Document xKNknNKzEOMwVwk4db55MqzJ

Making Information Mattor" AfdMNKOcncarv COLTEC INDUSTRIES INC Filing Type: 10-Q Description: N/A Filing Date: 04/04/1999 Ticker: Cusip: 0001968791 State: NC Country: Primary SIC: 3728 Primary Exchange: OTH Billing Cross Reference: N/A Date Printed: This document produced using Global Access http://www.disclosure.com/dga Company Name - COLTEC INDUSTRIES INC Filing Date: 04/04/1999? 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 April 4, 1999 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 (State or other jurisdiction of incorporation or organization) 13-1846375 (IRS Employer Identification No.) 3 Coliseum Centre 2550 West Tyvola Road Charlotte, North Carolina 28217 (Address of principal executive offices) 28217 (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 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 May 4, 1999, there were outstanding 63,137,654 shares of common stock, par value $.01 per share. Disclosure Page 1 Company Nnme - COLTEC.INDUSTRJES INC , . 2 Filing Date:04/04/l999 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 April 4, 1999 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 (State or other jurisdiction of incorporation or organization) 13-1846375 (IRS Employer Identification No.) 3 Coliseum Centre 2550 West Tyvola Road Charlotte, North Carolina 28217 (Address of principal executive offices) 28217 (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 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 May 4, 1999, there were outstanding 63,137,654 shares of common stock, par value $.01 per share. Disclosure Page 2 Company Name - COl.TtX INDUSTRIES INC Filing-Dater- 04/04/1999 PART I - FINANCIAL INFORMATION Item 1. Financial Statements COLTEC INDUSTRIES INC Consolidated Statements of Earnings (in thousands, except per share data) (unaudited) Three Months Ended April 4 March 29 1999 1998 Net sales Cost of sales Gross profit Selling and administrative Operating income Interest expense and other, net Earnings before income taxes and minority interest in net loss of subsidiary Income taxes Minority interest in net loss of subsidiary (net of tax) Net earnings $ 376,232 264,705 111,527 55,582 55,945 (12,380) 43,565 (14,812) (1,300) $ 27,453 $ 374,441 260,148 114,293 60,999 53,294 (15,080 38,214 (12,993! -- $ 25,221 Basic earnings per common share Weighted-average common shares $ .44 63,057 $ .38 65,881 Diluted earnings per common share Diluted weighted-average common shares $ .42 68,715 $ .38 67,137 See notes to consolidated financial statements. Disclosure Page 3 , Company Name -COLTECJNDUSTRIESINC. - . ____________________ . Filing Date: 04/04/1,999 :- COLTEC INDUSTRIES INC CONSOLIDATED BALANCE SHEETS (in thousands) (unaudited) April 4 1999 ASSETS Current assets: Cash and cash equivalents Accounts and notes, receivable, net of allowance of $3,236 in 1999 and $3,109 in 1998 Inventories Finished goods Work in process and finished parts Raw materials and supplies Deferred income taxes Other current assets Total current assets Property, plant and equipment, net Costs in excess of net assets acquired, net Other assets . $ 31,031 173,290 46, 858 147,221 49,535 243, 614 24,721 13,078 485,734 303,980 212,477 105,313 $1,107,504 Dec. 31 1998 $ 21,785 148,185 42,447 154,707 38,849 236,003 20,464 15,612 442,049 306, 642 214,647 92,310 $1 , 055, 648 See notes to consolidated financial statements. 3 4 COLTEC INDUSTRIES INC CONSOLIDATED BALANCE SHEETS (in thousands, except share data) (unaudited) April 4 1999 Dec. 31 1998 LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Current portion of long-term debt Accounts payable Accrued expenses Current portion of liabilities of discontinued operations Total current liabilities $ 5,831 104,161 191,053 4,999 306,044 S 5,127 91,595 171,084 4,999 272,805 Disclosure Page 4 i :" -v- &:';> i:^ Company-Name'-COLTEC1NDUSTR1ES INC. Long-term debt . Deferred income taxes Other liabilities Liabilities of discontinued operations Commitments and contingencies Company-obligated, mandatorily redeemable convertible preferred securities of subsidiary Coltec Capital Trust 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, 70,583,695 shares issued at April 4, 1999 and December 31, 1998 (excluding 25,000,000 shares held by a wholly owned subsidiary) Capital surplus Retained deficit Unearned compensation Accumulated other comprehensive income (loss) Less cost of 7,526,960 shares of common stock in treasury at April 4, 1999 and December 31, 1998 See notes to consolidated financial statements Filing Dale: 04/04/1999'- " 558,584 144,178 90,103 139,476 -- 577,478 139,909 85,490 134,995 -- 145,799 145,293 ---- 706 644,850 (768,409) (3,051) (22,848) (148,752) (127,928) (276,680) $ 1,107,504 706 643,615 (795,356) (2,671) (18,688) (172,394) (127,928) (300,322) $ 1,055,648 :'7 ,;-...v. , COLTEC INDUSTRIES INC CONSOLIDATED STATEMENTS OF CASH FLOWS V; (in thousands) .V (unaudited) Three Months Ended April 4 March 29 1999 1998 Cash flows from operating activities: Net earnings Adjustments to reconcile net earnings to cash provided by operating activities: Depreciation and amortization Deferred income taxes Payments of liabilities of discontinued operations Foreign currency translation adjustment Other operating items Changes in assets and liabilities: Accounts and notes receivable Inventories Other current assets Accounts payable Accrued expenses and other $ 27,453 12,991 12 (1,199) (4,160) (1,424) (25,105) (7,611) 2,534 12,566 19,969 $ 25,221 12,416 6,016 (3,261) (2,405) 880 (18,969) (9,184) 3,748 178 (4,535) Cash provided by operating activities 36,026 10,105 Cash flows from investing activities: Capital expenditures (8,590) (15,005) Disclosure Page 5 Company Name - COLTE&INDUSTRIES'INC-t- Acquisition-of^businesses - > - Cash used in investing activities Cash flows from financing activities: Increase (decrease) in revolving Repayment of long-term debt Other facility, net Cash provided by (used in) financing activities Increase in cash and cash equivalents Cash and cash equivalents - beginning of period Cash and cash equivalents - end of period Supplemental cash flow data: 'Cash paid for interest Cash paid (refunded) for income taxes Filing Date: 04/04/1999: (81,312) (8,590) (96,317) (17,500) (690) (18,190) 9,246 21,785 $ 31,031 110,500 (14,035) (3,871) 92,594 6,382 14,693 $ 21,075 $ 7,586 (5,056) $ 12,409 4, 990 See notes to consolidated financial statements. 