Extraordinary item (82) -
________ ________
Net earnings $ 23,404 $ 20,643
======== ========
Earnings per common share -
Before extraordinary item $ .34 $ .30
Extraordinary item - -
________ ________
Net earnings $ .34 $ .30
======== ========
Weighted average number of common and
common equivalent shares 69,822 69,797
======== ========
The accompanying notes to financial statements are an integral part of this
statement.
4.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
Three Months Ended
_____________________
April 2, April 3,
1995 1994
________ _________
(In thousands)
Cash flows from operating activities
Net earnings $ 23,404 $ 20,643
Adjustments to reconcile net earnings to cash
used in operating activities
Extraordinary item 82 -
Depreciation and amortization 10,711 10,921
Deferred income taxes (2,076) 1,929
Receivable from insurance carriers (14,146) (3,089)
Payment of liabilities of discontinued operations (160) (726)
Other operating items (4,273) (2,521)
________ __________
13,542 27,157
________ __________
Changes in assets and liabilities
Accounts and notes receivable (18,153) (15,989)
Inventories (10,683) (1,011)
Deferred income taxes 621 763
Other current assets 3,338 (85)
Accounts payable (9,238) (4,710)
Accrued expenses 13,278 (16,886)
________ __________
Changes in assets and liabilities (20,837) (37,918)
________ __________
Cash used in operating activities (7,295) (10,761)
________ __________
Cash flows from investing activities
Capital expenditures (7,564) (7,146)
Other - net 369 (1,029)
________ __________
Cash used in investing activities (7,195) (8,175)
________ __________
Cash flows from financing activities
Issuance of long-term debt 23,142 329,000
Payment of long-term debt (10,088) (310,516)
________ __________
Cash provided by financing activities 13,054 18,484
________ __________
Cash and cash equivalents -
Decrease (1,436) (452)
At beginning of period 4,188 5,749
________ __________
At end of period $ 2,752 $ 5,297
========= =========
The accompanying notes to financial statements are an integral part of this
statement.
5.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
April 2, 1995
(Unaudited)
1. SUMMARY OF ACCOUNTING POLICIES
Financial Information: 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, 1994 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, 1994.
Consolidated Statement of Cash Flows: Interest paid and federal and state
income taxes paid and refunded were as follows:
Three Months Ended
__________________
April 2, April 3,
1995 1994
_______ ________
(In thousands)
Interest paid $ 6,852 $29,718
Income taxes:
Paid 14,179 12,512
Refunded 521 285
2. EXTRAORDINARY ITEM
During the first quarter of 1995, Coltec incurred an extraordinary charge
of $82,000, net of a tax benefit of $44,000, in connection with the early
retirement of debt.
3. COMMITMENTS AND CONTINGENCIES
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 April 2, 1995, two subsidiaries of Coltec
were among a number of defendants (typically 15 to 40) in approximately
81,600 actions (including approximately 5,600 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 April 2, 1995,
approximately 113,300 of the approximately 194,900 total actions brought
have been settled or otherwise disposed of.
6.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
April 2, 1995
(Unaudited)
The damages claimed for personal injury or death vary from case to case and
in many cases plaintiffs seek $1,000,000 or more in compensatory damages
and $2,000,000 or more in punitive damages. Although the law in each state
differs to some extent, it appears, based on advice of counsel, that
liability for compensatory damages would be shared among all responsible
defendants, thus limiting the potential monetary impact of such judgments
on any individual defendant.
Following a decision of the Pennsylvania Supreme Court, in a case in which
neither Coltec 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. Settlements are generally made on a group basis
with payments made to individual claimants over periods of one to four
years. During the first three months of 1995, two subsidiaries of Coltec
received approximately 9,600 new actions, compared with approximately 4,000
actions received during the first three months of 1994. Payments were
made with respect to asbestos liability and related costs aggregating
$20,785,000 and $10,136,000 in the first three months of 1995 and 1994,
respectively, 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 2,
1995, Coltec estimates that the aggregate remaining cost of the disposition
of the settled actions for which payments remain to be made and actions in
advanced stages of processing, including associated legal costs, is
approximately $56,830,000 and Coltec expects that this cost will be
substantially covered by insurance.
