-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PDnew9yeVpvGT6xVhH0FCO2rXjS/WFUy+cC+WlvH/9+f1dGrTlLJ3EH32d6fWmSD xQEq9kJ9Pz6P91pj8UgXJw== 0000201493-96-000008.txt : 19960814 0000201493-96-000008.hdr.sgml : 19960814 ACCESSION NUMBER: 0000201493-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960813 SROS: NYSE SROS: PSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLTEC INDUSTRIES INC CENTRAL INDEX KEY: 0000201493 STANDARD INDUSTRIAL CLASSIFICATION: MISC INDUSTRIAL & COMMERCIAL MACHINERY & EQUIPMENT [3590] 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: 96609618 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 1996 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 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 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. EX-27 2 ART. 5 FDS FOR COLTEC IND INC 2ND QTR 1996 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30, 1996 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1996 JUN-30-1996 15,839 0 214,212 4,148 216,625 465,141 601,255 392,902 880,830 261,549 681,390 0 0 703 (386,908) 880,830 598,952 598,952 426,645 528,187 0 0 41,458 29,307 9,964 19,343 48,156 (1,821) 0 65,678 .28 .28
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