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 June 30, 1996
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 28, 1996, there were outstanding 69,507,071 shares of
common stock, par value $.01 per share.
Page 1 of 19
<PAGE>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1996 1995
--------- ------------
(Unaudited)
(In thousands)
A S S E T S
Current assets -
Cash and cash equivalents $ 15,839 $ 3,864
Accounts and notes receivable - net 210,064 171,676
Inventories -
Finished goods 51,733 55,462
Work in process and finished parts 133,849 134,603
Raw materials and supplies 31,043 26,861
________ ________
216,625 216,926
Deferred income taxes 11,847 13,632
Other current assets 10,766 10,165
Current assets of discontinued operations, net - 21,584
________ ________
Total current assets 465,141 437,847
Property, plant and equipment 601,255 588,054
Less accumulated depreciation and
amortization 392,902 382,143
________ ________
208,353 205,911
Costs in excess of net assets acquired,
net of amortization 134,748 136,981
Other assets 72,588 73,724
Noncurrent assets of discontinued operations, net - 26,471
________ ________
$880,830 $880,934
======== ========
2.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, December 31,
1996 1995
----------- ------------
(Unaudited)
(In thousands, except
share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities -
Notes payable and current maturities
of long-term debt $ 2,233 $ 226
Accounts payable 52,447 63,290
Accrued expenses 184,432 162,415
Current portion of liabilities of
discontinued operations 22,437 3,000
___________ ___________
Total current liabilities 261,549 228,931
Long-term debt 681,390 945,606
Deferred income taxes 37,299 12,957
Other liabilities 114,506 120,670
Liabilities of discontinued operations 172,291 26,532
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, 70,269,309 and
70,077,350 shares issued at June 30, 1996 and
December 31, 1995, respectively (excluding
25,000,000 shares held by a wholly owned
subsidiary) 703 701
Capital in excess of par value 641,392 639,419
Retained earnings (deficit) (1,022,364) (1,088,042)
Unearned compensation - restricted stock awards (1,461) (2,408)
Foreign currency translation adjustments (876) (1,816)
___________ ___________
(382,606) (452,146)
Less: Cost of 244,038 and 100,346 shares
of common stock in treasury at
June 30, 1996 and December 31, 1995,
respectively (3,599) (1,616)
___________ ___________
(386,205) (453,762)
___________ ___________
$ 880,830 $ 880,934
=========== ===========
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 Six Months Ended
------------------ ------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands, except per share data)
Net sales $305,993 $299,552 $598,952 $586,115
Costs and expenses -
Cost of sales 209,364 201,636 426,645 394,595
Selling and administrative 48,988 48,469 101,542 96,922
________ ________ ________ ________
Total costs and expenses 258,352 250,105 528,187 491,517
________ ________ ________ ________
Operating income 47,641 49,447 70,765 94,598
Interest and debt expense, net 20,332 23,322 41,458 45,323
________ ________ ________ ________
Earnings from continuing
operations before income
taxes and extraordinary item 27,309 26,125 29,307 49,275
Provision for income taxes 9,275 9,230 9,964 17,439
________ ________ ________ ________
Earnings from continuing operations
before extraordinary item 18,034 16,895 19,343 31,836
Discontinued operations 41,690 7,174 48,156 15,719
Extraordinary item - - (1,821) (82)
________ ________ ________ ________
Net earnings $ 59,724 $ 24,069 $ 65,678 $ 47,473
======== ======== ======== ========
Earnings per common share
Continuing operations $ .26 $ .24 $ .28 $ .46
Discontinued operations .59 .10 .68 .22
Extraordinary item - - (.03) -
______ ______ ______ ______
Net earnings $ .85 $ .34 $ .93 $ .68
______ ______ ______ ______
Weighted average number of common
and common equivalent shares 70,322 69,939 70,254 69,881
====== ====== ====== ======
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)
Six Months Ended
June 30, July 2,
1996 1995
-------- --------
(In thousands)
Cash flows from operating activities
Net earnings $ 65,678 $ 47,473
Adjustments to reconcile net earnings to cash
provided by operating activities
Gain on sale of Automotive Business (34,470) -
Extraordinary item 1,821 82
Depreciation and amortization 18,903 18,473
Deferred income taxes 1,847 1,177
Receivable from insurance carriers (10,245) 5,520