5 CONSOLIDATED COLTEC INDUSTRIES INC STATEMENTS OF COMPREHENSIVE (in thousands) (unaudited) INCOME Three Months Ended April 4 March 29 1999 1998 Net earnings Other comprehensive income/(loss), net of tax: Foreign currency translation adjustments Other comprehensive income/(loss), net of tax Comprehensive income $ 27,453 (4,160) (4,160) $ 23,293 $ 25,221 (2,405) (2,405) $ 22,816 See notes to consolidated financial statements. 6 7 COLTEC INDUSTRIES INC Disclosure Page 6 Company Name - COLTECINDUSTRIES INC . '________ Filing.Date: 04/04/1999 1. ' 2. . Notes to Consolidated Financial Statements (dollars in thousands) (unaudited) 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, 1998 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 AnnualReport on Form 10-K for the year ended December 31, 1998. The quarter ended April 4, 1999 had four more days in the accounting period than the quarter ended March 29, 1998. PENDING MERGER On November 22, 1998, the Company, The B.F.Goodrich Company ("BFGoodrich") and a wholly-owned subsidiary of BFGoodrich entered into an agreement and plan of merger. Under the terms of the merger agreement, this wholly-owned subsidiary of BFGoodrich will merge with and into the Company, with the Company as the surviving corporation in the merger. Upon completion of the merger, each share of Company common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.56 of a share of BFGoodrich common stock. The merger is expected to be accounted for as a pooling of interests. The merger agreement has been approved by the boards of directors and shareholders of both companies, and all regulatory approvals necessary to complete the merger have been obtained. Completion of the merger is subject to certain customary conditions, including, among others, the absence of any injunction or other order by any court or other governmental entity which would prohibit or prevent the merger. AlliedSignal, Inc. and Crane Co. have filed lawsuits in the U.S. District Court for the Northern District of Indiana seeking to block the merger and were granted a preliminary injunction to prevent the merger from occurring prior to the court's review of the lawsuits. Unless extended, the preliminary injunction will expire at midnight on July 16, 1999. The court has scheduled a hearing on the merits of the lawsuit for July 12, 1999. The Company and BFGoodrich filed an appeal with the U.S. Court of Appeals for the Seventh Circuit challenging the preliminary injunction order. The court is scheduled to hear the appeal on June 11, 1999. The following unaudited selected pro forma combined financial data are presented for informational purposes only. They are not necessarily indicative of the results of operations or of the financial position which would have occurred had the Merger been completed during the periods or as of the date for which the pro forma data are presented. They are also not necessarily indicative of the combined company's future results of operations or financial position. In particular, the combined company expects to realize significant operating cost savings as a result of the Merger. No adjustment has been included in the pro Disclosure Page 7 Company Name. - COLTECINDUSTRIES INC Filing Date: 04/04//999 forma combined financial data for these anticipated operating cost savings nor for the one-time merger and consolidation costs expected to be incurred upon consummation of the Merger. 7 Pro forma per share amounts for the combined company are based on the exchange ratio of 0.56 of a share of BFGoodrich common stock for each share of Company common stock. UNAUDITED SELECTED PRO FORMA COMBINED FINANCIAL DATA (Dollars in millions, except per share amounts) Three Months Ended April 4 March 29 1999 1998 Pro Forma Combined Statement of Income Data: Sales Income from continuing operations Income from continuing operations per diluted common share Weighted average number of common shares and assumed conversion (on a fully diluted basis) (millions) Pro Forma Combined Balance Sheet Data: Total assets Total shareholders' equity Book value per common share $ 1,411.8 76.7 .69 113.3 April 4 1999 $ 5,416.8 1,343.4 $ 12.25 $ 1,312.1 79.4 .71 112.6 3. EARNINGS PER SHARE Basic earnings per common share is computed by dividing net income by the weighted-average number of shares of common stock outstanding during the year. Diluted earnings per common share is computed by using the treasury stock method to determine shares related to stock options and restricted stock. Disclosure Page 8 CompanyName - COLTECINDUSTRIES INC , Filing Date: 04/04/1999 (In thousands) Three Months Ended April 4 March 30 1999 1998 Income available to common shareholders Dividends on convertible preferred securities, net of tax Net income available to common shareholders plus assumed conversions $27,453 1,300 $28,753 Basic weighted-average common