-----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, O6RFO6Jx9KkelA5ivlbR1R10K0kOe+8zOQPejYMmA8Bgo6WXZHnLBwPcqaYe84ud P51qUYcHO+2ozFYwrlIvig== 0000804151-96-000013.txt : 19960517 0000804151-96-000013.hdr.sgml : 19960517 ACCESSION NUMBER: 0000804151-96-000013 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: IMO INDUSTRIES INC CENTRAL INDEX KEY: 0000804151 STANDARD INDUSTRIAL CLASSIFICATION: PUMPS & PUMPING EQUIPMENT [3561] IRS NUMBER: 210733751 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09294 FILM NUMBER: 96567236 BUSINESS ADDRESS: STREET 1: 1009 LENOX DR STREET 2: PO BOX 6550 CITY: LAWRENCEVILLE STATE: NJ ZIP: 08648-0550 BUSINESS PHONE: 6098967600 MAIL ADDRESS: STREET 1: 1009 LENOX DR STREET 2: PO BOX 6550 CITY: LAWRENCEVILLE STATE: NJ ZIP: 08648-0550 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-Q 1 FORM 10-Q Form 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 1996 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 incorporation or organization) Identification No.) 1009 Lenox Drive, Building Four West Lawrenceville, New Jersey 08648 (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code 609-896-7600 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date: Common Stock, $1.00 Par Value-- 17,086,609 shares as of April 30, 1996. INDEX Page Number PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited). Consolidated Statements of Income--Three months ended March 31, 1996 and 1995 2 Consolidated Balance Sheets--March 31, 1996 and December 31, 1995 3 Consolidated Statements of Cash Flows--Three months ended March 31, 1996 and 1995 4 Notes to Consolidated Financial Statements-- March 31, 1996 5 - 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. 10 - 16 PART II. OTHER INFORMATION Item 1. Legal Proceedings. 16 Item 6. Exhibits and Reports on Form 8-K. 17 SIGNATURES 18 PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Imo Industries Inc. and Subsidiaries Consolidated Statements of Income (Dollars in thousands except per share amounts)
Three Months Ended March 31, 1996 1995* (Unaudited) Net Sales $ 99,412 $ 95,884 Cost of products sold 67,530 64,990 Gross Profit 31,882 30,894 Selling, general and administrative expenses 20,486 20,510 Research and development expenses 1,340 1,338 Income from Operations 10,056 9,046 Interest expense 6,970 6,571 Interest income (397) (805) Other (income) expense, net 177 (162) Equity in income of unconsolidated companies (25) (25) Income From Continuing Operations Before Income Taxes and Extraordinary Item 3,331 3,467 Income tax expense 627 881 Income From Continuing Operations Before Extraordinary Item 2,704 2,586 Discontinued Operations: Income from Operations (net of income taxes of $.2 million in 1995) --- 964 Estimated Gain on Disposal (net of income taxes of $5.2 million in 1995) --- 39,613 Total Income from Discontinued Operations --- 40,577 Extraordinary Item - Loss on Extinguishment of Debt --- (4,140) Net Income $ 2,704 $ 39,023 Earnings per share: Continuing operations before extraordinary item $ 0.16 $ 0.15 Discontinued operations $ --- $ 2.38 Extraordinary item $ --- $ (0.24) Net income $ 0.16 $ 2.29 Weighted average number of shares outstanding 17,084,734 17,014,805
See accompanying notes to consolidated financial statements. * Reclassified to conform to 1996 presentation. Imo Industries Inc. and Subsidiaries Consolidated Balance Sheets (Dollars in thousands)
March 31, December 31, 1996 1995 (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 674 $ 3,809 Trade accounts and notes receivable, less allowance of $1,990 in 1996 and $2,030 in 1995 63,263 53,965 Inventories-net 84,169 85,030 Deferred income taxes 11,375 11,371 Net assets of discontinued operations-current 5,765 5,220 Prepaid expenses and other current assets 4,606 4,617 Total Current Assets 169,852 164,012 Property, Plant and Equipment-on the basis of cost 164,756 164,349 Less allowance for depreciation and amortization (85,252) (82,996) Net Property, Plant and Equipment 79,504 81,353 Intangible Assets, Principally Goodwill 69,006 68,664 Investments in and Advances to Unconsolidated Companies 5,497 5,415 Deferred income taxes - Noncurrent 4,609 4,609 Net Assets of Discontinued Operations - Noncurrent 28,457 29,190 Other Assets 30,880 30,644 Total Assets $ 387,805 $ 383,887 LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable $ 7,171 $ 9,019 Trade accounts payable 25,259 23,733 Accrued expenses and other liabilities 37,857 38,069 Accrued costs related to discontinued operations 2,018 3,055 Income taxes payable 8,172 8,354 Current portion of long-term debt 1,401 805 Total Current Liabilities 81,878 83,035 Long-Term Debt 249,203 245,802 Accrued Postretirement Benefits - Long-Term 23,129 24,372 Accrued Pension Expense and Other Liabilities 24,413 23,794 Total Liabilities 378,623 377,003 SHAREHOLDERS' EQUITY Preferred stock: $1.00 par value; authorized and unissued 5,000,000 shares --- --- Common stock: $1.00 par value; authorized 25,000,000 shares; issued 18,757,897 and 18,756,397 in 1996 and 1995, respectively 18,758 18,756 Additional paid-in capital 80,284 80,275 Retained earnings (deficit) (73,888) (76,592) Cumulative foreign currency translation adjustments 3,849 4,266 Minimum pension liability adjustment (1,801) (1,801) Treasury stock at cost - 1,672,788 shares in 1996 and 1995 (18,020) (18,020) Total Shareholders' Equity 9,182 6,884 Total Liabilities and Shareholders' Equity $ 387,805 $ 383,887
