-----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, DWGClGFGjT+Rt7yvlPH1eYkXcFi4EOu68WSLmJFHjdApeS4rpJ/U2iYYBS0siuuj c+KPCQayvEADRg0Oz/7AjA== 0000804151-01-000009.txt : 20010417 0000804151-01-000009.hdr.sgml : 20010417 ACCESSION NUMBER: 0000804151-01-000009 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010416 FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMO INDUSTRIES INC CENTRAL INDEX KEY: 0000804151 STANDARD INDUSTRIAL CLASSIFICATION: GENERAL INDUSTRIAL MACHINERY & EQUIPMENT [3560] IRS NUMBER: 210733751 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 001-09294 FILM NUMBER: 1602978 BUSINESS ADDRESS: STREET 1: 997 LENOX DR STREET 2: SUITE 111 CITY: LAWRENCEVILLE STATE: NJ ZIP: 08648 BUSINESS PHONE: 6098967600 MAIL ADDRESS: STREET 1: 997 LENOX DR STREET 2: SUITE 111 CITY: LAWRENCEVILLE STATE: NJ ZIP: 08648 FORMER COMPANY: FORMER CONFORMED NAME: IMO DELAVAL INC DATE OF NAME CHANGE: 19890313 FORMER COMPANY: FORMER CONFORMED NAME: TRANSAMERICA DELAVAL INC /DE DATE OF NAME CHANGE: 19861207 10-K405 1 0001.txt 2000 FORM 10-K UNITED STATES FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 ------------------------------------------------- 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 - 1-9294 Imo Industries Inc. (Exact name of registrant as specified in its charter) Delaware 21-0733751 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 997 Lenox Drive, Suite 111 Lawrenceville, New Jersey 08648 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 609-896-7600. Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: None 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 . Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained, and will not be contained, to the best of Registrant's knowledge, in this Form 10-K or any amendment to this Form 10-K. (X ) Shares of Registrant's common stock, $.01 par value, outstanding as of March 30, 2001 ......................100 DOCUMENTS INCORPORATED BY REFERENCE Identification of Documents Part into which Incorporated --------------------------- ----------------------------- None PART I Item 1. Business. General Imo Industries Inc. (hereinafter with its subsidiaries referred to as the "Company") is an integrated multinational manufacturer of a broad range of engineered industrial products designed primarily to transfer liquids or regulate and control motion in a variety of industrial applications. The Company markets its products on a worldwide basis to a diverse customer base. The Company operates in two distinct industry segments: Fluid Handling and Industrial Positioning. Fluid Handling. The Fluid Handling segment designs and produces a broad range of pumps, including screw, centrifugal and gear pumps. The pumps designed and produced by the Fluid Handling segment serve a variety of applications in the following industries: chemicals, marine and offshore engineering, energy and power generation, sewage and environmental engineering, pulp and paper, water treatment and other process industries. In Fluid Handling, the Company markets its products principally under the Imo and Warren brand names. Industrial Positioning. The Industrial Positioning segment designs and produces a wide range of power transmission and motion control products, including enclosed gear drives, speed reducers, open gearing components, AC and DC motor controllers, push-pull cable, remote control systems and marine and power equipment after-market products. In Industrial Positioning, the Company's Boston Gear and Morse Controls units are among sales leaders in their respective market segments. Boston Gear products have applications in a wide range of industrial manufacturing operations, ranging from packaging machinery and equipment to integrated steel and pulp and paper mills. Morse Controls products are sold into a variety of end use markets with a concentration in the marine, mobile equipment and aviation sectors. On February 13, 2001, the Company sold the assets of its Morse Controls division and stock of the Morse related subsidiaries to Teleflex Incorporated ("Teleflex") pursuant to an agreement dated November 15, 2000 for $135 million in cash, subject to final adjustment. History The Company, founded in 1901 in the United States by Dr. Carl Gustaf Patrick de Laval, a Swedish scientist, was incorporated in Delaware on March 2, 1959. The Company was acquired by Transamerica Corporation ("Transamerica") in 1963, and in 1964, Transamerica merged its existing wholly owned manufacturing subsidiary, General Metals Corporation, into the Company. At the close of business on December 18, 1986, Transamerica distributed all of the issued and outstanding shares of the Company common stock to holders of record of Transamerica common stock on the basis of one share of Company common stock for each ten shares of Transamerica common stock held and since that time the Company has operated on a stand-alone basis. On August 28, 1997, Colfax Corporation ("Colfax"), acquired approximately 93% of the Company's outstanding shares of common stock pursuant to its tender offer for all outstanding shares of common stock of the Company (the "Acquisition"). The consideration paid was $7.05 per share of common stock or $112.1 million in total. On July 2, 1998, Imo Merger Corp., a wholly owned subsidiary of Colfax, merged with and into Imo, pursuant to a short-form merger under Delaware law ("back-end merger"). The Company was the surviving corporation in the back-end merger and as result became a wholly owned subsidiary of Colfax. Information regarding the Acquisition of the Company is contained in Note 2 to the Consolidated Financial Statements included in Part IV of this Form 10-K Report as indexed at Item 14(a)(1). Industry Segments A description of the principal products and services offered by each business segment of the Company, as well as the principal markets for such products and services, are set forth below. Certain information with respect to net sales, operating profit, and identifiable assets of each of these segments and by geographic area is contained in Note 10 to the Consolidated Financial Statements. Fluid Handling The Fluid Handling business segment is a leading worldwide manufacturer of rotary screw pumps. The three units that comprise the Fluid Handling segment -- Imo Pump, Imo AB and Warren Pumps Inc. -- design and manufacture screw-type fuel, lube oil and hydraulic pumps for use primarily by the marine, process, oil and gas and elevator industries. The segment's three-screw pumps are the leading low-noise-level pumps used in United States Navy and commercial vessels. These pumps are also used to power hydraulic elevators, lubricate diesel engines and fuel gas turbines. The segment's two-screw pumps are used by the pulp and paper industry and in other high-viscosity process applications. Industrial Positioning The Industrial Positioning business segment produces speed reducers, loose gearing, and precision mechanical and electronic control products and systems, that are recognized as leading products in their market niches. This segment is comprised of four units: Boston Gear, a leading producer of gears and speed reducers, Fincor Electronics, a producer of adjustable-speed motor controllers, Morse Controls, a manufacturer of push-pull cable and control systems and Sierra International Inc., a marketer of after-market marine and power equipment products. Speed reducers are used to reduce the output speed and increase the torque of power trains in numerous products, ranging from industrial machinery to exercise treadmills. Adjustable-speed motor controllers are used for the accurate control of electric motor speed, torque, shaft position and direction of rotation in applications such as ski lifts, textile machinery, overhead cranes and large printing presses. These operations also produce worm gear sets used as speed reducers by original equipment manufacturers and by oil and gas and industrial machinery customers. Push-pull cable and control systems are used to control and actuate functions, such as steering and valve adjustment, as an alternative to electrical systems. Applications include throttle control and steering systems for both off-the-road vehicles and pleasure boats. After-market marine and power equipment products include engine parts and flexible hose for pleasure craft and lawn and garden equipment. On February 13, 2001, the Company sold the assets of its Morse Controls division and stock of the Morse related subsidiaries to Teleflex Incorporated ("Teleflex"). Discontinued Operations On February 27, 1998, the Company completed the sale of its Roltra Morse business to Magna International Inc. for cash of $30 million, plus the assumption of Roltra Morse's debt. The sale price approximated the recorded net book value of the business. Net proceeds were used to reduce domestic senior debt. In accordance with APB Opinion No. 30, the disposal of this business segment has been accounted for as a discontinued operation and, accordingly, the operating results have been segregated and reported as Discontinued Operations in the accompanying Consolidated Statements of Income. See Note 3 to the Consolidated Financial Statements for additional details regarding the discontinued operations. Cost Reduction Programs In connection with the Acquisition, the Company implemented a cost reduction program. The cost of this program was $18.6 million and was accrued for in accordance with the purchase method of accounting. It is comprised of $10.5 million related to severance and termination benefits as a result of headcount reductions at the Company's corporate headquarters. In addition, $1.2 million and $6.9 million of costs for the Company's Fluid Handling and Industrial Positioning segments, respectively, related to severance and termination benefits resulting from headcount reductions and the consolidation of certain manufacturing facilities. The program was completed in 1999. The required cash outlay related to this program was $8.1 million in 1997, $7.4 million in 1998 and $3.1 million in 1999. Competition The Company's products and services are marketed on a worldwide basis. Most markets in which the Company operates are highly competitive. The principal elements of competition for the products manufactured in each of the Company's business segments are design features, product quality, customer service, and price. Because the Company competes in certain narrowly defined niche markets, there is not any single company that competes directly with the Company across all of the Company's product lines. Product Distribution and Customers During 2000, sales by the Company's direct sales forces were approximately 81% and 44% of the Fluid Handling and Industrial Positioning segments, respectively. The Company's remaining sales are made through distributors, dealers and agents. None of the Company's business segments is dependent on any single customer or a few customers, the loss of which would have a material adverse effect on the respective segments, or on the Company as a whole. No customer accounted for 10% or more of consolidated sales from continuing operations in 2000, 1999 or 1998. Backlog The Company's backlog of unfilled orders at February 23, 2001, February 25, 2000 and at December 31, 2000, 1999 and 1998, by business segment, was as follows: February 23, February 25, December 31, ------------ ------------ ------------ 2001 2000 2000 1999 1998 ---- ---- ---- ---- ---- (Dollars in millions) Fluid Handling $ 35.3 $27.9 $ 30.4 $ 25.7 $ 32.1 Industrial Positioning 12.5 36.6 32.9 33.3 30.2 ---- ---- ---- ---- ---- $ 47.8 $ 64.5 $ 63.3 $ 59.0 $ 62.3 ====== ====== ====== ====== ====== Of the total backlog at December 31, 2000, the Company believes that all but approximately $1.9 million of its orders will be filled in 2001. The February 23, 2001 backlog does not include the Morse Controls division which was sold on February 13, 2001. Raw Materials The Company obtains raw materials, component parts and supplies from a variety of sources, generally from more than one supplier. The Company's principal raw materials are metals and plastics. The Company's suppliers and sources of raw materials are based in both the United States and internationally. The Company believes that its sources of raw materials are adequate for its needs for the foreseeable future. The loss of any one supplier would not have a material adverse effect on the Company's financial condition or results of operations. Patents, Licenses and Trademarks The Company owns numerous unexpired U.S. patents (currently having a term of 17 years from the date of issuance and expiring at various times in the future) and foreign patents (having an initial term that is governed by the law of the country and expiring at various times in the future), including counterparts of certain of its U.S. patents, in major industrial countries of the world. The Company's products are marketed under various trade names and registered U.S. and foreign trademarks (having an initial term that is governed by the law of the country and expiring at various times in the future). The Company, however, does not consider any one patent or trademark, or any group thereof, essential to its business as a whole, or to any of its business segments. The Company relies, to an extent, on proprietary product knowledge and manufacturing processes in its operations. Research and Development The Company's ongoing research and development programs involve the development of new technologies to enhance the performance or lower the cost of manufacturing its products, and the redesign of existing product lines either to increase their efficiency or to lower their manufacturing cost. Expenditures for research and development charged against continuing operations for 2000, 1999 and 1998 by business segment were as follows: Year Ended December 31, 2000 1999 1998 ---- ---- ---- (Dollars in millions) Fluid Handling $ 1.1 $1.5 $2.1 Industrial Positioning 2.9 2.8 3.2 --- --- --- $ 4.0 $4.3 $5.3 ===== ==== ==== Environmental Matters In connection with the Company's separation from Transamerica in 1986, three of the Company's properties required compliance with the New Jersey Environmental Cleanup Responsibility Act, which was amended by the Industrial Site Recovery Act ("ISRA"). ISRA required that the Company's three New Jersey industrial establishments undergo an approved remediation. Remediation has been completed at two sites and final closure approvals have been sought. As a result of the sale of a portion of the third establishment, this site has been divided into two separate sites for ISRA compliance. Both sites have undergone cleanup, but the New Jersey Department of Environmental Protection and Energy has requested and received from the Company additional sampling information. If further cleanup is required, the Company does not expect it to have a material adverse effect on its financial condition. The Company has been identified in a number of instances as a "Potentially Responsible Party" by the U.S. Environmental Protection Agency, and in one instance by the State of Washington, with respect to the disposal of hazardous wastes at a number of facilities that have been targeted for clean-up pursuant to the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA") or similar state law. Similarly, the Company has received notice that it is one of a number of defendants named in an action filed in the United States District Court, for the Southern District of Ohio Western Division by a group of plaintiffs who are attempting to allocate a share of cleanup costs, for which they are responsible, to a large number of additional parties, including the Company. Although CERCLA and corresponding state law liability is joint and several, the Company believes that its liability will not have a material adverse effect on the financial condition of the Company since it believes that it either qualifies as a de minimis or minor contributor at each site. Accordingly, the Company believes that the portion of remediation costs that it will be responsible for will not be material. The Company has current and former operations in numerous locations, some of which require environmental remediation. The Company, however, does not know of or believe that any such matters or the cost of any required corrective measure, either individually or in the aggregate, will have a material adverse effect on the financial condition of the Company. There can be no assurance, however, that these matters, or other environmental matters not currently known to the Company will not have such a material adverse effect. Seasonality General economic conditions worldwide continue to create business opportunities for the coming year in many of the markets in which the Company operates. Management believes that because of the nature of its industrial products and the fact that the Company sells diverse products to many markets, the Company is not significantly affected by the cyclical behavior, or seasonality, of any particular market that it serves. Associates At February 23, 2001, the Company employed approximately 1,000 associates worldwide. Approximately 900 associates were employed in the United States, and approximately 100 associates were employed outside of the United States. There are approximately 100 associates worldwide covered by collective bargaining agreements with various unions expiring in 2001 through 2004. The Morse Controls division is not included as it was sold on February 13, 2001. The Company considers its relations with its associates to be satisfactory. Item 2. Properties. The location of the Company's manufacturing facilities at February 23, 2001 are as follows: Location Product Owned/Leased Fluid Handling Monroe, North Carolina Three-screw and two-screw pumps Owned Columbia, Kentucky Three-screw and gear pumps Owned Warren, Massachusetts Two-screw, gear and centrifugal pumps Owned Stockholm, Sweden Three-screw pumps Owned Paris, France Three-screw pumps Leased Industrial Positioning Charlotte, North Carolina Open gearing and clutches Owned Louisburg, North Carolina Worm gear speed reducers Owned York, Pennsylvania Electronic drives Owned The Company believes that its machinery, plants and offices are in satisfactory operating condition and are adequate for the uses to which they are put. The Company believes that its properties have sufficient capacity to substantially increase its current utilization without incurring significant additional capital expenditures. Item 3. Legal Proceedings. The Company and one of its subsidiaries are two of a large number of defendants in a number of lawsuits brought in various jurisdictions by approximately 4,500 claimants who allege injury caused by exposure to asbestos. Although neither the Company nor any of its subsidiaries has ever been a producer or direct supplier of asbestos, it is alleged that the industrial and marine products sold by the Company and the subsidiary named in such complaints contained components which contained asbestos. Suits against the Company and its subsidiary have been tendered to its insurers, who are defending under their stated reservation of rights. In addition, the Company and the subsidiary are named in cases, involving approximately 40,000 claimants, which were "administratively dismissed" by the U.S. District Court for the Eastern District of Pennsylvania. Cases that have been "administratively dismissed" may be reinstated only upon a showing to the Court that (i) there is satisfactory evidence of an asbestos-related injury; and (ii) there is probative evidence that the plaintiff was exposed to products or equipment supplied by each individual defendant in the case. The Company believes that it has adequate insurance coverage or has established appropriate reserves to cover potential liabilities related to these cases. The Company is a defendant in a lawsuit in the Supreme Court of British Columbia alleging breach of contract arising from the sale of a steam turbine delivered by the Company's former Delaval Turbine Division and claiming damages in excess of $10 million. The Company believes that there are legal and factual defenses to the claim and intends to defend the action vigorously. The Company was a defendant in a lawsuit in the Circuit Court of Cook County, Illinois alleging performance shortfalls in products delivered by the Company's former Delaval Turbine