-----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, MmpwRfmA9+Wy9n97qmk8pqf+vreYtssGT0KowQigqCtRclnbMhvijonhYnqbJrdv evgqX6KPFd0OoikUMkBp5Q== 0000201493-95-000014.txt : 19951119 0000201493-95-000014.hdr.sgml : 19951119 ACCESSION NUMBER: 0000201493-95-000014 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19951001 FILED AS OF DATE: 19951113 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: 95589482 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 3RD 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 October 1, 1995 OR ( ) Transition Report Pursuant To Section 13 Or 15(d) of the Securities Exchange Act of 1934 For the transition period from __________________ to __________________ Commission file number 1-7568 COLTEC INDUSTRIES INC (Exact name of Registrant as specified in its charter) PENNSYLVANIA 13-1846375 (State or other jurisdiction of incorporation (IRS Employer or organization) Identification No.) 430 PARK AVENUE, NEW YORK, N.Y. 10022 (Address of principal executive offices) (Zip code) (212) 940-0400 (Registrant's telephone number, including area code) ________________________________________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) ____________________________________ On October 29, 1995, there were outstanding 69,978,833 shares of common stock, par value $.01 per share. Page 1 of 17 PART I FINANCIAL INFORMATION Item 1 Financial Statements COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET October 1, December 31, 1995 1994 __________ ____________ (Unaudited) (In thousands) A S S E T S Current assets - Cash and cash equivalents $ 10,759 $ 4,188 Accounts and notes receivable - net 215,176 198,149 Inventories - Finished goods 55,878 46,316 Work in process and finished parts 150,174 126,097 Raw materials and supplies 29,668 25,790 ________ ________ 235,720 198,203 Deferred income taxes 11,888 15,222 Other current assets 11,212 13,936 ________ ________ Total current assets 484,755 429,698 Property, plant and equipment 667,438 652,907 Less accumulated depreciation and amortization 446,071 429,793 ________ ________ 221,367 223,114 Costs in excess of net assets acquired, net of amortization 138,164 131,024 Other assets 77,670 63,614 ________ ________ $921,956 $847,450 ======== ======== 2. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET October 1, December 31, 1995 1994 __________ ____________ (Unaudited) (In thousands, except share data) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities - Current maturities of long-term debt $ 224 $ 886 Accounts payable 68,114 76,648 Accrued expenses 182,933 159,528 Current portion of liabilities of discontinued operations 3,000 3,000 ___________ ___________ Total current liabilities 254,271 240,062 Long-term debt 976,810 969,261 Deferred income taxes 4,437 10,533 Other liabilities 133,763 124,159 Liabilities of discontinued operations 26,856 29,036 Shareholders' equity - Preferred stock, $.01 par value, 2,500,000 shares authorized, shares outstanding - none - - Common stock, $.01 par value, 100,000,000 shares authorized, 70,077,350 and 70,016,384 shares issued at October 1, 1995 and December 31, 1994, respectively (excluding 25,000,000 shares held by a wholly owned subsidiary) 700 700 Capital in excess of par value 639,532 638,407 Retained earnings (deficit) (1,109,671) (1,158,948) Unearned compensation - restricted stock awards (2,898) (3,480) Foreign currency translation adjustments (250) (681) ___________ ___________ (472,587) (524,002) Less: Cost of 98,517 and 98,862 shares of common stock in treasury at October 1, 1995 and December 31, 1994, respectively (1,594) (1,599) ___________ ___________ (474,181) (525,601) ___________ ___________ $ 921,956 $ 847,450 =========== =========== The accompanying notes to financial statements are an integral part of this statement. 3. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF EARNINGS (Unaudited) Three Months Ended Nine Months Ended ______________________ ______________________ October 1, October 2, October 1, October 2, 1995 1994 1995 1994 _________ _________ __________ _________ (In thousands, except per share data) Net sales $332,134 $317,507 $1,050,025 $986,375 ________ ________ __________ ________ Costs and expenses - Cost of sales 231,105 211,259 726,979 665,712 Selling and administrative 48,935 48,417 152,468 147,462 Special charge 27,000 - 27,000 - ________ ________ __________ ________ Total costs and expenses 307,040 259,676 906,447 813,174 ________ ________ __________ ________ Operating income 25,094 57,831 143,578 173,201 Interest and debt expense, net 