Payment of liabilities of discontinued operations (1,241) (1,826)
Discontinued operations 821 2,995
Other operating items (3,379) (6,424)
_________ ________
39,735 67,470
_________ ________
Changes in assets and liabilities
Accounts and notes receivable (7,387) (17,661)
Inventories 301 (19,936)
Deferred income taxes 1,785 1,649
Other current assets (601) 3,592
Accounts payable (10,843) (4,975)
Accrued expenses 6,358 (10,455)
Discontinued operations 3,507 (1,427)
_________ ________
Changes in assets and liabilities (6,880) (49,213)
_________ ________
Cash provided by operating activities 32,855 18,257
_________ ________
Cash flows from investing activities
Proceeds from sale of Automotive Business 258,369 -
Capital expenditures (16,025) (15,337)
Acquisition of a business - (14,000)
Discontinued operations (4,762) (2,453)
Other - net 8,220 2,563
_________ ________
Cash provided by (used in) investing activities 245,802 (29,227)
_________ ________
Cash flows from financing activities
Issuance of long-term debt 33,000 26,300
Payment of long-term debt (297,819) (13,923)
Purchase of treasury stock (1,863) -
_________ ________
Cash provided by (used in) financing activities (266,682) 12,377
_________ __________
Cash and cash equivalents -
Increase 11,975 1,407
At beginning of period 3,864 4,133
_________ ________
At end of period $ 15,839 $ 5,540
========= =========
The accompanying notes to financial statements are an integral part of this
statement. 5.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1996
(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, 1995 has
been extracted 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, 1995.
Consolidated Statement of Cash Flows: Interest paid and federal and state
income taxes paid and refunded were as follows:
Three Months Ended
------------------
June 30, July 2,
1996 1995
------- -------
(In thousands)
Interest paid $42,297 $47,434
Income taxes:
Paid 20,326 30,412
Refunded 1,091 2,950
2. Discontinued Operations
On June 17, 1996, Coltec completed the sale of its Holley Automotive,
Coltec Automotive and Performance Friction Products businesses
(collectively, the "Automotive Business") to Borg-Warner Automotive for
$283,000,000 million in cash, which resulted in an after-tax gain of
$34,470,000, net of liabilities retained, transaction costs and obligations
related to the sale. The cash proceeds, net of expenses and taxes, were
$258,369,000.
The sale of the Automotive Business has been recorded as a disposal of a
segment of a business. Accordingly, the financial statements of Coltec for
the three months and six months ended July 2, 1995 have been reclassified
to account for the operations of the Automotive Business as a discontinued
operation. Net assets of the discontinued Automotive Business at December
31, 1995 have been segregated in the Consolidated Balance Sheet.
6.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1996
(Unaudited)
Earnings and earnings per common share from the discontinued Automotive
Business were as follows:
Three Months Ended Six Months Ended
------------------ ------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- ------- -------- -------
(In thousands)
Earnings from discontinued
operations -
Automotive Business, net of
income taxes of $3,734 and
$3,730 for the three months
ended June 30, 1996 and
July 2, 1995, respectively,
and $7,051 and $8,167 for
the six months ended June 30,
1996 and July 2, 1995,
respectively $ 7,220 $7,174 $13,686 $15,719
Gain on sale of Automotive
Business, net of income
taxes of $18,561 34,470 - 34,470 -
_______ ______ _______ _______
Total $41,690 $7,174 $48,156 $15,719
_______ ______ _______ _______
Earnings per common share from
discontinued operations -
Automotive Business $ .10 $ .10 $ .19 $ .22
Gain on sale of Automotive
Business .49 - .49 -
_____ _____ _____ _____
Total $ .59 $ .10 $ .68 $ .22
_____ _____ _____ _____
Net sales of the discontinued Automotive Business were $62,447,000 and
$61,995,000 for the three months ended June 30, 1996 and July 2, 1995,
respectively, and $128,912,000 and $131,776,000 for the six months ended
June 30, 1996 and July 2, 1995, respectively.
3. EXTRAORDINARY ITEM
Coltec incurred extraordinary charges of $1,821,000, net of a tax benefit
of $981,000; and $82,000, net of a tax benefit of $44,000; in the six
months ended June 30, 1996 and July 2, 1995, respectively, in connection
with the early retirement of debt.