See accompanying notes to consolidated financial statements. Imo Industries Inc. and Subsidiaries Consolidated Statements of Cash Flows (Dollars in thousands)
Three Months Ended March 31, 1996 1995* (Unaudited) OPERATING ACTIVITIES Net income $ 2,704 $ 39,023 Adjustments to reconcile net income to net cash provided by (used in) continuing operations: Discontinued operations --- (40,577) Depreciation 3,003 3,217 Amortization 830 819 Extraordinary item --- 4,140 Other 24 22 Other changes in operating assets and liabilities: Increase in accounts and notes receivable (8,247) (4,864) Decrease (increase) in inventories 1,911 (2,454) Increase in accounts payable and accrued expenses 144 3,236 Other operating assets and liabilities (708) (7,077) Net cash used by continuing operations (339) (4,515) Net cash provided by (used by) discontinued operations 674 (506) Net Cash Provided by (Used in) Operating Activities 335 (5,021) INVESTING ACTIVITIES Purchases of property, plant and equipment (1,108) (6,515) Proceeds from sale of businesses and sales of property, plant and equipment --- 121,870 Acquisition, net of cash acquired (2,700) --- Net cash used by discontinued operations (499) (1,776) Other --- (73) Net Cash (Used in) Provided by Investing Activities (4,307) 113,506 FINANCING ACTIVITIES Decrease in notes payable (4,724) (1,705) Proceeds from long-term borrowings 29,848 2,815 Principal payments on long-term debt (24,232) (122,682) Other 11 149 Net Cash Provided by (Used in) Financing Activities 903 (121,423) Effect of exchange rate changes on cash (66) 147 Decrease in Cash and Cash Equivalents (3,135) (12,791) Cash and cash equivalents at beginning of period 3,809 26,942 Cash and Cash Equivalents at End of Period $ 674 $ 14,151 Supplemental disclosures of cash flow information: Cash paid during the period for: Interest expense $ 6,767 $ 12,994 Income taxes $ 182 $ 2,720
See accompanying notes to consolidated financial statements. * Reclassified to conform to 1996 presentation. Imo Industries Inc. and Subsidiaries Notes to Consolidated Financial Statements (Unaudited with respect to March 31, 1996 and 1995 and the periods then ended.) NOTE A--SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 1995. Restatements: The Consolidated Financial Statements, and the notes thereto, have been restated to reflect the Company's Roltra-Morse business segment as a discontinued operation, in accordance with Accounting Principles Board Opinion No. 30. Certain prior year amounts have been restated to conform to the current year presentation. NOTE B--DISCONTINUED OPERATIONS The Company has accounted for its former Electro-Optical Systems business and Turbomachinery business segments as discontinued operations in accordance with Accounting Principles Board Opinion No. 30. By the end of the second quarter of 1995, the Company had completed the sales of its Turbomachinery business and a substantial part of its Electro- Optical Systems business. As reflected in the Company's first quarter operating results of 1995, the sale of the Turbomachinery business segment resulted in an estimated gain of $39.6 million (net of applicable income tax expense of $5.2 million). Not included in these sales were certain idle facilities which are being held for sale, as well as the Electro-Optical System's Varo Electronic Systems division, which continues to be marketed to interested parties. In February 1996 the Company announced a plan to sell its Roltra-Morse operations. The Company has engaged an investment banking firm to assist in the sale, which is expected to be completed in 1996 with proceeds in excess of net book value of the operations. Net sales of the discontinued operations were $26.8 million and $60.1 million for the three months ended March 31, 1996 and 1995, respectively. Operating results of discontinued operations for the first three months of 1996 resulted in a net loss of $.8 million compared to net income of $1 million for the three months ended March 31, 1995. The 1996 net loss has been deferred as the