SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange
Act of 1934
For the quarterly period ended October 1, 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 October 29, 1995, there were outstanding 69,978,833 shares of common
stock, par value $.01 per share.
Page 1 of 17
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 1, December 31,
1995 1994
__________ ____________
(Unaudited)
(In thousands)
A S S E T S
Current assets -
Cash and cash equivalents $ 10,759 $ 4,188
Accounts and notes receivable - net 215,176 198,149
Inventories -
Finished goods 55,878 46,316
Work in process and finished parts 150,174 126,097
Raw materials and supplies 29,668 25,790
________ ________
235,720 198,203
Deferred income taxes 11,888 15,222
Other current assets 11,212 13,936
________ ________
Total current assets 484,755 429,698
Property, plant and equipment 667,438 652,907
Less accumulated depreciation and
amortization 446,071 429,793
________ ________
221,367 223,114
Costs in excess of net assets acquired,
net of amortization 138,164 131,024
Other assets 77,670 63,614
________ ________
$921,956 $847,450
======== ========
2.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
October 1, December 31,
1995 1994
__________ ____________
(Unaudited)
(In thousands, except
share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities -
Current maturities of long-term debt $ 224 $ 886
Accounts payable 68,114 76,648
Accrued expenses 182,933 159,528
Current portion of liabilities of
discontinued operations 3,000 3,000
___________ ___________
Total current liabilities 254,271 240,062
Long-term debt 976,810 969,261
Deferred income taxes 4,437 10,533
Other liabilities 133,763 124,159
Liabilities of discontinued operations 26,856 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,
70,077,350 and 70,016,384 shares
issued at October 1, 1995 and
December 31, 1994, respectively
(excluding 25,000,000 shares held
by a wholly owned subsidiary) 700 700
Capital in excess of par value 639,532 638,407
Retained earnings (deficit) (1,109,671) (1,158,948)
Unearned compensation - restricted stock awards (2,898) (3,480)
Foreign currency translation adjustments (250) (681)
___________ ___________
(472,587) (524,002)
Less: Cost of 98,517 and 98,862 shares
of common stock in treasury at
October 1, 1995 and December 31,
1994, respectively (1,594) (1,599)
___________ ___________
(474,181) (525,601)
___________ ___________
$ 921,956 $ 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 Nine Months Ended
______________________ ______________________
October 1, October 2, October 1, October 2,
1995 1994 1995 1994
_________ _________ __________ _________
(In thousands, except per share data)
Net sales $332,134 $317,507 $1,050,025 $986,375
________ ________ __________ ________
Costs and expenses -
Cost of sales 231,105 211,259 726,979 665,712
Selling and administrative 48,935 48,417 152,468 147,462
Special charge 27,000 - 27,000 -
________ ________ __________ ________
Total costs and expenses 307,040 259,676 906,447 813,174
________ ________ __________ ________
Operating income 25,094 57,831 143,578 173,201
Interest and debt expense, net 22,318 21,836 67,641 66,853
________ ________ __________ ________
Earnings before income taxes
and extraordinary item 2,776 35,995 75,937 106,348
Provision for income taxes 972 12,958 26,578 38,285
________ ________ __________ ________
Earnings before extraordinary
item 1,804 23,037 49,359 68,063
Extraordinary item - (177) (82) (1,192)
________ ________ __________ ________
Net earnings $ 1,804 $ 22,860 $ 49,277 $ 66,871
======== ======== ========== ========
Earnings per common share -
Before extraordinary item $ .03 $ .33 $ .71 $ .98
Extraordinary item - - - (.02)
_____ _____ _____ _____
Net earnings $ .03 $ .33 $ .71 $ .96
====== ===== ===== =====
Weighted average number of
common and common equivalent
shares 69,791 69,832 69,851 69,809
====== ====== ====== ======
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)
Nine Months Ended
______________________
October 1, October 2,
1995 1994
__________ __________
(In thousands)
Cash flows from operating activities
Net earnings $ 49,277 $ 66,871
Adjustments to reconcile net earnings to cash
provided by operating activities
Extraordinary item 82 1,192
Special charge 27,000 -
Depreciation and amortization 32,639 32,695
Deferred income taxes (6,096) 3,496
Receivable from insurance carriers 8,932 19,946
Payment of liabilities of discontinued operations (2,180) (3,337)
Other operating items (7,254) (2,679)
_________ ________
102,400 118,184
_________ ________
Changes in assets and liabilities
Accounts and notes receivable (20,580) (22,223)
Inventories (39,821) (26,220)
Deferred income taxes 3,334 (6,104)
Other current assets 2,724 (3,161)
Accounts payable (8,534) 7,181
Accrued expenses 343 2,518
_________ ________
Changes in assets and liabilities (62,534) (48,009)
_________ ________
Cash provided by operating activities 39,866 70,175
_________ ________
Cash flows from investing activities
Capital expenditures (27,867) (22,973)
Acquisition of a business (14,000) -
Other - net 1,666 1,123
_________ ________
Cash used in investing activities (40,201) (21,850)
_________ ________
Cash flows from financing activities
Issuance of long-term debt 26,300 331,000
Payments of long-term debt (19,394) (375,574)
_________ ________
Cash provided by (used in) financing activities 6,906 (44,574)
_________ ________
Cash and cash equivalents
Increase 6,571 3,751
At beginning of period 4,188 5,749
_________ ________
At end of period $ 10,759 $ 9,500
========= ========
The accompanying notes to financial statements are an integral part of this
statement.