22,318 21,836 67,641 66,853 ________ ________ __________ ________ Earnings before income taxes and extraordinary item 2,776 35,995 75,937 106,348 Provision for income taxes 972 12,958 26,578 38,285 ________ ________ __________ ________ Earnings before extraordinary item 1,804 23,037 49,359 68,063 Extraordinary item - (177) (82) (1,192) ________ ________ __________ ________ Net earnings $ 1,804 $ 22,860 $ 49,277 $ 66,871 ======== ======== ========== ======== Earnings per common share - Before extraordinary item $ .03 $ .33 $ .71 $ .98 Extraordinary item - - - (.02) _____ _____ _____ _____ Net earnings $ .03 $ .33 $ .71 $ .96 ====== ===== ===== ===== Weighted average number of common and common equivalent shares 69,791 69,832 69,851 69,809 ====== ====== ====== ====== The accompanying notes to financial statements are an integral part of this statement. 4. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Nine Months Ended ______________________ October 1, October 2, 1995 1994 __________ __________ (In thousands) Cash flows from operating activities Net earnings $ 49,277 $ 66,871 Adjustments to reconcile net earnings to cash provided by operating activities Extraordinary item 82 1,192 Special charge 27,000 - Depreciation and amortization 32,639 32,695 Deferred income taxes (6,096) 3,496 Receivable from insurance carriers 8,932 19,946 Payment of liabilities of discontinued operations (2,180) (3,337) Other operating items (7,254) (2,679) _________ ________ 102,400 118,184 _________ ________ Changes in assets and liabilities Accounts and notes receivable (20,580) (22,223) Inventories (39,821) (26,220) Deferred income taxes 3,334 (6,104) Other current assets 2,724 (3,161) Accounts payable (8,534) 7,181 Accrued expenses 343 2,518 _________ ________ Changes in assets and liabilities (62,534) (48,009) _________ ________ Cash provided by operating activities 39,866 70,175 _________ ________ Cash flows from investing activities Capital expenditures (27,867) (22,973) Acquisition of a business (14,000) - Other - net 1,666 1,123 _________ ________ Cash used in investing activities (40,201) (21,850) _________ ________ Cash flows from financing activities Issuance of long-term debt 26,300 331,000 Payments of long-term debt (19,394) (375,574) _________ ________ Cash provided by (used in) financing activities 6,906 (44,574) _________ ________ Cash and cash equivalents Increase 6,571 3,751 At beginning of period 4,188 5,749 _________ ________ At end of period $ 10,759 $ 9,500 ========= ======== The accompanying notes to financial statements are an integral part of this statement. 5. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Financial Statements October 1, 1995 (Unaudited) 1. SUMMARY OF ACCOUNTING POLICIES Financial Information: The unaudited financial statements, included herein, reflect in the opinion of Coltec Industries Inc ("Coltec") all normal recurring adjustments necessary to present fairly the financial position and results of operations for the periods indicated. The unaudited financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated balance sheet as of December 31, 1994 has been derived from the audited financial statements as of that date. For further information, refer to the financial statements and footnotes included in Coltec's annual report to shareholders for the year ended December 31, 1994. Consolidated Statement of Cash Flows: Interest paid and federal and state income taxes paid and refunded were as follows: Nine Months Ended _______________________ October 1, October 2, 1995 1994 _________ __________ (In thousands) Interest paid $53,731 $53,173 Income taxes: Paid 43,432 38,743 Refunded 3,593 1,706 2. SPECIAL CHARGE In the third quarter of 1995, Coltec recorded a special charge of $27.0 million, primarily to cover the costs of closing the Walbar compressor blade facility in Canada. It is anticipated that this facility will be closed by the end of 1996. The charge also covered selected reductions in work force throughout the Company. The special charge includes $9.1 million for the cancellation of contractual obligations resulting from the decision to close the Walbar facility, $7.8 million for asset writedowns, $5.1 million for severance and employee-related costs and $5.0 million for other costs necessary to implement the shutdown of the Walbar facility and other actions. Charges of $5.3 million were recorded against this reserve in the third quarter of 1995. 