-----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, WNjy9TwjNvg+GJPNdbQkuRqdyz4fIYy/JMlc/LU4Zjt29IAIBEf9YQNuHi9YkRkF weYc0SrCQDvG3tNlTwulPw== 0000201493-97-000013.txt : 19970814 0000201493-97-000013.hdr.sgml : 19970814 ACCESSION NUMBER: 0000201493-97-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19970629 FILED AS OF DATE: 19970813 SROS: NYSE 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: 97659288 BUSINESS ADDRESS: STREET 1: 3 COLISEUM CENTRE STREET 2: 2550 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217 BUSINESS PHONE: (704) 423 7000 MAIL ADDRESS: STREET 1: 3 COLISEUM CENTRE STREET 2: 2550 WEST TYVOLA ROAD CITY: CHARLOTTE STATE: NC ZIP: 28217 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 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one) (X) Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 29, 1997 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.) 3 Coliseum Centre 2550 West Tyvola Road Charlotte, North Carolina 28217 28217 (Address of principal executive offices) (Zip code) (704)423-7000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 31, 1997, there were outstanding 65,417,552 shares of common stock, par value $.01 per share. PART I - FINANCIAL INFORMATION Item 1. Financial Statements COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS Three Months Ended Six Months Ended June 29, June 30, June 29, June 30, 1997 1996 1997 1996 -------- -------- ------- -------- (in thousands, except per share data) Net sales $322,227 $293,015 $631,399 $574,213 Cost of sales 217,137 201,900 428,812 409,916 Gross profit 105,090 91,115 202,587 164,297 Selling and administrative 56,336 46,227 108,905 98,078 Operating Income 48,754 44,888 93,682 66,219 Interest expense, net 12,682 20,332 25,046 41,458 Earnings from continuing operations before income taxes and extraordinary item 36,072 24,556 68,636 24,761 Income taxes 12,264 8,339 23,336 8,417 Earnings from continuing operations before extraordinary item 23,808 16,217 45,300 16,344 Discontinued operations (net of tax) - 43,507 - 51,156 Extraordinary item (net of tax) - - - (1,822) Net earnings $ 23,808 $ 59,724 $ 45,300 $ 65,678 Earnings per common share Before extraordinary item $ .36 $ .23 $ .67 $ .23 Discontinued operations - .62 - .73 Extraordinary item - - - (.03) Net earnings $ .36 $ .85 $ .67 $ .93 Weighted average number of common and common equivalent shares 66,695 70,322 67,213 70,254 See notes to consolidated financial statements. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 29, Dec. 31, 1997 1996 --------- --------- (in thousands) A S S E T S Current assets: Cash and cash equivalents $ 8,532 $ 15,029 Accounts and notes receivable, net of allowance of $2,394 in 1997 and $2,007 in 1996 193,862 190,325 Inventories Finished goods 44,253 48,813 Work in process and finished parts 144,635 122,817 Raw materials and supplies 33,369 32,568 222,257 204,198 Deferred income taxes 3,065 10,524 Other current assets 14,301 12,769 Total current assets 442,017 432,845 Property, plant and equipment, net 228,890 214,790 Costs in excess of net assets acquired, net 131,292 132,872 Other assets 60,152 58,869 $862,351 $839,376 See notes to consolidated financial statements. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS June 29, Dec. 31, 1997 1996 --------- --------- (in thousands, except share data) LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 528 $ 2,528 Accounts payable 65,412 55,410 Accrued expenses 137,489 145,104 Current portion of liabilities of discontinued operations 6,002 14,229 Total current liabilities 209,431 217,271 Long-term debt 762,045 717,722 Deferred income taxes 57,371 50,646 Other liabilities 81,949 100,004 Liabilities of discontinued operations 163,750 170,740 Commitments and contingencies - - 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, 70,449,593 and 70,398,661 shares issued at June 29, 1997 and December 31, 1996, respectively (excluding 25,000,000 shares held by a wholly owned subsidiary) 704 704 Capital surplus 641,715 643,221 Retained deficit (961,603) (1,006,903) Unearned compensation (2,465) (2,136) Minimum pension liability (3,200) (3,200) Foreign currency translation adjustments (2,704) (1,151) (327,553) (369,465) Less cost of 5,021,141 and 3,182,822 shares of common stock in treasury at June 29, 1997 and December 31, 1996, respectively (84,642) (47,542) (412,195) (417,007) $862,351 $839,376 See notes to consolidated financial statements. COLTEC INDUSTRIES INC AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Six Months Ended June 29, June 30, 1997 1996 --------- -------- Cash flows from operating activities: Net earnings $ 45,300 $ 65,678 Adjustments to reconcile net earnings to cash provided by operating activities: Extraordinary item - 1,822 Depreciation and amortization 16,589 18,903 Deferred income taxes 14,184 24,476 Gain on sale of Automotive Busines s - (52,227) Payments of liabilities of discontinued operations (12,717) (1,805) Other operating items (20,248) (1,746) Changes in assets and liabilities: Accounts and notes receivable (3,537) (56,747) Inventories (18,060) (4,386) Other current assets (1,532) 2,055 Accounts payable 10,002 (4,263) Accrued expenses (7,615) 19,815 Cash provided by operating activities 22,366 11,575 Cash flows from investing activities: Capital expenditures (29,267) (16,025) Proceeds from sale of Automotive Business - 283,000 Cash provided by (used in) investing activities (29,267) 266,975 Cash flows from financing activities: Increase in revolving facility, net 49,500 33,000 Repayment of long-term debt (7,177) (297,819) Purchase of treasury stock (41,919) (1,863) Cash provided by (used in) investing activities 404 (266,682) Increase (decrease)in cash and cash equivalents (6,497) 11,868 Cash and cash equivalents - beginning of period 15,029 3,971 Cash and cash equivalents - end of period $ 8,532 $ 15,839 Supplemental cash flow data: Cash paid for interest $ 22,438 $ 42,297 Cash paid for income taxes 1,268 19,235 See notes to consolidated financial statements. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) 1. SUMMARY OF ACCOUNTING POLICIES Financial Information: The unaudited consolidated financial statements included herein reflect in the opinion of management of Coltec Industries Inc (the Company) all normal recurring adjustments necessary to present fairly the consolidated financial position and results of operations for the periods indicated. The unaudited consolidated 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, 1996 has been extracted from the audited consolidated financial statements as of that date. For further information, refer to the consolidated financial statements and footnotes included in the Company's annual report to shareholders for the year ended December 31, 1996. 2. DISCONTINUED OPERATIONS In June 1996, the Company sold Holley Automotive, Coltec Automotive and Performance Friction Products to Borg-Warner Automotive, Inc. In December 1996, the Company sold Farnam Sealing Systems Division to Meillor SA. The sale of these businesses represented a disposal of the Company's Automotive Segment. Accordingly, the Consolidated Statements of Earnings for the three months and six months ended June 30, 1996 have been restated to reflect the operations of the automotive original equipment components businesses as a discontinued operation. Liabilities of discontinued operations at June 29, 1997 of $169,752 relate to contingent contractual obligations, environmental matters, reserves for postretirement benefits and other future estimated costs for various discontinued operations. 3. EXTRAORDINARY ITEM The Company incurred an extraordinary charge of $1,822, net of income taxes of $937, in the first quarter of 1996 in connection with early retirement of debt. 4. COMMITMENTS AND CONTINGENCIES The Company 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 29, 1997, two subsidiaries of the Company were among a number of defendants (typically 15 to 40) in approximately 105,300 actions (including approximately 3,600 actions in advanced stages of processing) filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) During the first six months of 1997, two subsidiaries of the Company received approximately 22,800 new actions compared to approximately 23,200 new actions received during the first six months of 1996. Through June 29, 1997, approximately 194,800 of the approximately 300,100 total actions brought have been settled or otherwise disposed. The damages claimed for personal injury or death vary from case to case, and in many cases plaintiffs seek $1,000 nor more in compensatory damages and $2,000 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 the Company or any or 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"), the Company settled litigation with its primary and most of its first-level excess insurance carriers, substantially on the basis of the Court's ruling. The Company has negotiated a final agreement with most of its excess carriers that are in the layers of coverage immediately above its first layer. The Company is currently receiving payments pursuant to this agreement. The Company 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. Payments were made with respect to asbestos liability and related costs aggregating $34,281 and $32,534 for the first six months of 1997 and 1996, respectively, substantially all of which were covered by insurance. Related to payments not covered by insurance, the Company recorded charges to operations amounting to $4,000 and $4,250 for the first six months of 1997 and 1996, respectively. In accordance with the Company'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 the Company can reasonably estimate the cost to dispose of these actions. As of June, 29, 1997, the Company 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 $56,460 and the Company expects that this cost will be substantially covered by insurance. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) With respect to the 101,700 outstanding actions as of June 29, 1997, which are in preliminary procedural stages, the Company 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 the Company. 