7.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1996
(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 June 30, 1996, two subsidiaries of Coltec
were among a number of defendants (typically 15 to 40) in approximately
89,100 actions (including approximately 6,100 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 June 30, 1996,
approximately 169,300 of the approximately 258,400 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 other
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 six months of 1996, two subsidiaries of Coltec received approximately
23,200 new actions, compared with approximately 19,500 actions received
during the first six months of 1995. Payments were made with respect to
asbestos liability and related costs aggregating $32,534,000 and
$30,489,000 in the first six months of 1996 and 1995, 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 June 30, 1996, 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 $82,329,000 and Coltec expects that this cost will be
substantially covered by insurance.
8.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1996
(Unaudited)
With respect to the 83,000 outstanding actions as of June 30, 1996, 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.
9.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Financial Statements
June 30, 1996
(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:
June 30, Dec. 31,
(In thousands) 1996 1995
_________________________________________________________________
Accounts and notes receivable - other $71,156 $53,677
Other assets 22,771 16,243
Accrued expenses - other 64,431 47,791
Other liabilities 17,898 11,450
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
approximate $20,000,000 at June 30, 1996, and has accrued for this amount
in the Consolidated Balance Sheet as of June 30, 1996. 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.
10.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
June 30, 1996
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 June 30, 1996 and July 2, 1995.
Three Months Ended Six Months Ended
------------------ -------------------
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
-------- ------- --------- -------
(In millions)
Sales:
Aerospace/Government $132.8 $125.7 $255.4 $240.6
Industrial 112.3 110.9 225.6 220.4
Automotive 61.2 63.2 118.8 125.7
Intersegment elimination (.3) (.2) (.8) (.6)
______ ______ ______ ______
Total $306.0 $299.6 $599.0 $586.1
====== ====== ====== ======
Operating income:
Aerospace/Government $ 17.8 $ 16.9 $ 17.8 $ 31.9
Industrial 26.8 27.1 51.1 51.9
Automotive 12.2 12.9 22.4 27.1
______ ______ ______ ______
Total segments 56.8 56.9 91.3 110.9
Corporate unallocated (9.2) (7.5) (20.5) (16.3)
______ ______ ______ ______
Operating income $ 47.6 $ 49.4 $ 70.8 $ 94.6
====== ====== ====== ======
Results of Operations
Three Months Ended June 30, 1996 Compared With Three Months Ended July 2,
1995.
Earnings from continuing operations were $18.0 million, or 26 cents per
common share, in the second quarter of 1996 compared with $16.9 million, or
24 cents per common share, in the 1995 second quarter Operating results
for the second quarter of 1995 have been reclassified to exclude the
results of the discontinued Automotive Business.
Sales in the quarter ended June 30, 1996, increased to $306.0 million from
$299.6 million in the like quarter last year. Operating income was $47.6
million and the operating margin was 15.6% in the 1996 second quarter
compared with operating income of $49.4 million and the operating margin of
16.5% a year ago. Earnings from continuing operations before income taxes
increased 5% due to a 13% reduction in interest expense.
11.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
June 30, 1996
Operating income in the Aerospace/Government segment rose 5% as sales
increased 6%. Operating income in the Industrial segment declined slightly
on a small sales increase, and the Automotive segment reported a 5% decline
in operating income on a 3% sales decrease.
In the Aerospace/Government segment, the divisions serving the aerospace
market increased operating income and sales by 8% and 12%, respectively.
Walbar, Chandler Evans Control Systems, Delavan Gas Turbine and Lewis
Engineering reported higher sales and earnings; while Menasco and Fairbanks
Morse Engine posted lower operating results. Walbar's results benefited
from the phaseout of its unprofitable compressor blade facility in Canada,
which is scheduled to be closed by the end of 1996. Walbar's remaining
operations posted strong second quarter gains. In the Industrial segment,
Quincy Compressor and France Compressor Products had lower results, which
were partially offset by Garlock Mechanical Packing and Plastomer Products,
both of which reported improved operating income on higher sales. The
Automotive segment was affected by lower sales at Holley Performance
Products and Stemco Truck Products. The increase in Corporate unallocated
costs was attributable to a provision for that portion of asbestos product
liability claims and related litigation costs not covered by insurance.
Following is a discussion of the results of operations for the three months
ended June 30, 1996 compared with the three months ended July 2, 1995.