5.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 1, 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:
Nine Months Ended
_______________________
October 1, October 2,
1995 1994
_________ __________
(In thousands)
Interest paid $53,731 $53,173
Income taxes:
Paid 43,432 38,743
Refunded 3,593 1,706
2. SPECIAL CHARGE
In the third quarter of 1995, Coltec recorded a special charge of $27.0
million, primarily to cover the costs of closing the Walbar compressor
blade facility in Canada. It is anticipated that this facility will be
closed by the end of 1996. The charge also covered selected reductions in
work force throughout the Company. The special charge includes $9.1 million
for the cancellation of contractual obligations resulting from the decision
to close the Walbar facility, $7.8 million for asset writedowns, $5.1
million for severance and employee-related costs and $5.0 million for other
costs necessary to implement the shutdown of the Walbar facility and other
actions. Charges of $5.3 million were recorded against this reserve in the
third quarter of 1995.
3. EXTRAORDINARY ITEM
During the third quarter and nine months of 1994, Coltec incurred an
extraordinary charge of $177,000, net of a tax benefit of $95,000, and
$1,192,000, net of a tax benefit of $642,000, respectively, in connection
with the early retirement of debt.
During the nine months 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.
6.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 1, 1995
(Unaudited)
4. 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 October 1, 1995, two subsidiaries of Coltec
were among a number of defendants (typically 15 to 40) in approximately
98,500 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 exposure to asbestos fibers. Through October 1, 1995,
approximately 127,800 of the approximately 226,300 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 $1,000,000 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 has negotiated a final agreement with
most of its excess carriers that are in the layers of coverage immediately
above its first layer. Coltec is currently receiving payments pursuant to
this agreement. Coltec believes that, with respect to the remaining
carriers, a final agreement can be achieved without litigation and on
substantially the same basis that it has resolved the issues with its
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 nine months of 1995, two subsidiaries
of Coltec received approximately 30,300 new actions, compared with
approximately 14,500 actions received during the first nine months of 1994.
Payments were made with respect to asbestos liability and related costs
aggregating $42,441,000 and $26,592,000 in the first nine 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 October 1, 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 $71,445,000 and Coltec expects
that this cost will be substantially covered by insurance.
7.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 1, 1995
(Unaudited)
With respect to the 92,500 outstanding actions as of October 1, 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
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.
8.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
October 1, 1995
(Unaudited)
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
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:
October 1, Dec. 31,
(In thousands) 1995 1994
_________________________________________________________________
Accounts and notes receivable - other $64,626 $68,179
Other assets 28,907 13,119
Accrued expenses - other 46,464 34,099
Other liabilities 24,981 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 October 1, 1995, and has accrued for this
amount in the Consolidated Balance Sheet as of October 1, 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
October 1, 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 and nine months ended October 1, 1995 and October 2,
1994.
Three Months Ended Nine Months Ended
__________________ _________________
Oct. 1, Oct. 2, Oct. 1, Oct. 2,
1995 1994 1995 1994
_______ _______ _______ _______
(In millions)
Sales:
Aerospace/Government $115.8 $101.1 $ 356.4 $305.5
Automotive 110.7 119.5 368.2 381.5
Industrial 106.0 97.5 326.4 300.8
Intersegment elimination (.4) (.6) (1.0) (1.4)
______ ______ ________ ______
Total $332.1 $317.5 $1,050.0 $986.4
====== ====== ======== ======
Operating income:
Aerospace/Government $ (4.9) $ 17.5 $ 27.0 $ 47.6
Automotive 19.8 26.8 72.2 86.3
Industrial 22.7 20.8 74.5 65.7
______ ______ ________ ______
Total segments 37.6 65.1 173.7 199.6
Corporate unallocated (12.5) (7.3) (30.1) (26.4)
______ ______ ________ ______
Total $ 25.1 $ 57.8 $ 143.6 $173.2
====== ====== ======== ======
Operating income for the third quarter of 1995 included a special
charge of $27.0 million. This charge included $23.4 million in the
Aerospace/Government segment and $3.6 million in Corporate Unallocated.
