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 September 28, 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 October 31, 1997, there were outstanding 65,485,707 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 Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
(in thousands, except per share data)
Net sales $324,453 $287,216 $955,852 $861,429
Cost of sales 221,472 201,358 650,284 611,274
Gross profit 102,981 85,858 305,568 250,155
Selling and administrative 53,787 43,718 162,692 141,796
Special charges - - - -
Operating income 49,194 42,140 142,876 108,359
Interest expense and other, net 13,859 17,045 38,905 58,503
Earnings from continuing operations
before income taxes and
extraordinary item 35,335 25,095 103,971 49,856
Income taxes 12,014 8,533 35,350 16,950
Earnings from continuing operations
before extraordinary item 23,321 16,562 68,621 32,906
Discontinued operations
(net of tax) - 1,509 - 52,665
Extraordinary item (net of tax) - (59) - (1,881)
Net earnings $23,321 $18,012 $68,621 $83,690
Earnings per common share
Before extraordinary item $.35 $.24 $1.03 $.47
Discontinued operations - .02 - .76
Extraordinary item - - - (.03)
Net earnings $.35 $.26 $1.03 $1.20
Weighted average number of common
and common equivalent shares 66,596 68,997 67,007 69,835
See notes to consolidated financial statements.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Sept. 28, Dec. 31,
1997 1996
(in thousands)
ASSETS
Current assets:
Cash and cash equivalents $11,769 $15,029
Accounts and notes receivable, net of
allowance of $2,705 in 1997 and $2,007 in 1996 142,383 190,325
Inventories
Finished goods 51,787 48,813
Work in process and finished parts 150,304 122,817
Raw materials and supplies 34,395 32,568
236,486 204,198
Deferred income taxes 8,998 10,524
Other current assets 13,951 12,769
Total current assets 413,587 432,845
Property, plant and equipment, net 246,240 214,790
Costs in excess of net assets acquired, net 140,558 132,872
Other assets 63,827 58,869
$864,212 $839,376
See notes to consolidated financial statements.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
Sept. 28, Dec. 31,
1997 1996
(In thousand, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $565 $2,528
Accounts payable 68,496 55,410
Accrued expenses 151,869 145,104
Current portion of liabilities of
discontinued operations 5,345 14,229
Total current liabilities 226,275 217,271
Long-term debt 738,625 717,722
Deferred income taxes 58,864 50,646
Other liabilities 70,912 100,004
Liabilities of discontinued operations 160,428 170,740
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, 70,501,948 and
70,398,661 shares issued at September 28, 1997
and December 31, 1996, respectively (excluding
25,000,000 shares held by a wholly owned
subsidiary) 705 704
Capital surplus 642,828 643,221
Retained deficit (938,282) (1,006,903)
Unearned compensation (3,177) (2,136)
Minimum pension liability (3,200) (3,200)
Foreign currency translation adjustments
(5,213) (1,151)
(306,339) (369,465)
Less cost of 4,999,741 and 3,182,822 shares
of common stock in treasury at
September 28, 1997 and December 31, 1996,
respectively
(84,553) (47,542)
(390,892) (417,007)
$864,212 $839,376
See notes to consolidated financial statements.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months Ended
Sept. 28, Sept. 29,
1997 1996
Cash flows from operations activities:
Net earnings $68,621 $83,690
Adjustments to reconcile net earnings to cash
provided by operating activities:
Extraordinary item - 1,881
Depreciation and amortization 28,327 27,720
Deferred income taxes 10,209 15,106
Gain on sale of Automotive Business - (57,487)
Payments of liabilities of discontinued
operations (19,196) (1,556)
Foreign currency translation adjustment (4,062) 978
Other operating items (30,825) (18,402)
Changes in assets and liabilities:
Accounts and notes receivable (10,604) (67,802)
Inventories (28,314) (642)
Other current assets (504) (256)
Accounts payable 11,934 (10,094)
Accrued expenses 4,748 41,411
Cash provided by operating activities 30,334 14,547
Cash flows from investing activities:
Capital expenditures (46,004) (29,662)
Acquisition of business (23,778) -
Proceeds from sale of Automotive Business - 296,522
Cash provided by (used in) investing
activities (69,782) 266,860