Division. The Company has reached an agreement on December 7, 1999, with the plaintiff settling all claims between the parties. However, a co-defendant, Federal Insurance Company, continues to pursue its counterclaim against the Company for attorney's fees it alleges it incurred in its role as surety for the project from which the litigation arose. The Company believes that there are legal and factual defenses to the claim and intends to defend the action vigorously. On June 3, 1997, the Company was served with a complaint in a case brought in the Superior Court of New Jersey which alleges damages in excess of $10 million incurred as a result of losses under a Government Contract Bid transferred in connection with the sale of the Company's former Electro-Optical Systems business. The Electro-Optical Systems business was sold in a transaction that closed on June 2, 1995. The sales contract provided certain representations and warranties as to the status of the business at the time of sale. The complaint alleges that the Company failed to provide notice of a "reasonably anticipated loss" under a bid that was pending at the time of the transfer of the business and therefore a representation was breached. The contract was subsequently awarded to the Company's Varo subsidiary and thereafter transferred to the buyer of the Electro-Optical Systems business. The Company believes that there are legal and factual defenses to the claims and intends to defend the action vigorously. The operations of the Company, like those of other companies engaged in similar businesses, involve the use, disposal and clean up of substances regulated under environmental protection laws. In a number of instances the Company has been identified as a Potentially Responsible Party by the U.S. Environmental Protection Agency, with respect to the disposal of hazardous wastes at a number of facilities that have been targeted for clean-up pursuant to CERCLA or similar state law. Similarly, the Company has received notice that it is one of a number of defendants named in an action filed in the United States District Court, for the Southern District of Ohio Western Division by a group of plaintiffs who are attempting to allocate a share of cleanup costs, for which they are responsible, to a large number of additional parties, including the Company. Although CERCLA and corresponding state law liability is joint and several, the Company believes that its liability will not have a material adverse effect on the financial condition of the Company since it believes that it either qualifies as a de minimis or minor contributor at each site. Accordingly, the Company believes that the portion of remediation costs that it will be responsible for will not be material. The Company is also involved in various other pending legal proceedings arising out of the ordinary course of the Company's business. None of these legal proceedings are expected to have a material adverse effect on the financial condition of the Company. With respect to these proceedings and the litigation and claims described in the preceding paragraphs, management of the Company believes that it either will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the financial condition of the Company. Item 4. Submission of Matters to a Vote of Security Holders. None PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters. The Company delisted its Common Stock from the New York Stock Exchange on July 2, 1998. The Common Stock was deregistered under the Securities Exchange Act of 1934. Item 6. Selected Financial Data. (Dollars in millions except per share amounts) (a)
Post-Acquisition Pre-Acquisition Year Year Year August 29, January 1, Year Ended Ended Ended 1997 to 1997 to Ended December December December December 31, August 28, December 31, 2000* 31, 1999* 31, 1998* 1997 1997 31, 1996 - ---------------------------------------------- ----------- ----------- ----------- -------------- -------------- ----------- Net sales $329.4 $292.7 $314.4 $108.3 $213.5 $314.4 Income (loss) from continuing operations before extraordinary item 16.4 15.3 10.9 (5.7) (31.3) (33.1) Discontinued operations, net of taxes --- --- --- (12.2) 2.4 (16.8) Extraordinary item (net of tax) --- (0.2) (5.2) (3.3) --- (8.5) Net income (loss) 16.4 15.1 5.7 (21.2) (28.9) (58.4) - ---------------------------------------------- ----------- ----------- ----------- -------------- ------------- ------------ (Loss) earnings per share, basic and diluted: Continuing operations before extraordinary item (.33) (1.82) (1.93) Discontinued operations, net of taxes (.71) .14 ( .99) Extraordinary item (.20) --- (.49) Net loss (1.24) (1.68) (3.41) Cash dividends per share --- --- --- --- --- --- - ---------------------------------------------- ----------- ----------- ----------- -------------- ------------ ------------ Total assets 371.9 377.1 389.0 463.3 330.9 Total long-term debt, including current portion 164.9 169.1 174.3 223.4 276.0 ============================================== =========== =========== =========== ============== ============ ============ (a) The notes to the consolidated financial statements located in Part IV of this Form 10-K Report as indexed at Item 14(a)(l) should be read in conjunction with this summary. * As a result of the back-end merger on July 2, 1998, earnings per share is not presented for 2000, 1999 and 1998.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following discussion and analysis of the Company's consolidated results of operations and financial condition should be read in conjunction with the audited Consolidated Financial Statements included elsewhere in this Form 10-K Report. Comparisons of the results of operations for the year ended December 31, 2000, with the results for the years ended December 31, 1999 and 1998, are being presented on a historical basis. Recent Events Morse Controls Sale: On February 13, 2001, the Registrant sold the assets of its Morse Controls division and stock of the Morse related subsidiaries, to Teleflex pursuant to an agreement dated November 15, 2000 for $135 million in cash, subject to final adjustment. Cash proceeds have been principally used by the Company to pay down its domestic senior debt and accounts receivable securitization. The transaction will be reflected in the Company's financial statements in the first quarter of 2001. Results of Operations The Company's former Roltra Morse business is accounted for as a discontinued operation. Accordingly, the operating results of this business have been segregated and reported as Discontinued Operations in the audited Consolidated Financial Statements included elsewhere in this Form 10-K Report. The discussion that follows concerns only the results of continuing operations, which are grouped into two business segments for management and financial reporting purposes: Fluid Handling and Industrial Positioning. 2000 Compared to 1999 Sales. Net sales from continuing operations in 2000 increased 12.6% to $329.4 million, compared with $292.7 million in 1999, as a result of the Fluid Handling segment's sales decreasing 2.6% and an increase of 20.7% in the Industrial Positioning segment's sales. The decrease in the Fluid Handling segment sales is due to cyclicality in the federal and chemical markets during 2000 and unfavorable foreign currency fluctuations of the Swedish Krona. The increase in the Industrial Positioning segment is due to the purchase of Sierra on December 1, 1999. Gross Profit. Gross profit in 2000 increased as a percentage of sales to 31.7% compared with 31.6% in 1999, as a result of productivity improvements in each segment. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 17.1% of net sales in the twelve months ended December 31, 2000, as compared with 17.3% in the 1999 period. The decreased expenses as a percentage of sales in 2000 were the result of continued cost reduction programs in each of the Company's operating units. Interest Expense. Average borrowings in 2000 were approximately $2.3 million higher than in 1999, due to the increase in borrowings for the purchase of Sierra. Total interest expense of $19.5 million in 2000 was $2.8 million, or 16.8%, higher than in 1999. Income from Continuing Operations. The Company had income from continuing operations of $16.4 million in 2000, compared with $15.3 million in 1999. 1999 Compared to 1998 Sales. Net sales from continuing operations in 1999 decreased 6.9% to $292.7 million, compared with $314.4 million in 1998, as a result of the Fluid Handling segment's sales decreasing 10.4% and a decrease of 4.9% in the Industrial Positioning segment's sales. The decrease in the Fluid Handling segment is due to cyclicality in the crude oil, machinery support and pulp & paper markets and unfavorable effects of a 4.6% change in the exchange rates for the Swedish Krona. The decrease in the Industrial Positioning segment is due to lower demand in the agricultural and power transmission sectors, unfavorable foreign currency fluctuations, the sale of the conveyor business in Germany on July 31, 1998, and inventory reduction programs initiated by key customers. Gross Profit. Gross profit in 1999 decreased as a percentage of sales to 31.6% compared with 31.9% in 1998, as a result of reduced sales volume and manufacturing levels. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 17.3% of net sales in the twelve months ended December 31, 1999, as compared with 18.0% in the 1998 period. The decreased expenses as a percentage of sales in 1999 was the result of continued cost reduction programs in each of the Company's operating units. Interest Expense. Average borrowings in 1999 were approximately $33.2 million lower than in 1998. Total interest expense of $16.7 million in 1999 was $4.6 million, or 21.6%, lower than in 1998, due primarily to the reduction of debt, through the generation of operating cash flow. Income from Continuing Operations. The Company had income from continuing operations of $15.3 million in 1999, compared with $10.9 million in 1998, due to the decrease in interest expense. Other Operating Results Extraordinary Items. The year ended December 31, 1999, includes an extraordinary charge of $0.2 million net of tax, related to the early extinguishment of $3.5 million of its 11.75% senior subordinated notes due in 2006. The year ended December 31, 1998, includes an extraordinary charge of $5.2 million net of tax, representing charges related to the early extinguishment of the Company's debt under its current senior secured credit facilities and its Notes, as well as the write-off of previously deferred loan costs. Provision for Income Taxes. Income tax expense from continuing operations was $10.9 million, $8.8 million, and $7.0 million for 2000, 1999 and 1998, respectively. Income tax expense for the year ended 2000, represents current tax expense of $3.4 million for federal alternative minimum tax, foreign and state income taxes, as the Company is utilizing existing U.S. net operating loss carryforwards to offset its domestic earnings. The net deferred tax asset currently recorded at December 31, 2000, is $25.3 million, a level where management believes that it is more likely than not that the tax benefit will be realized. The Company establishes valuation allowances in accordance with the provisions of FASB Statement No. 109, "Accounting for Income Taxes." The Company continually reviews the adequacy of the valuation allowance and is recognizing these benefits only as reassessment indicates that it is more likely than not that the benefits will be realized. The valuation allowance was $1.7 million for December 31, 2000 and December 31, 1999. The Company has net operating loss carryforwards of approximately $76.5 million expiring in years 2001 through 2018, and minimum tax credits of approximately $2.7 million, which may be carried forward indefinitely. Tax credit carryforwards include foreign tax credits of approximately $5.3 million, expiring beginning in the year 2002. These carryforwards are available to offset future taxable income, and may be subject to Section 382 limitations, due to the Acquisition. Taxes have not been provided on the unremitted earnings of foreign subsidiaries since it is the Company's intention to indefinitely reinvest these earnings overseas. The amount of foreign withholding taxes that would be payable on remittance of these earnings is approximately $0.5 million. Liquidity and Capital Resources Short-term and Long-term Debt As of December 31, 2000, the Company had $6.3 million of outstanding standby letters of credit. The Company had $6.0 million in foreign short-term credit facilities with no amounts outstanding at December 31, 2000. Due to the short-term nature of these debt instruments it is the Company's opinion that the carrying amounts approximate the fair value. In addition, the Company had outstanding $75.0 million of its 11.75% senior subordinated notes due in 2006, $27.3 million of term loan borrowings and $62.5 million in revolver borrowings. Cash Flow The Company's operating activities provided cash of $12.4 million in 2000, compared with cash provided of $39.5 million in 1999. The cash provided by operating activities in 2000 was attributable to net operating profits offset by the increase in working capital in the period. Cash and cash equivalents were $5.2 million at December 31, 2000 compared with $2.9 million at December 31, 1999. The Company's total debt as a percent of its total capitalization decreased to 55.8% at December 31, 2000, compared with 59.2% at December 31, 1999, as a result of the debt paid down due to internal cash generation. Capital expenditures of continuing operations decreased to $4.8 million compared with the 1999 level of $6.4 million. In 2000 capital spending was used for the purpose of maintaining and improving competitive advantages at the Company's operations. The Company anticipates that capital expenditures in 2001 will increase over the 2000 level primarily due to expenditures related to new product development in the operating segments. There were no material outstanding commitments for the acquisition of property, plant, and equipment at December 31, 2000. Management believes that cash flow from operations and cash available from unused credit facilities will be sufficient to fund future anticipated working capital needs, capital spending requirements and debt service requirements. Seasonality; Customer Concentration; Inflation General economic conditions worldwide continue to create business opportunities for the coming year in many of the markets in which the Company operates. Management believes that because of the nature of its industrial products and the fact that the Company sells diverse products to many markets, the Company is not significantly affected by the cyclical behavior, or seasonality, of any particular market that it serves. None of the Company's business segments is dependent on any single customer or a few customers, the loss of which would have a material adverse effect on the respective segments, or on the Company as a whole. No customer accounted for 10% or more of consolidated sales in 2000, 1999 or 1998. CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. Except for historical matters, the matters discussed in this Form 10-K Report are forward-looking statements based on current expectations and involve risks and uncertainties. Forward-looking statements include, but are not limited to, statements under the following headings: (i) Item 1 - "Backlog, Raw Materials and Environmental Matters" - the expected ability to fill existing orders in 2001, the continued adequacy of the Company's raw materials sources, and the future impact of environmental matters on the financial condition of the Company; (ii) Item 3 - "Legal Proceedings" - the future impact of legal proceedings on the financial condition of the Company. The Company wishes to caution the reader that, in addition to the matters described above, various factors such as delays in contracts from key customers, demand and market acceptance risk for new products, continued or increased competitive pricing and the effects of under-utilization of plants and facilities, particularly in Europe, and the impact of worldwide economic conditions on demand for the Company's products, could cause results to differ materially from those in any forward-looking statement. Item 7A. Quantitative and Qualitative Disclosures about Market Risk During 1999, the Company periodically entered into foreign exchange contracts for purposes of hedging its exposure to foreign currency exchange rate fluctuations. These contracts hedged firm commitments between the Swedish Krona and the German Deutschmark and the United States Dollar. At December 31, 1999, the Company had foreign currency contracts with notional amounts totaling approximately $0.1 million with various expiration dates through June 2000. The amount of deferred gain or loss associated with these contracts is not material. There were no foreign currency contracts outstanding at December 31, 2000. All foreign currency derivative agreements are with major commercial banks; therefore the risk of credit loss from nonperformance by the banks is considered by management to be minimal. The Company evaluates its exposure to credit loss on an ongoing basis. Item 8. Financial Statements and Supplementary Data. The consolidated financial statements and supplementary data required by Part II, Item 8 of Form 10-K are included in Part IV of this Form 10-K Report as indexed at Item 14(a)(1). Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. None PART III Item 10. Directors and Executive Officers of the Registrant. Not Applicable Item 11. Executive Compensation. Not Applicable Item 12. Security Ownership of Certain Beneficial Owners and Management. Not Applicable Item 13. Certain Relationships and Related Transactions. None PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K. (a) (1) Financial Statements The Financial Statements and Supplementary Data required by Part II, Item 8 of Form 10-K are included in this Part IV of this Form 10-K Report as follows: Consolidated Financial Statements Consolidated Statements of Income and Comprehensive Income for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Balance Sheets at December 31, 2000 and 1999 Consolidated Statements of Cash Flows for the Years Ended December 31, 2000, 1999 and 1998 Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 2000, 1999 and 1998 Notes to Consolidated Financial Statements Report of Independent Public Accountants Report of Independent Public Accountants on Schedule II Quarterly Financial Information (unaudited) (2) Financial Statement Schedules The following consolidated financial statement schedule for the years ended December 31, 2000, 1999 and 1998 is filed as part of this Report and should be read in conjunction with the Company's Consolidated Financial Statements. Schedule II Valuation and Qualifying Accounts All other schedules for which provision is made in the applicable regulation of the Securities and Exchange Commission are omitted because they are not required under the related instructions or because the required information is given in the financial statements or notes thereto. (3) Exhibits The Exhibits listed in the accompanying Index to Exhibits are filed as part of this Report. (b) Reports on Form 8-K None EXHIBIT INDEX Exhibit No. Note No. Description - ---------- ------- ------------- 3(i) (23) The Company's Restated Certificate of Incorporation, as amended March 10, 1989 and November 10, 1992 and April 30, 1997 3(ii) (28) The Company's Bylaws 4.1 (A) (18) Indenture, dated as of April 15, 1996, between the Company and IBJ Schroder Bank & Trust Company, as Trustee (B) (28) Second Supplemental Indenture, dated as of August 26, 1997, between the Company and IBJ Schroder Bank & Trust Company, as Trustee 4.3 (18) Registration Rights Agreement, dated as of April 23, 1996, between the Company and the Initial Purchasers 4.3 (A) (20) Rights Agreement dated as of April 30, 1997 between the Company and First Chicago Trust Company of New York, which includes, as Exhibit A thereto, the Certificate of Designation, Preferences and Rights of Series B Junior Participating Preferred Stock of Imo Industries Inc., as Exhibit B thereto, the Form of Rights Certificate and as Exhibit C thereto, the Summary of Rights to Purchase Preferred Stock. (B) (21) Amendment to Rights Agreement dated June 25, 1997 between the Company and First Chicago Trust Company of New York (C) (22) Second Amendment to Rights Agreement dated July 25, 1997 between the Company and First Chicago Trust Company of New York (D) (24) Third Amendment to Rights Agreement dated August 21, 1997 between the Company and First Chicago Trust Company of New York (E) (29) Fourth Amendment to Rights Agreement dated April 30, 1998 between the Company and First Chicago Trust Company of New York Management Contracts, Compensatory Plans and Arrangements: ------------------------------------------------------------- 10.1 (14) Amended and restated Equity Incentive Plan for Key Employees 10.2 (16) Amended and restated 1988 Equity Incentive Plan for Outside Directors 10.3 (15) 1995 Equity Incentive Plan for Outside Directors 10.4 (17) The Company's Supplemental Retirement Income Plan 10.5 (8) Change in Control Agreement dated January 9, 1987 between the Company and John J. Carr 10.6 (8) Change in Control Agreement dated August 5, 1992 between the Company and William M. Brown 10.7 (8) Change in Control Agreement dated August 13, 1992 between the Company and Thomas J. Bird 10.8 (10) Change in Control Agreement dated September 13, 1993 between the Company and Donald K. Farrar 10.9 (19) Change in Control Agreement dated May 21, 1996 between the Company and Donald N. Rosenberg 10.10 (19) Severance Agreement dated February 6, 1997 between Imo Industries (UK) Limited and Brian Lewis 10.11 (19) Consultancy Agreement dated February 13, 1997 between Imo Industries Inc. and Brian Lewis Other Material Contracts: --------------------------- 10.12(A)(3),(4) The Company's Salaried Employees Stock Savings Plan as amended on July 1, 1987 and as amended on June 14, 1988 (B) (7) Amendment dated March 16, 1989 to the Imo Industries Inc. Employees Stock Savings Plan (C) (5) Amendments dated September 6, 1990 and February 14, 1991 to the Imo Industries Inc. Employees Stock Savings Plan (D) (6) Amendment dated May 9, 1991 to the Imo Industries Inc. Employees Stock Savings Plan (E) (8) Amendments dated December 30, 1991 and August 3, 1992 to the Imo Industries Inc. Employees Stock Savings Plan (F) (12) Trust Agreement for the Imo Industries Inc. Employees Stock Savings Plan as of March 1, 1995 between the Company and Eagle Trust Company 10.13 (1) Distribution Agreement dated December 18, 1986 between Transamerica Corporation and the Company 10.14 (1) Tax Agreement between the Company and Transamerica Corporation 10.15 (J) (9) Warrant dated July 15, 1993 issued by the Company to The Prudential Insurance Company of America 10.16 (2) Stock Purchase Agreement dated November 30, 1987 between the Company and TRIFIN B.V. 10.17 (5) Stock Purchase Agreement dated as of May 31, 1990 among United Scientific Holdings PLC, United Scientific Inc. and the Company 10.18 (10) Stock Purchase Agreement dated as of October 28, 1993 among the Company, Imo Industries GmbH, Mark Controls Corporation and Mark Controls GmbH i. Gr., as amended 10.19 (A)(18) Credit Agreement dated as of April 29, 1996 among the Company, as Borrower, Varo Inc., as Guarantor, Warren Pumps Inc. as Guarantor, the Institutions from time to time party thereto as Lenders and Issuing Banks, and Citicorp USA, Inc., as Agent 10.19 (B)(19) First Amendment dated as of February 19, 1997 to the Credit Agreement dated as of April 29, 1996 among the Company, as Borrower, Varo Inc., as Guarantor, Warren Pumps, Inc. as Guarantor, the Institutions from time to time party thereto as Lenders and Issuing Banks, and Citicorp USA, Inc., as Agent 10.20 (A)(11) Asset Purchase Agreement dated as of November 4, 1994 by and among the Company, Imo Industries International Inc. and Mannesmann Capital Corporation (B)(12) Agreement, Amendment and Waiver dated January 17, 1995 by and among the Company and Mannesmann Capital Corporation 10.21 (12) Asset and Stock Purchase Agreement dated as of January 1, 1995 by and among the Company and Thermo Jarrell Ash Corporation 10.22 (13) Purchase and Sale Agreement among Litton Industries, Inc., and Litton Systems, Inc. and Imo Industries Inc., Baird Corporation, Optic-Electronic International, Inc. and Varo Inc. dated May 11, 1995 and amended and restated as of June 2, 1995 10.23 (A)(19) Asset Purchase Agreement dated as of September 13, 1996 between Varo Inc. and Varo Acquisition Corp. (B)(19) Reinstatement Agreement dated January 28, 1997 between Varo Inc. and Varo Acquisition Corp. 10.24 (21) Agreement and Plan of Merger, dated June 26, 1997, among United Dominion Industries Limited, UD Delaware Corp. and Imo Industries Inc. 10.25 (22) Share Purchase Agreement, dated July 25, 1997, between II Acquisition Corp. and the Company 10.26 (25) Asset Purchase Agreement dated as of August 29, 1997 among the Registrant and certain of its subsidiaries and Danaher Corporation and certain of its subsidiaries 10.27 (A)(26) Credit and Guaranty Agreement dated as of August 29, 1997 among the Company, as Borrower, II Acquisition Corp., as Guarantor, Certain Financial Institutions, as Lenders, The Bank of Nova Scotia, as Administrative and Documentation Agent and Nationsbanc Capital Markets, Inc., as Syndication Agent for the Lenders (B)(28) First Amendment to Credit and Guaranty Agreement dated as of November 6, 1997 (C)(28) Second Amendment to Credit and Guaranty Agreement dated as of December 2, 1997 (D)(28) Third Amendment to Credit and Guaranty Agreement dated as of February 16, 1998 (E)(30) Fourth Amendment to Credit and Guaranty Agreement dated as of March 9, 1998 (F)(31) Fifth Amendment to Credit and Guaranty Agreement dated as of June 1, 1998 (G)(32) Sixth Amendment to Credit and Guaranty Agreement dated as of October 15, 1998 (H)(33) Seventh Amendment to Credit and Guaranty Agreement dated as of August 3, 1999 (I)(33) Eighth Amendment to Credit and Guaranty Agreement dated as of November 29, 1999 (J) Ninth Amendment to Credit and Guaranty Agreement dated as of January 26, 2001 10.28 (27) Stock Purchase Agreement dated as of January 30, 1998 between the Registrant and Magna International Inc. 10.29 (33) Receivables Purchase Agreement dated as of November 29, 1999 among Imo Funding Company, LLC, Imo Industries Inc., Liberty Street Funding Corp. and The Bank of Nova Scotia 10.30 (33) Purchase and Sale Agreement dated as of November 29, 1999 among the Originators named herein, Imo Industries Inc. and Imo Funding Company, LLC 10.31 (33) Stock Purchase Agreement by and between Echlin Inc. and Imo Industries, Inc. dated as of October 13, 1999 10.32 (34) Asset Purchase Agreement dated as of November 15, 2000 between the Registrant and Teleflex Incorporated. 10.33 Amendment to Asset Purchase Agreement dated as of February 11, 2001 to be effective as of November 15, 2000 between the Registrant and Teleflex Incorporated. 21 Subsidiaries of the Company as of December 31, 2000 27 Financial Data Schedule as of December 31, 2000 - ----------------------------------------------- NOTES (1) Incorporated by reference to the Company's Form 8 Amendment No. 2 filed with the Commission on December 9, 1986 amending the Company's Form 10 as filed with the Commission on October 15, 1986. (2) Incorporated by reference to the Company's Form 8-K filed with the Commission on February 17, 1987. (3) Incorporated by reference to the Imo Industries Inc. Employees Stock Savings Plan Form 11-K filed with the Commission on April 13, 1988. (4) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 29, 1990. (5) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 28, 1991. (6) Incorporated by reference to the Company's Form S-8 filed with the Commission on June 17, 1991. (7) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 26, 1992. (8) Incorporated by reference to the Company's Form 10-K filed with the Commission on April 19, 1993. (9) Incorporated by reference to the Company's Form 10-K/A filed with the Commission on August 6, 1993 amending the Company's Form 10-K as filed with the Commission on April 19, 1993. (10) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 31, 1994. (11) Incorporated by reference to the Company's Form 10-Q filed with the Commission on November 14, 1994. (12) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 29, 1995. (13) Incorporated by reference to the Company's Form 8-K filed with the Commission on June 19, 1995. (14) Incorporated by reference to the Company's Form S-8 as filed with the Commission on June 23, 1995, Registration No. 33-60533 (15) Incorporated by reference to the Company's Form S-8 as filed with the Commission on June 23, 1995, Registration No. 33-60535 (16) Incorporated by reference to the Company's Form 10-Q filed with the Commission on November 13, 1995. (17) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 28, 1996. (18) Incorporated by reference to the Company's Form S-4 (Registration No. 333-3477) filed with the Commission on May 10, 1996. (19) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 27, 1997. (20) Incorporated by reference to the Company's Form 8-A Registration Statement filed with the Commission on May 2, 1997. (21) Incorporated by reference to the Company's Schedule 14D-9 Solicitation/Recommendation Statement filed with the Commission on July 2, 1997. (22) Incorporated by reference to the Company's Schedule 14D-9 Solicitation/Recommendation Statement filed with the Commission on July 31, 1997. (23) Incorporated by reference to the Company's Form 10-Q filed with the Commission on August 14, 1997. (24) Incorporated by reference to the Company's Form 8-K filed with the Commission on August 27, 1997. (25) Incorporated by reference to the Company's Form 8-K filed with the Commission on September 15, 1997. (26) Incorporated by reference to the Company's Form 10-Q filed with the Commission on November 14, 1997. (27) Incorporated by reference to the Company's Form 8-K filed with the Commission on March 13, 1998. (28) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 31, 1998. (29) Incorporated by reference to the Company's Form 8-A/A filed with the Commission on May 1, 1998. (30) Incorporated by reference to the Company's Form 10-Q filed with the Commission on May 13, 1998. (31) Incorporated by reference to the Company's Form 10-Q filed with the Commission on August 14, 1998. (32) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 31, 1999. (33) Incorporated by reference to the Company's Form 10-K filed with the Commission on March 30, 2000. (34) Incorporated by reference to the Company's Form 8-K filed with the Commission on February 28, 2001. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Imo Industries Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: April 16, 2001 IMO INDUSTRIES INC. By: /s/ G. SCOTT FAISON G. Scott Faison Vice President and Chief Financial Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Imo Industries Inc. and in the capacities and on the dates indicated. /s/ JOHN A. YOUNG Chief Executive Officer John A. Young and President (principal executive officer) April 16, 2001 /s/ G. SCOTT FAISON Vice President and G. Scott Faison Chief Financial Officer (principal financial officer) April 16, 2001 /s/ STEVEN M. RALES Director April 16, 2001 Steven M. Rales /s/ MITCHELL P. RALES Director April 16, 2001 Mitchell P. Rales /s/ NEIL D. COHEN Director April 16, 2001 Neil D. Cohen /s/ PHILIP W. KNISELY Director April 16, 2001 Philip W. Knisely Imo Industries Inc. and Subsidiaries Consolidated Statements of Income and Comprehensive Income (Dollars in thousands)
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2000 1999 1998 - ---------------------------------------------------------- ---------------- ----------------- --------------- Net Sales $329,444 $292,694 $314,372 Cost of products sold 225,009 200,123 214,081 - ---------------------------------------------------------- ---------------- ----------------- --------------- Gross Profit 104,435 92,571 100,291 Selling, general and administrative expenses 56,340 50,516 56,464 Research and development expenses 3,995 4,344 5,317 - ---------------------------------------------------------- ---------------- ----------------- --------------- Income From Operations 44,100 37,711 38,510 Other income 2,754 1,045 684 Loss / (Gain) on sale of assets 24 (2,066) --- Interest expense 19,492 16,668 21,293 - ---------------------------------------------------------- ---------------- ----------------- --------------- Income From Continuing Operations Before Income Taxes and Extraordinary Item 27,338 24,154 17,901 Income taxes 10,890 8,840 7,008 - ---------------------------------------------------------- ---------------- ----------------- --------------- Income From Continuing Operations Before Extraordinary Item 16,448 15,314 10,893 Extraordinary item - loss on extinguishment of debt, (net of tax) --- (216) (5,223) - ------------------------------------------------------------------------------------------------------------- Net Income $ 16,448 $ 15,098 $5,670 ============================================================================================================ Other comprehensive loss, net of taxes - Foreign currency translation adjustments (3,599) (1,774) (266) - ---------------------------------------------------------- ---------------- ----------------- --------------- Comprehensive Income $ 12,849 $ 13,324 $5,404 ========================================================== ================ ================= =============== The accompanying notes are an integral part of these consolidated financial statements
Imo Industries Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands except par value)
December 31, 2000 1999 - ----------------------------------------------------------------- --------------- -------------- Assets Current Assets Cash and cash equivalents $5,152 $2,898 Trade accounts and notes receivable, less allowance of $1,404 in 2000 and $1,348 in 1999 36,931 30,075 Inventories 55,989 57,844 Deferred income tax assets 6,112 11,972 Prepaid expenses and other current assets 3,051 3,051 - ----------------------------------------------------------------- --------------- -------------- Total Current Assets 107,235 105,840 - ----------------------------------------------------------------- --------------- -------------- Property, plant and equipment: Land 4,501 4,710 Buildings and improvements 20,005 20,745 Machinery and equipment 51,592 49,040 - ----------------------------------------------------------------- --------------- -------------- 76,098 74,495 Less accumulated depreciation and amortization (18,951) (12,911) - ----------------------------------------------------------------- --------------- --------------- Net property, plant and equipment 57,147 61,584 Intangible assets, principally goodwill, net 175,324 180,746 Investments in and advances to unconsolidated companies 5,509 5,069 Deferred income tax assets 19,231 20,845 Pension and other assets 7,417 2,637 - ----------------------------------------------------------------- --------------- -------------- Total Assets $ 371,863 $ 376,721 ================================================================= =============== ============== Liabilities and Shareholders' Equity Current Liabilities Notes payable $ 1 $ 1,295 Trade accounts payable 18,393 21,854 Accrued expenses and other liabilities 26,720 31,928 Accrued costs related to discontinued operations 1,610 2,559 Income taxes payable 4,195 --- Current portion of long-term debt 39,666 9,447 - ----------------------------------------------------------------- --------------- -------------- Total Current Liabilities 90,585 67,083 - ----------------------------------------------------------------- --------------- -------------- Long-term debt 125,207 159,624 Accrued postretirement benefits - long-term 8,547 8,555 Accrued pension expense and other liabilities 17,085 23,869 - ----------------------------------------------------------------- --------------- -------------- Total Liabilities 241,424 259,131 - ----------------------------------------------------------------- --------------- -------------- Shareholders' Equity Preferred stock: $1.00 par value; authorized and unissued 5,000,000 shares --- --- Common stock: $1.00 par value; authorized and issued 100 shares 1 1 Additional paid-in capital 120,751 120,751 Retained earnings (deficit) 15,996 (452) Cumulative foreign currency translation adjustments (6,309) (2,710) - ----------------------------------------------------------------- --------------- -------------- Total Shareholders' Equity 130,439 117,590 - ----------------------------------------------------------------- --------------- -------------- Total Liabilities and Shareholders' Equity $ 371,863 $ 376,721 ================================================================= =============== ============== The accompanying notes are an integral part of these consolidated financial statements.
Imo Industries Inc. and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands)
Year Ended Year Ended Year Ended December 31, December 31, December 31, 2000 1999 1998 - ------------------------------------------------------------ --------------- -------------- --------------- OPERATING ACTIVITIES Net income $ 16,448 $ 15,098 $5,670 Adjustments to reconcile net income to net cash provided by continuing operations: Depreciation 7,118 5,597 4,880 Amortization 5,610 5,354 6,872 Provision for deferred income taxes 7,474 7,730 4,668 Extraordinary item --- 216 5,223 Other 80 111 49 Other changes in operating assets and liabilities (excluding the effects of acquisitions and dispositions): Accounts and notes receivable, excluding effects of securitization (6,081) (5,628) 13,549 Inventories 711 5,737 11,774 Accounts payable and accrued expenses (7,801) (5,330) (21,019) Other operating assets and liabilities (7,973) (8,713) 9,163 - ------------------------------------------------------------ ---------------- --------------- ------------- Net cash provided by continuing operations 15,586 20,172 40,829 Net cash used by discontinued operations (949) (1,730) (1,219) - ----------------------------------------------------------------------------------------------------------- Net Cash Provided by Operating Activities 14,637 18,442 39,610 - ------------------------------------------------------------ --------------- -------------- --------------- INVESTING ACTIVITIES Net proceeds from sale of businesses and sales of property, plant and equipment 255 2,332 32,726 Purchases of property, plant and equipment (4,750) (6,402) (6,049) Acquisition of Sierra International Inc. --- (33,036) --- Net investing activities of discontinued operations --- --- (1,164) Other --- --- 80 - ------------------------------------------------------------ --------------- -------------- --------------- Net Cash (Used by) Provided by Investing Activities (4,495) (37,106) 25,593 - ------------------------------------------------------------ ---------------- --------------- ------------- FINANCING ACTIVITIES (Decrease) increase in notes payable (1,169) 511 (2,421) Proceeds from sale of accounts receivable --- 21,041 --- Repurchase of receivables for securitization (2,234) --- --- Proceeds from long-term borrowings 67,650 68,500 23,559 Principal payments on long-term debt (71,779) (73,685) (71,583) Purchase of minority shares --- --- (6,247) Premium payment on repurchase of long-term debt --- (210) (5,822) Other --- --- (37) - ------------------------------------------------------------ --------------- -------------- ---------------- Net Cash Used by Financing Activities (7,532) 16,157 (62,551) - ------------------------------------------------------------ ---------------- --------------- ------------- Effect of exchange rate changes on cash (356) (825) 50 - ------------------------------------------------------------ ---------------- --------------- ------------- Increase (Decrease) in Cash and Cash Equivalents 2,254 (3,332) 2,702 Cash and cash equivalents at beginning of the period 2,898 6,230 3,528 - ------------------------------------------------------------ --------------- -------------- --------------- Cash and Cash Equivalents at End of the Period $5,152 $2,898 $6,230 ============================================================ =============== ============== =============== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $18,857 $15,560 $22,443 Income taxes $ 2,171 $ 2,671 $ 2,725 The accompanying notes are an integral part of these consolidated financial statements.