3. EXTRAORDINARY ITEM During the third quarter and nine months of 1994, Coltec incurred an extraordinary charge of $177,000, net of a tax benefit of $95,000, and $1,192,000, net of a tax benefit of $642,000, respectively, in connection with the early retirement of debt. During the nine months of 1995, Coltec incurred an extraordinary charge of $82,000, net of a tax benefit of $44,000, in connection with the early retirement of debt. 6. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Financial Statements October 1, 1995 (Unaudited) 4. COMMITMENTS AND CONTINGENCIES Coltec and certain of its subsidiaries are defendants in various lawsuits, including actions involving asbestos-containing products and certain environmental proceedings. With respect to asbestos product liability and related litigation costs, as of October 1, 1995, two subsidiaries of Coltec were among a number of defendants (typically 15 to 40) in approximately 98,500 actions (including approximately 6,000 actions, in advanced stages of processing) filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. Through October 1, 1995, approximately 127,800 of the approximately 226,300 total actions brought have been settled or otherwise disposed of. The damages claimed for personal injury or death vary from case to case and in many cases plaintiffs seek $1,000,000 or more in compensatory damages and $2,000,000 or more in punitive damages. Although the law in each state differs to some extent, it appears, based on advice of counsel, that liability for compensatory damages would be shared among all responsible defendants, thus limiting the potential monetary impact of such judgments on any individual defendant. Following a decision of the Pennsylvania Supreme Court, in a case in which neither Coltec nor any of its subsidiaries were parties, that held insurance carriers are obligated to cover asbestos-related bodily injury actions if any injury or disease process, from first exposure through manifestation, occurred during a covered policy period (the "continuous trigger theory of coverage"), Coltec settled litigation with its primary and most of its first-level excess insurance carriers, substantially on the basis of the Court's ruling. Coltec has negotiated a final agreement with most of its excess carriers that are in the layers of coverage immediately above its first layer. Coltec is currently receiving payments pursuant to this agreement. Coltec believes that, with respect to the remaining carriers, a final agreement can be achieved without litigation and on substantially the same basis that it has resolved the issues with its primary and first-level excess carriers. Settlements are generally made on a group basis with payments made to individual claimants over periods of one to four years. During the first nine months of 1995, two subsidiaries of Coltec received approximately 30,300 new actions, compared with approximately 14,500 actions received during the first nine months of 1994. Payments were made with respect to asbestos liability and related costs aggregating $42,441,000 and $26,592,000 in the first nine months of 1995 and 1994, respectively, substantially all of which were covered by insurance. In accordance with Coltec's internal procedures for the processing of asbestos product liability actions and due to the proximity to trial or settlement, certain outstanding actions have progressed to a stage where Coltec can reasonably estimate the cost to dispose of these actions. As of October 1, 1995, Coltec estimates that the aggregate remaining cost of the disposition of the settled actions for which payments remain to be made and actions in advanced stages of processing, including associated legal costs, is approximately $71,445,000 and Coltec expects that this cost will be substantially covered by insurance. 7. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Financial Statements October 1, 1995 (Unaudited) With respect to the 92,500 outstanding actions as of October 1, 1995 which are in preliminary procedural stages, Coltec lacks sufficient information upon which judgments can be made as to the validity or ultimate disposition of such actions, thereby making it difficult to estimate with reasonable certainty the potential liability or costs to Coltec. When asbestos actions are received they are typically forwarded to local counsel to ensure that the appropriate preliminary procedural response is taken. The complaints typically do not contain sufficient information to permit a reasonable evaluation as to their merits at the time of receipt, and in jurisdictions encompassing a majority of the outstanding actions, the practice has been that little