Cash flows from financing activities:
Increase in revolving facility, net 25,000 65,000
Sale of accounts receivable 62,000 -
Repayment of long-term debt (8,117) (300,390)
Purchase of treasury stock (42,695) (37,545)
Cash provided by (used in) financing
activities 36,188 (272,935)
Increase (decrease) in cash and cash equivalents (3,260) 8,472
Cash and cash equivalents - beginning of period 15,029 3,971
Cash and cash equivalents - end of period $11,769 $12,443
Supplemental cash flow data:
Cash paid of interest $35,025 $44,577
Cash paid for income taxes, net 13,827 22,131
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. SALE OF ACCOUNTS RECEIVABLE
In September 1997, the Company and certain of its subsidiaries sold
$77,500 of their U.S. and Canadian customer trade receivables to CNC
Finance LLC (CNC Finance) a bankruptcy remote subsidiary of the
Company. CNC Finance entered into a three-year agreement to sell,
on a revolving basis, an undivided fractional ownership interest in
the receivables, based on the level of eligible receivables, up to a
maximum of $85,000. At September 28, 1997, $62,000 of the Company's
receivables were sold under this agreement and the sale has been
reflected as a reduction of accounts receivable in the Consolidated
Balance Sheet. The undivided interests were sold at a discount
which was included in Interest expense and other, net in the
Consolidated Statement of Earnings.
3. SPECIAL CHARGES
In the third quarter of 1995, the Company recorded a special charge
of $27,000, primarily to cover the costs of closing the Walbar
compressor blade facility in Canada. The facility was closed during
1996. The special charge included costs to cover the cancellation
of contractual obligations resulting from the decision to close the
Walbar facility, asset write-downs, severance and employee-related
costs and other costs necessary to implement the shutdown of the
Walbar facility and selected workforce reductions throughout the
Company. At September 28, 1997
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(dollars in thousands)
all related costs had been charged and the remaining accrual was
reversed. The activity in the related reserve through September 28,
1997 was as follows:
Contractual Asset
Obligations Writedowns Severance Other Total
1995 charge $9,065 $7,845 $5,084 $5,006 $27,000
1995 activity (65) (4,549) (1,778) (2,553) (8,945)
December 31,1995 9,000 3,296 3,306 2,453 18,055
1996 activity (961) (1,875) (1,876) (1,597) (6,309)
December 31, 1996 $8,039 $1,421 $1,430 $856 $11,746
1997 activity
year to date (1,200) - (517) (29) (1,746)
Reversal (6,839) (1,421) (913) (827) (10,000)
September 28, 1997 $ - $ - $ - $ - $ -
In the third quarter of 1997, the Company recorded a special charge
of $10,000, to cover the restructuring of its Industrial Segment.
This special charge included the costs of closing its FMD
Electronics operations in Roscoe, Illinois and its Ortman Fluid
Power operations in Hammond, Indiana. The special charge also
included the costs to restructure the Company's Industrial Segment
businesses in Canada and Germany and certain termination costs
related to the relocation of the Delavan Commercial divisional
headquarters to North Carolina. The third quarter 1997 charge
included costs resulting from cancellation of contractual
obligations, asset write-downs, severance and employee-related costs
and other costs to shut-down these facilities that will not benefit
future operations. The related reserve activity for year to date
1997 was as follows:
Contractual Asset
Obligations Writedowns Severance Other Total
1997 charge $641 $1,049 $5,425 $2,885 $10,000
1997 activity
year to date (50) (590) (1,706) (381) (2,727)
September 28, 1997 $591 $459 $3,719 $2,504 $7,273
4. 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 nine months ended
September 29, 1996 have been restated to reflect the operations of
the automotive original equipment components businesses as a
discontinued operation.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(dollars in thousands)
Liabilities of discontinued operations at September 28, 1997 of
$165,773 relate to contingent contractual obligations, environmental
matters, reserves for postretirement benefits and other future
estimated costs for various discontinued operations.