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 or 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, the Company generally does not have the information necessary to analyze the actions in sufficient detail to estimate the ultimate liability or costs to the Company, if any, until the actions appear on a trial calendar. A determination to seek dismissal, to attempt to settle or 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 the Company's subsidiaries will receive in the future. The Company 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 the Company's asbestos- related actions. The Company 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, the Company 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 the Company's subsidiaries and other defendants in asbestos litigation, the likely sharing of judgments among multiple responsible defendants, and the substantial amount of insurance coverage that the Company expects to be available from its solvent carriers, the Company believes that pending and reasonably anticipated future actions are not likely to have a material effect on the Company's consolidated results of operations and financial condition. Although the insurance coverage which the Company 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. The Company's subsidiaries continue to be named as defendants in new cases, some of which allege initial exposure after July 1, 1984. COLTEC INDUSTRIES INC AND SUBSIDIARIES Notes to Consolidated Financial Statements (dollars in thousands) In addition to claims for personal injury, the Company'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 the Company. Likewise, the insignificant number of claims remaining to be resolved are not expected to have a material effect on the Company's consolidated results of operations and financial condition. The Company 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, the Company 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 Sheets are as follows: June 29, Dec. 31, 1997 1996 -------- -------- Accounts and notes receivable $56,491 $67,012 Other assets 15,339 18,728 Accrued expenses 50,064 60,659 Other liabilities 6,396 10,879 With respect to environmental proceedings, the Company has been notified that it is among the Potentially Responsible Parties under federal environmental laws, or similar state laws, relative to the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. Such laws impose 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 Company's policy is to accrue environmental remediation costs when it is both probable that a liability has been incurred and the amount can be reasonably estimated. While it is often difficult to reasonably quantify future environmental-related expenditures, the Company currently estimates its future non-capital expenditures related to environmental matters to range between $22,000 and $46,000. In connection with these expenditures, the Company has accrued $33,000 at June 29, 1997, representing management's best estimate of probable non-capital environmental expenditures. COLTEC INDUSTRIES INC AND SUBSIDIARIES These non-capital expenditures are estimated to be incurred over the next 10 to 20 years. In addition, capital expenditures aggregating $5,000 may be required during the next two years related to environmental matters. Although the Company is pursuing insurance recovery in connection with certain of these matters, no receivable has been recorded with respect to any potential recovery of costs in connection with any environmental matters. 5. Subsequent Events In April 1997, the Company signed a letter of intent to acquire AMI Industries Inc. (AMI), a Colorado-based manufacturer of flight attendant and cockpit seats for commercial aircraft. The transaction, subject to normal closing conditions, was closed in July 1997. Sales for 1997 related to this business are expected to approach $20 million. In July 1997, the Company signed a letter of intent to acquire the sheet rubber and conveyor belt business of Dana Corporation's Boston Weatherhead division based in Paragould, Arkansas. The transaction is scheduled to close in the fourth quarter of 1997. Annual sales are expected to approximate $35 million. COLTEC INDUSTRIES INC AND SUBSIDIARIES 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 29, 1997 and June 30, 1996. Three Months Ended Six Months Ended -------------------- -------------------- June 29, June 30, June 29, June 30, 1997 1996 1997 1996 -------- -------- --------- -------- (in thousands) Sales: Aerospace $128,617 $103,898 $247,757 $197,191 Industrial 193,918 189,411 384,017 377,817 Intersegment elimination (308) (294) (375) (795) Total $322,227 $ 293,015 $631,399 $574,213 Operating income: Aerospace $ 20,594 $ 13,447 $ 38,897 $ 9,226 Industrial 39,165 40,633 75,435 77,511 Total segments 59,759 54,080 114,332 86,737 Corporate unallocated (11,005) (9,192) (20,650) (20,518) Operating income $ 48,754 $ 44,888 $ 93,682 $ 66,219 Operating income for the six months ended June 30, 1996 included a charge of $14.2 million relating to the bankruptcy of a major aerospace customer (Fokker). Excluding this charge, operating income for the six months ended June 30, 1996 for the Aerospace Segment and the Company would have been $23.4 million and $80.4 million, respectively. COLTEC INDUSTRIES INC AND