Company anticipates realizing a gain on the sale of Roltra-Morse. These results from operations include allocated interest expense of $1.0 million and $3.1 million for the three months ended March 31, 1996 and 1995, respectively. NOTE C--INVENTORIES Inventories (in thousands of dollars) are summarized as follows: March 31, December 31, 1996 1995 (Unaudited) Finished products $ 36,012 $ 39,684 Work in process 31,239 31,235 Materials and supplies 30,121 26,372 97,372 97,291 Less customers' progress payments 1,698 689 Less valuation allowance 11,505 11,572 $ 84,169 $ 85,030 NOTE D--ACCRUED EXPENSES AND OTHER LIABILITIES Accrued expenses and other liabilities (in thousands of dollars) consist of the following: March 31, December 31, 1996 1995 (Unaudited) Accrued contract completion costs $ 36 $ 94 Accrued product warranty costs 2,113 2,737 Accrued litigation and claim costs 1,703 1,674 Payroll and related items 11,223 14,328 Accrued interest payable 9,083 6,511 Accrued restructuring costs 1,841 1,688 Accrued divestiture costs 2,581 2,861 Other 9,277 8,176 $ 37,857 $ 38,069 NOTE E--EARNINGS PER SHARE Earnings per share for 1996 and 1995 are based upon the weighted average number of shares of common stock outstanding. Common stock equivalents related to stock options and warrants are excluded because their effect is not material. NOTE F--SUBSEQUENT EVENT On April 29, 1996, the Company completed the refinancing of its senior domestic debt, its 12% senior subordinated debentures and its remaining 12.25% senior subordinated debentures. Under terms of the refinancing, the Company has issued $155 million of 11.75% senior subordinated notes due in 2006, priced at a discount to yield 12%. The Company also has entered into a new agreement for $175 million in senior secured credit facilities with a group of lenders. Initial borrowings under the senior secured credit facilities were approximately $112 million. The cost of issuance of the new senior subordinated notes and the new credit facility will be amortized over their respective terms. Proceeds of the senior subordinated notes and a portion of the credit facility were used to redeem the remaining $70 million of the Company's 12.25% senior subordinated debentures due 1997 and all $150 million of its 12% senior subordinated debentures due 2001, together with accrued interest and a prepayment premium for the latter issue. Proceeds were also used to refinance all obligations under the previous credit facility. As a result of the refinancing, an extraordinary charge of approximately $8.5 million will be recorded in the second quarter of 1996. This charge represents the costs incurred in connection with the early extinguishment of the debt as well as the write-off of previously deferred loan costs. NOTE G--CONTINGENCIES Legal Proceedings LILCO Litigation. In August 1985, the Company was named as defendant in a lawsuit filed by Long Island Lighting Company ("LILCO") following the severing of a crankshaft in a diesel generator sold to LILCO by the Company. LILCO's complaint contained 11 counts, including counts for breach of warranty, negligence and fraud, and sought $250 million in damages. In various decisions from 1986 through 1990, 10 of the original 11 counts and various additional amended counts were dismissed with only the original breach of warranty count remaining. In September 1993, the Second Circuit Court of Appeals affirmed a previous trial court decision entering a judgment against the Company in the amount of $18.3 million, and in October 1993, the judgment was satisfied by payment to LILCO of approximately $19.3 million by two of the Company's insurers. In January 1993, the Company was served with a complaint in a case brought in the U.S. District Court for the Northern District of California by one of its insurers, International Insurance Company ("International"), alleging that, because, among other things, its policies did not cover the matters in question in the LILCO case, it was entitled to recover $10 million in defense costs previously paid in connection with such case and $1.2 million of the judgment which was paid on behalf of the Company. In June 1995, the Court entered a judgment in favor of International awarding it $11.2 million, plus interest from March 1995 (the "International Judgment"). The International Judgment, however, was not supported by an order, and in July of 1995, the court vacated the International Judgment as being premature because certain outstanding issues of recoverability of the $10 million in defense costs had not been finally determined. The Company is awaiting a final decision. If the International Judgment is reinstated, the Company intends to appeal. If the ultimate outcome of this matter