0000201493-95-000010.txt : 19950811 0000201493-95-000010.hdr.sgml : 19950811 ACCESSION NUMBER: 0000201493-95-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19950702 FILED AS OF DATE: 19950810 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLTEC INDUSTRIES INC CENTRAL INDEX KEY: 0000201493 STANDARD INDUSTRIAL CLASSIFICATION: AIRCRAFT PART & AUXILIARY EQUIPMENT, NEC [3728] IRS NUMBER: 131846375 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-07568 FILM NUMBER: 95560527 BUSINESS ADDRESS: STREET 1: 430 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2129400400 MAIL ADDRESS: STREET 1: 430 PARK AVE CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: COLT INDUSTRIES INC DATE OF NAME CHANGE: 19900913 FORMER COMPANY: FORMER CONFORMED NAME: PENN TEXAS CORP DATE OF NAME CHANGE: 19680318 FORMER COMPANY: FORMER CONFORMED NAME: FAIRBANKS WHITNEY CORP DATE OF NAME CHANGE: 19680318 10-Q 1 COLTEC IND INC 2ND QTR 1995 10-Q. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (X) Quarterly Report Pursuant To Section 13 Or 15(d) Of The Securities Exchange Act of 1934 For the quarterly period ended July 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 July 30, 1995, there were outstanding 69,922,948 shares of common stock, par value $.01 per share. Page 1 of 18 PART I FINANCIAL INFORMATION Item 1 Financial Statements COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET July 2, December 31, 1995 1994 _________ ____________ (Unaudited) (In thousands) A S S E T S Current assets - Cash and cash equivalents $ 5,597 $ 4,188 Accounts and notes receivable - net 210,694 198,149 Inventories - Finished goods 52,841 46,316 Work in process and finished parts 142,957 126,097 Raw materials and supplies 27,283 25,790 ________ ________ 223,081 198,203 Deferred income taxes 13,577 15,222 Other current assets 10,330 13,936 ________ ________ Total current assets 463,279 429,698 Property, plant and equipment 661,192 652,907 Less accumulated depreciation and amortization 436,900 429,793 ________ ________ 224,292 223,114 Costs in excess of net assets acquired, net of amortization 138,779 131,024 Other assets 83,916 63,614 ________ ________ $910,266 $847,450 ======== ======== 2. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET July 2, December 31, 1995 1994 ___________ ____________ (Unaudited) (In thousands, except share data) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities - Current maturities of long-term debt $ 504 $ 886 Accounts payable 70,382 76,648 Accrued expenses 156,634 159,528 Current portion of liabilities of discontinued operations 3,000 3,000 ___________ ___________ Total current liabilities 230,520 240,062 Long-term debt 982,001 969,261 Deferred income taxes 11,886 10,533 Other liabilities 136,150 124,159 Liabilities of discontinued operations 27,210 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 638,499 638,407 Retained earnings (deficit) (1,111,475) (1,158,948) Unearned compensation - restricted stock awards (2,361) (3,480) Foreign currency translation adjustments (1,339) (681) ___________ ___________ (475,976) (524,002) Less: Cost of 93,436 and 98,862 shares of common stock in treasury at July 2, 1995 and December 31, 1994, respectively (1,525) (1,599) ___________ ___________ (477,501) (525,601) ___________ ___________ $ 910,266 $ 847,450 =========== =========== The accompanying notes to financial statements are an integral part of this statement. 3. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited) Three Months Ended Six Months Ended __________________ __________________ July 2, July 3, July 2, July 3, 1995 1994 1995 1994 ________ ________ ________ ________ (In thousands, except per share data) Net sales $361,547 $337,018 $717,891 $668,868 ________ ________ ________ ________ Costs and expenses - Cost of sales 249,385 226,812 495,874 454,453 Selling and administrative 51,811 49,515 103,533 99,045 ________ ________ ________ ________ Total costs and expenses 301,196 276,327 599,407 553,498 ________ ________ ________ ________ Operating income 60,351 60,691 118,484 115,370 Interest and debt expense, net 23,322 22,593 45,323 45,017 ________ ________ ________ ________ Earnings before income taxes and extraordinary item 37,029 38,098 73,161 70,353 Provision for income taxes 12,960 13,715 25,606 25,327 ________ ________ ________ ________ Earnings before extraordinary item 24,069 24,383 47,555 45,026 Extraordinary item - (1,015) (82) (1,015) ________ ________ ________ ________ Net earnings $ 24,069 $ 23,368 $ 47,473 $ 44,011 ======== ======== ======== ======== Earnings per common share - Before extraordinary item $ .34 $ .35 $ .68 $ .65 Extraordinary item - (.02) - (.02) ______ _____ _____ _____ Net earnings $ .34 $ .33 $ .68 $ .63 ====== ===== ===== ===== Weighted average number of common and common equivalent shares 69,939 69,799 69,881 69,798 ====== ====== ====== ====== The accompanying notes to financial statements are an integral part of this statement. 4. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Six Months Ended ______________________ July 2, July 3, 1995 1994 _________ ________ (In thousands) Cash flows from operating activities Net earnings $ 47,473 $ 44,011 Adjustments to reconcile net earnings to cash provided by operating activities Extraordinary item 82 1,015 Depreciation and amortization 21,292 21,721 Deferred income taxes 1,353 5,858 Receivable from insurance carriers 5,520 23,071 Payment of liabilities of discontinued operations (1,826) (1,218) Other operating items (6,424) (4,435) _________ ________ 67,470 90,023 _________ ________ Changes in assets and liabilities Accounts and notes receivable (16,410) (19,171) Inventories (21,378) (9,499) Deferred income taxes 1,645 1,975 Other current assets 3,606 (404) Accounts payable (6,266) 3,341 Accrued expenses (10,408) (13,667) _________ ________ Changes in assets and liabilities (49,211) (37,425) _________ ________ Cash provided by operating activities 18,259 52,598 _________ ________ Cash flows from investing activities Capital expenditures (17,793) (14,726) Acquisition of a business (14,000) - Other - net 2,566 1,282 _________ ________ Cash used in investing activities (29,227) (13,444) _________ ________ Cash flows from financing activities Issuance of long-term debt 26,300 329,000 Payments of long-term debt (13,923) (367,108) _________ ________ Cash provided by (used in) financing activities 12,377 (38,108) _________ ________ Cash and cash equivalents Increase 1,409 1,046 At beginning of period 4,188 5,749 _________ ________ At end of period $ 5,597 $ 6,795 ========= ======== The accompanying notes to financial statements are an integral part of this statement. 5. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Financial Statements July 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: Six Months Ended __________________ July 2, July 3, 1995 1994 ------- -------- (In thousands) Interest paid $47,434 $47,219 Income taxes: Paid 30,412 18,886 Refunded 2,950 1,567 2. EXTRAORDINARY ITEM During the second quarter of 1994, Coltec incurred an extraordinary charge of $1,015,000, net of a tax benefit of $547,000, in connection with the early retirement of debt. During the six 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. 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 July 2, 1995, two subsidiaries of Coltec were among a number of defendants (typically 15 to 40) in approximately 87,900 actions (including approximately 11,000 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 July 2, 1995, approximately 122,600 of the approximately 210,500 total actions brought have been settled or otherwise disposed of. 6. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Financial Statements July 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 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 six months of 1995, two subsidiaries of Coltec received approximately 19,500 new actions, compared with approximately 10,200 actions received during the first six months of 1994. Payments were made with respect to asbestos liability and related costs aggregating $30,489,000 and $18,981,000 in the first six 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 July 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 $76,013,000 and Coltec expects that this cost will be substantially covered by insurance. With respect to the 76,900 outstanding actions as of July 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. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Financial Statements July 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. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Financial Statements July 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: July 2, Dec. 31, (In thousands) 1995 1994 _________________________________________________________________ Accounts and notes receivable - other $64,314 $68,179 Other assets 36,914 13,119 Accrued expenses - other 41,657 34,099 Other liabilities 34,356 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 July 2, 1995, and has accrued for this amount in the Consolidated Balance Sheet as of July 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. 4. SUBSEQUENT EVENT On August 2, 1995, Coltec announced that it will close a Walbar plant in Mississauga, Ontario, Canada by the end of 1996. In connection with this shutdown, Coltec will incur a charge in the third quarter of 1995. The amount of such a charge has not yet been determined. 