5. EXTRAORDINARY ITEM
The Company incurred an extraordinary charge of $1,821, net of
income taxes of $937, in the first quarter of 1996 in connection
with early retirement of debt.
6. 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 September 28, 1997, two subsidiaries of the Company
were among a number of defendants (typically 15 to 40) in
approximately 110,300 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.
During the first nine months of 1997, two subsidiaries of the
Company received approximately 31,400 new actions compared to
approximately 32,400 new actions received during the first nine
months of 1996. Through September 28, 1997, approximately 193,700
of the approximately 304,000 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 or 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.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(dollars in thousands)
Payments were made with respect to asbestos liability and related
costs aggregating $47,572 and $53,642 for the first nine 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 $6,000 and
$6,125 for the first nine 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 September 28, 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 $56,300 and the Company
expects that this cost will be substantially covered by insurance.
With respect to the 106,700 outstanding actions as of September 28,
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
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(dollars in thousands)
foregoing, as well as the experience of the Company's subsidiaries
and other defendants in asbestos litigation, the likely sharing of
judgements 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.
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:
Sept. 28, Dec. 31,
1997 1996
Accounts and notes receivable $68,439 $67,012
Other assets 16,553 18,728
Accrued expenses 49,942 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
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(dollars in thousands)
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 $28,000
and $52,000. In connection with these expenditures, the Company has
accrued $33,000 at September 28, 1997, representing management's best
estimate of probable non-capital environmental expenditures.
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.
7. ACQUISITION OF BUSINESS
On June 30 1997, the Company acquired the assets of AMI Industries
Inc. (AMI), a Colorado-based manufacturer of flight attendant and
cockpit seats for commercial aircraft for approximately $24,000.
The purchase agreement also includes contingent payments based on
earning levels for the years ended December 31, 1997 - 2000. These
contingent payments will be recorded as additional purchase price
and amortized over the remaining life of goodwill. For financial
statement purposes, the acquisition was accounted for as a purchase
and, accordingly, AMI's results are included in the Company's
consolidated financial statements since the date of acquisition.
The purchase price, which was financed through available cash
resources, has been allocated to the assets of AMI, based upon their
fair market values. The excess of the purchase price over net
assets acquired approximate $10,700 and is being amortized over
twenty-five years.
If AMI's results of operations had been combined with the Company
for year to date 1997 and 1996, the Company's consolidated pro forma
net sales, net earnings and net earnings per common share would not
have been materially different from reported amounts. AMI's 1997
sales are expected to approach $28,000, $15,000 of such sales
subsequent to June 30, 1997.
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.
In September 1997, the Company reached an agreement in principle to
acquire Marine and Petroleum Mfg. Inc's (M&P) manufacturing
facilities based in Houston, Burnet and Freeport, Texas. The plants
being acquired produce flexible graphite and Teflon sealing
products used in the petrochemical industry. Combined annual sales
for these facilities are expected to approximate $18 million. The
Company also reached an agreement in principle to acquire Tex-o-Lon
and Repro-Lon. These two Texas businesses have combined annual sales of
$15 million. Tex-o-Lon, with
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(dollars in thousands)
operations in Houston and Burnet, Texas manufactures, machines and
distributes Teflon products, primarily for the semiconductor
industry. Repro-Lon, based in Burnet, reprocesses Teflon compounds
for the chemical and semiconductor industries.
On October 1, 1997, the Company acquired Danti Tool and Die, Inc.
which designs, engineers and manufactures tooling. Danti, which
has approximately $5,000 in annual sales, operates plants in
Saginaw and Standish, Michigan.