is unfavorable, the Company will record a charge for the judgment amount plus accrued interest. In June 1992, the Company filed an action, subsequently transferred to the U.S. District Court, Southern District of New York, that is currently pending against Granite State Insurance Co. ("Granite State"), one of its insurers, in an attempt to collect amounts for defense costs paid to counsel retained by the Company in defense of the LILCO litigation. After reimbursing the Company for $1.7 million in defense costs, Granite State refused to reimburse the Company for an additional $8.5 million in defense costs paid by the Company, alleging that defense costs above reasonable levels were expended in defending the LILCO litigation. The insurer subsequently paid $18.1 million of the judgment rendered against the Company, thereby exhausting its $20 million policy. The Company claims that the insurer's refusal to pay defense costs was in bad faith and the Company is entitled to its cost of money and other damages. In a counterclaim, Granite State is seeking reimbursement of all or part of the $1.7 million in defense costs previously paid by it, and has indicated that it may seek additional damages beyond the reimbursement of defense costs, including recoupment of approximately $4.0 million of the amount awarded by the jury in the LILCO litigation (which represents amounts previously paid by LILCO to the Company for generator repairs and which Granite State had paid on behalf of the Company). Additional Litigation. The Company and one of its subsidiaries are two of a large number of defendants in a number of lawsuits brought by approximately 19,000 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 their insurers who are defending under their stated reservation of rights. On May 10, 1996, the Company learned that the U.S. District Court for the Eastern District of Pennsylvania entered an Order which "administratively dismissed" without prejudice approximately 18,000 maritime asbestos injury cases, including approximately 13,000 cases involving claims against the Company and a number of other defendants. 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. Should settlements for these claims be reached at levels comparable to those reached by the Company in the past, they would not be expected to have a material effect on the Company. The activities of certain employees of the Ni-Tec Division of the Company's Varo Inc. subsidiary ("Ni-Tec"), headquartered in Garland, Texas, are the focus of an ongoing investigation by the Office of the Inspector General of the U.S. Department of Defense and the Department of Justice (Criminal Division). Ni-Tec received subpoenas for certain records as a part of the investigation in 1992, 1993 and 1994, each of which was responded to. The investigation appears directed at quality control, testing and documentation activities which began at Ni-Tec while it was a division of Optic-Electronic Corp. Optic-Electronic Corp. was acquired by the Company in November 1990 and subsequently merged with Varo Inc. in 1991. The Company continues to cooperate fully with the investigation and is pursuing settlement discussions with the U.S. government. Should settlement be reached consistent with current discussions, it would not be expected to have a material effect on the Company. 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, 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 CERCLA or similar State law. 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 also has a lawsuit pending against it in the U.S. District Court for the Western District of Pennsylvania alleging component failures in equipment sold by its former diesel engine division and claiming damages of approximately $3.0 million and a lawsuit in the Circuit Court of Cook County, Illinois, alleging performance shortfalls in products delivered by the Company's former Delaval Turbine Division and claiming damages of approximately $8.0 million. Each lawsuit is in the document discovery stage. With respect to the litigation and claims described in the preceding paragraphs, management of the Company believes that it either expects to prevail, has adequate insurance coverage or has established appropriate reserves to cover potential liabilities. There can be no assurance, however, on the ultimate outcome of any of these matters. The Company is also involved in various other pending legal proceedings arising out of the ordinary course of the Company's business. The adverse outcome of any of these legal proceedings is not expected to have a material adverse effect on the financial condition of the Company. However, 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 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. The