SUBSIDIARIES Results of Operations Company Review Net sales for the second quarter of 1997 increased 10.0% to $322.2 million from $293.0 million for the second quarter of 1996 primarily driven by increases in the Aerospace Segment. Gross profit increased to $105.1 million for the second quarter 1997 from $91.1 million in second quarter 1996. The increase in gross profit margin to 32.6% in the second quarter 1997 from 31.1% in the second quarter 1996 resulted from higher margins in the Aerospace Segment. Selling and administrative expenses totaled $56.3 million, or 17.5% of sales, in second quarter 1997 compared to $46.2 million, or 15.8% of sales, in second quarter 1996. Net sales for the six months ended June 29, 1997 increased 10.0% to $631.4 million from $574.2 million for the six months ended June 30, 1996 as a result of continued sales increases in the Aerospace Segment. Gross profit increased to $202.6 million for the first six months of 1997 from $164.3 million for the first six months of 1996. The increase in gross profit margin to 32.1% for year to date 1997 from 28.6% for year to date 1996 resulted from higher margins in the Aerospace Segment and the first quarter 1996 bankruptcy of Fokker. Although selling and administrative expenses totaled $108.9 million for year to date 1997 compared to $98.1 million for year to date 1996, selling and administrative expenses remained flat as a percentage of sales, 17.2% for year to date 1997 as compared to 17.1% for year to date 1996. Operating income increased to $48.8 million in second quarter 1997 from $44.9 million in the second quarter of 1996. Operating margin remained relatively consistent at 15.1% for second quarter 1997 as compared to 15.3% for the second quarter 1996. Operating income increased to $93.7 million for the first six months of 1997 from $66.2 million for the first six months of 1996. The 1996 amount includes the effect of the $14.2 million charge relating to the Fokker bankruptcy. Operating margin for year to date 1997 was 14.8% compared to 11.5% for year to date 1996 (14.0% excluding the effect of Fokker). Interest expense decreased 37.6% to $12.7 million in second quarter 1997 from $20.3 million for second quarter 1996 and decreased 40.0% to $25.0 million for year to date 1997 as compared to $41.5 million for year to date 1996. These decreases were a direct result of significant debt reduction in June 1996 and the December 1996 refinancing of substantially all of the Company's high-cost fixed-rate debt with lower-cost, variable-rate bank debt. The results of discontinued operations for the three months and six months ended June 30, 1996 reflect the net earnings for those periods for the automotive original equipment components operations which were sold in 1996. COLTEC INDUSTRIES INC AND SUBSIDIARIES As a result of the foregoing, earnings from continuing operations for the three months and six months ended June 29, 1997 were $23.8 million and $45.3 million, respectively, as compared to $16.2 million and $16.3 million for the three months and six months ended June 30, 1996, respectively. Net earnings were $23.8 million in second quarter 1997, or $0.36 per share, compared to net earnings of $59.7 million, or $0.85 per share, in second quarter 1996. 1997 year to date net earnings were $45.3 million, or $0.67 per share, as compared to $65.7 million, or $0.93 per share for 1996. The decrease in interest expense increased 1997 second quarter earnings by $0.08 per share and 1997 year to date earnings by $0.16 per share. Segment Review - Aerospace Sales in second quarter 1997 for the Aerospace Segment totaled $128.6 million increasing 23.8% from $103.9 million in the second quarter 1996. For the six months ended June 29, 1997 Aerospace sales increased 25.6% to $247.8 million from $197.2 million for the comparable 1996 period. At Menasco, sales increased significantly due to rising commercial aircraft production as well as improved military sales. Menasco deliveries of main landing gear systems for the Boeing 737 increased from 9 and 17 shipsets in the three months and six months ended June 30, 1996, respectively, to 42 and 82 shipsets in the three months and six months ended June 29, 1997, respectively, while military sales benefited primarily from higher shipset deliveries for the F-15 and F- 16 programs. At Chandler Evans, significantly higher sales were primarily due to higher sales of spare parts while original equipment sales also improved. Operating income for the Aerospace Segment increased 53.7% to $20.6 million in second quarter 1997 from $13.4 million in second quarter of 1996. Operating margin for the second quarter 1997 increased to 16.0% from 12.9% for second quarter 1996. Operating income for year to date 1997 was $38.9 million increasing from $9.2 million for year to date 1996. The year to date 1996 amount includes the effect of the $14.2 million charge relating to the Fokker bankruptcy. Excluding such charge, operating margin for year to date 1996 would have been 11.9% compared to 15.7% for year to date 1997. At Menasco's Aerospace Division, operating margins for three months and six months ended June 29, 1997 were impacted