Excluding this charge, third quarter and nine months of 1995 operating
income for the Aerospace/Government segment would have been $18.5
million and $50.4 million, respectively; and for the total company,
$52.1 million and $170.6 million, respectively.
Results of Operations
Three Months Ended October 1, 1995 Compared With Three Months Ended
October 2, 1994.
Earnings before extraordinary item in the third quarter of 1995 were
$1.8 million, equal to 3 cents per common share, or $19.4 million,
equal to 28 cents per common share, excluding a special charge of $27.0
million recorded in the third quarter. This compared with earnings
before extraordinary item of $23.0 million, or 33 cents per common
share, in the third quarter of 1994.
10.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 1, 1995
Sales for the quarter ended October 1, 1995, increased 5% to $332.1
million from $317.5 million in the like quarter last year. Operating
income for the third quarter of 1995 was $25.1 million and the
operating margin was 7.6%. Excluding the special charge, operating
income was $52.1 million and the operating margin was 15.7%. This
compared with operating income of $57.8 million and an operating margin
of 18.2% in the 1994 third quarter.
The Aerospace/Government segment reported an operating loss of $4.9
million in the third quarter of 1995. However, excluding the special
charge, operating income increased 6% on a 15% sales increase.
Operating income in the Automotive segment was down 26% on a 7% sales
decline, while both operating income and sales in the Industrial
segment were up 9%.
In the Aerospace/Government segment, divisions serving the aerospace
market reported a 9% increase in operating income, excluding the
special charge, and a 10% increase in sales in the third quarter.
However, the segment's operating margin continued to be impacted by
higher start-up costs on the Alco engine product line at Fairbanks
Morse Engine and pricing pressures. Operating results for the
Automotive segment were impacted in the third quarter by the adverse
pricing environment and decline in demand, while operating results in
the Industrial segment continued to benefit from improved market
conditions and new product introductions. Third quarter sales and
earnings gains were reported by Quincy Compressor, Garlock Bearings,
Garlock Mechanical Packing, Delavan Commercial Products, France
Compressor Products and Garlock Valves & Industrial Plastics.
Looking forward, operating results for the fourth quarter of 1995 are
expected to improve from the third quarter but not meet the level of
the 1994 fourth quarter. This will result in full-year 1995 earnings
per share, excluding the special charge, declining slightly from 1994,
with disappointing Automotive segment results more than offsetting the
improved performances in the Aerospace/Government and Industrial
segments. Operating results for 1996 are anticipated to be
substantially unchanged from the 1995 level with the effects of
continued competitive pricing pressures and sluggish demand in the
automotive original equipment market offsetting continued strength in
both the Aerospace/Government and Industrial segments.
Following is a discussion of the results of operations for the three
months ended October 1, 1995 compared with the three months ended
October 2, 1994.
Sales. In the Aerospace/Government segment sales were $115.8 million
compared with $101.1 million a year ago. Fairbanks Morse Engine
reported higher shipments on delivery of a Pielstick engine for the
U.S. Navy Sealift program and on deliveries of Alco engines that began
in 1995. Menasco reported higher sales on new programs covering the
Boeing 777 aircraft and the Fokker 70 and 100 aircraft. In addition,
Menasco began deliveries in the third quarter of 1995 of landing gear
11.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 1, 1995
for the McDonnell Douglas F-15 fighter. This business was acquired in
June 1995 from AlliedSignal Inc ("AlliedSignal"). Sales were higher at
Delavan Gas Turbine Products on increased demand for fuel nozzles and
overhaul services to regional airlines.
The Automotive segment reported sales of $110.7 million in the third
quarter compared with $119.5 million last year. Sales were negatively
affected by the adverse pricing environment and by the decline in
demand for throttle bodies, manifold assemblies, mechanical air pumps
and seals from key automotive customers. Demand for Stemco's hub oil
seal from the truck and trailer aftermarket was also down in the third
quarter of 1995.
In the Industrial segment, sales were $106.0 million compared with
$97.5 million last year. Sales were higher at Quincy Compressor on
increased shipments of 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
improved pricing, increased demand for the gasketing product line,
higher shipments in Canada and strengthening European currencies.
France Compressor Products and Garlock Valves & Industrial Plastics
also benefitted from stronger European currencies as well as from
improving economic conditions.