9. COLTEC INDUSTRIES INC AND SUBSIDIARIES July 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 and six months ended July 2, 1995 and July 3, 1994. Three Months Ended Six Months Ended __________________ ________________ July 2, July 3, July 2, July 3, 1995 1994 1995 1994 _______ _______ _______ ______ (In millions) Sales: Aerospace/Government $125.6 $105.3 $240.6 $204.4 Automotive 125.2 133.7 257.5 262.1 Industrial 110.9 98.5 220.4 203.2 Intersegment elimination (.2) (.5) (.6) (.8) ______ ______ ______ ______ Total $361.5 $337.0 $717.9 $668.9 ====== ====== ====== ====== Operating income: Aerospace/Government $ 16.9 $ 16.4 $ 31.9 $ 30.0 Automotive 24.6 31.2 52.4 59.5 Industrial 27.1 22.6 51.9 44.9 ______ ______ ______ ______ Total segments 68.6 70.2 136.2 134.4 Corporate unallocated (8.2) (9.5) (17.7) (19.0) ______ ______ ______ ______ Operating income $ 60.4 $ 60.7 $118.5 $115.4 ====== ====== ====== ====== Results of Operations Three Months Ended July 2, 1995 Compared With Three Months Ended July 3, 1994. Earnings before extraordinary item in the second quarter of 1995 declined slightly to $24.1 million, or 34 cents per share, from $24.4 million, or 35 cents per share, in the 1994 second quarter. Sales for the quarter ended July 2, 1995, increased 7% to $361.5 million compared with $337.0 million in the like quarter last year. Operating income was $60.4 million, and the operating margin was 16.7%. This compared with operating income of $60.7 million and an operating margin of 18.0% in the 1994 second quarter. In the Aerospace/Government segment, operating income increased 3% on a 19% sales increase. Operating income in the Automotive segment was down 21% on a 6% sales decline, while operating income in the Industrial segment increased 20% on a 13% sales increase. 10. COLTEC INDUSTRIES INC AND SUBSIDIARIES July 2, 1995 In the Aerospace/Government segment, improved performances were achieved by Menasco and Delavan Gas Turbine Products. However, the segment's operating margin was depressed due to higher production costs at Fairbanks Morse Engine, declining volume in a product line at Walbar and pricing pressures. At Fairbanks Morse Engine, production and start-up costs on the Alco engine product line have been higher than expected due to the tight local labor market and the need for extensive training programs for new employees. At Walbar, intensive pricing pressure and declining volume in its compressor blades business contributed to the decline in operating income. On August 2, 1995, Coltec announced that it will close a Walbar plant in Mississauga, Ontario, Canada by the end of 1996. In connection with this shutdown, Coltec will incur a charge in the third quarter of 1995. The amount of such a charge has not yet been determined. Automotive segment results were impacted by the adverse pricing environment in the original equipment market and the decline in demand from key automotive customers. Operating results in the Industrial segment continued to benefit from improved market conditions and new product introductions. All but two of the 11 units in the segment showed second quarter sales and earnings gains, with especially strong improvements at Quincy Compressor, Garlock Bearings and France Compressor Products. The operating issues and business trends experienced in the second quarter are expected to persist to some extent into the second half of the year. Following is a discussion of the results of operations for the three months ended July 2, 1995 compared with the three months ended July 3, 1994. Sales. In the Aerospace/Government segment, sales were $125.6 million compared with $105.3 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. Higher sales at Chandler Evans Control Systems were due to increased shipments of fuel pumps to original equipment manufacturers and spare parts to the commercial aftermarket. Menasco reported higher sales as deliveries of landing gear systems on new programs for the Boeing 777 aircraft and the Fokker 70 and 100 aircraft began to accelerate. Sales were up at Delavan Gas Turbine Products on increased demand for fuel nozzles and overhaul services to regional airlines. Automotive segment sales were $125.2 million in the second quarter compared with $133.7 million last year. Sales were negatively affected by the adverse pricing environment in the original equipment market and 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 down in the second quarter of 1995. Holley Performance Products reported higher sales on increased demand in the automotive aftermarket for performance and remanufactured carburetors. Sales of oil pumps were higher on the ramp-up in volume for Ford's V6 and Zetec engines. 11. COLTEC INDUSTRIES INC AND SUBSIDIARIES July 2, 1995 In the Industrial segment, sales were $110.9 million compared with $98.5 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 increased demand for the gasketing and KLOSURE product lines, improved pricing, 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 10% in the second quarter of 1995. This increase is related to the increased volume of business and higher than expected production and start-up costs at Fairbanks Morse Engine on the Alco engine product line. As a percentage of sales, cost of sales increased to 69.0% from 67.3% last year. Selling and Administrative Expense. Selling and administrative expense, including other income and expense, increased 5% due primarily to higher sales. As a percent of sales, selling and administrative expense was 14.3% in the second quarter compared with 14.7% last year. Interest