With respect to the 76,000 outstanding actions as of April 2, 1995 which
are in preliminary procedural stages, Coltec lacks sufficient information
upon which judgments can be made as to the validity or ultimate disposition
of such actions, thereby making it difficult to estimate with reasonable
certainty the potential liability or costs to Coltec. When asbestos
actions are received they are typically forwarded to local counsel to
ensure that the appropriate preliminary procedural response is taken. The
complaints typically do not contain sufficient information to permit a
7.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
April 2, 1995
(Unaudited)
reasonable evaluation as to their merits at the time of receipt, and in
jurisdictions encompassing a majority of the outstanding actions, the
practice has been that little or no discovery or other action is taken
until several months prior to the date set for trial. Accordingly, Coltec
generally does not have the information necessary to analyze the actions in
sufficient detail to estimate the ultimate liability or costs to Coltec, if
any, until the actions appear on a trial calendar. A determination to seek
dismissal, to attempt to settle or to proceed to trial is typically not
made prior to the receipt of such information.
It is also difficult to predict the number of asbestos lawsuits that
Coltec's subsidiaries will receive in the future. Coltec has noted that,
with respect to recently settled actions or actions in advanced stages of
processing, the mix of the injuries alleged and the mix of the occupations
of the plaintiffs have been changing from those traditionally associated
with Coltec's asbestos-related actions. Coltec is not able to determine
with reasonable certainty whether this trend will continue. Based upon the
foregoing, and due to the unique factors inherent in each of the actions,
including the nature of the disease, the occupation of the plaintiff, the
presence or absence of other possible causes of a plaintiff's illness, the
availability of legal defenses, such as the statute of limitations or state
of the art, and whether the lawsuit is an individual one or part of a
group, management is unable to estimate with reasonable certainty the cost
of disposing of outstanding actions in preliminary procedural stages or of
actions that may be filed in the future. However, Coltec believes that its
subsidiaries are in a favorable position compared to many other defendants
because, among other things, the asbestos fibers in its asbestos-containing
products were encapsulated. Considering the foregoing, as well as the
experience of Coltec's subsidiaries and other defendants in asbestos
litigation, the likely sharing of judgments among multiple responsible
defendants, and the significant amount of insurance coverage that Coltec
expects to be available from its solvent carriers, Coltec believes that
pending and reasonably anticipated future actions are not likely to have a
material effect on Coltec's results of operations and financial condition.
Although the insurance coverage which Coltec has is substantial, it should
be noted that insurance coverage for asbestos claims is not available to
cover exposures initially occurring on and after July 1, 1984. Coltec's
subsidiaries continue to be named as defendants in new cases, some of which
allege initial exposure after July 1, 1984.
In addition to claims for personal injury, Coltec's subsidiaries have been
involved in an insignificant number of property damage claims based upon
asbestos-containing materials found in schools, public facilities and
private commercial buildings. Based upon proceedings to date, the
overwhelming majority of these claims have been resolved without a material
adverse impact on Coltec. Likewise, the insignificant number of claims
8.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
April 2, 1995
(Unaudited)
remaining to be resolved are not expected to have a material effect on
Coltec's results of operations and financial condition.
Coltec has recorded an accrual for its liabilities for asbestos-related
matters that are deemed probable and can be reasonably estimated (settled
actions and actions in advanced stages of processing), and has separately
recorded an asset equal to the amount of such liabilities that is expected
to be recovered by insurance. In addition, Coltec has recorded a
receivable for that portion of payments previously made for asbestos
product liability actions and related litigation costs that is recoverable
from its insurance carriers. Liabilities for asbestos related matters and
the receivable from insurance carriers included in the Consolidated Balance
Sheet are as follows:
April 2, Dec. 31,
(In thousands) 1995 1994
_________________________________________________________________
Accounts and notes receivable - other $89,030 $68,179
Other assets 15,561 13,119
Accrued expenses - other 46,103 34,099
Other liabilities 10,727 8,155
With respect to environmental proceedings, Coltec has been notified that it
is among the Potentially Responsible Parties ("PRPs") under the federal
Comprehensive Environmental Response, Compensation and Liability Act of
1980, as amended ("CERCLA"), or similar state laws, for the costs of
investigating and in some cases remediating contamination by hazardous
materials at several sites. CERCLA imposes joint and several liability for
the costs of investigating and remediating properties contaminated by
hazardous materials. Liability for these costs can be imposed on present
and former owners or operators of the properties or on parties who
generated the wastes that contributed to the contamination. The process of
investigating and remediating contaminated properties can be lengthy and
expensive. The process is also subject to the uncertainties occasioned by
changing legal requirements, developing technological applications and
liability allocations among PRPs. Based on the progress to date in the
investigation, cleanup and allocation of responsibility for these sites,
Coltec has estimated that its costs in connection with these sites
approximates $20,000,000 at April 2, 1995, and has accrued for this amount
in the Consolidated Balance Sheet as of April 2, 1995. Although Coltec is
pursuing insurance recovery in connection with certain of these matters,
Coltec has not recorded a receivable with respect to any potential recovery
of costs in connection with any environmental matter.