Imo Industries Inc. and Subsidiaries Consolidated Statements of Shareholders' Equity (Dollars in thousands)
Cumulative Foreign Additional Retained Currency Common Paid-in Earnings Translation Stock Capital (Deficit) Adjustments Total - ------------------------------- ----------- ------------- ----------- ------------- ------------ Balance at December 31, 1997 $ 17,128 $ 106,805 $ (33,016) $(670) $90,247 Net income --- --- 5,670 --- 5,670 Purchase of minority interest --- (3,181) 11,796 --- 8,615 New equity structure upon merger with Imo Merger Corp. (17,127) 17,127 --- --- --- Foreign currency translation adjustments --- --- --- (266) (266) - ------------------------------- ----------- ------------- ----------- ------------- ------------ Balance at December 31, 1998 1 120,751 (15,550) (936) 104,266 Net income --- --- 15,098 --- 15,098 Foreign currency translation adjustments --- --- --- (1,774) (1,774) - ------------------------------- ----------- ------------- ----------- ------------- ------------ Balance at December 31, 1999 1 120,751 (452) (2,710) 117,590 Net income --- --- 16,448 --- 16,448 Foreign currency translation adjustments --- --- --- (3,599) (3,599) - ------------------------------- ----------- ------------- ----------- ------------- ------------ Balance at December 31, 2000 $ 1 $ 120,751 $15,996 $(6,309) $130,439 =============================== =========== ============= =========== ============= ============ The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements Note 1 Significant Accounting Policies - --------------------------------------- Consolidation: The consolidated financial statements include the accounts of Imo Industries Inc. (the "Company") and its majority-owned subsidiaries. Significant intercompany transactions have been eliminated in consolidation. The Company uses the equity method to account for investments in corporations in which it does not own a majority voting interest but has the ability to exercise significant influence over operating and financial policies. Translation of Foreign Currencies: Assets and liabilities of international operations are translated into U.S. dollars at year-end exchange rates. Income and expense accounts are translated into U.S. dollars at average rates of exchange prevailing during the year. Translation adjustments are reflected as a separate component of shareholders' equity and comprehensive income. Cash Equivalents: Cash equivalents include investments in government securities funds and certificates of deposit. Investment periods are generally less than one month. Inventories: Inventories are carried at the lower of cost or market, cost being determined principally on the basis of standards which approximate actual costs on the first-in, first-out method, and market being determined by net realizable value. Appropriate consideration is being given to deterioration, obsolescence and other factors in evaluating net realizable value. Revenue Recognition: Revenues are recorded generally when the Company's products are shipped. Shipping and Handling: The Company adopted Emerging Issues Task Force Issue 00-10 "Accounting for Shipping and Handling Fees and Costs," which requires amounts billed to customers for shipping and handling to be included as a component of sales. Shipping and handling costs are included as a component of cost of sales. Depreciation and Amortization: Depreciation and amortization of plant and equipment are computed principally on a straight-line basis over the estimated useful lives of the assets as follows: buildings and improvements, 10 to 40 years and machinery and equipment, 3 to 15 years. Earnings Per Share: As a result of the back-end merger on July 2, 1998, earnings per share is not presented for 2000, 1999 and 1998. (See Note 2). Recent Accounting Pronouncements: In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS No. 133 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. This statement is effective for fiscal years beginning after June 15, 2000. The Company believes that results of operations will not be impacted by the adoption of this statement. During the fourth quarter of 1999, the Company adopted SFAS 125 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," which provides accounting and reporting standards for sales, securitization and servicing of receivables and other financial assets and extinguishment of liabilities. The provisions of the Statement do not have a material impact on the results of operations of the Company. Intangible Assets: Goodwill of businesses acquired is being amortized on the straight-line basis over 40 years. The carrying value of goodwill is reviewed when indicators of impairment are present, by evaluating future cash flows of the associated operations to determine if impairment exists. Goodwill at December 31, 2000 and 1999 was $172.6 million and $177.2 million, respectively, net of respective accumulated amortization of $16.6 million and $12.0 million. Patents are amortized over the shorter of their legal or estimated useful lives. Management Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Note 2 Acquisition By Colfax Corporation - ----------------------------------------- On August 28, 1997, Colfax Corporation ("Colfax"), acquired approximately 93% of the Company's outstanding shares of common stock pursuant to its tender offer for all outstanding shares of the common stock of the Company (the "Acquisition"). The consideration paid was $7.05 per share of common stock or $112.1 million in total. On July 2, 1998, Imo Merger Corp., a wholly owned subsidiary of Colfax, merged with and into Imo, pursuant to a short-form merger under Delaware law ("back-end merger"). The Company was the surviving corporation in the back-end merger and as result became a wholly owned subsidiary of Colfax. As of December 31, 2000, 972,961 of the outstanding 1,221,888 common shares held by minority shareholders were converted to cash. A payable of $1.8 million was accrued as of December 31, 2000, for the remaining 248,927 shares that were not converted as of that date. Total consideration for the purchase of Imo was $120.7 million. Cost Reduction Programs In connection with the Acquisition, the Company implemented a cost reduction program. The cost of this program was $18.6 million and was accrued for in accordance with the purchase method of accounting. It is comprised of $10.5 million related to severance and termination benefits as a result of headcount reductions at the Company's corporate headquarters. In addition, $1.2 million and $6.9 million of costs for the Company's Fluid Handling and Industrial Positioning segments, respectively, related to severance and termination benefits resulting from headcount reductions and the consolidation of certain manufacturing facilities. The program was completed in 1999. The cash outlays related to this program were $7.4 million in 1998 and $3.1 million during 1999. Note 3 Discontinued Operations - ------------------------------- On February 27, 1998, the Company completed the sale of its Roltra Morse business to Magna International Inc. for cash of $30 million, plus the assumption of Roltra Morse's debt. The sale price approximated the recorded net book value of the business. Net proceeds were used to reduce domestic senior debt. In accordance with APB Opinion No. 30, the disposal of this business segment has been accounted for as a discontinued operation and, accordingly, the operating results have been segregated and reported as Discontinued Operations in the accompanying Consolidated Statements of Income and Comprehensive Income. The income (loss) from operations of the Discontinued Operations for 1998 includes allocated interest expense of $0.2 million. Allocated interest expense is an allocation of corporate interest expense to the Discontinued Operations based on the ratio of net assets to be sold to the sum of the Company's consolidated net assets, if positive, plus consolidated debt. The operating loss of $0.9 million for Roltra Morse for the two months ended February 28, 1998 was accrued as a portion of the estimated loss on disposal as of December 31, 1997. Note 4 Restructuring Asset Sales - -------------------------------- 2000 Assets Sales: During 2000, the Company completed the sales of certain non-operating real estate for net proceeds of $0.3 million. 1999 Assets Sales: During 1999, the Company completed the sales of certain non-operating real estate for net proceeds of $0.1 million. 1998 Assets Sales: On February 27, 1998, the Company sold its Roltra Morse business segment to Magna International. During 1998, the Company also completed the sales of certain non-operating real estate for net proceeds of $0.6 million. Note 5 Inventories - ------------------ Inventories are summarized as follows: December 31 (Dollars in thousands) 2000 1999 - ------------------------------------------------------------------------------- Finished products $ 21,336 $ 24,740 Work in process 11,248 14,277 Materials and supplies 24,225 19,904 - ------------------------------------------------------------------------------- 56,809 58,921 Less customers' progress payments (820) (1,077) - ------------------------------------------------------------------------------- $ 55,989 $ 57,844 =============================================================================== Note 6 Accrued Expenses and Other Liabilities - ---------------------------------------------- Accrued expenses and other liabilities consist of the following: December 31 (Dollars in thousands) 2000 1999 - ------------------------------------------------------------------------------- Accrued payroll and related items $9,397 $8,403 Accrued product warranty costs 2,780 2,507 Accrued interest payable 2,473 2,496 Accrued litigation and claims costs 1,639 7,124 Accrued environmental costs 1,129 1,548 Accrued divestiture costs 993 977 Advance customer payments 765 539 Accrued restructuring costs 308 909 Other 7,236 7,425 - ------------------------------------------------------------------------------- $ 26,720 $ 31,928 =============================================================================== Note 7 Income Taxes - -------------------- The components of income tax expense from continuing operations are: Year Ended December 31 (Dollars in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------ Current: Federal $ 59 $ (449) $ 233 Foreign 2,971 1,326 1,801 State 386 233 306 - ------------------------------------------------------------------------------ 3,416 1,110 2,340 - ------------------------------------------------------------------------------ Deferred: Federal 7,754 6,450 4,668 Foreign and State (280) 1,280 --- - ------------------------------------------------------------------------------ 7,474 7,730 4,668 - ------------------------------------------------------------------------------ $10,890 $8,840 $7,008 ============================================================================== Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company's deferred tax assets and liabilities as of December 31, 2000 and 1999 are as follows: December 31 (Dollars in thousands) 2000 1999 - ------------------------------------------ ----------------------------- ----------------------------- Current Long-term Current Long-term - ------------------------------------------ ------------ ---------------- ------------ ---------------- Deferred tax assets: Postretirement benefit obligation $ 234 $ 2,996 $ 234 $ 3,235 Expenses not currently deductible 7,082 4,999 12,942 6,467 Net operating loss carryover --- 26,785 --- 29,026 Tax credit carryover --- 8,021 --- 6,071 - ------------------------------------------ ------------ ---------------- ------------ ---------------- Total deferred tax assets 7,316 42,801 13,176 44,799 Valuation allowance for deferred tax assets (1,204) (516) (1,204) (516) - ------------------------------------------ ------------- ---------------- ------------ ---------------- Net deferred tax assets 6,112 42,285 11,972 44,283 - ------------------------------------------ ------------ ---------------- ------------ ---------------- Deferred tax liabilities: Tax over book depreciation --- 17,436 --- 16,835 Other --- 5,618 --- 6,603 - ------------------------------------------ ------------ ---------------- ------------ ---------------- Total deferred tax liabilities --- 23,054 --- 23,438 - ------------------------------------------ ------------ ---------------- ------------- --------------- Net deferred tax assets $ 6,112 $19,231 $ 11,972 $ 20,845 ========================================== ============ ================ ============= ===============
The net deferred tax asset currently recorded at December 31, 2000 is $25.3 million, a level where management believes that it is more likely than not that the tax benefit will be realized. Although the Company has a history of prior losses, these losses were primarily attributable to divested businesses and unusual items. The Company establishes valuation allowances in accordance with the provisions of FASB Statement No. 109, "Accounting for Income Taxes." The Company continually reviews the adequacy of the valuation allowance and is recognizing these benefits only as reassessment indicates that it is more likely than not that the benefits will be realized. The valuation allowance was $1.7 million for December 31, 2000 and December 31, 1999. At December 31, 2000, unremitted earnings of foreign subsidiaries were approximately $27.3 million. Since it is the Company's intention to indefinitely reinvest these earnings, no U.S. taxes have been provided. Determination of the amount of unrecognized deferred tax liability on these unremitted earnings is not practicable. The amount of foreign withholding taxes that would be payable upon remittance of those earnings is approximately $.5 million. The components of income from continuing operations before income taxes and extraordinary item: Year Ended December 31 (Dollars in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------ United States $ 17,395 $ 14,291 $ 7,963 Foreign 9,943 9,863 9,938 - ------------------------------------------------------------------------------ $ 27,338 $24,154 $17,901 ============================================================================== U.S. income tax expense (benefit) at the statutory tax rate is reconciled below to the overall U.S. and foreign income tax expense. Year Ended December 31 (Dollars in thousands) 2000 1999 1998 - ------------------------------------------------------------------------------ Tax at U.S. federal income tax rate $9,568 $ 8,454 $ 6,265 State taxes, net of federal income tax effect 250 151 198 Impact of foreign tax rates and credits, and tax refunds (789) (1,247) (1,677) Net U.S. tax on distributions of current foreign earnings 385 486 266 Goodwill amortization and write-off 1,540 1,574 1,995 Other (64) (578) (39) - ------------------------------------------------------------------------------- Income tax expense $ 10,890 $ 8,840 $ 7,008 =============================================================================== The Company has net operating loss carryforwards of approximately $76.5 million expiring in years 2001 through 2018, and minimum tax credits of approximately $2.7 million, which may be carried forward indefinitely. Tax credit carryforwards include foreign tax credits of approximately $5.3 million that expire beginning in the year 2002. These carryforwards are available to offset future federal taxable income, and may be subject to the Section 382 limitations, due to the Acquisition. Note 8 Long-Term Debt and Notes Payable - ---------------------------------------- Long-Term Debt Long-term debt consists of the following: December 31 (Dollars in thousands) 2000 1999 - ------------------------------------------------------------------------------- Term Loans (1) (2) $ 27,290 $ 36,689 Revolver Loans (1) (2) 62,500 52,250 Due to Ameridrives International, L.P. (3) --- 5,000 Senior subordinated notes with interest at 11.75%, due May 1, 2006, net of unamortized discount of $0.7 million in 2000 and $0.8 million in 1999 74,299 74,217 Other 784 915 - ------------------------------------------------------------------------------- 164,873 169,071 Less current portion (39,666) (9,447) - ------------------------------------------------------------------------------- $125,207 $159,624 =============================================================================== (1) A portion of the proceeds from the sale of the Morse Controls division on February 13, 2001 was used to pay down the term loan by $17.3 million. Quarterly principal payments are as follows: $1.1 million due quarterly February 28, 2001 to August 29, 2001; $1.7 million due quarterly November 29, 2001 to August 29, 2002. All revolver balances are due on August 29, 2002. (2) These loans bear interest at prime plus .50%, or LIBOR plus 1.75%. The prime and LIBOR margins are a sliding scale based on the Company's total debt to EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization.) (3) The majority shareholders of Ameridrives International, L.P. are also the majority shareholders of the Company. This loan bears interest at LIBOR + 1.50%. - ------------------------------------------------------------------- On February 27, 1998, the Company completed the sale of its Roltra Morse business to Magna International Inc. (See Note 3). The net proceeds were used to reduce domestic senior debt by $30 million on February 27, 1998, including $8 million of the outstanding Term Loans. The sale of Roltra Morse and use of the proceeds to reduce its domestic senior debt increased the availability under its revolving credit facility to purchase a portion of its 11.75% senior subordinated notes (the "Notes") on the open market. The aggregate annual maturities of long-term debt, in thousands, for the four years subsequent to 2001 are: (Dollars in thousands) - ------------------------------------------------------------------------------ 2002 $ 125,207 2003 --- 2004 --- 2005 --- Thereafter --- - ------------------------------------------------------------------------------ Total $125,207 ============================================================================== The Term Loans have required mandatory prepayments under certain conditions such as from proceeds from asset sales, specified percentages of net proceeds of debt or equity issuances, and a percentage of excess cash flow. The mandatory prepayments will be applied to the Term Loans pro rata, and then to the repayment of the Revolver Loans. Mandatory prepayments applied to the Term Loans reduce the scheduled quarterly principal payments on a pro rata basis. The interest rates on the Revolver and Term Loans are based on current market rates. Consequently, the carrying value of the Term Loans approximates fair value. The Credit Agreement requires the Company to meet certain objectives with respect to financial ratios. The Credit Agreement and the Notes contain provisions, which place certain limitations on dividend payments and outside borrowings. Under the most restrictive of such provisions, the Credit Agreement requires the Company to maintain certain minimum interest coverage, fixed charge coverage and maximum permitted debt levels and prohibits dividends. The Company was in compliance with all of its covenants under the Credit Agreement at December 31, 2000. During March of 2001, the Company plans to exercise its option to call the entire issue of the 11.75% senior subordinated notes due May 1, 2006, for redemption on May 1, 2001, at a redemption price of 106% of the principal amount. The Company intends to finance the redemption with proceeds from the sale of the Morse Controls division, as well as additional revolver borrowings. The year ended December 31, 1999, includes an extraordinary charge of $0.2 million, as a result of the early extinguishment of a portion of its Notes. The year ended December 31, 1998, include an extraordinary charge of $5.2 million net of tax, representing charges related to the early extinguishment of the Company's debt under its current senior secured credit facilities and its Notes, as well as the write-off of previously deferred loan costs. Notes Payable The Company's continuing operations had $6.0 million in foreign short-term credit facilities with $0.001 million outstanding at December 31, 2000. Due to the short-term nature of these debt instruments it is the Company's opinion that the carrying amounts approximate the fair value. As of December 31, 2000, the Company had $6.3 million of outstanding standby letters of credit. Note 10 Operations by Industry Segment and Geographic Area - ----------------------------------------------------------- The Company classifies its continuing operations into two business segments: Fluid Handling and Industrial Positioning. Detailed information regarding products by segment is contained in the section entitled "Business" included in Part I, Item 1 of this Form 10-K Report. Amounts related to pre-Acquisition and post-Acquisition have not been separated, as the effect of the Acquisition on the segments was not material. Information about the business of the Company by business segment, foreign operations and geographic area is presented below: Year Ended December 31 (Dollars in thousands) 2000 1999 1998 - ----------------------------------------------------------- --------------- ---------------- --------------- Net Sales Fluid Handling $99,170 $101,854 $113,688 Industrial Positioning 230,274 190,840 200,684 - ----------------------------------------------------------- --------------- ---------------- --------------- Total net sales $329,444 $292,694 $314,372 =========================================================== =============== ================ =============== Segment operating income Fluid Handling $ 23,108 $ 22,779 $ 21,462 Industrial Positioning 30,024 23,198 26,323 - ----------------------------------------------------------- --------------- ---------------- --------------- Total segment operating income 53,132 45,977 47,785 - ----------------------------------------------------------- --------------- ---------------- --------------- Equity in income of unconsolidated companies 742 --- 31 Unallocated corporate expenses (8,332) (7,344) (9,275) (Loss) / Gain on sale of assets (24) 2,066 --- Interest income / (expense), net (19,157) (16,545) (20,640) Other non operating 977 --- --- - ----------------------------------------------------------- --------------- ---------------- --------------- Income from continuing operations before income taxes and extraordinary item $ 27,338 $ 24,154 $ 17,901 =========================================================== =============== ================ ===============
A reconciliation of segment operating income to income from operations follows: Year Ended December 31 (Dollars in thousands) 2000 1999 1998 - ---------------------------------------- ------------------- ------------------ ------------------- Segment operating income $ 53,132 $ 45,977 $ 47,785 Unallocated corporate expenses (8,332) (7,344) (9,275) Other income (700) (922) --- - ---------------------------------------- ------------------- ------------------ ------------------- Income from operations $ 44,100 $ 37,711 $ 38,510 ======================================== =================== ================== ===================
Year Ended December 31 (Dollars in thousands) 2000 1999 - ------------------------------------------------------------------------------- Identifiable assets Fluid Handling $ 55,129 $ 53,536 Industrial Positioning 126,469 125,018 Corporate 190,265 198,167 - ------------------------------------------------------------------------------- Total identifiable assets $371,863 $376,721 =============================================================================== Depreciation and amortization Fluid Handling $ 2,023 $ 1,978 Industrial Positioning 5,045 3,360 Corporate 5,660 5,613 - ------------------------------------------------------------------------------- Total depreciation and amortization $12,728 $10,951 =============================================================================== Capital expenditures Fluid Handling $1,312 $1,362 Industrial Positioning 3,396 4,738 Corporate 42 302 - ------------------------------------------------------------------------------- Total capital expenditures $4,750 $6,402 =============================================================================== Identifiable assets of corporate at December 31, 2000 and 1999 include goodwill of $172.6 million and $177.2 million related to the Acquisition of Imo, respectively (See Note 2). The continuing operations of the Company on a geographic basis are as follows: Year Ended December 31 (Dollars in thousands) 2000 1999 1998 - -------------------------------------------- ------------------ ------------------ ------------------- Net sales United States $250,387 $203,659 $207,795 Foreign 79,057 89,035 106,577 - -------------------------------------------- ------------------ ------------------ ------------------- Total net sales $329,444 $292,694 $314,372 ============================================ ================== ================== =================== Segment operating income United States $ 42,163 $ 34,881 $34,523 Foreign 10,969 11,096 13,262 - -------------------------------------------- ------------------ ------------------ ------------------- Total segment operating income $ 53,132 $ 45,977 $47,785 ============================================ ================== ================== =================== Year Ended December 31 (Dollars in thousands) 2000 1999 1998 - -------------------------------------------- ------------------ ------------------ ------------------- Identifiable assets Continuing Operations: United States $319,328 $319,711 $327,720 Foreign 52,535 57,010 61,252 - -------------------------------------------- ------------------ ------------------ ------------------- Total identifiable assets $371,863 $376,721 $388,972 ============================================ ================== ================== =================== Export sales Asia $3,650 $3,463 $5,277 Canada 9,705 5,616 3,801 Europe 4,656 3,461 3,288 Middle East & North Africa 1,148 544 769 Central and South America 3,583 4,320 8,272 Other 1,572 2,183 3,440 - -------------------------------------------- ------------------ ------------------ ------------------- Total export sales $ 24,314 $ 19,587 $ 24,847 ============================================ ================== ================== ===================