Sales. In the Aerospace/Government segment, sales were $132.8 million
compared with $125.7 million a year ago. At Walbar, sales were up
significantly on increased shipments of turbine blades and vanes for
commercial aircraft engines, and components and assemblies for the
locomotive turbocharger market. Also contributing to the higher sales was
an increase in demand for spare parts reflecting the aging of commercial
aircraft fleets. Sales were higher at Delavan Gas Turbine Products on
strong demand for fuel injectors and components from regional airlines, as
this segment of the airline industry continues to replace large aircraft on
short run trips. Chandler Evans Control Systems reported higher sales on
increased shipments of fuel controls to original equipment manufacturers.
This sales increase was offset in part by completion of shipments in 1995
for the Taiwanese fighter program. Higher second quarter sales were
reported by Lewis Engineering. Sales were down at Fairbanks Morse Engine
due to lower aftermarket sales and to the inclusion in the second quarter
of 1995 of two large shipments of engine parts to the U.S. Navy. The
decline in sales at Menasco was due to lower shipments to Fokker and to
Boeing. Menasco ceased shipping landing gears and flight controls to
Fokker, which filed for bankruptcy in the first quarter of 1995, and Boeing
continues to work off inventory it received during its recent strike.
Sales for the Industrial segment were $112.3 million compared with $110.9
million last year. The higher sales primarily reflected the acquisition in
December 1995 by Garlock Mechanical Packing of Furon Company's metallic
gasket business. Sales were higher in the second quarter at Plastomer
12.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
June 30, 1996
Products, Delavan Commercial Products, Garlock Valves & Industrial Plastics
and Haber Tool, while Quincy Compressor, Sterling Die, Ortman Fluid Power
and Garlock Bearings reported lower sales.
In the Automotive segment, sales were $61.2 million compared with $63.2
million last year. Demand was down in the second quarter for Stemco's hub
oil seals from both the truck and trailer original equipment and
aftermarket. Sales declined at Holley Performance Products on lower demand
in the automotive aftermarket for performance and remanufactured
carburetors and for remanufactured air conditioners. Partially offsetting
the sales decline were higher sales at Farnam Sealing Systems.
Cost of Sales. Cost of sales increased 4% in the second quarter of 1996.
This increase was attributable to higher sales, a provision for that
portion of asbestos product liability claims and related litigation costs
not covered by insurance and to costs related to the metallic gasket
business acquired by Garlock Mechanical Packing. As a percent of sales,
cost of sales increased to 68.4% from 67.3% last year.
Selling and Administrative Expense. Selling and administrative expense,
including other income and expense, increased slightly due to higher sales
and to cost related to the acquired metallic gasket business. As a percent
of sales, selling and administrative expense was 16.0% in the second
quarter compared with 16.2% in 1995.
Interest and Debt Expense, Net. Interest and debt expense, net declined 13%
due to lower interest rates, debt repayments and the substitution in the
first quarter of bank debt at a lower interest rate for 11-1/4% debentures.
Provision for Income Taxes. The provision for income taxes for the second
quarter of 1996 resulted in an effective income tax rate of 34.0% compared
with 35.3% for last year.
Discontinued Operations. On June 17, 1996, Coltec completed the sale of its
Automotive Business to Borg-Warner Automotive for $283.0 million in cash,
which resulted in an after-tax gain of $34.5 million, or 49 cents per
common share, net of liabilities retained, transaction costs and
obligations related to the sale. Net sales of the discontinued Automotive
Business were $62.4 million and $62.0 million for the three months ended
June 30, 1996 and July 2, 1995, respectively, and $128.9 million and $131.8
million for the six months ended June 30, 1996 and July 2, 1995,
respectively. Reference is made to Note 2 of the Notes to Financial
Statements.
13.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
June 30, 1996
Six Months Ended June 30, 1996 Compared With Six Months Ended July 2, 1995.
Earnings from continuing operations before extraordinary item for the six
months ended June 30, 1996 were $19.3 million, equal to 28 cents per common
share, and included a charge of $14.2 million ($9.4 million after tax)
resulting from the Fokker bankruptcy. For the six months of 1995, earnings
from continuing operations before extraordinary item were $31.8 million, or
46 cents per common share. Operating results for the six months ended July
2, 1995 have been reclassified to exclude the results of the discontinued
Automotive Business.