and Debt Expense, Net. Interest and debt expense, net increased $.7 million or 3% in the second quarter due to higher interest rates. Provision for Income Taxes. The provision for income taxes for the three months ended July 2, 1995 resulted in an effective income tax rate of 35.0% compared with 36.0% for the like period last year. Six Months Ended July 2, 1995 Compared With Six Months Ended July 3, 1994. Earnings before extraordinary item for the six months ended July 2, 1995 increased 6% to $47.6 million, or 68 cents per share, from $45.0 million, or 65 cents per share, in 1994. Sales for the six months of 1995 increased 7% to $717.9 million compared with $668.9 million last year. Operating income was $118.5 million, and the operating margin was 16.5%. This compared with operating income of $115.4 million and an operating margin of 17.2% in 1994. In the Aerospace/Government segment, operating income increased 6% on a 18% sales increase. Operating income in the Automotive segment was down 12% on a 2% sales decline, while operating income in the Industrial segment increased 16% on a 8% sales increase. The Aerospace/Government segment benefitted from improved performances by Chandler Evans Control Systems, Fairbanks Morse Engine and Delavan Gas Turbine Products. However, the segment's operating margin was depressed due to higher production costs at Fairbanks Morse Engine, 12. COLTEC INDUSTRIES INC AND SUBSIDIARIES July 2, 1995 declining volume in a product line at Walbar and pricing pressures. At Fairbanks Morse Engine, production and start-up costs on the Alco engine product line have been higher than expected due to the tight local labor market and the need for extensive training programs for new employees. At Walbar, intensive pricing pressure and declining volume in its compressor blades business contributed to the decline in operating income. Automotive segment results were impacted by the adverse pricing environment in the original equipment market and the decline in demand from key automotive customers. Operating results in the Industrial segment continued to benefit from improved market conditions and new product introductions. Strong sales and earnings gains were reported by Quincy Compressor, Garlock Bearings and France Compressor Products. Following is a discussion of the results of operations for the six months ended July 2, 1995 compared with the six months ended July 3, 1994. Sales. In the Aerospace/Government segment, sales were $240.6 million compared with $204.4 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. Higher sales at Chandler Evans Control Systems were due to increased shipments of fuel pumps to original equipment manufacturers and spare parts to the commercial aftermarket. Menasco reported higher sales as deliveries of landing gear systems on new programs for the Boeing 777 aircraft and the Fokker 70 and 100 aircraft began to accelerate. Sales were up at Delavan Gas Turbine Products on increased demand for fuel nozzles and overhaul services to regional airlines. Automotive segment sales were $257.5 million for the six months of 1995 compared with $262.1 million last year. Sales were negatively affected by the adverse pricing environment in the original equipment market and 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 down in the six months of 1995. Holley Performance Products reported higher sales on increased demand in the automotive aftermarket for performance and remanufactured carburetors. Sales for oil pumps were higher on the ramp-up in volume for Ford's V6 and Zetec engines. In the Industrial segment, sales were $220.4 million compared with $203.2 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 increased demand for the gasketing and KLOSURE product lines, improved pricing, 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. 13. COLTEC INDUSTRIES INC AND SUBSIDIARIES July 2, 1995 Cost of Sales. Cost of sales increased 9% during the six months ended July 2, 1995. This increase is related to the increased volume of business and higher than expected production and start-up costs at Fairbanks Morse Engine on the Alco engine product line. As a percentage of sales, cost of sales increased to 69.1% from 67.9% last year. Selling and Administrative Expense. Selling and administrative expense, including other income and expense, increased 5% due primarily to higher sales. As a percent of sales, selling and administrative expense was 14.4% in 1995 compared with 14.8% in 1994. Interest and Debt Expense, Net. Interest and debt expense, net increased slightly during the first six months of 1995 due to higher interest rates. Provision for Income Taxes. The provision for income taxes for the six months ended July 2, 1995 resulted in an effective income tax rate of 35.0% compared with 36.0% for 1994. Extraordinary Item. The extraordinary charges in both the six months of 1995 and 1994 resulted from early retirement of debt. Liquidity and Financial Position At July 2, 1995, total debt was $982.5 