No one customer accounted for 10% or more of consolidated sales in 2000, 1999 or 1998. Note 11 Pension Plans and Other Postretirement Benefits - -------------------------------------------------------- The Company and its subsidiaries have various pension plans covering substantially all of their employees. Benefits under these pension plans for substantially all U.S. employees ceased to accrue on January 31, 1999, when the Company froze benefits under its primary pension plan. At the same time, the Company increased the length of service credit for the pension plan by 20% and enhanced its 401k plan. Curtailment of the pension plan resulted in a curtailment gain of $6.5 million, while the increased length of service resulted in a loss of $4.9 million. Both changes were contemplated at the Acquisition and were recorded as purchase accounting adjustments. It is the general policy of the Company to fund its pension plans in conformity with requirements of applicable laws and regulations. Net periodic pension (income) cost was $(4.9) million in 2000, $(3.8) million in 1999, $0.7 million in 1998, and includes amortization of prior service cost and transition amounts for periods of 5 to 15 years. The 2000, 1999 and 1998 expense includes costs related to retained pension liabilities of discontinued operations. In addition to providing pension benefits, the Company provides certain health care and life insurance benefits for certain retired union employees. The Company's unionized retiree benefits are determined by their individually negotiated contracts. The Company's contribution toward the full cost of the benefits is based on the retiree's age and continuous unbroken length of service with the Company. The Company's policy is to pay the cost of medical benefits as claims are incurred. Life insurance costs are paid as insured premiums are due. The following sets forth the funded status of the plans as of the most recent actuarial valuation using a measurement date of December 31. Pension Benefits Other Benefits - ------------------------------------------------------ ------------------------------- ------------------------------ Year Ended December 31 (Dollars in thousands) 2000 1999 2000 1999 - ------------------------------------------------------ --------------- -------------- ---------------- -------------- Change in benefit obligation: Benefit obligation at beginning of year $206,762 $219,638 $9,014 $ 10,004 Service cost 38 331 13 19 Interest cost 15,625 14,882 659 643 Actuarial loss (gain) 5,246 (12,813) (26) (705) Effect of plan change --- 407 --- --- Estimated benefits paid (15,079) (15,683) (969) (947) - ------------------------------------------------------ --------------- -------------- ---------------- -------------- Benefit obligation at end of year $212,592 $206,762 $8,691 $9,014 - ------------------------------------------------------ --------------- -------------- ---------------- -------------- Change in plan assets: Fair value of plan assets at beginning of year $ 235,714 $ 214,742 $ --- $ --- Estimated return on plan assets 2,333 35,811 --- --- Employer contribution 309 844 969 947 Estimated benefits paid (15,079) (15,683) (969) (947) - ------------------------------------------------------ --------------- --------------- --------------- --------------- Fair value of plan assets at end of year $ 223,277 $ 235,714 $ --- $ --- - ------------------------------------------------------ --------------- --------------- --------------- --------------- Funded status $ 10,685 $ 28,952 $ (8,691) $ (9,014) Unrecognized actuarial gain (6,376) (30,056) (205) (197) Unrecognized prior service cost 493 583 72 79 Unrecognized net obligation 127 153 --- --- - ------------------------------------------------------ --------------- --------------- --------------- -------------- Accrued benefit (cost) $4,929 $ (368) $ (8,824) $ (9,132) ====================================================== =============== =============== =============== ============== Pension Benefits Other Benefits - ------------------------------------------------------ ------------------------------- ------------------------------- Year Ended December 31 (Dollars in thousands) 2000 1999 2000 1999 - ------------------------------------------------------ --------------- --------------- --------------- --------------- Discount rate 7.75% 7.75% 7.75% 7.75% Expected return on plan assets 9.25% 9.25% --- ---
For measurement purposes, a 5% annual rate of increase in the per capita cost of covered health care benefits was assumed for 2000 and in all future years. The rate of compensation increase was zero in 2000 and 1999 because the plan was frozen on January 31, 1999. Pension Benefits Other Benefits - ------------------------------------------------------ ------------------------------- ------------------------------- Year Ended December 31 (Dollars in thousands) 2000 1999 2000 1999 - ------------------------------------------------------ --------------- --------------- --------------- --------------- Components of net periodic benefit cost: Service cost $ 38 $ 331 $ 13 $ 19 Interest cost 15,625 14,882 659 643 Expected return on plan assets (20,721) (19,128) --- --- Amortization 162 132 (12) 6 --- --- --- --- - ------------------------------------------------------ ---------------- -------------- --------------- --------------- Net periodic (income) benefit cost $ (4,896) $ (3,783) $660 $668 ====================================================== ================ ============== =============== ===============
The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $10.1 million, $9.8 million and $8.4 million, respectively, as of December 31, 2000 and related to the Varo and Morse Ltd pension plans. The projected benefit obligation, accumulated benefit obligation, and fair value of plan assets for the pension plans with accumulated benefit obligations in excess of plan assets were $2.8 million, $2.8 million and $1.4 million, respectively, as of December 31, 1999 and related to the US Salaried, Louisburg, Warren and Varo pension plans Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one-percentage-point change in assumed health care cost trend rates would have the following effects: 1-Percentage-Point 1-Percentage-Point (Dollars in thousands) Increase Decrease - ------------------------------------------------------------------------------- Effect on total of service and interest cost components $ 45 $ (39) Effect on the postretirement benefit obligation $ 595 $(519) Plan assets at December 31, 2000 are invested in fixed income investments and equity securities whose values are subject to fluctuations of the securities market. The Company maintains a defined contribution plan ("Plan") covering substantially all domestic, non-union employees. Eligible employees may generally contribute from 1% to 15% of their compensation on a pre-tax basis to the Plan. The Company's expense for 2000, 1999 and 1998 was $2.6 million, $2 million and $.4 million, respectively, related to the Plan. Effective February 1, 1999, the Company contributions are based on 50% of the first 6% of each participant's pre-tax contribution. In addition, the Company will also contribute 3% of all employees' salary (including non-contribution plan participants) to the defined contribution plan, effective January 1, 1999. Note 12 Leases - --------------- The Company leases certain manufacturing and office facilities, equipment, and automobiles under long-term leases. Future minimum rental payments required under operating leases of continuing operations that have initial or remaining noncancelable lease terms in excess of one year, as of December 31, 2000, are: (Dollars in thousands) - ------------------------------------------------------------------------------- 2001 $ 3,433 2002 2,698 2003 2,047 2004 830 2005 508 Thereafter 2,915 - ------------------------------------------------------------------------------- Total minimum lease payments $ 12,431 =============================================================================== Total rental expense under operating leases charged against continuing operations was $6.0 million in 2000, $6.5 million in 1999 and $7.3 million in 1998. Note 13 Foreign Exchange Contracts - ----------------------------------- The Company periodically enters into foreign exchange contracts for purposes of hedging its exposure to foreign currency exchange rate fluctuations. These contracts hedged firm commitments between the Swedish Krona and the German Deutschmark and the United States Dollar. At December 31, 1999, the Company had foreign currency contracts with notional amounts totaling approximately $0.1 million with various expiration dates through June 2000. The Company did not have any foreign currency contracts outstanding at December 31, 2000. All foreign currency derivative agreements are with major commercial banks; therefore the risk of credit loss from nonperformance by the banks is considered by management to be minimal. The Company evaluates its exposure to credit loss on an ongoing basis. Note 14 Sierra International Inc. Acquisition - ---------------------------------------------- On December 1, 1999, the Company purchased the stock of Sierra International Inc. ("Sierra") from Echlin Inc., a subsidiary of Dana Corporation. Sierra sells and distributes replacement parts for marine and power equipment applications and marine hose products. Sierra has become part of the Company's Industrial Positioning segment. On February 13, 2001, Sierra was sold with the Company's Morse Controls division. (See Note 16). Note 15 Accounts Receivable Securitization - -------------------------------------------- On November 29, 1999, the Company entered into an agreement to sell an interest in accounts receivable to finance a portion of the Sierra acquisition. Under the program, the Company entered into an agreement to sell, on a revolving basis, certain of its accounts receivable to a wholly-owned bankruptcy-remote subsidiary, Imo Funding Company, LLC, which entered into an agreement to transfer, on a revolving basis, an undivided percentage ownership interest in a pledged pool of accounts receivable to an unrelated third party purchaser, Scotia Capital. Amounts pledged to the purchaser under this agreement include the accounts receivable from the Company's US operations of the Imo Pump, Boston Gear and Morse Controls divisions. At December 31, 2000 and 1999, approximately $23.2 million and $22.4 million, respectively, of accounts receivable had been pledged, and of this amount, approximately $18.8 million and $21.0 million, respectively had actually been sold to Scotia Capital under this agreement. The sales are reflected as a reduction of accounts receivable and are net of a discount amount that approximates the purchaser's financing cost of issuing its own commercial paper backed by these accounts receivable. The retained interest in the accounts receivables sold are valued at the carrying amount of the retained accounts receivable net of applicable loss reserve and related commercial paper rates, which approximates fair value. During the year, management monitors the change in the outstanding retained interest and makes adjustments to its carrying amount based on actual and projected losses as well as any changes in interest rates. As of December 31, 2000 and 1999, the delinquencies on the amounts pledged were approximately $1.1 million and $0.9 million, respectively. During 2000 and 1999, the actual losses on the pledged amounts were approximately $0.2 million and $0.1 million, respectively. At December 31, 2000, a 10 and 20 percent adverse change in the expected losses would have approximately a $0.1 million and $0.2 million, impact on residual interest, respectively. Any changes in interest rates would only have only a marginal impact on residual interest. The Company, as agent for the purchaser, retains servicing responsibilities for the pledged receivables. The fees received by the Company for these services during 2000 and 1999, were recorded at fair value, and therefore no related assets have been recorded. The discount fees arising from the securitization transactions were approximately $1.5 million and $0.1 million for 2000 and 1999, respectively, recorded as interest expense and are based on the level of receivables sold and related commercial paper rates. A portion of the proceeds from the sale of the Morse Controls division on February 13, 2001 was used to fully repay the entire accounts receivable securitization. As a result, the Company's ownership interest in the pledged pool of accounts receivable was returned. SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities," provides accounting and reporting standards for sales, securitization and servicing of receivables and other financial assets and extinguishments of liabilities. The Company adopted the Statement in the 1999 fourth quarter. The provisions of the Statement do not have a material impact on the accounting for actual or future sales of trade accounts receivable under the securitization agreement referred to above. SFAS 140 "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities - a Replacement of FASB Statement 125," provides for accounting and reporting standards for sales, securitization and servicing of receivables and other financial assets and extinguishments of liabilities. The Company adopted the Statement's disclosure requirements in the 2000 fourth quarter. Note 16 Subsequent Events - -------------------------- Sale of Morse Controls - On February 13, 2001, the Company sold the assets of its Morse Controls division and stock of the Morse related subsidiaries, to Teleflex Incorporated ("Teleflex") pursuant to an agreement dated November 15, 2000 for $135 million in cash, subject to final adjustment. Cash proceeds have been principally used by the Company to pay down its domestic senior debt and accounts receivable securitization. The transaction will be reflected in the Company's financial statements in the first quarter of 2001. Note 17 Contingencies - ----------------------- The Company and one of its subsidiaries are two of a large number of defendants in a number of lawsuits brought in various jurisdictions by approximately 4,500 claimants who allege injury caused by exposure to asbestos. Although neither the Company nor any of its subsidiaries has ever been a producer or direct supplier of asbestos, it is alleged that the industrial and marine products sold by the Company and the subsidiary named in such complaints contained components which contained asbestos. Suits against the Company and its subsidiary have been tendered to its insurers, who are defending under their stated reservation of rights. In addition, the Company and the subsidiary are named in cases, involving approximately 40,000 claimants, which were "administratively dismissed" by the U.S. District Court for the Eastern District of Pennsylvania. Cases that have been "administratively dismissed" may be reinstated only upon a showing to the Court that (i) there is satisfactory evidence of an asbestos-related injury; and (ii) there is probative evidence that the plaintiff was exposed to products or equipment supplied by each individual defendant in the case. The Company believes that it has adequate insurance coverage or has established appropriate reserves to cover potential liabilities related to these cases. The Company is a defendant in a lawsuit in the Supreme Court of British Columbia alleging breach of contract arising from the sale of a steam turbine delivered by the Company's former Delaval Turbine Division and claiming damages in excess of $10 million. The Company believes that there are legal and factual defenses to the claim and intends to defend the action vigorously. The Company was a defendant in a lawsuit in the Circuit Court of Cook County, Illinois alleging performance shortfalls in products delivered by the Company's former Delaval Turbine Division. The Company has reached an agreement on December 7, 1999, with the plaintiff settling all claims between the parties. However, a co-defendant, Federal Insurance Company, continues to pursue its counterclaim against the Company for attorney's fees it alleges it incurred in its role as surety for the project from which the litigation arose. The Company believes that there are legal and factual defenses to the claim and intends to defend the action vigorously. On June 3, 1997, the Company was served with a complaint in a case brought in the Superior Court of New Jersey which alleges damages in excess of $10 million incurred as a result of losses under a Government Contract Bid transferred in connection with the sale of the Company's former Electro-Optical Systems business. The Electro-Optical Systems business was sold in a transaction that closed on June 2, 1995. The sales contract provided certain representations and warranties as to the status of the business at the time of sale. The complaint alleges that the Company failed to provide notice of a "reasonably anticipated loss" under a bid that was pending at the time of the transfer of the business and therefore a representation was breached. The contract was subsequently awarded to the Company's Varo subsidiary and thereafter transferred to the buyer of the Electro-Optical Systems business. The Company believes that there are legal and factual defenses to the claims and intends to defend the action vigorously. The operations of the Company, like those of other companies engaged in similar businesses, involve the use, disposal and clean up of substances regulated under environmental protection laws. In a number of instances the Company has been identified as a Potentially Responsible Party by the U.S. Environmental Protection Agency, with respect to the disposal of hazardous wastes at a number of facilities that have been targeted for clean-up pursuant to CERCLA or similar state law. Similarly, the Company has received notice that it is one of a number of defendants named in an action filed in the United States District Court, for the Southern District of Ohio Western Division by a group of plaintiffs who are attempting to allocate a share of cleanup costs, for which they are responsible, to a large number of additional parties, including the Company. Although CERCLA and corresponding state law liability is joint and several, the Company believes that its liability will not have a material adverse effect on the financial condition of the Company since it believes that it either qualifies as a de minimis or minor contributor at each site. Accordingly, the Company believes that the portion of remediation costs that it will be responsible for will not be material. The Company is also involved in various other pending legal proceedings arising out of the ordinary course of the Company's business. None of these legal proceedings are expected to have a material adverse effect on the financial condition of the Company. With respect to these proceedings and the litigation and claims described in the preceding paragraphs, management of the Company believes that it either will prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. There can be no assurance, however, as to the ultimate outcome of any of these matters, and if all or substantially all of these legal proceedings were to be determined adversely to the Company, there could be a material adverse effect on the financial condition of the Company. The Company is self-insured for a portion of its product liability and certain other liability exposures. Depending on the nature of the liability claim, and with certain exceptions, the Company's maximum self-insured exposure ranges from $250,000 to $500,000 per claim with certain maximum aggregate policy limits per claim year. With respect to the exceptions, which relate principally to diesel and turbine units sold before 1991, the Company's maximum self-insured exposure is $5 million per claim. Report of Independent Public Accountants ---------------------------------------- To the Shareholders and Board of Directors of Imo Industries Inc.: We have audited the accompanying consolidated balance sheets of Imo Industries Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform an audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Imo Industries Inc. and subsidiaries as of December 31, 2000 and 1999, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. ARTHUR ANDERSEN LLP Richmond, Virginia March 28, 2001 Report of Independent Public Accountants on Schedule II ------------------------------------------------------- To the Shareholders and Board of Directors of Imo Industries Inc.: We have audited in accordance with auditing standards generally accepted in the United States the consolidated financial statements included in the Form 10-K Annual Report of Imo Industries Inc. (a Delaware corporation) and subsidiaries as of December 31, 2000 and 1999, and for each of the three years in the period ended December 31, 2000, and have issued our report thereon dated March 28, 2001. Our audits were made for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II filed as a part of the Company's Form 10-K Annual Report is the responsibility of the Company's management and is presented for purposes of complying with the Securities and Exchange Commission's rules and is not a part of the basic consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, fairly states, in all material respects, the financial data required to be set forth therein in relation to the basic consolidated financial statements taken as a whole. ARTHUR ANDERSEN LLP Richmond, Virginia March 28, 2001 Imo Industries Inc. and Subsidiaries Quarterly Financial Information (Unaudited) Quarterly financial information for 2000 and 1999 is as follows:
1st 2nd 3rd 4th 2000 (Dollars in thousands)(a) Quarter Quarter Quarter Quarter Net Sales $83,424 $89,130 $78,840 $78,050 Gross profit 26,711 28,873 24,439 24,412 Income from continuing operations before extraordinary item 4,533 6,111 3,557 2,247 Net income $ 4,533 $ 6,111 $ 3,557 $2,247 1st 2nd 3rd 4th 1999 (Dollars in thousands)(a) Quarter Quarter Quarter Quarter Net Sales $ 75,843 $ 77,211 $ 68,371 $ 71,269 Gross profit 23,768 25,650 20,899 22,254 Income from continuing operations before extraordinary item 3,321 5,352 2,278 4,363 Extraordinary Item (216) --- --- --- Net income 3,105 5,352 2,278 4,363
(a) The notes to the consolidated financial statements located in Part IV of this Form 10-K Report as indexed at Item 14(a)(1) should be read in conjunction with this summary. SCHEDULE II IMO INDUSTRIES INC. AND SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS (Dollars in thousands)
THREE-YEAR PERIOD ENDED DECEMBER 31, 2000 - ---------- ------------------------------------ ---------------- ------------------------------ --------------- ADDITIONS BALANCE ------------------------- AT BEGINNING CHARGED TO OTHER - DEDUCTIONS - BALANCE AT OF YEAR COSTS EXPENSES DESCRIBE DESCRIBE END OF YEAR YEAR ENDED DECEMBER 31, 2000: Allowance for doubtful accounts $1,348 $ 538 $ --- $ 477 (3) $1,404 5 (1) ============= ============= ============ ============= ============= Inventory valuation allowance $5,682 $1,995 $ --- $1,504 (5) $6,097 76 (1) ============= ============= ============ ============= ============= Valuation allowance for deferred tax assets $1,720 $ --- $ --- $ --- $1,720 ============= ============= ============ ============= ============= Accrued product warranty liability $2,507 $1,841 $ --- $1,554 (4) $2,780 14 (1) ============= ============= ============ ============= ============= YEAR ENDED DECEMBER 31, 1999: Allowance for doubtful accounts $1,058 $ 360 $ 200 (7) $ 50 (2) $1,348 220 (3) ============= ============= ============ ============= ============= Inventory valuation allowance $7,222 $1,211 $ 36 (2) $2,810 (5) $5,682 821 (7) 700 (2) 98 (1) ============= ============= ============ ============= ============= Valuation allowance for deferred tax assets $1,720 $ --- $ --- $ --- $1,720 ============= ============= ============ ============= ============= Accrued product warranty liability $1,423 $1,655 $ 602 (2) $1,349 (4) $2,507 176 (7) ============= ============= ============ ============= ============= YEAR ENDED DECEMBER 31, 1998: Allowance for doubtful accounts $1,435 $(158) $ 3 (2) $ 229 (3) $1,058 (7) (1) ============= ============= ============ ============= ============= Inventory valuation allowance $9,508 $ 974 $ 53 (2) $3,249 (5) $7,222 64 (1) ============= ============= ============ ============= ============= Valuation allowance for deferred tax assets $53,257 $ --- $ --- $51,537 (6) $1,720 ============= ============= ============ ============= ============= Accrued product warranty liability $1,844 $1,224 $ 46 $1,691 (4) $1,423 ============= ============= ============ ============= ============= (1) Foreign exchange adjustments. (2) Reclassifications and adjustments. (3) Uncollectible accounts written off, net of recoveries. (4) Product warranty claims honored during the year. (5) Charges against inventory valuation account during the year. (6) True up balances and reduce valuation reserve due to management's belief that it is more likely than not that Deferred tax benefits will be utilized in the future. (7) Sierra acquisition (not included in the beginning balance).