Cost of Sales. Cost of sales increased 9% in the third quarter of
1995. This increase is related to the increased volume of business and
higher than expected start-up costs at Fairbanks Morse Engine on the
Alco engine product line. As a percentage of sales, cost of sales
increased to 69.6% from 66.5% last year.
Selling and Administrative Expense. Selling and administrative
expense, including other income and expense, was up 1% in the third
quarter due primarily to higher sales, offset in part by lower
incentive compensation, and state and local income taxes. As a percent
of sales, selling and administrative expense was 14.7% in the third
quarter compared with 15.2% last year.
Special Charge. In the third quarter of 1995, Coltec recorded a
special charge of $27.0 million, primarily to cover the costs of
closing the Walbar compressor blade facility in Canada. It is
anticipated that this facility will be closed by the end of 1996. The
charge also covered selected reductions in work force throughout the
Company. The special charge includes $9.1 million for the cancellation
of contractual obligations resulting from the decision to close the
Walbar facility, $7.8 million for asset writedowns, $5.1 million for
severance and employee-related costs and $5.0 million for other costs
necessary to implement the shutdown of the Walbar facility and other
actions. Charges of $5.3 million were recorded against this reserve in
the third quarter of 1995.
12.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 1, 1995
Interest and Debt Expense, Net. Interest and debt expense, net
increased $.5 million or 2% in the third quarter due to higher interest
rates.
Provision for Income Taxes. The provision for income taxes for the
three months ended October 1, 1995 resulted in an effective income tax
rate of 35.0% compared with 36.0% for the like period last year.
Nine Months Ended October 1, 1995 Compared With Nine Months Ended
October 2, 1994.
Earnings before extraordinary item for the nine months ended October 1,
1995 were $49.4 million, equal to 71 cents per common share, or $66.9
million, equal to 96 cents per common share, excluding the special
charge of $27.0 million. This compared with earnings before
extraordinary item of $68.1 million, or 98 cents per common share, in
1994.
Sales for the nine months of 1995, increased 6% to $1,050.0 million
from $986.4 million last year. Operating income was $143.6 million and
the operating margin was 13.7%. Excluding the special charge,
operating income was $170.6 million and the operating margin was 16.2%.
This compared with operating income of $173.2 million and an operating
margin of 17.6% in 1994.
The Aerospace/Government segment reported a 43% decline in operating
income for the nine months of 1995. However, excluding the special
charge, operating income increased 6% on a 17% sales increase.
Operating income in the Automotive segment was down 16% on a 3% sales
decline, while operating income in the Industrial segment increased 13%
on a 9% sales increase.
In the Aerospace/Government segment, higher sales and income were
reported by Menasco, Delavan Gas Turbine, Fairbanks Morse Engine and
Chandler Evans Control Systems. However, the segment's operating
margin continued to be impacted by higher start-up costs on the Alco
engine product line at Fairbanks Morse Engine and pricing pressures.
At Walbar, pricing pressure and declining volume in its compressor
blades business contributed to the decline in operating income.
Operating results for the Automotive segment were impacted by the
adverse pricing environment and decline in demand. Operating results
in the Industrial segment continued to benefit from improved market
conditions and new product introductions. Sales and earnings gains
were reported for the nine months of 1995 by Quincy Compressor, Garlock
Bearings, Garlock Mechanical Packing, Delavan Commercial Products,
France Compressor Products and Garlock Valves & Industrial Plastics.
Following is a discussion of the results of operations for the nine
months ended October 1, 1995 compared with the nine months ended
October 2, 1994.
13.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 1, 1995
Sales. In the Aerospace/Government segment sales were $356.4 million
compared with $305.5 million a year ago. Fairbanks Morse Engine
reported higher shipments of engines for U.S. Navy programs and began
deliveries in 1995 of its Alco engines. Menasco reported higher sales
on new programs covering the Boeing 777 aircraft and the Fokker 70 and
100 aircraft. In addition, Menasco began deliveries in the third
quarter of 1995 of landing gear for the McDonnell Douglas F-15 fighter.
Sales were higher at Delavan Gas Turbine Products, on increased demand
for fuel nozzles and overhaul services to regional airlines, and at
Chandler Evans Control Systems, on increased shipments of fuel pumps to
original equipment manufacturers.
Automotive segment sales were $368.2 million for the nine months of
1995 compared with $381.5 million last year. Sales were negatively
affected by the adverse pricing environment and by the decline in
demand for throttle bodies, manifold assemblies, mechanical air pumps
and seals from key automotive customers. Demand for Stemco's hub oil
seal from the truck and trailer aftermarket was also down in the nine
months of 1995. Holley Performance Products reported higher sales on
increased demand in the automotive aftermarket for performance and
remanufactured carburetors.