shares Stock options and restricted stock issued Convertible preferred securities Diluted weighted-average common shares 63,057 541 5,117 68,715 $25,221 $25,221 65,881 1,256 67,137 4. ACQUISITIONS In January 1998, the Company acquired certain Marine and Petroleum Mfg. Inc.'s manufacturing facilities based in Texas for approximately $17,000. The plants acquired produce flexible graphite and polytetrafluoroethylene (PTFE) fluid sealing products used in the petrochemical industry. The Company also acquired Tex-o-Lon and Repro-Lon for approximately $25,000. Tex-o-Lon manufactures, machines and distributes PTFE products, primarily for the semiconductor industry. Repro-Lon reprocesses PTFE compounds for the chemical and semiconductor industries. The acquisitions were accounted for as purchases; accordingly, the purchase price, which was financed through available cash resources, was allocated to the acquired assets based upon their fair market values. The $31,697 million combined excess of the purchase price over net assets is being amortized over 25 years. In February 1998, the Company purchased the Sealing Division of Groupe Carbone Lorraine for $45,600. This division, with facilities in France and South Carolina, produces high-technology metallic gaskets used in the nuclear, petroleum and chemical industries. This acquisition was accounted for as a purchase and the purchase price, also financed through available cash resources, was allocated to the acquired assets based upon their fair market values. The $25,042 excess of the purchase price over net assets is being amortized over 25 years. 5. 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 April 4, 1999 two subsidiaries of the Company were among a Disclosure Page 9 Company Name -- COLTEC/mUSTR/ES INC Filing Dale: 04/04/i 999 number of defendants (typically 15 to 40) in approximately 100,300 actions (including approximately 16,000 actions in advanced stages of processing) filed in various states by plaintiffs alleging injury or death as a result of exposure to asbestos fibers. During the first three months of 1999, these two subsidiaries of the Company received approximately 10,400 new actions compared to approximately 11,000 new actions received during the first three months of 1998. Through April 4, 1999, approximately 254,800 of the approximately 355,100 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 or more in compensatory damages and $2,000 or more in punitive damages from an extensive list of defendants. 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. Payments were made by the Company with respect to asbestos liability and related costs aggregating $16,537 and $14,901 for the first three months of 1999 and 1998, respectively, substantially all of which were covered by insurance. Settlements are generally made on a group basis with payments made to individual claimants over periods of one to four years. Related to payments not covered by insurance, the Company recorded charges to operations amounting to $2,000 for each of the first three months of 1999 and 1998. 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 April 4, 1999, 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 $127,550 and the Company expects that this cost will be substantially covered by insurance. With respect to the 84,300 outstanding actions as of April 4, 1999, 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 Disclosure Page 10 Company,Name--COlTEClNDVSTRlEStNC Filing Date: 04/04/1999 difficult to estimate with reasonable certainty the potential liability or costs to the Company. The lawsuits are disposed of over a period of time ranging from one year to more than five years, with the majority being disposed of by the third year after filing. 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. The Company believes that it will continue to receive some number of asbestos lawsuits into the foreseeable future. It is difficult, however, to predict the number of asbestos lawsuits that the Company's subsidiaries will receive or the time frame in which they will be received. 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, the jurisdiction in which a lawsuit is filed, the pendency of tort reform 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. Subsidiaries of the Company continue to distribute encapsulated asbestos-bearing product in the United States with annual sales of less than $1.5 million. All sales are accompanied by appropriate warnings. The end users of such product are sophisticated users, who utilize the product for critical applications where no known substitutes exist or have been approved. Insurance coverage of a small non-operating subsidiary formerly distributing asbestos-bearing products is nearly depleted. 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 given the substantial amount of insurance coverage that the Company expects to be available from its solvent carriers to cover the majority of its exposure, the Company believes that pending and reasonably anticipated future actions are not likely to have a materially adverse effect on the Company's consolidated results of operations or financial condition. Although the insurance coverage which the Company has is Disclosure Page 11 Company Name - COLTEC INDUSTRIES INC. . Filing: Datey04/04/1999>y~ 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 i-i date, the overwhelming majority of these claims have been resolved without a material adverse impact on the Company. Likewise, the :k insignificant number of claims remaining to be resolved are not % expected to have a materially adverse effect on the Company's - consolidated results of operations or 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: April 4 1999 Dec. 31 1998 Accounts and notes Other assets Accrued expenses Other liabilities receivable $102,367 38,500 98,007 29,543 $ 95,448 32,577 93,700 22,833 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 $26,500 and $53,900. In connection with these expenditures, the Company has accrued $31,400 at April 4, 1999, 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 11 12 Disclosure Page 12 .'t;. ,v . Company,Name COLTEC INDUSTRIES INC Filing Date: 04/04/1999X ' 6. 