by a favorable mix of landing gear systems for certain commercial airline programs as well as improved manufacturing efficiencies due to higher production. Chandler Evans realized higher margins due to a higher profit sales mix and selling price increases for certain products. The increases were also driven by generally higher sales volumes and improved margins for the Segment's other businesses. Segment Review - Industrial Industrial sales increased to $193.9 million and $384.0 million in the three months and six months ended June 29, 1997, respectively, from $189.4 and $377.8 million in the three months and six months ended June 30, 1996, respectively. The Garlock Bearings, Stemco, Delavan Commercial, France Compressor Products and Quincy Compressor Divisions all experienced solid sales volume increases. Sales for Garlock Sealing Technologies increased primarily due to selling price increases and new product sales. Fairbanks Morse Engine sales decreased due to large COLTEC INDUSTRIES INC AND SUBSIDIARIES nonrecurring engine orders in the first and second quarters of 1996. Holley Performance Products sales also decreased due to curtailed orders by two major customers. Operating income for the Industrial Segment decreased slightly to $39.2 million and $75.4 million in the three months and six months ended June 29, 1997, respectively, from $40.6 million and 77.5 million in the three and six months ended June 30, 1996, respectively. Operating income increased for the Stemco, Delavan Commercial and Quincy Compressor Divisions due to higher sales volumes. Operating results at Holley Performance Products were lower due to decreased sales volumes while Garlock Sealing Technologies was negatively impacted by increased costs related to various international initiatives. Liquidity and Capital Resources The Company generated $22.4 million of operating cash flows for the six months ended June 29, 1997 compared with $11.6 million for the six months ended June 30, 1996. The higher operating cash flows in 1997 were primarily due to increased cash flow from earnings from continuing operations partially offset by increased payments related to liabilities of discontinued operations and payments related to asbestos claims. The current ratio of current assets to current liabilities at June 29, 1997 was 2.11 increasing from 1.99 at December 31, 1996. Cash and cash equivalents decreased to $8.5 million at June 29, 1997 from $15.0 million at December 31, 1996. In the first six months of 1997 the Company invested $29.3 million in capital expenditures compared to $16.0 million during the same prior year period. Debt increased by $44.3 million at June 29, 1997 compared to December 31, 1996 through additional borrowings under the Company's revolving credit facility. The increased borrowings were used to repurchase 2,124,300 shares of the Company's common stock at a cost of $41.9 million. COLTEC INDUSTRIES INC AND SUBSIDIARIES PART II - OTHER INFORMATION Item 1. Legal Proceedings. The Company and certain of its subsidiaries are defendants in various lawsuits involving asbestos-containing products. In addition, the Company has been notified that it is among Potentially Responsible Parties under federal environmental laws, or similar state laws, relative to the costs of investigating and in some cases remediating contamination by hazardous materials at several sites. See note 4 to consolidated 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 8, 1997. (b) At the annual meeting of shareholders held on May 8, 1997,shareholders voted for: 1. The election of Board Directors consisting of seven members. 2. Approval of the 1997 Restricted Stock Plan for Outside Directors. 3. Appointment of Arthur Anderson LLP as the independent public accountants for 1997. There were 66,469,666 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 59,451,790 2,366,227 William H. Grigg 59,509,688 2,308,329 John W. Guffey, Jr. 59,460,438 2,357,579 David I. Margolis 59,496,176 2,321,841 David D. Harrison 59,454,290 2,363,727 Joel Moses 59,520,723 2,297,294 Richard A. Stuckey 59,520,282 2,297,735 2. Approval of 1997 Restricted Stock Plan for Outside Directors. For Against Abstain 56,828,983 2,119,149 2,253,486 3. Appointment of Arthur Andersen LLP as the independent public accountants for 1997. For Against Abstain 59,564,613 29,652 2,223,752 Item 6. Exhibits and Reports on Form 8-K. (a) 27.1 Consolidated Financial Data Schedule. (b) No reports on Form 8-K were filed by the Company during the quarter ended June 29, 1997. 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 David D. Harrison David D. Harrison Executive Vice President and Chief Financial Officer Date: August 13, 1997 EX-27 2
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 29, 1997 CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED JUNE 29, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS. 1000 6-MOS DEC-31-1997 JUN-29-1997 8,532 0 196,256 (2,053) 222,257 442,017 613,679 (384,789) 862,351 209,431 27,429 0 0 704 (412,899) 862,351 631,399 631,399 428,812 537,717 0 0 25,046 68,636 23,336 45,300 0 0 0 45,300 .67 .67
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