following paragraphs provide Management's discussion and analysis of the significant factors which have affected the Company's consolidated results of operations and financial condition during the three months ended March 31, 1996. Restructuring Plan Background In October 1992, the Company determined that it needed to delever its balance sheet through the sale of certain businesses and the application of the proceeds from the divestitures to reduce debt. Pursuant to this decision, the Company divested its Heim Bearings, Aerospace, Barksdale Controls and CEC Instruments businesses during 1993 and 1994. In 1993, management, under Donald K. Farrar, who became Chief Executive Officer in September 1993, initiated a strategy to reposition the Company to focus on its less capital intensive businesses that exhibited strong brand name recognition, a broad customer base and market leadership with less dependence on U.S. Government sales. In connection with this strategy, the Company divested its Turbomachinery and most of its Electro-Optical Systems businesses during 1995. This repositioning will be completed upon the sale of the Roltra- Morse business, the remaining portion of the Electro-Optical Systems business and certain non-operating real estate. See "Remaining Asset Sales" below. During the first quarter of 1996, the Company commenced negotiations to refinance its then existing credit agreement and senior subordinated debentures, as another step to further reduce its high interest debt. Recent Developments On April 29, 1996, the Company completed the refinancing of its senior domestic debt and all remaining subordinated debentures. Under the terms of the refinancing, the Company has issued $155 million of 11.75% senior subordinated notes and has also entered into a new agreement for $175 million in senior secured credit facilities with a group of lenders. Proceeds of the senior subordinated notes and a portion of the credit facility were used to redeem the remaining $70 million of the Company's 12.25% senior subordinated debentures due 1997 and all $150 million of its 12% senior subordinated debentures due 2001, together with accrued interest and a prepayment premium for the latter issue, and to refinance all obligations under the previous credit facility. The refinancing has extended the maturities of the Company's existing indebtedness,allows some of the debt to be prepaid without undue penalties, and lowers its overall interest rate. See "Liquidity and Capital Resources" below. Remaining Asset Sales The Company is proceeding with its plan to sell its Roltra- Morse business, as announced in February 1996, and expects proceeds from the sale to exceed net book value. The remaining portion of the Company's Electro-Optical Systems business also continues to be marketed. The Company expects to complete these sales of businesses in 1996 and plans to use the proceeds to reduce debt. In addition, other non-operating real estate, representing less than 10% of the original value of assets announced to be sold in October 1992, remains for sale. Refer to the Company's 1995 annual report on Form 10-K for the year ended December 31, 1995 for further details related to previous asset sales and cost reduction programs. Results of Operations The Roltra-Morse and the remaining Electro-Optical Systems businesses are accounted for as discontinued operations in the accompanying consolidated financial statements. Certain prior year amounts have been reclassified to conform to current year presentation. Accordingly, the discussion that follows concerns only the results of continuing operations. The Company's continuing businesses are now grouped into four core business segments for management and segment reporting purposes: Power Transmission, Pumps, Instrumentation and Morse Controls. Sales. Net sales from continuing operations for the three months ended March 31, 1996 were $99.4 million, a 3.7% increase compared with $95.9 million in the 1995 period. The Pumps segment experienced a significant increase in net sales compared to the prior year, due principally to delays in deliveries to the U.S. Navy in the 1995 period. The Instrumentation and Morse Controls segments also experienced increased sales levels as compared with the prior year. These increases were partially offset by a decrease in Power Transmission net sales in the first quarter of 1996 compared with an exceptionally strong 1995 first quarter. See "Segment Operating Results" below. Gross Profit. The gross profit in the first quarter of 1996 remained relatively constant at 32.1% of sales compared with 32.2% in 1995. See "Segment Operating Results" below. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased as a percent of sales, to 20.6% in the first quarter of 1996 compared with 21.4% in the prior year, as the 1996 period benefited from cost savings attributable to the Company-wide cost reduction program adopted in the fourth quarter of 1995. Research and development expenditures were 1.3% and 1.4% of net sales for the three months ended March 31, 1996 and 1995, respectively. Interest Expense. Average borrowings in the 1996 first quarter were approximately $70 million lower than in the comparable 1995 period. As a result, total interest expense (before allocation to discontinued operations) of $8.7 million for the three months ended March 31, 1996 was $1.5 million, or 15%, less than same period in 1995. Interest expense for continuing operations excludes interest expense incurred by the discontinued operations of $0.8 million and $0.6 million for the three months ended March 31, 1996 and 1995, respectively, as well as an interest allocation to the discontinued operations. Interest allocated to discontinued operations was $1.0 million in the first quarter of 1996 and $3.1 million in the 1995 period. Three Months Ended March 31, Interest Expense: 1996 1995 Total (Before Allocations to Discontinued Operations) $ 8.7 $10.2 Continuing Operations 7.0 6.6 Provision for Income Taxes. Income tax expense for continuing operations was $.6 million and $.9 million for the three months ended March 31, 1996 and 1995, respectively. The amounts in both periods are comprised of current tax expense representing foreign and state income taxes, as the Company is utilizing existing U.S. net operating loss carryforwards on its domestic earnings. The Company has previously established valuation allowances against unrecognized prior year tax benefits in accordance with the provisions of FASB Statement No. 109, "Accounting for Income Taxes." The Company is recognizing these benefits only as reassessment demonstrates that it is more likely than not that they will be realized. Income from Continuing Operations. The Company had income from continuing operations of $2.7 million, or $.16 per share, for the three months ended March 31, 1996, compared with $2.6 million, or $.15 per share, for the comparable 1995 period. Income from Discontinued Operations. For the three months ended March 31, 1996, discontinued operations had a net loss of $.8 million. This loss has been deferred as the Company anticipates realizing a gain on the sale of Roltra-Morse. For the three months ended March 31, 1995 the Company had income from discontinued operations of $40.6 million (net of income tax expense of $5.4 million), or $2.38 per share. The income recorded in the first quarter of 1995 includes the estimated net gain of $39.6 million on the sale of the Company's former Turbomachinery business which was sold in January of 1995. In the second half of 1995, the Company recorded provisions of $17.9 million related to the resolution of contingencies associated with the Turbomachinery sale and the June 1995 Electro-Optical Systems sale which reduced the net gain on sale of discontinued operations to $21.6 million by year-end 1995. Results from operations for the discontinued operations include allocations for interest of $1.0 million and $3.1 million for the three months ended March 31, 1996 and 1995, respectively. Extraordinary Item. The three months ended March 31, 1995 include an extraordinary charge of $4.1 million after-tax, or $.24 per share, representing charges related to the early extinguishment of portions of its debt under the Company's then existing Credit Agreement and 12.25% senior subordinated debentures. Net Income. Net income in the first quarter of 1996 was $2.7 million, or $.16 per share, compared with $39.0 million, or $2.29 per share, in the 1995 first quarter. Net income (loss) per share by component for each year is summarized below: Three Months Ended March 31, Earnings (loss) per 1996 1995 share: Continuing Operations Before Extraordinary Item $ .16 $ .15 Discontinued Operations --- 2.38 Extraordinary Item --- (.24) Net income $ .16 $2.29 Segment Operating Results Operating results by business segment for the three months ended March 31, 1996 and 1995 are summarized below. Power Transmission segment net sales and operating income were $23.7 million and $2.8 million, respectively, in the first three months of 1996, compared with $26.1 million and $3.6 million in the comparable 1995 period. The decrease in the current period is due to the exceptionally strong demand experienced in the industrial distribution marketing channel in the first quarter of 1995. Both segment net sales and operating income increased compared to the fourth quarter of 1995. Pumps segment net sales increased 19.4% to $26.3 