or no discovery or other action is taken until several months prior to the date set for trial. Accordingly, Coltec generally does not have the information necessary to analyze the actions in sufficient detail to estimate the ultimate liability or costs to Coltec, if any, until the actions appear on a trial calendar. A determination to seek dismissal, to attempt to settle or to proceed to trial is typically not made prior to the receipt of such information. It is also difficult to predict the number of asbestos lawsuits that Coltec's subsidiaries will receive in the future. Coltec has noted that, with respect to recently settled actions or actions in advanced stages of processing, the mix of the injuries alleged and the mix of the occupations of the plaintiffs have been changing from those traditionally associated with Coltec's asbestos-related actions. Coltec is not able to determine with reasonable certainty whether this trend will continue. Based upon the foregoing, and due to the unique factors inherent in each of the actions, including the nature of the disease, the occupation of the plaintiff, the presence or absence of other possible causes of a plaintiff's illness, the availability of legal defenses, such as the statute of limitations or state of the art, and whether the lawsuit is an individual one or part of a group, management is unable to estimate with reasonable certainty the cost of disposing of outstanding actions in preliminary procedural stages or of actions that may be filed in the future. However, Coltec believes that its subsidiaries are in a favorable position compared to many other defendants because, among other things, the asbestos fibers in its asbestos-containing products were encapsulated. Considering the foregoing, as well as the experience of Coltec's subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, and the significant amount of insurance coverage that Coltec expects to be available from its solvent carriers, Coltec believes that pending and reasonably anticipated future actions are not likely to have a material effect on Coltec's results of operations and financial condition. Although the insurance coverage which Coltec has is substantial, it should be noted that insurance coverage for asbestos claims is not available to cover exposures initially occurring on and after July 1, 1984. Coltec's subsidiaries continue to be named as defendants in new cases, some of which allege initial exposure after July 1, 1984. 8. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Financial Statements October 1, 1995 (Unaudited) In addition to claims for personal injury, Coltec's subsidiaries have been involved in an insignificant number of property damage claims based upon asbestos-containing materials found in schools, public facilities and private commercial buildings. Based upon proceedings to date, the overwhelming majority of these claims have been resolved without a material adverse impact on Coltec. Likewise, the insignificant number of claims remaining to be resolved are not expected to have a material effect on Coltec's results of operations and financial condition. Coltec has recorded an accrual for its liabilities for asbestos-related matters that are deemed probable and can be reasonably estimated (settled actions and actions in advanced stages of processing), and has separately recorded an asset equal to the amount of such liabilities that is expected to be recovered by insurance. In addition, Coltec has recorded a receivable for that portion of payments previously made for asbestos product liability actions and related litigation costs that is recoverable from its insurance carriers. Liabilities for asbestos related matters and the receivable from insurance carriers included in the Consolidated Balance Sheet are as follows: October 1, Dec. 31, (In thousands) 1995 1994 _________________________________________________________________ Accounts and notes receivable - other $64,626 $68,179 Other assets 28,907 13,119 Accrued expenses - other 46,464 34,099 Other liabilities 24,981 8,155 With respect to environmental proceedings, Coltec has been notified that it is among the Potentially Responsible Parties ("PRPs") under the federal Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), or similar state laws, for the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. CERCLA imposes joint and several liability for the costs of investigating and remediating properties contaminated by hazardous materials. Liability for these costs can be imposed on present and former owners