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. - Supplemental Guarantor Information In April 1998, the Company privately placed $300,000 principal amount of 7 1/2% Senior Notes due 2008 (Senior Notes). Substantially all the Company's subsidiaries incorporated in the United States (the "Subsidiary Guarantors") have fully and unconditionally guaranteed, on a joint and several basis, the Company's obligations to pay principal and interest with respect to the Senior Notes. Each Subsidiary Guarantor is wholly owned and management has determined that separate financial statements for the Subsidiary Guarantors are not material to investors. The subsidiaries of the Company that are not Subsidiary Guarantors are referred to in this note as the "Non-Guarantor Subsidiaries". The following supplemental consolidating condensed financial statements present balance sheets as of April 4, 1999 and December 31, 1998 and statements of earnings and of cash flows for the three months ended April 4, 1999 and March 29, 1998. In the consolidating financial statements, Coltec Industries Inc ("Parent") accounts for its investments in wholly-owned subsidiaries using the equity method and the Subsidiary Guarantors account for their investments in Non-Subsidiary Guarantors using the equity method. Interest expense related to the indebtedness under the Company's credit agreement and its three series of senior notes is allocated to United States subsidiaries based on net sales. 12 13 . COLTEC INDUSTRIES INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidating Condensed Statement of Earnings Net sales Cost of sales Gross profit Selling and administrative Operating income Equity earnings of affiliates Gain on divestiture Interest expense and other, net Earnings before income taxes. and minority interest Income taxes Minority interest in net loss of subsidiaries, net of tax Net earnings Parent $ 123,379 91,633 31,746 19, 516 12,230 21,468 (13,237) 20,461 6, 992 -- $ 27,453 Three Months Ended April 4, 1999 Guarantor Subsidiaries Non--Guarantor Subsidiaries Eliminations Consolidated $ 152,168 102,015 50,153 22,287 27,866 13,250 (8,158) $ 116,388 86,760 29, 628 13,779 15,849 -- -- 9,140 $ (15,703) (15,703) __ ___ -- -- (125) $ 376,232 264,705 111,527 55,582 55,945 -- -- (12,380) 32, 958 (14,919) -- $ 18,039 24,989 (6,885) (1, 300) $ 16,804 (34,843) -- -- $ (34, 843) 43,565 (14,812) (1, 300) $ 27,453 Disclosure Page 13 Company. Name:,, COLTEC INDUSTRIES INC Filing'Date: 04/04/1999> - ; .^Consolidating Condensed Statement of Earnings ':5 Three Months Ended March 29, 1998 Parent Guarantor Subsidiaries Non-Guarantor Subsidiaries Eliminations Consolidated Net sales Cost of sales Gross profit Selling and administrative Operating income Equity earnings of affiliates Interest expense and other, net $ 115,099 80,531 34,568 18,502 16,066 20,681 (8,339) $ 168,430 115,127 53,303 24,472 28,831 7,014 (17,530) $ 102,468 76,046 26,422 18,025 8,397 11,310 $ (11,556) (11,556) -- (27, 695) (521) $ 374,441 260,148 114,293 60,999 53,294 (15,080) Earnings before income taxes Income taxes Net earnings 28,408 3,187 . $ ' 25,221 18,315 (2,422) $ 15,893 19,707 7,384 $ 12,323 (28,216) $ (28,216) 38,214 (12,993) $ 25,221 COLTEC INDUSTRIES INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Condensed Balance Sheet Disclosure Page 14 Company Name - COLTEC INDUSTRIES INC Filing Date: 04/04/1999i . Parent Cash and cash equivalents Accounts and notes receivable, Inventory, net Deferred income taxes Other current assets net $ 17,668 -- 84,798 13,983 4,003 Total current assets Intercompany, net Investments in affiliates Property, plant and equipment Cost in excess of net assets acquired, net Other assets 120,652 {921,970) 1,035,966 113,446 59,174 54,460 Total assets $ 461,728 Total current liabilities Long term debt Deferred income taxes Other liabilities Liabilities of discontinued operations Company-obligated, mandatorily redeemable convertible preferred securities Shareholders' equity s 103,000 466,110 (18,127) 47,950 139,476 _ {276,681) Total liabilities and shareholders' equity $ 461,728 Guarantor Subsidiaries April 4, 1999 Non-Guarantor Subsidiaries Eliminations $ 3,595 15,079 55,656 8,531 2, 447 85,308 328,441 108,714 108,852 133,456 3,333 $ 768,104 s 43,515 943 141,446 6,029 -- _ 576,171 $ 768,104 $ 9,568 158,211 103,160 (2,207) 6,628 279,774 593,529 2,390 81,682 19,847 47,520 $ 1,024,742 $ 159,529 91,531 20,859 37,261 -- 145,799 569, 763 $ 1,024,742 -- $ (1,147,070) ${1,147,070) $ (1,137) (1, 145, 933) $(1,147,070) Consolidated $ 31,031 173,290 243,614 24,721 13,078 485,734 -- -- 303,980 212,477 105,313 $ 1,107,504 $ 306,044 558,584 144,178 90,103 139,476 145,799 (276,680) s 1,107,504 14 15 COLTEC INDUSTRIES INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidating Condensed Balance Sheet Disclosure Page 15 / Company Name - CObTEfINDUSTRIES INC Filing Date: 04/04/1999 Parent Cash and cash equivalents Accounts and notes receivable, Inventory, net Deferred income taxes Other current assets net $ 6,422 -- 88,474 9,388 6,030 Total current assets Intercompany, net Investments in affiliates