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 nine months ended Sept. 28, 1997 and Sept.
29, 1996.
Three Months Ended Nine Months Ended
Sept. 28, Sept. 29, Sept. 28, Sept. 29,
1997 1996 1997 1996
(in thousands)
Sales:
Aerospace $142,775 $111,590 $390,532 $308,781
Industrial 181,923 176,045 565,940 553,862
Intersegment elimination (245) (419) (620) (1214)
Total $324,453 $287,216 $955,852 $861,429
Operating income:
Aerospace $22,077 $19,226 $60,974 $28,452
Industrial 36,619 33,125 112,054 110,636
Total segments 58,696 52,351 173,028 139,088
Corporate unallocated (9,502) (10,211) (30,152) (30,729)
Operating income $49,194 $42,140 $142,876 $108,359
Operating income for the nine months ended September 29, 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 nine months ended September 29, 1996 for the Aerospace Segment
and the Company would have been $42.7 million and $122.6 million,
respectively.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Results of Operations
Company Review
Net sales for the third quarter of 1997 increased 13.0% to $324.5
million from $287.2 million for the third quarter of 1996 primarily
driven by increases in the Aerospace Segment. Gross profit increased
to $103.0 million for the third quarter 1997 from $85.9 million in
third quarter 1996. The increase in gross profit margin to 31.7% in
the third quarter 1997 from 29.9% in the third quarter 1996 resulted
from higher margins in the Aerospace Segment. Selling and
administrative expenses totaled $53.8 million, or 16.6% of sales, in
third quarter 1997 compared to 43 million, or 15.2% sales, in third
quarter 1996.
Net sales for the nine months ended September 28, 1997 increased 11.0%
to $955.9 million from $861.4 million for the nine months ended
September 29, 1996 as a result of continued sales increases in the
Aerospace Segment. Gross profit increased to $305.6 million for the
first nine months of 1997 from $250.2 million for the first nine
months of 1996. The increase in gross profit margin to 32.0% for year
to date 1997 from 29.0% 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
$162.7 million for year to date 1997 compared to $141.8 million for
year to date 1996, selling and administrative expenses as a percentage
of sales increased slightly to 17.0% for year to date 1997 as compared
to 16.5% for year to date 1996.
Operating income increased to $49.2 million in third quarter 1997 from
$42.1 million in the third quarter of 1996. Operating margin
increased slightly to 15.2% for third quarter 1997 from 14.7% for the
second quarter 1996.
Operating income increased to $142.9 million for the first nine months
of 1997 from $108.4 million for the first nine 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
14.9% compared to 12.6% for year to date 1996 (14.0% excluding the
effect of Fokker).
Interest expense decreased 18.2% to $13.9 million in third quarter
1997 from $17.0 million for third quarter 1996 and decreased 33.5% to
$38.9 million for year to date 1997 as compared to $58.5 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 nine
months ended September 29, 1996 reflect the net earnings for those
periods for the automotive original equipment components operations
which were sold in 1996.
As a result of the foregoing, earnings from continuing operations for
the three months and nine months ended September 28, 1997 were $23.3
million and $68.6 million, respectively, as compared to $16.6 million
and $32.9 million for the three months and nine months ended September
29, 1996, respectively. Net earnings were $23.3 million in third
quarter 1997, or $0.35 per share, compared to net earnings of $18.0
million, or $0.26 per share, in third quarter 1996. 1997 year to date
net earnings were $68.6
COLTEC INDUSTRIES INC AND SUBSIDIARIES
million, or $1.03 per share, as compared to $83.7 million, or $1.20 per
share for 1996. The decrease in interest expense increased 1997 third
quarter earnings by $0.03 per share and 1997 year to date earnings by
$0.17 per share.