Sales for the six months of 1996 were $599.0 million compared with $586.1
million in the like period a year ago. Operating income was $70.8 million
and the operating margin was 11.8%. Excluding the $14.2 million charge,
operating income was $85.0 million with an operating margin of 14.2%. This
compared with operating income of $94.6 million and an operating margin of
16.1% in 1995.
The Aerospace/Government segment reported a 44% drop in operating income in
the six months of 1996; however, excluding the $14.2 million charge,
operating income was slightly above 1995 on a sales increase of 6%.
Operating income in the Industrial segment declined 2% on a 2% increase in
sales; and in the Automotive segment, operating income was down 17% and
sales were down 5%.
Operating results for the Aerospace/Government segment were affected by
lower shipments at Menasco and by recognition in the six months of 1995 of
a nonrecurring government grant by Menasco. Higher sales and earnings were
reported by Walbar, Delavan Gas Turbine Products and Fairbanks Morse
Engine. Walbar's results benefited from the phaseout of its unprofitable
compressor blade facility in Canada. Walbar's remaining operations posted
strong gains. In the Industrial segment, Quincy Compressor, Delavan
Commercial Products and Sterling Die had lower results, which were
partially offset by Garlock Mechanical Packing, Plastomer Products and
Haber Tool, which reported improved operating income on higher sales. The
Automotive segment was affected by lower sales at Stemco Truck Products and
Farnam Sealing Systems. The increase in Corporate unallocated costs was
attributable to a provision for that portion of asbestos product liability
claims and related litigation costs not covered by insurance.
Following is a discussion of the results of operations for the six months
ended June 30, 1996 compared with the six months ended July 2, 1995.
Sales. In the Aerospace/Government segment, sales were $255.4 million
compared with $240.6 million a year ago. At Walbar, sales were up
significantly on increased shipments of turbine blades and vanes for
commercial aircraft engines, and components and assemblies for the
locomotive turbocharger market. Also contributing to the higher sales was
an increase in demand for spare parts reflecting the aging of commercial
14.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
June 30, 1996
aircraft fleets. Sales were higher at Delavan Gas Turbine Products on
strong demand for fuel injectors and components from regional airlines.
Sales were down at Menasco due to lower shipments to Fokker and to Boeing.
Sales for the Industrial segment were $225.6 million compared with $220.4
million last year. The higher sales primarily reflected the acquisition by
Garlock Mechanical Packing of Furon Company's metallic gasket business.
Sales were higher at Plastomer Products, Garlock Valves & Industrial
Plastics, France Compressor Products and Haber Tool, while Quincy
Compressor, Delavan Commercial Products, Sterling Die and Ortman Fluid
Power reported lower sales.
In the Automotive segment, sales were $118.8 million compared with $125.7
million last year. Demand was down for Stemco's hub oil seals from both
the truck and trailer original equipment and aftermarket. Sales were down
at Farnam Sealing Systems due to the General Motors strike earlier in the
year.
Cost of Sales. Cost of sales increased 8% in the six months ended June 30,
1996. This increase was attributable to a $12.8 million charge resulting
from the filing for bankruptcy by Fokker. Also contributing to the
increase were higher sales, a provision for that portion of asbestos
product liability claims and related litigation costs not covered by
insurance, costs related to the acquired metallic gasket business, and
recognition in the first quarter of 1995 of a nonrecurring government grant
by Menasco. The $12.8 million charge for the Fokker bankruptcy covers
nonrecurring development costs, vendor claims, losses on foreign exchange
contracts and write-off of inventories related to the Fokker 70 and 100
aircraft programs. As a percentage of sales, cost of sales increased to
71.2% from 67.3% last year.
Selling and Administrative Expense. Selling and administrative expense,
including other income and expense, increased 5% due to higher sales, a
$1.4 million charge for the Fokker bankruptcy covering the write-off of
receivables related to the Fokker 70 and 100 aircraft programs, and to
costs related to the acquired metallic gasket business. As a percent of
sales, selling and administrative expense increased to 17.0% from 16.5% in
1995.
Interest and Debt Expense, Net. Interest and debt expense, net declined 9%
due to lower interest rates, debt repayments and the substitution in the
first quarter of bank debt at a lower interest rate for 11-1/4% debentures.