Property, plant and equipment Cost in excess of net assets acquired, net Other assets 110,314 (915,938) 1,024,416 113,069 58,924 46,922 Total assets $ 437,707 Total current liabilities Long term debt Deferred income taxes Other liabilities Liabilities of discontinued operations Company-obligated, mandatorily redeemable convertible preferred securities Shareholders' equity $ 89,170 484,107 (19,731) 49,488 134,995 (300,322) Total liabilities and shareholders* equity . $ 437,707 Guarantor Subsidiaries December 31, 1998 NonGuarantor Subsidiaries Eliminations $- 8,522 20,943 56,470 8,532 5,123 84,792 324,944 74,489 109,991 134,861 2, 953 $ 746,828 $ 31,605 2,096 141,446 12,018 -- $ 6,841 127,242 91,059 2, 544 4,459 246, 943 590,994 850 83,582 20,862 42,435 $ 970,868 s 152,030 91,275 18,194 28,750 -- _ $(1,099,755) $(1,099, 755) $ (4,766) 559,663 145,293 535,326 (1, 094, 989) $ 746,828 ? 970,868 $(1,099,755) Consolidated $ 21, 785 148,185 236,003 20,464 15,612 442,049 -- -- 306,642 214,647 92,310 $ 1,055,648 $ 272,805 577,478 139,909 85,490 134,995 145,293 (300,322) $ 1,055, 648 15 16 COLTEC INDUSTRIES INC NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Consolidating Condensed Statement of Cash Flows Disclosure Page 16 "7 *' 'ryj `.3 s - ; :y ; fFiiing Date: 04/0'4/.l999 - Cash from operating activities Cash flows from investing activities: Capital expenditures Cash from (to) Parent Cash used in investing activities Cash flows from financing activities: Decrease in revolving facility, net Repayment of long-term debt Cash from (to) Parent Cash provided by financing activities Increase (decrease) in cash and cash equivalents Cash and cash equivalents-- beginning of period Cash and cash equivalents-end of period Parent $ 38,226 (4,0201 (4,020) (8,590) (17,500) (113) (577) (18,190) Three Months Ended April 4, 1999 Guarantor Non-Guarantor Subsidiaries Eliminations * Consolidated S (4,927) $ 2,727 -- $ 36,026 (3,138) 3,138 -- (1,432) 1,432 -- -- (8,590) -- (8,590) -- (577) 577 -- -- -- -- (17,500) (690) -- -- 18,190 (11,446) 6,422 $ 17,868 (4,927) 8,522 S 3,595 2,727 6,841 S 9,568 9,246 21,785 -- S 31,031 Consolidating Condensed Statement of Cash Flows _ Parent Three Months Ended March 29, 1998 Guarantor Non-Guarantor Subsidiaries Eliminations Consolidated Cash provided by operating activities S 998 $ 1,833 $ 7,274 -- $ 10,105 Cash flows from investing activities: Capital expenditures Acquisition of business Cash from (to) Parent (7,699) (25,000) (63,618) (5,120) (17,000) (22,120) (2,186) (39,312) 41,498 (15,005) (81,312) -- Cash used in investing activities 96, 317 - - - (96,317) = Cash flows from financing activities: Repayment of long-term debt (85) (83) (13,867) '-i Increase (decrease) in revolving facility, net 70,500 40,000 Purchase of treasury stock (3,871) Cash from (to) Parent 26,050 83 (26,133) (14,035) 110,500 (3,871) -- Cash provided by financing activities 92,594 - - - 92,594 Cash and cash equivalents: Increase in cash and cash equivalents Cash and cash equivalents-beginning of period (2,725) 9, 912 1,833 722 7,274 4,059 6, 3B2 14,693 Cash and cash equivalents-end of period $ 7, 187 S 2,555 $ 11,333 -- $ 21,075 16 17 COLTEC INDUSTRIES INC AND SUBSIDIARIES Item 2. Management's Discussion and Analysis of Financial Condition and Results Disclosure Page 17 ^CompanyName '-^COLTEC.INDUSTRIESINC . . " , . " ''FilingDate:,04/<M/IW9 of Operations On November 22, 1998, the Company, The B.F.Goodrich Company ("BFGoodrich") and a wholly-owned subsidiary of BFGoodrich entered into an agreement and plan of merger. Under the terms of the merger agreement, this wholly-owned subsidiary of BFGoodrich will merge with and into the Company, with the Company as the surviving corporation in the merger. Upon completion of the merger, each share of Company common stock issued and outstanding immediately prior to the effective time of the merger will be converted into the right to receive 0.56 of a share of BFGoodrich common stock. The merger is expected to be accounted for as a pooling of interests. The merger agreement has been approved by the boards of directors and shareholders of both companies, and all regulatory approvals necessary to complete the merger have been obtained. Completion of the merger is subject to certain customary conditions, including, among others, the absence of any injunction or other order by any court or other governmental entity which would prohibit or prevent the merger. AlliedSignal, Inc. and Crane Co. have filed lawsuits in the U.S. District Court for the Northern District of Indiana seeking to block the merger and were granted a preliminary injunction to prevent the merger from occurring prior to the court's review of the lawsuits. Unless extended, the preliminary injunction will expire at midnight on July 16, 1999. The court has scheduled a hearing on the merits of the lawsuit for July 12, 1999. The Company and BFGoodrich have filed an appeal with the U.S. Court of Appeals for the Seventh Circuit challenging the preliminary injunction order. The appeals court is scheduled to hear the appeal June 11, 1999. Results of Operations - First Quarter 1999 Compared to First Quarter 1998 The following table shows financial information by industry segment for the three months ended April 4, 1999 and March 29, 1998. Sales: Aerospace Industrial Intersegment elimination Total Operating income: Aerospace Industrial Total segments Corporate unallocated Operating income Three Months Ended April 4 March 29 1999 1998 (in thousands) $ 190,620 185,818 (206) $ 166,158 209,084 (801 $ 376,232 $ 374,441 $ 30,524 35,646 66,170 (10,225) $ 55,945 $ 26,102 37,281 63,383 (10,089! $ 53,294 Company Review Net sales for the first quarter of 1999 increased slightly to $376.2 million Disclosure Page 18 ' 'ij Company Name - COLTEC INDUSTRIES INC ' ;T : ,; .