9.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 2, 1995
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 2, 1995 and April 3, 1994.
Three Months Ended
__________________
April 2, April 3,
1995 1994
_______ _______
(In millions)
Sales:
Aerospace/Government $114.9 $ 99.1
Automotive 132.3 128.4
Industrial 109.5 104.7
Intersegment elimination (.4) (.3)
______ ______
Total $356.3 $331.9
====== ======
Operating income:
Aerospace/Government $ 15.0 $ 13.6
Automotive 27.9 28.3
Industrial 24.7 22.3
______ ______
Total segments 67.6 64.2
Corporate unallocated (9.5) (9.5)
______ ______
Operating income $ 58.1 $ 54.7
====== ======
Results of Operations
Three Months Ended April 2, 1995 Compared With Three Months Ended April
3, 1994.
Earnings before extraordinary item in the 1995 first quarter increased
14% to $23.5 million, equal to 34 cents per share, from $20.6 million,
or 30 cents per share, in the first quarter of 1994. Sales for the
quarter ended April 2, 1995, increased 7% to $356.3 million compared
with $331.9 million in the like quarter last year. Operating income
improved 6% to $58.1 million, and the operating margin was 16.3%. This
compared with operating income of $54.7 million and an operating margin
of 16.5% in the 1994 first quarter.
In the Aerospace/Government segment, operating income improved 10% on a
16% sales increase. The Aerospace/Government segment benefited from
10.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 2, 1995
strong performances by Fairbanks Morse Engine, Chandler Evans Control
Systems and Delavan Gas Turbine Products. The earnings improvement for
the Aerospace/Government segment was partially offset by continuing
production inefficiencies at Walbar. Operating income in the
Automotive segment declined 1% on a 3% sales increase. The Automotive
segment was negatively affected by a leveling of domestic vehicle sales
as well as the pricing environment in the original equipment market.
Improved aftermarket results were experienced by Holley Performance
Products in the first quarter of 1995. The Industrial segment reported
an 11% improvement in operating income on a 5% sales increase.
However, excluding Central Moloney, which was sold in January 1994,
sales in the Industrial segment increased 10%. Higher sales and
earnings were reported by all divisions in the Industrial segment
reflecting the continuing improvement in the markets served and the
success of new product introductions. Orders for the Industrial
segment were up 16% in the first quarter led by strong performances by
Garlock Mechanical Packing, Quincy Compressor and Garlock Bearings.
Following is a discussion of the results of operations for the three
months ended April 2, 1995 compared with the three months ended April
3, 1994.
Sales. In the Aerospace/Government segment, sales were $114.9 million
compared with $99.1 million a year ago. Fairbanks Morse Engine
reported higher shipments of engines for U.S. Navy programs and began
the initial deliveries of Alco engines. Higher sales at Chandler Evans
were due to increased shipments of fuel pumps to original equipment
manufacturers and spare parts to the commercial aftermarket. Sales
were up at Delavan Gas Turbine Products on increased demand for fuel
nozzles and overhaul services to regional airlines.
Sales for the Automotive segment were $132.3 million for the three
months ended April 2, 1995, compared with $128.4 million last year.