EX-10.27(J) 2 0002.txt NINTH AMEND. TO THE CREDIT AND GUARANTY AGREEMENT NINTH AMENDMENT TO CREDIT AND GUARANTY AGREEMENT THIS NINTH AMENDMENT, dated as of January 26, 2001 (this "Amendment"), to the Existing Credit Agreement referred to below, is among IMO INDUSTRIES INC., a Delaware corporation (the "Borrower"), COLFAX CORPORATION (formerly known as II Acquisition Corp.), a Delaware corporation (the "Parent") and the Lenders (as defined below) parties hereto. W I T N E S S E T H : -------------------- WHEREAS, the Borrower, the Parent, certain financial institutions from time to time parties thereto (collectively, the "Lenders"), The Bank of Nova Scotia, as the Administrative Agent and the Documentation Agent, and Banc of America Securities, L.L.C. (formerly known as NationsBanc Capital Markets, Inc.), as the Syndication Agent, have entered into the Credit and Guaranty Agreement, dated as of August 29, 1997 (as amended, supplemented, amended and restated or otherwise modified prior to the date hereof, the "Existing Credit Agreement" and, as amended by, and together with, this Amendment, the "Credit Agreement"); and WHEREAS, the Borrower and the Parent have requested that the Existing Credit Agreement be amended in certain respects and that the Lenders waive certain requirements of the Existing Credit Agreement, and the Lenders have agreed to amend the Existing Credit Agreement and to grant such waivers and consents subject to the terms and conditions of this Amendment; NOW, THEREFORE, in consideration of the premises and the other provisions herein contained, the parties hereto hereby agree as follows. PART I DEFINITIONS SUBPART I.1. Use of Defined Terms. Unless otherwise defined herein or the context otherwise requires, terms used in this Amendment, including its preamble and recitals, have the meanings set forth in the Existing Credit Agreement. PART II AMENDMENTS TO THE EXISTING CREDIT AGREEMENT Effective upon (and subject to) the occurrence of the Ninth Amendment Effective Date, certain terms and provisions of the Existing Credit Agreement are hereby amended, and the waivers and consent described below are hereby granted, all in accordance with this Amendment. SUBPART II.1. Amendments to Article I. Article I of the Existing Credit Agreement is hereby amended in accordance with Subparts 2.1.1 and 2.1.2. SUBPART II.1.1. Section 1.1 of the Existing Credit Agreement is hereby amended by adding the following definitions in their appropriate alphabetical sequence: "Additional Amount" means the amount of Net Disposition Proceeds received by the Borrower and its Subsidiaries from the Morse Disposition minus the aggregate amount of such Net Disposition Proceeds applied as required by clauses (a), (b) and (c) of Subpart 3.1.1 of Amendment No. 9. "Amendment No. 9" means the Ninth Amendment, dated as of January 26, 2001, to this Agreement among the Borrower, the Parent and the Lenders parties thereto. "Morse Assets" means, collectively, the Assets (as defined in the Morse Purchase Agreement). "Morse Disposition" means the sale of the Morse Assets in accordance with the terms of the Morse Purchase Agreement. "Morse Purchase Agreement" means the Asset Purchase Agreement, dated as of November 15, 2000, among the Borrower (as the seller), TFX Acquisition Incorporated, a Delaware corporation and Teleflex Incorporated, a Delaware corporation, and other documents (including any escrow agreements) delivered to the Administrative Agent at least one Business Day (or such shorter period agreed to by the Administrative Agent) prior to the consummation of the Morse Disposition, as amended, supplemented, amended and restated or otherwise modified following the Ninth Amendment Effective Date in accordance with Section 7.2.12. "Ninth Amendment Effective Date" is defined in Subpart 4.1 of Amendment No. 9. "Restricted Payment" means the declaration or payment of any dividend (other than dividends payable solely in capital securities of the Borrower which does not result in a Default) on, or the making of any payment or distribution on account of, or setting apart assets for a sinking or other analogous fund for, the purchase, redemption, defeasance, retirement or other acquisition of, any class of capital securities of the Borrower or any warrants or options to purchase any such capital securities, whether now or hereafter outstanding, or the making of any other distribution in respect thereof, either directly or indirectly, whether in cash or property, obligations of the Borrower or otherwise. SUBPART II.1.2. Section 1.1 of the Existing Credit Agreement is hereby further amended as follows: (a) the grid contained in the definition of "Applicable Commitment Fee Margin" is hereby amended in its entirety as follows, and the following proviso is hereby added immediately following such grid: ------------------------------------------ -------------------------------- Applicable Commitment Fee Leverage Ratio Margin ------------------------------------------ -------------------------------- ------------------------------------------ -------------------------------- Less than 1.5:1 0.250% ------------------------------------------ -------------------------------- ------------------------------------------ -------------------------------- Greater than or equal to 1.5:1 0.375%; ------------------------------------------ -------------------------------- provided, that the Applicable Commitment Fee Margin shall at all times prior to the Ninth Amendment Effective Date be the rate set forth in (and determined in accordance with the terms of) this Agreement as in effect prior to such date. (b) the definition of "Applicable Margin" is hereby amended in its entirety to read as follows: "Applicable Margin" means (i) at all times prior to the Ninth Amendment Effective Date the rate set forth in (and determined in accordance with the terms of) this Agreement as in effect prior to such date and (ii) on and subsequent to the Ninth Amendment Effective Date, an amount at all times during the applicable periods set forth below determined as follows: ------------------------------------------ -------------------------- ---------------------------- Applicable Margin for Applicable Margin for LIBO Leverage Ratio Base Rate Loans Rate Loans ------------------------------------------ -------------------------- ---------------------------- ------------------------------------------ -------------------------- ---------------------------- Less than 1.5:1 0.00% 1.25% ------------------------------------------ -------------------------- ---------------------------- ------------------------------------------ -------------------------- ---------------------------- Greater than or equal to 1.5:1 and less 0.25% 1.50% than 2:1 ------------------------------------------ -------------------------- ---------------------------- ------------------------------------------ -------------------------- ---------------------------- Greater than or equal to 2:1 0.50% 1.75% ------------------------------------------ -------------------------- ----------------------------
The Leverage Ratio used to compute the Applicable Margin shall, subject to the terms of the next sentence, be the Leverage Ratio set forth in the Compliance Certificate most recently delivered by the Borrower to the Administrative Agent pursuant to clause (b) of Section 7.1.1, and changes in the Applicable Margin resulting from a change in the Leverage Ratio shall become effective upon delivery by the Borrower to the Administrative Agent of a new Compliance Certificate pursuant to clause (b) of Section 7.1.1 and notice therein of such change. Notwithstanding the foregoing, the Applicable Margin for the period from the Ninth Amendment Effective Date through (and including) the date on which the Borrower delivers its Compliance Certificate in respect of the Fiscal Quarter ending March 31, 2001 shall be 1.75% for LIBO Rate Loans and 0.50% for Base Rate Loans. If the Borrower shall fail to deliver a Compliance Certificate within 45 days after the end of any Fiscal Quarter (or within 90 days, in the case of the last Fiscal Quarter of the Fiscal Year), the Applicable Margin from and including the 46th (or 91st, as the case may be) day after the end of such Fiscal Quarter to but not including the date the Borrower delivers to the Administrative Agent a Compliance Certificate shall equal 1.75% for LIBO Rate Loans and 0.50% for Base Rate Loans. (c) Clause (b) of the definition of "Fixed Charged Coverage Ratio" is hereby amended by replacing the period at the end of clause (b)(ii) with the word "plus", and adding a new clause (iii) to read in its entirety as follows: (iii) without duplication, all Restricted Payments paid in cash or declared by the Parent or the Borrower pursuant to clause (c) of Section 7.2.15, in each case during such Rolling Period. (d) The definition of "Permitted Amount" is hereby amended by deleting the amount "$105,000,000" each time it appears, and inserting "$155,000,000" in its place. (e) Clause (b) of the definition of "Permitted Disposition" is hereby amended in its entirety to read as follows: (b) the aggregate fair market value of all such dispositions shall not exceed $5,000,000 in any Fiscal Year (excluding (i) the sale by the Borrower of the Instrumentation Segment pursuant to the terms of Section 7.1.10, (ii) the sale by the Borrower of Roltra Morse for net cash proceeds of not less than $15,000,000 (after the repayment of its existing Indebtedness), (iii) permitted Real Estate Dispositions and (iv) the Morse Disposition); SUBPART II.2. Amendment to Article III. Article III of this Existing Credit Agreement is hereby amended in accordance with Subpart 2.2.1. SUBPART II.2.1. The amortization amounts for the period from February 28, 2001 through August 29, 2002 set forth in clause (b) of Section 3.1.2 of the Existing Credit Agreement are hereby amended to read as follows: - ----------------------------------------- -------------------------------------- February 28, 2001 $1,111,111.11 - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- May 29, 2001 $1,111,111.11 - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- August 29, 2001 $1,111,111.11 - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- November 29, 2001 $1,666,666.67 - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- February 28, 2002 $1,666,666.67 - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- May 29, 2002 $1,666,666.67 - ----------------------------------------- -------------------------------------- - ----------------------------------------- -------------------------------------- August 29, 2002 $1,666,666.66, or the then outstanding principal amount of all Term Loans, if different. - ----------------------------------------- -------------------------------------- SUBPART II.3. Amendment to Article IV. Clause (iv)(B) of Section 4.10 of the Existing Credit Agreement is hereby amended by deleting the amount "$105,000,000" and inserting "$155,000,000" in its place. SUBPART II.4. Amendments to Article VII. Article VII of the Existing Credit Agreement is hereby amended in accordance with Subpart 2.4.1 through Subpart 2.4.15. SUBPART II.4.1. Clause (m) of Section 7.2.2 of the Existing Credit Agreement is hereby amended in its entirety to read as follows: (m) [RESERVED]; and SUBPART II.4.2. Clauses (i) and (j) of Section 7.2.3 of the Existing Credit Agreement are hereby amended in their entirety to read as follows: (i) [RESERVED]; (j) [RESERVED]; and SUBPART II.4.3. The Leverage Ratio contained in clause (c) of Section 7.2.4 of the Existing Credit Agreement for each Fiscal Quarter ending on and after March 31, 2001 is hereby amended to read as follows: ---------------------------------------- ------------------------ March 31, 2001 and each 2.25:1.00 Fiscal Quarter thereafter ---------------------------------------- ------------------------ SUBPART II.4.4. The minimum EBITDA contained in clause (e) of Section 7.2.4 of the Existing Credit Agreement for each Fiscal Quarter ending on and after March 31, 2001 is hereby amended to read as follows: ---------------------------------------- ------------------------ March 31, 2001 and each Fiscal $32,000,000 Quarter thereafter ---------------------------------------- ------------------------ SUBPART II.4.5. Each of clauses (a) and (c) of Section 7.2.5 of the Existing Credit Agreement is hereby amended by deleting "(i)" (but not the text thereof), and deleting entirely clause (a)(ii) and clause (c)(ii), respectively. SUBPART II.4.6. Clause (g) of Section 7.2.5 of the Existing Credit Agreement is hereby amended by deleting "(other than by Receivables Co.)" in such clause. SUBPART II.4.7. The proviso contained in Section 7.2.6 of the Existing Credit Agreement is hereby amended in its entirety to read as follows: provided, however, that, notwithstanding clauses (a)(i), (a)(ii) and (a)(iii) of this Section 7.2.6, the Borrower may (a) subject to the subordination provisions applicable thereto, make payments of interest accrued on the Senior Subordinated Notes when due, provided that no Default has occurred and is continuing, (b) purchase or redeem Senior Subordinated Notes (including with Net Disposition Proceeds of the Morse Disposition constituting the Additional Amount) through open market purchases or redemptions so long as the average purchase price of such Senior Subordinated Notes purchased or redeemed remains in compliance with clause (iv) of Section 4.10, (c) make a Restricted Payment in an amount not to exceed $1,300,000 in any Fiscal Quarter, and (d) make an additional Restricted Payment in the amount of $6,800,000 (the "Additional Restricted Payment") at the time of the delivery of the Compliance Certificate for the last Fiscal Quarter of each Fiscal Year; provided, that (x) in all cases such Restricted Payments will only be permitted if both before and after giving effect to the declaration and making of the Restricted Payment, no Default shall have occurred or be continuing or result from such Restricted Payment and (y) prior to making the Additional Restricted Payment, the Administrative Agent shall have received a pro forma Compliance Certificate in respect of the Fiscal Year most recently ended representing as to the terms of clause (d) and evidencing compliance with Section 7.2.4. SUBPART II.4.8. Section 7.2.7 of the Existing Credit Agreement is hereby amended by (i) deleting the phrase "(other than Receivables Co.)" and (ii) replacing the number "$12,500,000" with "$7,000,000". SUBPART II.4.9. Section 7.2.10 of the Existing Credit Agreement is hereby amended by (i) deleting the phrase "(other than Receivables Co.)" each time it appears in such Section and (ii) adding the following sentence to the end of such Section: Notwithstanding anything in this Section to the contrary, the Borrower and Warren Pumps Inc. may purchase all or substantially all of the assets of Receivables Co. for fair market value (as reasonably determined by an Authorized Officer of the Borrower). SUBPART II.4.10. Section 7.2.11 of the Existing Credit Agreement is hereby amended by (i) inserting the word "or" prior to clause (c)(iv), (ii) deleting clause (c)(v) and the word "or" which appears immediately prior to and at the end of clause (c)(v), (iii) deleting the word "or" at the end of clause (c); (iv) replacing the period at the end of clause (d) with "; or" and (iv) adding a new clause (e), to read in its entirety as follows: (e) the Morse Disposition in accordance with the terms of the Morse Purchase Agreement. SUBPART II.4.11. Section 7.2.12 of the Existing Credit Agreement is hereby amended in its entirety to read as follows: SECTION 7.2.12. Modification of Certain Agreements. Neither the Borrower nor the Parent will, nor will they permit any of their respective Subsidiaries to, consent to any amendment, supplement or other modification of any of the terms or provisions contained in, or applicable to, any Organic Document, the Borrower Preferred Stock, the Parent Subscription Agreement, the Borrower Subscription Agreement, the Subordinated Notes, or the Morse Purchase Agreement, other than any such amendment, supplement or other modification which is immaterial and which could not adversely affect the Administrative Agent or any Lender (it being understood and agreed that, in any event, any modification to the subordination provisions of, and any of the defined terms therein, including the definition of "Specified Senior Indebtedness" of the Subordinated Notes shall be deemed to be material). SUBPART II.4.12. Section 7.2.13 of the Existing Credit Agreement is hereby amended by adding the following sentence to the end of such Section: Notwithstanding anything in this Section to the contrary, the Borrower and Warren Pumps Inc. may purchase all or substantially all of the assets of Receivables Co. for fair market value (as reasonably determined by an Authorized Officer of the Borrower). SUBPART II.4.13. The second parenthetical contained in Section 7.2.14 of the Existing Credit Agreement is hereby amended in its entirety to read as follows: (excluding this Agreement, any other Loan Document, the Subordinated Note Indenture or any loan or financing document related to refinanced Non-U.S. Subsidiary Indebtedness existing on the Effective Date provided that such refinanced Indebtedness is not guaranteed by the Borrower) SUBPART II.4.14. Section 7.2.15 of the Existing Credit Agreement is hereby amended (i) by deleting clause (a)(v) and re-lettering clause (a)(vi) as new clause (a)(v). SUBPART II.4.15. Section 7.2.20 of the Existing Credit Agreement is hereby amended by deleting the phrase "(other than Receivables Co.)". SUBPART II.5. Amendment to Article VIII. Article