million compared with $970.1 million at year-end 1994. The negative balance in shareholders' equity of $477.5 million compares with a negative balance of $525.6 million at December 31, 1994. Cash and cash equivalents were $5.6 million compared with $4.2 million at year-end 1994. Working capital was $232.8 million and the current ratio was 2.01. This compares with working capital of $189.6 million and a current ratio of 1.79 at December 31, 1994. On June 30, 1995, Coltec acquired AlliedSignal Inc's ("AlliedSignal") 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 six months ended July 2, 1995, Coltec generated $18.3 million of cash from operating activities compared with $52.6 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 six months of 1995, net receipts from insurance carriers were $5.5 million compared with $23.1 million last year. The receivable from insurance carriers for asbestos-related 14. COLTEC INDUSTRIES INC AND SUBSIDIARIES July 2, 1995 matters was $101.2 million and $81.3 million at July 2, 1995 and December 31, 1994, respectively, (including the current portion of $64.3 million and $68.2 million, respectively). Excluding the current receivable due from insurance carriers, receivables increased 13% to $146.4 million, reflecting the higher sales volume, and receivables days outstanding were 39 days at July 2, 1995 compared with 36 days at year-end 1994. Inventories of $223.1 million at July 2, 1995 were 13% higher than the level at year-end 1994. 15. COLTEC INDUSTRIES INC AND SUBSIDIARIES July 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 4. Submission of Matters to a Vote of Security Holders. (a) The annual meeting of the shareholders of Coltec was held on April 27, 1995. (b) At the annual meeting of shareholders held on April 27, 1995, 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 1995. There were 69,917,522 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 63,857,708 360,437 John W. Guffey, Jr. 63,851,333 366,812 David I. Margolis 63,858,308 359,837 J. Bradford Mooney, Jr. 63,857,708 360,437 Joel Moses 63,857,308 360,837 Paul G. Schoen 63,860,708 357,437 Richard A. Stuckey 63,857,508 360,637 2. Appointment of Arthur Andersen LLP as the independent public accountants for 1995. For Against Abstain __________ _______ _______ 63,814,625 56,352 347,168 16. COLTEC INDUSTRIES INC AND SUBSIDIARIES July 2, 1995 Item 5. Other Information In connection with the announcement on August 2, 1995 that Coltec will close a Walbar plant in Mississauga, Ontario, Canada, Coltec will incur a charge in the third quarter of 1995. The amount of such a charge has not yet been determined. Item 6. Exhibits and Reports on Form 8-K. (a)(27) Financial Data Schedule (99) Coltec Industries Inc Release dated August 2, 1995 Coltec Industries To Close Unprofitable Walbar Canada Plant. (b) No reports on Form 8-K were filed during the quarter ended July 2, 1995 by Coltec Industries Inc. 17. S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLTEC INDUSTRIES INC (Registrant) by Paul G. Schoen ___________________________ Paul G. Schoen Executive Vice President, Finance Treasurer and Chief Financial Officer Date: August 10, 1995 18. EX-27 2 ART. 5 FDS FOR COLTEC IND INC 2ND QTR 1995 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE July 2, 1995 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED July 2, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1995 JUL-02-1995 5,597 0 215,163 4,469 223,081 463,279 661,192 436,900 910,266 230,520 982,001 700 0 0 (478,201) 910,266 717,891 717,891 495,874 599,407 0 0 45,323 73,161 25,606 47,555 0 (82) 0 47,473 .68 .68
EX-99 3 Ex-99 C:14 FOR IMMEDIATE RELEASE 8/2/1995 CONTACT: Michael Dunn (212) 940-0523 COLTEC INDUSTRIES TO CLOSE UNPROFITABLE WALBAR CANADA PLANT New York, NY, August 2, 1995 -- Coltec Industries Inc (NYSE: COT) will close its Walbar plant on Aerowood Drive in Mississauga, Ontario, Canada. The plant, which produces compressor blades for jet engines, employs 110 workers and will be closed toward the end of 1996. Coltec will continue to operate its remaining Walbar plants in the United States and Canada. John M. Cybulski, senior vice president, aerospace, Coltec Industries, said, "The extended, severe downturn in the aerospace industry has dramatically decreased the sales volume at our Aerowood Drive facility. Operating this plant has been a drain on our profitability. This business accounts for only 6% of Walbar's sales and 16% of Walbar Canada's sales and less than one-half of a percent of Coltec's sales. We intend to focus our Walbar Canada operations on producing turbine blades and vanes, which has been a growing business for us." Mr. Cybulski added, "This move will strengthen our presence in the turbine blade marketplace and enhance our service to customers. This also will strengthen Walbar's financial position and improve its profitability." Coltec Industries Inc is a New York-based manufacturing company serving aerospace, automotive and other industrial markets. ###