Segment Review - Aerospace
Sales in third quarter 1997 for the Aerospace Segment totaled $142.8
million increasing 28.0% from $111.6 million in the third quarter 1996.
For the nine months ended September 28, 1997 Aerospace sales increased
26.5% to $390.5 million from $308.8 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 27 and 44 shipsets in the three months and nine months
ended September 29, 1996, respectively, to 42 and 114 shipsets in the
three months and nine months ended September 28, 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 15.1% to $22.1
million in third quarter 1997 from $19.2 million in third
quarter of 1996. Operating margin for the third quarter 1997 decreased
to 15.5% from 17.2% for third quarter 1996. Operating income for year
to date 1997 was $61.0 million, increasing from $28.5 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 13.8%
compared to 15.6% for year to date 1997. At Menasco's Aerospace
Division, operating margin for the nine months ended September 28, 1997
was 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. Third quarter 1996 was favorably impacted by gains
recognized on foreign exchange contracts.
Segment Review - Industrial
Industrial sales increased to $181.9 million and $565.9 million in the
three months and nine months ended September 28, 1997, respectively,
from $176.0 and $553.9 million in the three months and nine months
ended September 29, 1996, respectively. The Garlock Bearings, Stemco,
Delavan Commercial, 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. Holley Performance Products sales decreased due to curtailed
orders by one major customer and the bankruptcy of one major
customer.
Operating income for the Industrial Segment increased to $36.6 million
and $112.1 million in the three months and nine months ended September
28, 1997, respectively, from $33.1 million and 110.6 million in the
three and nine months ended September 29, 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.
COLTEC INDUSTRIES INC AND SUBSIDIARIES
Liquidity and Capital Resources
The Company generated $30.3 million of operating cash flows for the
nine months ended September 28, 1997 compared with $14.5 million for
the nine months ended September 29, 1996. The higher operating cash
flows in 1997 were primarily due to increased cash flow from earnings
from continuing operations and decreased accounts receivable, 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
September 28, 1997 was 1.83, decreasing from 1.99 at December 31, 1996.
Cash and cash equivalents decreased to $11.8 million at September 28,
1997 from $15.0 million at December 31, 1996.
In the first nine months of 1997 the Company invested $46.0 million in
capital expenditures compared to $29.7 million during the same prior
year period. Debt increased by $18.9 million at September 28, 1997
compared to December 31, 1996 through additional borrowings and
additional cash provided by operations under the Company's revolving
credit facility. The increased borrowings were used to repurchase
2,160,900 shares of the Company's common stock at a cost of $42.7
million and to acquire AMI Industries Inc.(see note 7 to consolidated
financial statements).
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 6.Exhibits and Reports on Form 8-K.
(a) 4.1 First Amendment to Credit Agreement dated August 22,
1997.
4.2 Second Amendment to Credit Agreement dated as of
October 14, 1997.
10.1 Form of Amendment No. 1 to Employment Agreement between
the Company and John W. Guffey, Jr., adopted by the
Board of Directors of the Company on July 10, 1997 and
effective as of September 12, 1997.
10.2 Form of Amendment No. 1 to Employment Agreements
between the Company and Laurence H. Polsky, David D.
Harrison, Robert J. Tubbs and John M. Cybulski, adopted
by the Board of Directors on July 10, 1997 and
effective as of September 12, 1997.
10.3 Amendment No. 2 to the Company's 1992 Stock Option and
Incentive Plan.
10.4 Amendment No. 1 to the 1994 Stock Option Plan for
Outside Directors.
10.5 1997 Restricted Stock Plan for Outside Directors of the
Company filed on March 26, 1997 as Exhibit A to the
Company's proxy statement for the 1997 Annual
Meeting of Shareholders and incorporated herein
by reference.
27.1 Consolidated Financial Data Schedule.
(b) No reports on Form 8-K were filed by the Company
during the quarter ended September 28, 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
Executive Vice President
and Chief Financial Officer
Date: November 12, 1997