or operators of the properties or on parties who generated the wastes that contributed to the contamination. The process of investigating and remediating contaminated properties can be lengthy and expensive. The process is also subject to the uncertainties occasioned by changing legal requirements, developing technological applications and liability allocations among PRPs. Based on the progress to date in the investigation, cleanup and allocation of responsibility for these sites, Coltec has estimated that its costs in connection with these sites approximates $20,000,000 at October 1, 1995, and has accrued for this amount in the Consolidated Balance Sheet as of October 1, 1995. Although Coltec is pursuing insurance recovery in connection with certain of these matters, Coltec has not recorded a receivable with respect to any potential recovery of costs in connection with any environmental matter. 9. COLTEC INDUSTRIES INC AND SUBSIDIARIES October 1, 1995 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations The following table shows financial information by industry segment for the three months and nine months ended October 1, 1995 and October 2, 1994. Three Months Ended Nine Months Ended __________________ _________________ Oct. 1, Oct. 2, Oct. 1, Oct. 2, 1995 1994 1995 1994 _______ _______ _______ _______ (In millions) Sales: Aerospace/Government $115.8 $101.1 $ 356.4 $305.5 Automotive 110.7 119.5 368.2 381.5 Industrial 106.0 97.5 326.4 300.8 Intersegment elimination (.4) (.6) (1.0) (1.4) ______ ______ ________ ______ Total $332.1 $317.5 $1,050.0 $986.4 ====== ====== ======== ====== Operating income: Aerospace/Government $ (4.9) $ 17.5 $ 27.0 $ 47.6 Automotive 19.8 26.8 72.2 86.3 Industrial 22.7 20.8 74.5 65.7 ______ ______ ________ ______ Total segments 37.6 65.1 173.7 199.6 Corporate unallocated (12.5) (7.3) (30.1) (26.4) ______ ______ ________ ______ Total $ 25.1 $ 57.8 $ 143.6 $173.2 ====== ====== ======== ====== Operating income for the third quarter of 1995 included a special charge of $27.0 million. This charge included $23.4 million in the Aerospace/Government segment and $3.6 million in Corporate Unallocated. Excluding this charge, third quarter and nine months of 1995 operating income for the Aerospace/Government segment would have been $18.5 million and $50.4 million, respectively; and for the total company, $52.1 million and $170.6 million, respectively. Results of Operations Three Months Ended October 1, 1995 Compared With Three Months Ended October 2, 1994. Earnings before extraordinary item in the third quarter of 1995 were $1.8 million, equal to 3 cents per common share, or $19.4 million, equal to 28 cents per common share, excluding a special charge of $27.0 million recorded in the third quarter. This compared with earnings before extraordinary item of $23.0 million, or 33 cents per common share, in the third quarter of 1994. 10. COLTEC INDUSTRIES INC AND SUBSIDIARIES October 1, 1995 Sales for the quarter ended October 1, 1995, increased 5% to $332.1 million from $317.5 million in the like quarter last year. Operating income for the third quarter of 1995 was $25.1 million and the operating margin was 7.6%. Excluding the special charge, operating income was $52.1 million and the operating margin was 15.7%. This compared with operating income of $57.8 million and an operating margin of 18.2% in the 1994 third quarter. The Aerospace/Government segment reported an operating loss of $4.9 million in the third quarter of 1995. However, excluding the special charge, operating income increased 6% on a 15% sales increase. Operating income in the Automotive segment was down 26% on a 7% sales decline, while both operating income and sales in the Industrial segment were up 9%. In the Aerospace/Government segment, divisions serving the aerospace market reported a 9% increase in operating income, excluding the special charge, and a 10% increase in sales in the third quarter. However, the segment's operating margin continued to be impacted by higher start-up costs on the Alco engine product line at Fairbanks Morse Engine and pricing pressures. Operating results for the Automotive segment were impacted in the third quarter by the adverse pricing environment and decline in demand, while operating results in the Industrial segment continued to benefit from improved market conditions and new product introductions. Third quarter sales and earnings gains were reported by Quincy Compressor, Garlock Bearings, Garlock Mechanical Packing, Delavan Commercial Products, France Compressor Products and Garlock