VIII of the Existing Credit Agreement is hereby amended by deleting Section 8.1.11. SUBPART II.6. Amendment to Article XI. Article XI of the Existing Credit Agreement is hereby amended in accordance with Subpart 2.6.1. SUBPART II.6.1. Clause (b) of Section 11.1 of the Existing Credit Agreement is hereby amended by deleting "(including the sale or transfer of Receivables and Related Rights in accordance with the Permitted Receivables Transaction)". SUBPART II.7. Conforming Amendments to Exhibit F. Attachments 1 and 3 of Exhibit F (Form of Compliance Certificate) to the Credit Agreement are hereby amended in their entirety to read as set forth in Annex 1 hereto. PART III CONSENTS, ETC. SUBPART III.0.1. Application of Proceeds. Notwithstanding anything contained in the Existing Credit Agreement to the contrary (including Section 3.1.2 thereof), the Lenders hereby consent to the application of the Net Disposition Proceeds from the Morse Disposition as follows: (a) an amount equal to $17,300,000 to a mandatory prepayment of the outstanding principal amount of all Term Loans; (b) an amount equal to the Receivables Facility Outstandings to the repayment of all such Receivables Facility Outstandings; (c) any remaining Net Disposition Proceeds of the Morse Disposition (after the application required by clauses (a) and (b)), to the outstanding principal amount of the Revolving Loans (but not a reduction to the Revolving Loan Commitment Amount), until the outstanding principal amount of all Revolving Loans is zero; and (d) without limiting the terms of the Credit Agreement, the Additional Amount may be used (at the Borrower's discretion) for the purchase or redemption of Senior Subordinated Notes and/or for making Cash Equivalent Investments. SUBPART III.0.2. Direction Regarding Partial Release of Liens. Each of the Lenders hereby authorizes and directs the Administrative Agent to release and terminate, at the Borrower's expense and without representation or warranty of any kind by any Lender or any Agent, all Liens on and security interests in all assets constituting the Morse Assets previously granted by the Obligors under any Loan Document in favor of the Administrative Agent and the Lenders to the extent (and only to the extent) such Morse Assets are sold, or purported to be sold, pursuant to the Morse Purchase Agreement, and also to return to the Borrower for cancellation the intercompany notes payable to the Borrower, in each case dated August 29, 1997 and in each case in the original principal amount of $40,000,000, made by IMO Industries (UK) Limited, Morse Controls AB and IMO Industries GmbH (collectively referred to as the "Cancelled Notes"). The Administrative Agent will, at the Borrower's expense and without representation or warranty (and the Lenders hereby authorize and direct the Administrative Agent to) deliver to the Borrower (i) the Cancelled Notes, (ii) executed copies of Uniform Commercial Code (Form U.C.C.3) amendment statements or similar instruments, and any termination documents required to release the Administrative Agent's and the Lenders' Lien on intellectual property constituting Morse Assets, with respect to each of the filings previously made pursuant to a Security Agreement and (iii) the certificates (or other evidence of ownership) representing any capital stock that is pledged to secure the Obligations of a Subsidiary which constitutes a Morse Asset in each case necessary to give effect to the release of the Liens on the Cancelled Notes and on the Morse Assets. SUBPART III.0.3. Dissolution of Receivables Co., etc. Each of the Lenders hereby (i) waive for a period of 35 days following the Ninth Amendment Effective Date the requirements that the Borrower pledge the capital stock of Receivables Co., and that Receivables Co. deliver Loan Documents and any other agreements, documents and instruments, in accordance with Sections 7.1.8 and 7.1.16 of the Existing Credit Agreement and (ii) waive all provisions contained in the Existing Credit Agreement (including under Section 7.2.10 of the Existing Credit Agreement) which prohibit the dissolution of Receivables Co. The Borrower agrees that it will not, nor will it permit any of its Subsidiaries to, (i) make any Investments in Receivables Co. or (ii) lease, transfer, or otherwise convey any assets (real, personal, tangible, intangible or otherwise) to Receivables Co., in each case from and subsequent to the Ninth Amendment Effective Date (but excluding the asset purchases permitted under Sections 7.2.10 and 7.2.13 of the Credit Agreement). PART IV CONDITIONS TO EFFECTIVENESS SUBPART IV.1. This Amendment shall become effective on the date (the "Ninth Amendment Effective Date") when all of the following conditions have been satisfied to the satisfaction of the Administrative Agent. SUBPART IV.1.1. Execution of Counterparts. The Administrative Agent shall have received copies of this Amendment, duly executed and delivered by the Borrower, the Parent and all of the Lenders. SUBPART IV.1.2. Affirmation and Consent. The Administrative Agent shall have received an affirmation and consent in form and substance satisfactory to it, duly executed and delivered by each Subsidiary Guarantor. SUBPART IV.1.3. Amendment Fee. The Administrative Agent shall received, for the pro rata account of each Lender in accordance with its Percentage, an amendment fee in an amount equal to $80,000 (provided, that such amendment fee shall only be payable if this Amendment becomes effective). SUBPART IV.1.4. Termination of Permitted Receivables Transaction. The Administrative Agent shall have received evidence satisfactory to it that all Receivables Facility Outstandings, and all other amounts owing in connection with the Permitted Receivables Transaction, have been repaid in full, that the Permitted Receivables Transaction has been terminated and is no longer binding on the Borrower or its Subsidiaries, all Liens on Receivables and Related Rights have been terminated and the Borrower or the applicable Subsidiary has title to all of its Receivables and its Related Rights. SUBPART IV.1.5. Amendments to Security Agreements. The Administrative Agent shall have received an amendment to the Borrower Security Agreement and an amendment to the Subsidiary Security Agreement, each in form and substance satisfactory to the Administrative Agent and dated as of the Ninth Amendment Effective Date, duly executed and delivered by the Borrower and each Subsidiary a party to the Subsidiary Security Agreement, as the case may be. SUBPART IV.1.6. Pro Forma Compliance Certificate. The Administrative Agent shall have received, with counterparts for each Lender, a Compliance Certificate (which Compliance Certificate shall be prepared by using Attachments 1 and 3 attached hereto as Annex 1) dated the Ninth Amendment Effective Date, duly executed (and with all schedules thereto duly completed) and delivered by the chief executive, financial or accounting Authorized Officer of the Borrower, evidencing no Default. SUBPART IV.1.7. Morse Disposition. The Morse Disposition shall have been (or, concurrently with the effectiveness of this Amendment will be), consummated in accordance with the terms of the Morse Purchase Agreement and the Administrative Agent shall have received (or, concurrently with the effectiveness of this Amendment, will receive), the Net Disposition Proceeds from the Morse Disposition (other than the Net Disposition Proceeds required to be applied to the Receivable Facility Outstandings); provided, that the foregoing shall be deemed to have been satisfied even if all or any portion of the capital securities of the Borrower's Chinese, Japanese, Singaporean and Spanish direct and indirect Subsidiaries (and/or any of their assets) are actually transferred or disposed of at some point after the closing of the Morse Disposition. SUBPART IV.1.8. Satisfactory Legal Form. All documents executed or submitted pursuant hereto shall be satisfactory in form and substance to the Administrative Agent and its counsel. The Administrative Agent and its counsel shall have received all information and such counterpart originals or such certified or other copies of such materials, as the Administrative Agent or its counsel may reasonably request, and all legal matters incident to the transactions contemplated by this Amendment shall be satisfactory to the Administrative Agent and its counsel. PART V REPRESENTATIONS AND WARRANTIES In order to induce the Lenders and the Issuers to enter into this Amendment, the Borrower and the Parent represent and warrant to the Administrative Agent, each Issuer and each Lender as set forth in this Part. SUBPART V.1. Compliance with Warranties. Both before and after giving effect to the terms of this Amendment, (a) the representations and warranties set forth herein, in Article VI of the Credit Agreement and in each other Loan Document are true and correct in all material respects with the same effect as if made on and as of the date hereof (unless stated to relate solely to an earlier date, in which case they were true and correct as of such earlier date) and (b) the Borrower is in full compliance with Article 4 of the Subordinated Note Indenture. SUBPART V.2. Due Authorization, Non-Contravention, etc. The execution, delivery and performance by the Borrower and the Parent of this Amendment and other documents delivered pursuant hereto are within the Borrower's and the Parent's corporate powers, have been duly authorized by all necessary corporate action, and do not (i) contravene either the Borrower's or the Parent's Organic Documents, (ii) contravene or result in a default under any contractual restriction, law or governmental regulation or court decree or order binding on or affecting either the Borrower or the Parent, or (iii) result in, or require the creation or imposition of, any Lien (except as contemplated in or created by the Loan Documents). SUBPART V.3. Validity, etc. This Amendment has been duly executed and delivered by the Borrower and the Parent and constitutes the legal, valid and binding obligation of the Borrower and the Parent enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors' rights generally and to general principles of equity, regardless of whether enforcement is sought in a proceeding at law or in equity. SUBPART V.4. Compliance With Existing Credit Agreement. As of the Ninth Amendment Effective Date, both before and after giving effect to the terms of this Amendment, no Default has occurred and is continuing. PART VI MISCELLANEOUS PROVISIONS SUBPART VI.1. Ratification of and Limited Amendment to the Credit Agreement. The Existing Credit Agreement, as amended hereby, is hereby ratified, approved and confirmed in each and every respect by the parties hereto. Except as specifically amended or modified herein, the Existing Credit Agreement and the other Loan Documents shall continue in full force and effect in accordance with the provisions thereof and except as expressly set forth herein the provisions hereof shall not operate as a waiver or amendment of any right, power or privilege of the Administrative Agent and the Lenders nor shall the entering into of this Amendment preclude the Lenders from refusing to enter into any further or future amendments. SECTION VI.2. Consent and Acknowledgment of Guarantors, etc. By its signature below, the Parent, in its capacity as a guarantor and as grantor of collateral security under certain Loan Documents, hereby acknowledges, consents and agrees to this Amendment and hereby ratifies and confirms its obligations under its guaranty and each Loan Document executed and delivered by it in all respects. SUBPART VI.3. Credit Agreement, References, etc. All references to the Credit Agreement in any other document, instrument, agreement or writing shall hereafter be deemed to refer to the Existing Credit Agreement as amended hereby. As used in the Credit Agreement, the terms "Agreement", "herein", "hereinafter", "hereunder", "hereto" and words of similar import shall mean, from and after the date hereof, the Existing Credit Agreement as amended by this Amendment. SUBPART VI.4. Expenses. The Borrower agrees to pay all out-of-pocket expenses incurred by the Administrative Agent (including fees and expenses of counsel to the Administrative Agent) in connection with the preparation, negotiation, execution and delivery of this Amendment. SUBPART VI.5. Headings; Counterparts. The various headings of this Amendment are inserted for convenience only and shall not affect the meaning or interpretation of this Amendment or any provisions hereof. This Amendment may be signed in any number of separate counterparts, each of which shall be an original, and all of which taken together shall constitute one instrument. SUBPART VI.6. Governing Law; Entire Agreement. THIS AMENDMENT SHALL BE DEEMED TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. This Amendment constitutes the entire understanding among the parties hereto with respect to the subject matter hereof and supersedes any prior agreements, written or oral, with respect thereto. SUBPART VI.7. Loan Document Pursuant to Credit Agreement. This Amendment is a Loan Document executed pursuant to the Credit Agreement and shall be construed, administered and applied in accordance with all of the terms and provisions of the Credit Agreement. IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the day and year first above written. IMO INDUSTRIES INC. By:_____________________________ Title: COLFAX CORPORATION (formerly known as II Acquisition Corp.) By:_____________________________ Title: THE BANK OF NOVA SCOTIA By:_____________________________ Title: BANK OF AMERICA, N.A. By:_____________________________ Title: BANK ONE, NA (Main Office Chicago) By:_____________________________ Title: FLEET CAPITAL CORPORATION By:_____________________________ Title: CREDIT INDUSTRIEL ET COMMERCIAL By:_____________________________ Title: By:_____________________________ Title: DRESDNER BANK AG, NEW YORK AND GRAND CAYMAN BRANCHES By:_____________________________ Title: By:_____________________________ Title: TRANSAMERICA BUSINESS CREDIT CORP By:_____________________________ Title: SUN TRUST BANK By:_____________________________ Title: CITIZENS BANK By:_____________________________ Title: EX-10.33 3 0003.txt AMENDMENT TO ASSET PURCHASE AGREEMENT Amendment to ASSET PURCHASE AGREEMENT THIS ASSET PURCHASE AGREEMENT AMENDMENT (this "Amendment"), is entered into this 11th day of February 2001 to be effective as of November 15, 2000, by and among Imo Industries Inc., a Delaware corporation, (the "Seller"), TFX Acquisition, Inc., a Delaware corporation ("Buyer"), and Teleflex Incorporated, a Delaware corporation ("Parent"). Unless otherwise defined herein, all capitalized terms have the meanings set forth in the Asset Purchase Agreement dated November 15, 2000 by and among the Seller, Buyer and Parent (the "Agreement"). EXPLANATORY STATEMENT WHEREAS, the Buyer has agreed to purchase and acquire from Seller and Seller has agreed to sell, assign and transfer to Buyer, the Assets, and the Buyer has agreed to assume all of the Liabilities other than the Excluded Liabilities pursuant to the Agreement; WHEREAS, the Buyer desires to have the benefit of certain insurance coverage currently available to the Seller, the Subsidiaries and the Affiliates for the Liabilities which coverage is not provided to Buyer under the Agreement and the Seller desires to provide the benefit of such coverage to the Buyer subject to the terms and conditions set forth herein; WHEREAS, the Seller and Buyer desire to remove IMO Industries Pension Trustee Limited, a UK subsidiary, from Schedule 1 of the Agreement and to exclude all liability associated with the Imo Industries Pension and Life Assurance Plan from the Liabilities; and WHEREAS, the Buyer, Parent and Seller desire to amend the Agreement to provide that the Closing shall occur with respect to all of the Assets other than those relating to the Affiliate identified on Schedule 1-A hereto, the Assets of which are not capable of transfer under the laws of their respective jurisdictions and to provide for the escrow of the portion of the Purchase Price until such time as the Assets are transferred to Buyer. AGREEMENT NOW THEREFORE, in consideration of the foregoing premises and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, and intending to be legally bound hereby, the parties agree as follows: 1. Name of Buyer. The term "TFX Acquisition Incorporated" shall be deleted and replaced with "TFX Acquisition, Inc." throughout the Agreement. 2. Assumption of Liabilities. The following additional text is hereby added to the end of Section 2.02: ", subject to the provisions of Section 5.12 hereof. 3. Excluded Liabilities. The following section 2.03(m) is hereby added to Section 2.03 of the Agreement: 2.03(m) all liabilities and obligations of Seller, the Subsidiaries or their Affiliates with respect to the Imo Industries Pension and Life Assurance Plan the trustee of which is Imo Industries Pension Trustee Limited, a UK corporation. 