- -: ' ' Filing Date: 04/04/1999 ' ` from $374.4 million for the first quarter of 1998 primarily driven by increases r in the Aerospace Segment. Gross profit decreased to $111.5 million for the first .* . quarter 1999 from $114.3 million in first quarter 1998. The gross profit margin . decreased slightly to 29.6% in first quarter 1999 from 30.5% in the first quarter 1998 as a result of slightly lower gross profit margins in the Industrial Segment. Selling and administrative expenses totaled $55.6 million, . or 14.8% of sales, in first quarter 1999 compared to $61.0 million, or 16.3% of .~ sales in first quarter 1998. Selling and administrative expenses were positively -..I impacted by reduction of headcount of approximately 2.5% from first quarter 1998 to first quarter 1999. Operating income'increased to $55.9 million in first quarter 1999 from $53.3 million in the first quarter of 1998. Operating margin for first quarter 1999 was 14.9% compared to 14.2% for the first quarter 1997. The margin increase resulted from increased operating margin percentages in both the Aerospace and Industrial Segments primarily as a result of reduced general and administrative expenses. Interest expense decreased to $12.4 million in the first quarter 1999 from $15.1 million for the first quarter 1998. This decrease in interest expense resulted from a decrease in outstanding debt. The effective tax rate was 34% in the first quarter of 1999 and 1998. As a result of the foregoing, net earnings were $27.5 million in first quarter 1999, or $0.42 per diluted share, compared to net earnings of $25.2 million, or $0.38 per diluted share, in first quarter 1998. Segment Review - Aerospace Sales in first quarter 1999 for the Aerospace Segment totaled $190.6 million, increasing 14.7% from $166.2 million in first quarter 1998. At Menasco, which represented more than 60% of this increase, sales increased significantly due to increased shipments of landing gear systems for Boeing's 737-700. Menasco deliveries of main landing gear systems for the Boeing 737-700 and 737 Classic increased from 69 shipsets in first quarter 1998 to 75 shipsets in first quarter 1999. AMI Seating Systems achieved higher sales due to increased volume of after-market orders. The engine components businesses also experienced higher volume sales due to increased demand for regional jet components and positive impact of new programs. Operating income for the Aerospace Segment increased to $30.5 million in first quarter 1999 from $26.1 million in first quarter 1998. Operating margin for first quarter 1999 was 16.0% compared to 15.7% for the first quarter 1998. At Menasco, operating margin was impacted by improved manufacturing efficiencies due to higher production. Walbar also yielded improved manufacturing efficiencies as a result of its higher production levels. The increased margin was also driven by higher sales volumes and improved margins for AMI Seating Systems. Segment Review - Industrial Industrial sales decreased to $185.8 million in first quarter 1999 from $209.1 million in first quarter 1998. Excluding first quarter 1998 sales of $24.4 million generated by Holley Performance, which was divested in May 1998, industrial sales were relatively flat in first quarter 1999 as compared to first quarter 1998. The lack of growth in key markets including pulp and paper, chemical, refining and steel adversely affected industrial sales growth. Disclosure Page 19 Company Name - COLTEC INDUSTRIESINC;,. . ________ ________ Filing Date:. 04/04/1f/m Operating income for the Industrial Segment decreased slightly from $37.3 million in first quarter 1998 to $35.6 million in first quarter 1999. Excluding Holley Performance, Industrial Segment operating income was $33.9 million in first quarter 1998, yielding a 5.3% increase in operating income in first quarter 1999 as compared to first quarter 1998. Reduced selling and administrative expenses resulted in operating margin percentage increase from 19.2% in first quarter 1999 from 18.3% in first quarter 1998, excluding Holley Performance. . Liquidity and Capital Resources The Company generated $36.0 million of operating cash flows in first quarter 1999 compared with $10.1 million for first quarter 1998. The higher operating cash flows in 1999 were due to positive cash flow generated primarily by an increase in accounts payable and accrued expenses. The change in assets and liabilities generated negative cash flow of $28.8 million in first quarter 1998 compared to positive cash flow of $2.4 million in first quarter 1999. The ratio of current assets to current liabilities at April 4, 1999 was 1.59, decreasing from 1.62 at December 31, 1998 as a result of an increase in accounts payable and accrued expenses. Cash and cash equivalents increased to $31.0 million at April 4, 1999 from $21.8 million at December 31, 1998. In first quarter 1999 the Company invested $8.6 million in capital expenditures compared to $15.0 million during the same prior year period. Cash generated from operating activities was used for debt repayments of $18.2 million in first quarter 1999. In first quarter 1998 total debt increased by $100.6 million in order to finance business acquisitions and capital requirements. On January 30, 1998, the Company acquired Marine and Petroleum Mfg. Inc.'s manufacturing facilities based in Texas for approximately $17.0 million. The plants acquired produce flexible graphite and PTFE fluid sealing products used in the petrochemical industry. The