Valves & Industrial Plastics. Looking forward, operating results for the fourth quarter of 1995 are expected to improve from the third quarter but not meet the level of the 1994 fourth quarter. This will result in full-year 1995 earnings per share, excluding the special charge, declining slightly from 1994, with disappointing Automotive segment results more than offsetting the improved performances in the Aerospace/Government and Industrial segments. Operating results for 1996 are anticipated to be substantially unchanged from the 1995 level with the effects of continued competitive pricing pressures and sluggish demand in the automotive original equipment market offsetting continued strength in both the Aerospace/Government and Industrial segments. Following is a discussion of the results of operations for the three months ended October 1, 1995 compared with the three months ended October 2, 1994. Sales. In the Aerospace/Government segment sales were $115.8 million compared with $101.1 million a year ago. Fairbanks Morse Engine reported higher shipments on delivery of a Pielstick engine for the U.S. Navy Sealift program and on deliveries of Alco engines that began in 1995. Menasco reported higher sales on new programs covering the Boeing 777 aircraft and the Fokker 70 and 100 aircraft. In addition, Menasco began deliveries in the third quarter of 1995 of landing gear 11. COLTEC INDUSTRIES INC AND SUBSIDIARIES October 1, 1995 for the McDonnell Douglas F-15 fighter. This business was acquired in June 1995 from AlliedSignal Inc ("AlliedSignal"). Sales were higher at Delavan Gas Turbine Products on increased demand for fuel nozzles and overhaul services to regional airlines. The Automotive segment reported sales of $110.7 million in the third quarter compared with $119.5 million last year. Sales were negatively affected by the adverse pricing environment and by the decline in demand for throttle bodies, manifold assemblies, mechanical air pumps and seals from key automotive customers. Demand for Stemco's hub oil seal from the truck and trailer aftermarket was also down in the third quarter of 1995. In the Industrial segment, sales were $106.0 million compared with $97.5 million last year. Sales were higher at Quincy Compressor on increased shipments of rotary screw air compressors and on strong demand for compressor parts and accessories. Garlock Bearings reported higher sales on strong demand for bearings from the automotive and truck markets. At Garlock Mechanical Packing, sales were higher on improved pricing, increased demand for the gasketing product line, higher shipments in Canada and strengthening European currencies. France Compressor Products and Garlock Valves & Industrial Plastics also benefitted from stronger European currencies as well as from improving economic conditions. Cost of Sales. Cost of sales increased 9% in the third quarter of 1995. This increase is related to the increased volume of business and higher than expected start-up costs at Fairbanks Morse Engine on the Alco engine product line. As a percentage of sales, cost of sales increased to 69.6% from 66.5% last year. Selling and Administrative Expense. Selling and administrative expense, including other income and expense, was up 1% in the third quarter due primarily to higher sales, offset in part by lower incentive compensation, and state and local income taxes. As a percent of sales, selling and administrative expense was 14.7% in the third quarter compared with 15.2% last year. Special Charge. In the third quarter of 1995, Coltec recorded a special charge of $27.0 million, primarily to cover the costs of closing the Walbar compressor blade facility in Canada. It is anticipated that this facility will be closed by the end of 1996. The charge also covered selected reductions in work force throughout the Company. The special charge includes $9.1 million for the cancellation of contractual obligations resulting from the decision to close the Walbar facility, $7.8 million for asset writedowns, $5.1 million for severance and employee-related costs and $5.0 million for other costs necessary to implement the shutdown of the Walbar facility and other actions. Charges of $5.3 million were recorded against this reserve in the third quarter of 1995. 