4. Insurance. The following additional text is hereby added to the end of Section 5.12: Seller agrees that, to the extent that Seller, the Subsidiaries or the Affiliates are named insureds on property, product, general liability, workers' compensation and auto insurance policies covering Liabilities assumed by Buyer at Closing, Seller will use its best efforts to entitle Buyer to the proceeds (if any) of such insurance policies for Liabilities occurring prior to the Closing ("Prior Claims"). The parties' agreement hereunder shall be subject to the following terms and conditions: (a) Payments. In the event that Seller makes, or is obligated to make, any payment or suffers any loss in respect of or in relation to any Prior Claim, after the Closing, in an amount that exceeds the amount Seller actually receives in payment from its insurer or insurers, Buyer shall promptly reimburse Seller, dollar for dollar, for any such payment by Seller in excess of the amount actually paid by said insurer or insurers to or for the benefit of Seller. It is the intention of Buyer and Seller that Seller will not suffer or incur any loss or liability for any Prior Claim after the Closing. In addition, any and all payments or expenses attributable to the Morse Division which are or become due to any insurer including, but not limited to, any retrospective adjustment payments, true ups, state assessments, taxes or any other charges (the "Adjustment Payments") shall be promptly reimbursed to Seller by Buyer. The parties understand and agree that Buyer shall not be required to pay or reimburse Seller for any amounts (other than Adjustment Payments) paid by Seller prior to Closing in connection with any Prior Claim. Retrospective adjustments actually paid to Seller (if any) from any workman's compensation carrier attributable to the Morse Division for periods following the Closing shall be promptly paid by Seller to Buyer. Any direct payment to either party or its affiliates intended for the other under this Section 5.12 shall be promptly paid to the other as appropriate. (b) Self-Insurance, Retention, and Deductibles. Buyer shall be responsible for and as appropriate shall pay or otherwise be responsible for or satisfy all self-insured amounts, retention payments and deductible payments related to any of Seller's policies of insurance associated with any Prior Claim and which are unpaid or unsatisfied at Closing or which become due after Closing subject to any applicable limitations under such policies of insurance on the aggregate amount of such self-insured amounts, retention payments and deductible payments; provided, however, that, in the event of a dispute concerning the applicability of a payment or satisfaction of the same, the decision of the applicable insurer shall control, subject to the provisions set forth in Section (f) below. (c) Payments in Excess of Seller's Aggregate Coverage. In the event that Seller's Aggregate Available Insurance Policy Limits (as defined below), under any applicable policies are exceeded during any policy year in which any of Seller's insurers have made payments in respect of or relating to Prior Claims, Buyer shall reimburse Seller, dollar for dollar, for any and all losses incurred by Seller that exceed the Seller's Aggregate Available Insurance Policy Limits and which, in the reasonable judgement of Seller, would have been insured but for Seller's Aggregate Available Insurance Policy Limits having been exceeded regardless of whether such claims are Prior Claims; provided, however, that the total amount to be reimbursed by Buyer shall not exceed the aggregate amount paid by the Seller's insurers on all Prior Claims for that insurance year. For purposes of this paragraph, Aggregate Available Insurance Policy Limits shall mean the total face value of Seller's insurance policies for a given policy year not including self insurance, deductible or policies issued by insolvent insurers. (d) Management of Prior Claims; Cooperation. Buyer shall, at its sole expense, assume responsibility as of the Closing Date for the management of all Prior Claims. In the event that any of Seller's insurers requires that Seller manage or administer a Prior Claim or that Seller or Buyer use the services of a third-party administrator or carrier for purposes of managing or administering such Prior Claim, the Buyer, at its sole expense, shall undertake to manage or administer the Prior Claim or obtain a third-party administrator, whichever is required by the Seller's insurer. From and after the Closing Date, Buyer shall use its best efforts to cooperate with Seller in connection with the management and administration of Prior Claims and shall promptly provide all information and reports required or reasonably requested by Seller, its insurers and insurance brokers. Buyer shall upon receipt or production provide copies of all correspondence between Buyer and any insurer concerning coverage, reservations of rights, exhaustion and all other matters relating in any way to the Seller's insurance. (e) No Representation or Warranties. Seller makes no representations or warranties of any kind concerning any of its insurance policies and expressly does not represent or warrant that any of the policies are valid, enforceable or in full force and effect; are sufficient for compliance with any requirements of law; insure against risks of the kind customarily insured against and in amounts customarily carried by corporations similarly situated; or provide adequate insurance coverage for the Liabilities. Seller shall have no obligation to keep in effect any insurance coverage except as set forth in the first paragraph of this Section 5.12. Seller shall upon request provide Buyer copies of any applicable insurance policy. (f) Insurance Dispute Resolution. In the event of a declination of coverage or a reservation of right by an insurer in connection with any Prior Claim or in the event that any dispute arises between the Buyer and Seller's insurer concerning coverage for a Prior Claim, Buyer shall have the right at its sole cost and expense to contest, resolve or settle with an insurer such declination of coverage, reservation of right or dispute provided that Buyer first provides written notice to Seller of its intention to contest, resolve or settle and provides Seller with such information as Seller may reasonably request including, but not limited to, correspondence between the insurers and Buyer and reports on the basis and effect of such dispute. Any such contest, resolution or settlement is expressly subject to Seller's prior approval, which shall not be unreasonably withheld. In no event shall Buyer be entitled to any resolution or settlement, compromise or condition that results in any alteration, amendment or termination of a policy of Seller's or the terms and conditions of any of Seller's insurance contracts or policies including, but not limited to, policy "buy backs" and site releases. Buyer shall fully indemnify and defend Seller in any action by an insurer (or any other party making a claim against such insurance contracts or policies) relating to any dispute or arising out of or related to insurance, claims made or proceeds paid in respect of Prior Claims, including, but not limited to, claims and demands of reimbursement. Seller agrees that it will provide such reasonable assistance including the execution of consents, documents and instruments as reasonably requested by Buyer and which Seller, in its sole judgment, deems appropriate to fully effectuate the purposes of this Section 5.12. (g) Duty to Defend. If any Prior Claim exhausts a policy of insurance that provides the Seller with a "Duty to Defend" and the remaining following or excess policies of Seller do not provide such "Duty to Defend", Buyer shall reimburse Seller for Seller's defense costs to the same extent and upon the same terms as such would be provided under the exhausted policy of insurance that provided Seller with a "Duty to Defend" regardless of whether such defense costs are related to Prior Claims; provided however, that Buyer's obligations hereunder shall be limited to the aggregate amount paid in respect of a Prior Claim under that policy and do not include any defense costs actually reimbursed by an insurer to Seller. 5. Schedule 1. Schedule 1 of the Agreement is hereby amended by deleting the reference to Imo Pension Trustee Limited appearing on Schedule 1 of the Agreement. 6. Compensation and Employee Benefits. The last sentence in Section 5.06(a) is hereby deleted in its entirety and replaced with the following sentence in lieu thereof: Effective as of the Closing Date, Buyer shall assume all of Seller's obligations to the Continuing Employees, including, but not limited to, assumption of Seller's obligations under the Transition Agreement described on Schedule 5.06(a) which Buyer acknowledges and agrees remains in effect notwithstanding the reference to January 31, 2001 as its termination date if no sale of the Morse Division has occurred (all of which shall be deemed part of the Liabilities), provided, however, that the obligation to pay retention benefits under the Transition Agreement will remain the responsibility of Seller. 7. Compensation and Employee Benefits. Section 5.06(e) is hereby deleted in its entirety and replaced with the paragraph in lieu thereof: (e) Retirement Plan for Hourly Employees. Sponsorship of the Retirement Plan for Hourly Employees, Morse Controls Division, Imo Industries Inc. (the "Hourly Employees Plan") shall be transferred from Seller to Parent effective as of the Closing Date, and the assets of the Hourly Employees Plan shall be transferred from the Seller's master trust to a trust maintained by Parent for the Hourly Employees Plan; provided that the assets of the Hourly Employees Plan are sufficient on a plan termination basis to be eligible on the Closing Date for standard termination pursuant to Section 4041 of ERISA without the Seller or the ERISA Affiliates being required to make any additional contributions, it being understood that if the assets of the Hourly Employees Plan are not sufficient as described in this Section 5.06(e), then neither Parent nor Buyer shall be under any obligation to accept any transfer of the sponsorship or the assets or liabilities of the Hourly Employees Plan. 8. Delivery of Documents and Assets. The last sentence of Section 6.02 is hereby deleted in its entirety and the following sentences are substituted in lieu thereof: The Assets conveyed at Closing shall include the Shares and the Seller's interests in the Affiliates to the extent that such Shares and Seller's interests in the Affiliates are capable of being conveyed under the laws of their respective jurisdiction on the Closing Date. To the extent that such Shares and the Seller's interests in the Affiliates cannot be conveyed on the Closing Date, the parties agree to enter into escrow agreements providing, among other things, for the placement in escrow of (i) US $1,000,000 pending the conveyance by Seller to Buyer of the Chinese joint venture interest in Shanghai Dong Feng Morse Control Cable Co., Ltd.; and (ii) US $1,000,000 pending the completion of the proceeding of the High Court of the Republic of Singapore declaring that Imo Industries Pte. Ltd. may rectify its Register of Members by entering the name of Seller as holder of the shares of Imo Industries Pte. Ltd. as of the Closing Date. Subject to the terms of the escrow agreements, the parties further agree to use their reasonable best efforts to promptly obtain the necessary consents to effect the conveyances and release the funds to Seller and transfer the Shares and interests in the Affiliates to Buyer. 9. Delivery by Seller. Section 8.02(e) is hereby deleted in its entirety and the following Section 8.02(e) is substituted in lieu thereof: (e) Certificates representing the Shares, accompanied by duly executed stock powers in proper form for transfer; provided, however, that any Shares that are not transferred pending receipt of certain third-party approvals shall be transferred to Buyer immediately upon receipt by Seller of the required third-party approvals and the funds escrowed in connection with the Shares that do not transfer at Closing shall be released to Seller in accordance with the escrow agreements to be entered into among Buyer, Seller and Parent; 10. Delivery by Buyer. Section 8.03(b)(iii) is hereby deleted in its entirety and the following Section 8.03(b)(iii) is substituted in lieu thereof: (iii) such other instruments or documents as Seller may reasonably request as are necessary to assure the assumption by Buyer of all of the Liabilities assumed by Buyer pursuant to this Agreement and the transactions contemplated hereunder, including, but not limited to, an escrow agreement for any Assets that are not conveyed at Closing and a transition services agreement providing for the provision of certain services by Seller to Buyer following Closing. 11. Indemnification by Seller. Section 9.02 is hereby amended to include Section 5.12 in the definition of Excluded Covenants contained therein. 12. Benefit and Assignment. The third sentence of Section 12.06 is hereby deleted in its entirety and the following sentence is substituted in lieu thereof: Notwithstanding the foregoing, Buyer or any permitted assignee of Buyer may assign this Agreement and any and all rights hereunder, in whole or in part, to Parent or any subsidiary of Parent, so long as Parent unconditionally guarantees performance thereof by the assignee. 13. Miscellaneous. (a) Binding Effect. This Amendment shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors and permitted assigns. (b) Entire Agreement. The Agreement together with this Amendment, constitutes the entire understanding between the parties with respect to the obligations of the parties with respect to the subject matter hereof, and supersedes and replaces all prior agreements, understandings, writings, and discussions between the parties relating to the subject matter of those agreements. Except as modified by this Amendment, all other terms and conditions of the Agreement remain in full force and effect. IN WITNESS WHEREOF, each of the parties hereto has executed this Amendment to Asset Purchase Agreement, or has caused this Amendment to be duly executed and delivered in its name on its behalf, all as of the day and year first above written. SELLER IMO INDUSTRIES INC. By: ------------------ Name: Title: BUYER TFX ACQUISITION, INC. By: ------------------ Name: Title: PARENT TELEFLEX INCORPORATED By: ------------------- Name: Title: Schedule 1-A AFFILIATE INTERESTS NOT TRANSFERRING AT CLOSING Affiliate: Shanghai Dong Feng Morse Control Cable Co., Ltd. China EX-21 4 0004.txt SUBSIDIARIES OF THE COMPANY AS OF DEC. 31, 2000 SUBSIDIARIES AND AFFILIATES OF IMO INDUSTRIES INC. Date: 12/31/00 STATE OR COUNTRY OF INCORPORATION NAME OR ORGANIZATION - ------------------------------------------------------------------------------ IMO INDUSTRIES (UK) LIMITED . . . . . . . . . . . . . . . . ENGLAND BAIRD ATOMIC LTD. . . . . . . . . . . . . . . . . . ENGLAND MORSE CONTROLS LIMITED . . . . . . . . . . . . . . ENGLAND MORSE CONTROLS AB . . . . . . . . . . . SWEDEN RMH CONTROLS LIMITED . . . . . . . . . . . . . . . . .ENGLAND MORSE CONTROLS PTY. LTD. . . . . . . . NEW SOUTH WALES MORSE CONTROLS (NZ) LIMITED . . . . . . NEW ZEALAND TELEFLEX-MORSE (N.Z.) LTD. . . . . . . . NEW ZEALAND IMO INDUSTRIES PENSION TRUSTEE LIMITED . . . . . . .ENGLAND BOSTON GEAR COMPANY LIMITED . . . . . . ENGLAND TELEFLEX LIMITED . . . . . . . . . . . . . . . . ENGLAND TELEFLEX MORSE LTD. . . . . . . . . . . . . . . ENGLAND IMO INDUSTRIES LIMITED . . . . . . . . . . . . . . . . ENGLAND IMO INDUSTRIES GmbH . . . . . . . . . . . . . . . . . . . . GERMANY MORSE CONTROLS SARL . . . . . . . . . . . . . . . . . . . . FRANCE MORSE CONTROLS S.L. . . . . . . . . . . . . . . . . . . . . SPAIN IMO INDUSTRIES PTE LTD . . . . . . . . . . . . . . . . . . SINGAPORE NHK MORSE CO., LTD. . . . . . . . . . . . . . . . . . . . . JAPAN (1) NHK JABSCO CO., LTD. . . . . . . . . . . JAPAN (2) IMO AB . . . . . . . . . . . . . . . . . . . . . . . . . . SWEDEN IMO-PUMPEN AG . . . . . . . . . . . . . . SWITZERLAND IMO GRESHAM PUMPS (INDIA) LTD. . . . . . . INDIA (3) IMO POMPES S.A. . . . . . . . . . . . . . . FRANCE IMO-PUMPEN GmbH . . . . . . . . . . . . . . . . . . . . . . GERMANY IMO INDUSTRIES (CANADA) INC . . . . . . . . . . . . . . . CANADA DELSALESCO, INC. . . . . . . . . . . . . . . . . . . . . . U.S. VIRGIN ISLANDS IMOVEST INC. . . . . . . . . . . . . . . . . . . . . . . . DELAWARE BAIRD CORPORATION . . . . . . . . . . . . . . . . . . MASSACHUSETTS LABTEST EQUIPMENT COMPANY . . . . . . . . . . . . . . . CALIFORNIA INCOM TRANSPORTATION, INC. . . . . . . . . . . . . . . . . DELAWARE BOSTON GEAR INDUSTRIES OF CANADA INC. . . . . . . . . . . . . CANADA VHC INC. . . . . . . . . . . . . . . . . . . . . . . . . . TEXAS VARO TECHNOLOGY CENTER, INC. . . . . . . . . . . . . TEXAS VARO TECHNOLOGY CENTER JOINT VENTURE. . . . . . . . . . TEXAS(4) TURBODEL INC. . . . . . . . . . . . . . . . . . . . TEXAS TRIPOWER VENTURE . . . . . . . . . . . . . . . TEXAS(5) APPLIED OPTICS CENTER CORPORATION . . . . . . . . . . MASSACHUSETTS ITT AND VARO, A JOINT VENTURE . . . . . . . . . . . .TEXAS(6) KEI LASER, INC. . . . . . . . . . . . . . . . . . . .MARYLAND OPTIC-ELECTRONIC INTERNATIONAL, INC. . . . . . . . . . .TEXAS WARREN PUMPS INC. . . . . . . . . . . . . . . . . . . . . . DELAWARE SHANGHAI DONG FENG MORSE CONTROL CABLE CO., LTD. . . . . . . .CHINA (1) BOMBAS IMO DE VENEZUELA C.V. . . . . . . . . . . . . . . . . VENEZUELA SIERRA INTERNATIONAL INC. . . . . . . . . . . . . . . . . . ILLINOIS - ------------------------------- (1) 50% owned by Imo Industries Inc. (2) 50% owned by NHK Morse Co., Ltd. (3) 40% owned by IMO AB (4) 50% owned by Varo Technology Center, Inc. and 50% owned by VHC Inc. (5) 50% owned by Turbodel Inc. (6) 50% owned by VHC Inc. EX-27 5 0005.txt FINANCIAL DATA SCHEDULE AS OF DECEMBER 31, 2000
5 1,000 12-MOS DEC-31-2000 DEC-31-2000 5,152 0 38,335 (1,404) 55,989 107,235 76,098 (18,951) 371,863 90,585 125,207 0 0 1 130,438 371,863 329,444 329,444 225,009 225,009 0 0 19,492 27,338 10,890 16,448 0 0 0 16,448 0.00 0.00
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