million in the first quarter of 1996, as compared with $22.1 million for the 1995 first quarter. The segment is experiencing continued growth in its U.S. industrial markets and strong export demand, driven by products in crude oil transfer, chemical processing, and power generation. The global marine market has also gained strength. Segment operating income for the first three months of 1996 was $3.5 million, a 43% increase compared with $2.4 million for the comparable 1995 period. On March 31, 1996, the Company acquired the assets of a long- time three-screw pump licensee in France, which will allow the Company to gain additional market penetration in Europe and North Africa. The acquisition will increase pump sales in Europe by approximately $6 million annually. The Instrumentation segment's net sales increased 4.7% to $19.4 million in the first three months of 1996, as compared with the same period in 1995. First quarter 1996 operating income of $2.1 million increased 24.9% compared with 1995, largely as a result of operational improvements made at a factory located in England. The turnaround continues to progress at this factory, which has now absorbed all the product lines previously manufactured at a German plant that was closed in 1995. Morse Controls segment net sales were $30.0 million in the first quarter of 1996, a 2.7% increase compared with $29.2 million in the first three months of 1995. Segment operating income increased 7.2% to $2.7 million for the same periods. The increases resulted from the acquisition of RMH Controls, a Swedish manufacturer of specialized electronic controls, which was completed in late December 1995, and were partially offset by slowed marine sales in the U.S. due to the late arrival of the spring pleasure boating season. Liquidity and Capital Resources Short-term and Long-term Debt On April 29, 1996, the Company completed the refinancing of its senior domestic debt (the "Old Credit Agreement"), its 12% senior subordinated debentures and its remaining 12.25% senior subordinated debentures . Under terms of the refinancing, the Company has issued $155 million of 11.75% senior subordinated notes (the "New Notes") due in 2006, priced at a discount to yield 12%. The Company also has entered into a new agreement for $175 million in senior secured credit facilities (the "New Credit Agreement") with a group of lenders. The New Credit Agreement provides for a $70 million revolving credit facility (including a letter of credit subfacility) through April 30, 2001, a $25 million term loan amortizing to April 2001, a $35 million term loan amortizing to April 2001, and a $45 million term loan amortizing to April 2003. Initial borrowings under the New Credit Agreement were $105 million in aggregate term loans and $6.6 million of revolving credit borrowings. Outstanding standby letters of credit were $6.4 million as of April 29, 1996. Proceeds of the senior subordinated notes and a portion of the new credit facility were used to redeem the remaining $70 million of the Company's 12.25% senior subordinated debentures due 1997 and all $150 million of its 12% senior subordinated debentures due 2001, together with accrued interest and a prepayment premium for the latter issue. Proceeds were also used to refinance all obligations under the Old Credit Agreement. The cost of issuance of the New Notes and the New Credit Agreement will be amortized over the terms of their respective agreements. As a result of the refinancing, an extraordinary charge of approximately $8.5 million will be recorded in the second quarter of 1996. This charge represents the costs incurred in connection with the early extinguishment of the debt as well as the write-off of previously deferred loan costs. Prior to the refinancing, the Company's domestic liquidity requirements were served by a $60 million revolving credit facility (including a letter of credit subfacility) under the Old Credit Agreement, while its needs outside the United States continue to be covered by short and intermediate term credit facilities from foreign banks. As of March 31, 1996, there were $19.3 million of revolving credit borrowings and $6.4 million of standby letters of credit outstanding under the Old Credit Agreement. The Company also has, in the aggregate, foreign short-term credit facilities of approximately $35 million. As of March 31, 1996, $14.1 million was outstanding under those foreign facilities, of which $7.0 million related to indebtedness of discontinued operations. In addition, at March 31, 1996, the Company had outstanding $70.0 million in aggregate principal amount of the 12.25% senior subordinated debentures, maturing in 1997, and $150 million in aggregate principal amount of the 12% senior