12. COLTEC INDUSTRIES INC AND SUBSIDIARIES October 1, 1995 Interest and Debt Expense, Net. Interest and debt expense, net increased $.5 million or 2% in the third quarter due to higher interest rates. Provision for Income Taxes. The provision for income taxes for the three months ended October 1, 1995 resulted in an effective income tax rate of 35.0% compared with 36.0% for the like period last year. Nine Months Ended October 1, 1995 Compared With Nine Months Ended October 2, 1994. Earnings before extraordinary item for the nine months ended October 1, 1995 were $49.4 million, equal to 71 cents per common share, or $66.9 million, equal to 96 cents per common share, excluding the special charge of $27.0 million. This compared with earnings before extraordinary item of $68.1 million, or 98 cents per common share, in 1994. Sales for the nine months of 1995, increased 6% to $1,050.0 million from $986.4 million last year. Operating income was $143.6 million and the operating margin was 13.7%. Excluding the special charge, operating income was $170.6 million and the operating margin was 16.2%. This compared with operating income of $173.2 million and an operating margin of 17.6% in 1994. The Aerospace/Government segment reported a 43% decline in operating income for the nine months of 1995. However, excluding the special charge, operating income increased 6% on a 17% sales increase. Operating income in the Automotive segment was down 16% on a 3% sales decline, while operating income in the Industrial segment increased 13% on a 9% sales increase. In the Aerospace/Government segment, higher sales and income were reported by Menasco, Delavan Gas Turbine, Fairbanks Morse Engine and Chandler Evans Control Systems. However, the segment's operating margin continued to be impacted by higher start-up costs on the Alco engine product line at Fairbanks Morse Engine and pricing pressures. At Walbar, pricing pressure and declining volume in its compressor blades business contributed to the decline in operating income. Operating results for the Automotive segment were impacted by the adverse pricing environment and decline in demand. Operating results in the Industrial segment continued to benefit from improved market conditions and new product introductions. Sales and earnings gains were reported for the nine months of 1995 by Quincy Compressor, Garlock Bearings, Garlock Mechanical Packing, Delavan Commercial Products, France Compressor Products and Garlock Valves & Industrial Plastics. Following is a discussion of the results of operations for the nine months ended October 1, 1995 compared with the nine months ended October 2, 1994. 13. COLTEC INDUSTRIES INC AND SUBSIDIARIES October 1, 1995 Sales. In the Aerospace/Government segment sales were $356.4 million compared with $305.5 million a year ago. Fairbanks Morse Engine reported higher shipments of engines for U.S. Navy programs and began deliveries in 1995 of its Alco engines. Menasco reported higher sales on new programs covering the Boeing 777 aircraft and the Fokker 70 and 100 aircraft. In addition, Menasco began deliveries in the third quarter of 1995 of landing gear for the McDonnell Douglas F-15 fighter. Sales were higher at Delavan Gas Turbine Products, on increased demand for fuel nozzles and overhaul services to regional airlines, and at Chandler Evans Control Systems, on increased shipments of fuel pumps to original equipment manufacturers. Automotive segment sales were $368.2 million for the nine months of 1995 compared with $381.5 million last year. Sales were negatively affected by the adverse pricing environment and by the decline in demand for throttle bodies, manifold assemblies, mechanical air pumps and seals from key automotive customers. Demand for Stemco's hub oil seal from the truck and trailer aftermarket was also down in the nine months of 1995. Holley Performance Products reported higher sales on increased demand in the automotive aftermarket for performance and remanufactured carburetors. In the Industrial segment, sales were $326.4 million compared with $300.8 million last year. Sales were higher at Quincy Compressor on increased shipments of rotary screw air compressors and on strong demand for compressor parts and accessories. Garlock Bearings reported higher sales on strong demand for bearings from the automotive and truck markets. At Garlock Mechanical Packing, sales were higher on improved pricing, increased demand for the gasketing product line, higher shipments in Canada and strengthening European currencies. France Compressor Products and Garlock Valves & Industrial Plastics also benefitted from stronger European currencies as well as from improving economic conditions. Cost of Sales. Cost of sales increased 9% during the nine months ended October 1, 1995. This increase is related to the increased volume of business