Provision for Income Taxes. The provision for income taxes for the six
months ended June 30, 1996 resulted in an effective income tax rate of 34%
compared with 35.4% for last year.
Extraordinary Item. The extraordinary charges for both the six months of
1996 and 1995 resulted from early extinguishment of debt.
15.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
June 30, 1996
Liquidity and Financial Position
At June 30, 1996, total debt was $683.6 million compared with $945.8
million at year-end 1995. The negative balance in shareholders' equity of
$386.2 million compares with a negative balance of $453.8 million at
December 31, 1995. Cash and cash equivalents were $15.8 million compared
with $3.9 million at year-end 1995. Working capital was $203.6 million and
the current ratio was 1.78. This compares with working capital of $208.9
million and a current ratio of 1.91 at December 31, 1995.
In the first six months of 1996, Coltec generated $32.9 million of cash
from operating activities compared with $18.3 million last year. The
higher cash generated from operations in 1996 was due to lower working
capital requirements, offset in part by the net payment of $10.2 million to
insurance carriers for asbestos-related matters compared with net receipts
of $5.5 million last year. Included in receivables at June 30, 1996 and
December 31, 1995 were $71.2 million and $53.7 million, respectively, of
receivables due from insurance carriers for asbestos product liability
claims and related litigation costs. Excluding these amounts and, at June
30, 1996, a $13.5 million receivable due from Borg-Warner on the sale of
the Automotive Business, receivables increased 6% to $125.4 million and
receivables days outstanding were 38 days at June 30, 1996, compared with
40 days at year-end 1995.
In addition to the $32.9 million of cash generated from operating
activities in the first six months of 1996, Coltec received $258.4 million
of cash, net of expenses and taxes, from the sale of the Automotive
Business. These funds were used to reduce indebtedness, primarily bank
debt, by $264.8 million, invest $16.0 million in capital expenditures and
purchase 134,500 shares of Coltec's common stock for $1.9 million. With
borrowings under its credit agreement, Coltec expects to repurchase or
defease $75.0 million of high-yield debt and purchase up to $90.0 million
of its common shares over the next six months.
The liabilities of discontinued operations, including the current portion,
were $194.7 million at June 30, 1996 compared with $29.5 million at year-
end 1995. This increase covers liabilities and obligations related to the
sale of the Automotive Business.
16.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
June 30, 1996
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 4. Submission of Matters to a Vote of Security Holders.
(a) The annual meeting of the shareholders of Coltec was held on May
1, 1996.
(b) At the annual meeting of shareholders held on May 1, 1996,
shareholders voted for:
1. The election of a Board of Directors consisting of seven
members.
2. Appointment of Arthur Andersen LLP as the independent public
accountants for 1996.
There were 70,168,963 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:
1. Election of Directors
Number of Votes
______________________
Name of Candidates For Withheld
______________________ __________ _________
Joseph R. Coppola 59,807,484 4,902,237
John W. Guffey, Jr. 59,818,771 4,890,950
David I. Margolis 59,821,824 4,887,897
J. Bradford Mooney, Jr. 59,807,084 4,902,637
Joel Moses 59,807,599 4,902,122
Paul G. Schoen 59,823,049 4,886,672
Richard A. Stuckey 59,807,334 4,902,387
2. Appointment of Arthur Andersen LLP as the independent public
accountants for 1996.
For Against Abstain
__________ _______ _________
63,428,793 41,679 1,239,249
17.
<PAGE>
COLTEC INDUSTRIES INC AND SUBSIDIARIES
June 30, 1996
Item 6. Exhibits and Reports on Form 8-K.
(a)(27) Financial Data Schedule.
(b) Coltec filed a Form 8-K dated April 26, 1996 reporting under
Item 5, Other Events, the issuance of a press release
announcing that Borg-Warner Automotive is to acquire its
automotive businesses.
Coltec filed a Form 8-K dated June 17, 1996 reporting under
Item 2, Acquisition or Disposition of Assets, announcing the
completion of the sale of the automotive businesses to Borg-
Warner.
18.
<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 John N. Maier
_____________________________
John N. Maier
Vice President and Controller
Date: August 13, 1996
19.
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JUNE 30, 1996 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS
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REFERENCE TO SUCH FINANCIAL STATEMENTS.
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