In the Industrial segment, sales were $326.4 million compared with
$300.8 million last year. Sales were higher at Quincy Compressor on
increased shipments of 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
improved pricing, increased demand for the gasketing product line,
higher shipments in Canada and strengthening European currencies.
France Compressor Products and Garlock Valves & Industrial Plastics
also benefitted from stronger European currencies as well as from
improving economic conditions.
Cost of Sales. Cost of sales increased 9% during the nine months ended
October 1, 1995. This increase is related to the increased volume of
business and higher than expected start-up costs at Fairbanks Morse
Engine on the Alco engine product line. As a percentage of sales, cost
of sales increased to 69.2% from 67.5% last year.
Selling and Administrative Expense. Selling and administrative
expense, including other income and expense, increased 3% due primarily
to higher sales, offset in part by lower incentive compensation, and
state and local income taxes. As a percent of sales, selling and
administrative expense was 14.5% in 1995 compared with 14.9% last year.
Interest and Debt Expense, Net. Interest and debt expense, net
increased $.8 million or 1% in 1995 due to higher interest rates.
Provision for Income Taxes. The provision for income taxes for the
nine months ended October 1, 1995 resulted in an effective income tax
rate of 35.0% compared with 36.0% for 1994.
14.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 1, 1995
Extraordinary Item. The extraordinary charges in both the nine months
of 1995 and 1994 resulted from early retirement of debt.
Liquidity and Financial Position
At October 1, 1995, total debt was $977.0 million compared with $970.1
million at year-end 1994. The negative balance in shareholders' equity
of $474.2 million compares with a negative balance of $525.6 million at
December 31, 1994. Cash and cash equivalents were $10.8 million
compared with $4.2 million at year-end 1994. Working capital was
$230.5 million and the current ratio was 1.91. This compares with
working capital of $189.6 million and a current ratio of 1.79 at
December 31, 1994.
In June 1995, Coltec acquired AlliedSignal's aircraft landing gear
business for a purchase price of $14.0 million. The acquisition
includes the development and production of landing gears for the
McDonnell Douglas F/A-18 E/F fighter as well as production and product
support of existing military programs including the F-15 fighter.
During the nine months ended October 1, 1995, Coltec generated $39.9
million of cash from operating activities compared with $70.2 million
last year. The lower cash generated from operations in 1995 was due
primarily to lower net receipts from insurance carriers for asbestos-
related matters and to the build up of inventory to support the
increased level of business and new programs in the Aerospace/
Government segment. For the nine months of 1995, net receipts from
insurance carriers were $8.9 million compared with $19.9 million last
year. The receivable from insurance carriers for asbestos-related
matters was $93.5 million and $81.3 million at October 1, 1995 and
December 31, 1994, respectively, (including the current portion of
$64.6 million and $68.2 million, respectively). Excluding the current
receivable due from insurance carriers, receivables increased 16% to
$150.6 million, reflecting the higher sales volume and receivables days
outstanding increasing from 36 days at year-end 1994 to 38 days at
October 1, 1995. Inventories of $235.7 million at October 1, 1995 were
$37.5 million or 19% higher than the level at year-end 1994.
15.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
October 1, 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 4 of the Notes to
Financial Statements.
Item 6. Exhibits and Reports on Form 8-K.
(a)(27) Financial Data Schedule
(b) Coltec filed a Form 8-K dated September 15, 1995 reporting
under Item 5, Other Events, announcing a third quarter charge
and lower earnings expectations.
16.
<PAGE>
S I G N A T U R E
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COLTEC INDUSTRIES INC
(Registrant)
by Paul G. Schoen
_____________________________
Paul G. Schoen
Executive Vice President,
Finance
Treasurer and Chief Financial
Officer
Date: November 13, 1995
17.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
OCTOBER 1, 1995 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS
FOR THE NINE MONTHS ENDED OCTOBER 1, 1995 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-01-1995
<CASH> 10,759
<SECURITIES> 0
<RECEIVABLES> 219,747
<ALLOWANCES> 4,571
<INVENTORY> 235,720
<CURRENT-ASSETS> 484,755
<PP&E> 667,438
<DEPRECIATION> 446,071
<TOTAL-ASSETS> 921,956
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<BONDS> 976,810
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<SALES> 1,050,025
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<INTEREST-EXPENSE> 67,641
<INCOME-PRETAX> 75,937
<INCOME-TAX> 26,578
<INCOME-CONTINUING> 49,359
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