and higher than expected start-up costs at Fairbanks Morse Engine on the Alco engine product line. As a percentage of sales, cost of sales increased to 69.2% from 67.5% last year. Selling and Administrative Expense. Selling and administrative expense, including other income and expense, increased 3% due primarily to higher sales, offset in part by lower incentive compensation, and state and local income taxes. As a percent of sales, selling and administrative expense was 14.5% in 1995 compared with 14.9% last year. Interest and Debt Expense, Net. Interest and debt expense, net increased $.8 million or 1% in 1995 due to higher interest rates. Provision for Income Taxes. The provision for income taxes for the nine months ended October 1, 1995 resulted in an effective income tax rate of 35.0% compared with 36.0% for 1994. 14. COLTEC INDUSTRIES INC AND SUBSIDIARIES October 1, 1995 Extraordinary Item. The extraordinary charges in both the nine months of 1995 and 1994 resulted from early retirement of debt. Liquidity and Financial Position At October 1, 1995, total debt was $977.0 million compared with $970.1 million at year-end 1994. The negative balance in shareholders' equity of $474.2 million compares with a negative balance of $525.6 million at December 31, 1994. Cash and cash equivalents were $10.8 million compared with $4.2 million at year-end 1994. Working capital was $230.5 million and the current ratio was 1.91. This compares with working capital of $189.6 million and a current ratio of 1.79 at December 31, 1994. In June 1995, Coltec acquired AlliedSignal's aircraft landing gear business for a purchase price of $14.0 million. The acquisition includes the development and production of landing gears for the McDonnell Douglas F/A-18 E/F fighter as well as production and product support of existing military programs including the F-15 fighter. During the nine months ended October 1, 1995, Coltec generated $39.9 million of cash from operating activities compared with $70.2 million last year. The lower cash generated from operations in 1995 was due primarily to lower net receipts from insurance carriers for asbestos- related matters and to the build up of inventory to support the increased level of business and new programs in the Aerospace/ Government segment. For the nine months of 1995, net receipts from insurance carriers were $8.9 million compared with $19.9 million last year. The receivable from insurance carriers for asbestos-related matters was $93.5 million and $81.3 million at October 1, 1995 and December 31, 1994, respectively, (including the current portion of $64.6 million and $68.2 million, respectively). Excluding the current receivable due from insurance carriers, receivables increased 16% to $150.6 million, reflecting the higher sales volume and receivables days outstanding increasing from 36 days at year-end 1994 to 38 days at October 1, 1995. Inventories of $235.7 million at October 1, 1995 were $37.5 million or 19% higher than the level at year-end 1994. 15. COLTEC INDUSTRIES INC AND SUBSIDIARIES October 1, 1995 PART II OTHER INFORMATION Item 1. Legal Proceedings. Coltec and certain of its subsidiaries are defendants in various lawsuits involving asbestos-containing products. In addition, Coltec has been notified that it is among the Potentially Responsible Parties under the federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, or similar state laws, for the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. See Note 4 of the Notes to Financial Statements. Item 6. Exhibits and Reports on Form 8-K. (a)(27) Financial Data Schedule (b) Coltec filed a Form 8-K dated September 15, 1995 reporting under Item 5, Other Events, announcing a third quarter charge and lower earnings expectations. 16. S I G N A T U R E Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. COLTEC INDUSTRIES INC (Registrant) by Paul G. Schoen _____________________________ Paul G. Schoen Executive Vice President, Finance Treasurer and Chief Financial Officer Date: November 13, 1995 17. EX-27 2 ART. 5 FDS FOR COLTEC IND INC 3RD QTR 1995 10-Q
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE OCTOBER 1, 1995 CONSOLIDATED BALANCE SHEET AND STATEMENT OF EARNINGS FOR THE NINE MONTHS ENDED OCTOBER 1, 1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 OCT-01-1995 10,759 0 219,747 4,571 235,720 484,755 667,438 446,071 921,956 254,271 976,810 700 0 0 (474,881) 921,956 1,050,025 1,050,025 726,979 906,447 0 0 67,641 75,937 26,578 49,359 0 (82) 0 49,277 .71 .71
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