subordinated debentures, maturing in amounts of $37.5 million in 1999, $37.5 million in 2000 and $75.0 million in 2001. Management continues to actively pursue opportunities to further reduce its high interest debt. The recently completed debt refinancing has enabled the Company to extend the maturities of its existing indebtedness, allows some of the debt to be prepaid without undue penalties, and lowers its overall interest rate. The Company plans to use the proceeds from the sales of its Roltra-Morse and Varo Electronic Systems businesses to reduce debt. Cash Flow The Company's operating activities provided cash of $.3 million in the first quarter of 1996, compared with cash used of $5.0 million in the comparable 1995 period, due principally to 1995 cash requirements related to previously divested companies and discontinued operations. Net cash used in investing activities was $4.3 million in the first three months of 1996, compared with cash provided of $113.5 million in the three months ended March 31, 1995. The decrease in the current year investing activities is due principally to the 1995 net proceeds generated from the sale of businesses and assets in the first quarter of 1995 of $121.9 million. Cash and cash equivalents decreased to $.7 million at March 31, 1996 from $3.8 million at December 31, 1995, principally due to cash used in investing activities, which included the completion of the acquisition of a former three-screw pump licensee in France. Working capital at March 31, 1996 was $88.0 million, an increase of $7.0 million from the end of 1995, due principally to the increase in receivable levels since year end. The ratio of current assets to current liabilities was 2.1 at March 31, 1996, compared with 2.0 at December 31, 1995. The Company's total debt as a percent of its total capitalization was 96.6% at March 31, 1996, compared with 97.4% at December 31, 1995. Management of the Company believes that cash flow from operations, cash available from unused credit facilities and cash generated by additional asset sales will be sufficient to meet its foreseeable liquidity needs. PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company and one of its subsidiaries are two of a large number of defendants in a number of lawsuits brought by approximately 19,000 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 their insurers who are defending under their stated reservation of rights. On May 10, 1996, the Company learned that the U.S. District Court for the Eastern District of Pennsylvania entered an Order which "administratively dismissed" without prejudice approximately 18,000 maritime asbestos injury cases, including approximately 13,000 cases involving claims against the Company and a number of other defendants. 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. Should settlements for these claims be reached at levels comparable to those reached by the Company in the past, they would not be expected to have a material effect on the Company. For additional information regarding certain pending lawsuits, reference is made to the Company's Form 10-K for the year ended December 31, 1995, which is incorporated herein by reference, and to Note G in Part I of this report. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: The following exhibit is being filed as part of this Report: Exhibit No. Description 27 Financial Data Schedule as of March 31, 1996 (b) Reports on Form 8-K: On February 22, 1996, the Company filed a report on Form 8-K, reporting under Item 5, disclosing the announcement of the approval by the Board of Directors of a plan to sell its Italian-based Roltra-Morse business unit and that the Company has engaged an investment banking firm to assist in the sale. The sale is expected to be completed in 1996. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Imo Industries Inc. (Registrant) Date May 14, 1996 /s/ DONALD K. FARRAR Donald K. Farrar Chairman, Chief Executive Officer, President and Director (principal executive officer) Date May 14, 1996 /s/ WILLIAM M. BROWN William M. Brown Executive Vice President, Chief Financial Officer and Corporate Controller (principal financial and accounting officer) EX-27 2 ART.5 FDS 3/31/96
5 1,000 3-MOS DEC-31-1996 MAR-31-1996 674 0 65,253 1,990 84,169 169,852 164,756 85,252 387,805 81,878 249,203 18,758 0 0 ( 9,576) 387,805 99,412 99,412 67,530 67,530 0 49 6,970 3,331 627 2,704 0 0 0 2,704 0.16 0.16
EX-27 3 ART.5 FDS 3/31/95
5 1,000 3-MOS DEC-31-1995 MAR-31-1995 14,151 0 61,820 2,156 79,725 218,336 159,221 77,023 458,557 104,180 267,230 18,698 0 0 (2,376) 458,557 95,884 95,884 64,990 64,990 0 38 6,571 3,467 881 2,586 40,577 (4,140) 0 39,023 2.29 2.29
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