Company also acquired Tex-o-Lon and Repro-Lon for approximately $25.0 million. Tex-o-Lon manufactures, machines and distributes PTFE products, primarily for the semiconductor industry. Repro-Lon reprocesses PTFE compounds for the chemical and semiconductor industries. The acquisitions were accounted for as purchases; accordingly, the purchase prices, which were financed through available cash resources, were allocated to the acquired assets based upon their fair market values. The $31.7 million combined excess of the purchase price over net assets is being amortized over 25 years. On February 2, 1998, the Company purchased the Sealing Division of Groupe Carbone Lorraine for $45.6 million. This division, with facilities in France and South Carolina, produces high-technology metallic gaskets used in the nuclear, petroleum and chemical industries. This acquisition was accounted for as a purchase and the purchase price, also financed through available cash resources, was allocated to the acquired assets based upon their fair market values. The $25.0 million excess of the purchase price over net assets is being amortized over 25 years. Year 2000 As is the case with most other companies, the Company recognizes the need to ensure that its operations will not be adversely impacted by the Year 2000 date transition and is faced with the task of addressing related issues. With senior management accountability and corporate staff guidance, all operating units have completed the assessment phase with respect to information technology ("IT") systems, facilities equipment and products and are in varying stages of plan implementation to address the Company's Year 2000 issues. With regard to IT Disclosure Page 20 Company Name -COL TEC INDUSTRIES INC: Filing Date:. 04/04/! 999 systems, facilities equipment and products, the Company is approximately 80%, 90% and 100% complete, respectively, with its total planned efforts including implementation and testing. The Company expects that its implementation and testing efforts will be substantially complete by September 1999. The Company is also evaluating whether the Year 2000 transition issues resulting from relationships with customers. suppliers and other constituents will have an impact on the Company's results of operations, financial condition or cash flows. The Company has initiated formal communication with its active suppliers to determine the extent to which the company is vulnerable to suppliers and customers who fail to address their own Year 2000 issues. The Company estimates that total IT system expenditures (including all computer systems replaced since January 1, 1997) will approximate $35.0 million, which will be funded from operating cash flows. At April 4, 1999, approximately $30.0 million of the $35.0 million had been incurred, $25.0 million of which has been capitalized since January 1, 1997 and $5.0 million of Year 2000 costs was expensed in 1998. The remaining costs of modifying its existing software for the Year 2000 date transition should have an immaterial impact on consolidated operating results. The costs of the project and the date on which the Company plans to complete Year 2000 compliance efforts are based on management's best estimates, which were derived from assumptions of future events including the continued availability of certain resources, third parties' Year 2000 readiness and other factors. There can be no assurance that these assumptions will prove to be accurate, and actual results could differ materially from those currently anticipated. Although the Company believes that its critical systems will be fully compliant prior to year end 1999, the Company also believes that prudent business practices call for the development of contingency plans. The Company has Year 2000 contingency plans in place. The Company will continually assess these contingency plans during 1999. Such contingency plans primarily address mitigating the impact of internal system and third party failures. Based on the nature and diversity of the Company's business operations, a worst case scenario may be that one or more significant customers or key suppliers suffers a business disruption. Because of the Company's varied customer and supplier base it is unlikely that such an occurrence would result in a significant loss of sales for any period of time. Unless there is a disruption of power supply affecting more than one of the Company's major divisions, customers, or suppliers, the Company does not expect the Year 2000 transition to have a material adverse effect on its consolidated results of operation, financial position or cash flows. However, if all Year 2000 issues are not properly identified, or assessment, remediation and testing are not effected timely with respect to Year 2000 problems that are identified, there can be no assurance that the Year 2000 issue will not have a material adverse effect on the Company's consolidated results of operations, financial position or cash flows or adversely affect the Company's relationships with suppliers, customers or others. Additionally, there can be no assurance that the Year 2000 issues of other entities will not have a material adverse effect on the Company's consolidated results of operations, financial position or cash flows. Cautionary Statement Regarding Forward-Looking Statements This Management's Discussion and Analysis contains statements which the Company believes to be "forward-looking statements" within the meaning of the federal securities laws. As a general matter, forward-looking statements are those focused upon anticipated events or trends and expectations and beliefs relating Disclosure Page 21 V- -Company Name -COLTEGINDUSTRIES INC " ... .', Filing Dale:,04/04/1999 to matters that are not historical in nature. Such forward-looking statements are subject to uncertainties and factors relating to the Company's operations and business environment, all of which are difficult to predict and many of which are beyond the control of the Company, that could cause actual results of the Company to differ materially from those matters expressed in or implied by such forward-looking statements. For a discussion of various factors that may cause the Company's actual results to differ materially from those matters expressed in or implied by such forward-looking statements, see the Company's 1998 Annual Report on Form 10-K as well as the Company's 1999 filings with the Securities and Exchange Commission. 