Shipments were negatively affected by a leveling of domestic vehicle
sales as well as the pricing environment in the original equipment
market. Holley Performance Products reported higher sales on strong
demand in the automotive aftermarket for performance carburetors.
In the Industrial segment, sales were $109.5 million compared with
$104.7 million last year, or $99.8 million excluding Central Moloney.
All divisions within the Industrial segment reported increased sales in
the first quarter of 1995. Sales were higher at Quincy Compressor on
increased shipments of both reciprocating and rotary screw air
compressors and on strong demand for compressor parts and accessories.
Garlock Bearings reported higher sales on strong demand for bearings
from the automotive and truck markets. At Garlock Mechanical Packing
sales were higher on increased demand for the GYLON and KLOSURE product
lines and on improved pricing.
11.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 2, 1995
Cost of Sales. Cost of sales increased 8% in the first quarter of
1995. The increase is related to the increased volume of business,
production inefficiencies at Walbar and start up costs at Fairbanks
Morse Engine. As a percent of sales, cost of sales increased to 69.2%
from 68.6% last year.
Selling and Administrative Expense. Selling and administrative
expense, including other income and expense, increased 4% due primarily
to higher sales. As a percent of sales, selling and administrative
expense declined to 14.5% from 14.9% in the first three months of 1993.
Interest and Debt Expense, Net. Interest and debt expense, net
declined $.4 million, or 2%.
Provision for Income Taxes. The provision for income taxes for the
first three months of 1995 results in an effective income tax rate of
35% compared with 36% for last year.
Extraordinary Item. The extraordinary charge for the first quarter of
1995 resulted from early extinguishment of debt.
Liquidity and Financial Position
At April 2, 1995, cash and cash equivalents were $2.8 million compared
with $4.2 million at year-end 1994. Working capital was $218.3 million
and the current ratio was 1.85. This compares with working capital of
$189.6 million and a current ratio of 1.79 at December 31, 1994.
In the first three months of 1995, $7.3 million of cash was used in
operating activities compared with $10.8 million last year. The lower
level of cash used in 1995 was due mainly to higher interest payments
in 1994 as well as to payments in 1994 covering the restructuring plan
announced in 1993. Partially offsetting this improvement was the net
payment in the first quarter of 1995 of $14.1 million for asbestos-
related matters compared to a $3.1 million net payment last year. The
receivable from insurance carriers for asbestos-related matters was
$104.6 million and $81.3 million at April 2, 1995 and December 31,
1994, respectively, (including the current portion of $89.0 million and
$68.2 million, respectively). Excluding the current receivable due
from insurance carriers, receivables increased 14% to $148.1 million,
reflecting the higher sales volume, and receivables days outstanding
were 38 days at April 2, 1995 compared with 36 days at year-end 1994.
Inventories of $208.9 million at April 2, 1995 were 5% higher than the
level at year-end 1994.
At April 2, 1995, total debt was $983.2 million compared with $970.1
million at year-end 1994. The negative balance in shareholders' equity
of $504.0 million compares with a negative balance of $525.6 million at
December 31, 1994.
12.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
April 2, 1995
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Coltec and certain of its subsidiaries are defendants in various
lawsuits involving asbestos-containing products. In addition, Coltec
has been notified that it is among the Potentially Responsible Parties
under the federal Comprehensive Environmental Response Compensation
and Liability Act of 1980, as amended, or similar state laws, for the
costs of investigating and in some cases remediating contamination by
hazardous materials at several sites. See Note 3 of the Notes to
Financial Statements.
Item 6. Exhibits and Reports on Form 8-K.
(b) No reports on Form 8-K were filed during the quarter ended April
2, 1995 by Coltec Industries Inc.
13.
<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: May 10, 1995
14.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
APRIL 2, 1995 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS
FOR THE THREE MONTHS ENDED APRIL 2, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> APR-02-1995
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<SECURITIES> 0
<RECEIVABLES> 241,359
<ALLOWANCES> 4,206
<INVENTORY> 208,886
<CURRENT-ASSETS> 473,990
<PP&E> 651,953
<DEPRECIATION> 429,954
<TOTAL-ASSETS> 889,195
<CURRENT-LIABILITIES> 255,727
<BONDS> 982,631
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<SALES> 356,344
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