20 21 PART II - OTHER.INFORMATION Item 1. Legal Proceedings. . Asbestos and Environmental Litigation 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. The Allied Signal Litigation On February 26, 1999, AlliedSignal, Inc. filed a lawsuit in the U.S. District Court for the Northern District of Indiana against BFGoodrich, the Company and Menasco Aerospace Ltd., a wholly-owned subsidiary of the Company conducting the Company's landing gear business in Ontario, Canada. In its complaint, AlliedSignal alleges that the merger between BFGoodrich and the Company would violate a long-term strategic alliance agreement between AlliedSignal and the Company, dated June 30, 1995. AlliedSignal further alleges that the merger would violate U.S. antitrust laws. In its complaint, AlliedSignal contends that the strategic alliance agreement requires the Company/Menasco and AlliedSignal, for a period of ten years, to notify the other party of any request for a bid or contract for an aircraft landing gear system, to jointly develop proposals for any bid or contract requests, and, if either party is named as a landing systems integrator, to attempt to utilize components from the other party in the system. Specifically, AlliedSignal alleges that, by their actions in connection with the proposed merger with BFGoodrich, the Company and Menasco have breached and/or anticipatorily breached provisions of the strategic alliance agreement relating to non-competition, non-assignment and proprietary information. AlliedSignal has commenced an arbitration proceeding to adjudicate its contract claim and, in its complaint, seeks preliminary injunction of the merger pending the final resolution of the arbitration. In its antitrust claim. Allied Signal alleges that the merger between BFGoodrich and the Company will violate antitrust laws by lessening competition in the markets for landing gear structures, integrated landing gear systems and wheels and brakes and by lessening competition in innovation. AlliedSignal requests that the court permanently enjoin the merger between BFGoodrich and the Company and Menasco and permanently enjoin BFGoodrich from acquiring any direct or indirect interest in either the Company or Menasco. AlliedSignal's complaint also requests the court to award AlliedSignal costs and reasonable attorneys' fees in connection with its complaint. On March 12, 1999, the State of Indiana filed a motion to intervene in the Disclosure Page 22 (CompanyName -JLOLTECIND(JSTRIESINC Filing-Date: 04/04/1999- lawsuit filed by AlliedSignal. This motion to intervene relates only to AlliedSignal's claim that the merger between BFGoodrich and the Company violates antitrust law. The motion to intervene was denied by the court on April 8, 1999. On March 26, 1999, Crane Co. ("Crane") filed a lawsuit in the U.S. District Court for the Northern District of Indiana against BFGoodrich and the Company seeking to prevent the merger on antitrust grounds. This lawsuit has been consolidated with the AlliedSignal lawsuit. On April 30, 1999, the District Court issued a preliminary injunction order pursuant to which BFGoodrich and the Company are enjoined from closing the merger prior to final resolution on the merits of the AlliedSignal lawsuit. Unless extended, the order will expire at midnight on July 16, 1999. The District Court has scheduled a hearing on the merits of the lawsuit for July 12, 1999. ' On May 5, 1999, BFGoodrich and the Company filed an emergency motion with the U.S. Court of Appeals for the Seventh Circuit requesting an expedited appeal of the District Court's preliminary injunction order. On May 6, 1999, the U.S. Court of Appeals for the Seventh Circuit granted the motion for expedited appeal and ordered that oral arguments on the matter be set on June 11, 1999. The Company intends to vigorously defend the lawsuits filed by AlliedSignal and Crane; however, the lawsuits could delay or prevent the merger. Item 6. Exhibits and Reports on Form 8-K. (a) The following exhibits are filed as part of this report: Exhibit 27.1 - Consolidated Financial Data Schedule '(b) During the quarter ended April 4, 1999, the Company filed the following reports on Form 8-K Current Report on Form 8-K filed January 21, 1999 (Items 5 and 7) Current Report on Form 8-K filed February 26, 1999 (Items 5 and 7) Current Report on Form 8-K filed March 4, 1999 (Items 5 and 7) Current Report on Form 8-K filed March 16, 1999 (Items 5 and 7) Current Report on Form 8-K filed March 26, 1999 (Items 5 and 7) 22 23 SIGNATURE 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. Disclosure Page 23 ; '.Company Name - COLTECINDUSTRIES INC Date: May 18, 1999 Filing;Dale: 04/04/1999^ COLTEC INDUSTRIES INC (Registrant) by /s/ David D. Harrison David D. Harrison Executive Vice President and Chief Financial Officer 23 Disclosure Page 24