-----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, Isi+4SAKeQhgKOrgPJeLE7GMqqdciWHWI4a6knwPM3baosk5oWnDUiuG6qlrfvvN 5b+UqA2rAuDIqLcyK9n62Q== 0000804151-99-000015.txt : 19991117 0000804151-99-000015.hdr.sgml : 19991117 ACCESSION NUMBER: 0000804151-99-000015 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991001 FILED AS OF DATE: 19991116 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-Q SEC ACT: SEC FILE NUMBER: 001-09294 FILM NUMBER: 99758283 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 THIRD QUARTER 1999 FORM 10-Q UNITED STATES 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 October 1, 1999 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-9294 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.) 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 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, $.01 Par Value--100 shares as of November 16, 1999. INDEX PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Consolidated Condensed Statements of Income and Comprehensive Income (Unaudited) - Three months and nine months ended October 1, 1999 and October 2, 1998 Consolidated Condensed Balance Sheets - October 1, 1999 (Unaudited) and December 31, 1998 Consolidated Condensed Statements of Cash Flows (Unaudited) - Nine months ended October 1, 1999 and October 2, 1998 Notes to Consolidated Condensed Financial Statements (Unaudited) - October 1, 1999 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Item 6. Exhibits and Reports on Form 8-K. SIGNATURES PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Imo Industries Inc. and Subsidiaries Consolidated Condensed Statements of Income and Comprehensive Income (Dollars in thousands except per share amounts) Three Months Ended Nine Months Ended October 1, October 2, October 1, October 2, 1999 1998 1999 1998 - -------------------------------------------------------------------------------- (Unaudited) (Unaudited) Net Sales $67,159 $75,464 $217,501 $239,579 Cost of products sold 46,260 51,417 147,184 162,340 - -------------------------------------------------------------------------------- Gross Profit 20,899 24,047 70,317 77,239 Selling, general and administrative expenses 11,813 12,774 36,879 42,907 Research and development expenses 982 1,318 3,445 4,144 - -------------------------------------------------------------------------------- Income From Operations 8,104 9,955 29,993 30,188 Other (income) expense, net 4 (294) 17 (461) - -------------------------------------------------------------------------------- Income From Operations Before Interest, Income Taxes, and Extraordinary Item 8,100 10,249 29,976 30,649 Interest expense 4,219 5,132 12,443 16,864 - -------------------------------------------------------------------------------- Income From Operations Before Income Taxes and Extraordinary Item 3,881 5,117 17,533 13,785 Provision for income taxes 1,603 1,345 6,582 2,847 - -------------------------------------------------------------------------------- Income From Operations Before Extraordinary Item 2,278 3,772 10,951 10,938 Extraordinary item - loss on extinguishment of debt --- (1,114) (216) (6,717) - -------------------------------------------------------------------------------- Net Income $ 2,278 $ 2,658 $ 10,735 $ 4,221 ================================================================================ Other comprehensive (loss) income, net of taxes - Foreign currency translation adjustments 746 943 (1,185) 659 - -------------------------------------------------------------------------------- Comprehensive Income $ 3,024 $3,601 $ 9,550 $ 4,880 ================================================================================ The accompanying notes are an integral part of these consolidated condensed financial statements. Imo Industries Inc. and Subsidiaries Consolidated Condensed Balance Sheets (Dollars in thousands except par value amounts) October 1, December 31, 1999 1998 - -------------------------------------------------------------------------- (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 3,110 $ 6,230 Trade accounts and notes receivable, less allowance of $1,151 in 1999 and $1,058 in 1998 43,370 40,125 Inventories-net 47,634 53,114 Deferred income tax assets 16,079 16,096 Prepaid expenses and other current assets 2,795 2,525 - ------------------------------------------------------------------------ Total Current Assets 112,988 118,090 Property, plant and equipment, net of accumulated depreciation of $11,897 and $7,660, respectively 58,931 59,430 Intangible assets, principally goodwill, net 173,791 177,826 Other assets 31,122 33,626 - ------------------------------------------------------------------------ Total Assets $ 376,832 $ 388,972 ======================================================================== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities Notes payable and current portion of long-term debt $ 10,004 $ 9,303 Trade accounts payable 16,479 15,350 Accrued expenses and other liabilities 48,518 52,919 - ------------------------------------------------------------------------ Total Current Liabilities 75,001 77,572 Long-term debt 151,050 165,843 Other liabilities 36,965 41,291 - ------------------------------------------------------------------------ Total Liabilities 263,016 284,706 - ------------------------------------------------------------------------ SHAREHOLDERS' EQUITY Preferred stock: $1.00 par value; 5,000,000 shares authorized and unissued --- --- Common stock: $.01 par value, 100 shares authorized and issued 1 1 Additional paid-in capital 120,751 120,751 Retained earnings (deficit) (4,815) (15,550) Cumulative foreign currency translation adjustments (2,121) (936) - ------------------------------------------------------------------------ Total Shareholders' Equity 113,816 104,266 ======================================================================== Total Liabilities and Shareholders' Equity $ 376,832 $ 388,972 ======================================================================== The accompanying notes are an integral part of these consolidated condensed financial statements. Imo Industries Inc. and Subsidiaries Consolidated Condensed Statements of Cash Flows (Dollars in thousands) Nine Months Ended October 1, October 2, 1999 1998 - ------------------------------------------------------------------------------ (Unaudited) OPERATING ACTIVITIES Net income $10,735 $4,221 Adjustments to reconcile net income to net cash provided by continuing operations: Depreciation and amortization 8,294 8,895 Extraordinary item 216 6,717 Other 130 (67) Other changes in operating assets and liabilities: Accounts and notes receivable expenses (3,801) 7,817 Inventories 5,019 8,199 Accounts payable and accrued (3,718) (7,863) Other operating assets and liabilities 774 1,445 - ------------------------------------------------------------------------------ Net cash provided by continuing operations 17,649 29,364 Net cash used by discontinued operations (1,469) (1,035) - ------------------------------------------------------------------------------ Net Cash Provided by Operating Activities 16,180 28,329 - ------------------------------------------------------------------------------ INVESTING ACTIVITIES Purchases of property, plant and equipment (4,363) (4,339) Proceeds from sale of business and property, plant and equipment 74 30,038 Net cash used by discontinued operations --- (1,164) Other --- 80 - ------------------------------------------------------------------------------ Net Cash (Used by) Provided by Investing Activities (4,289) 24,615 - ------------------------------------------------------------------------------ FINANCING ACTIVITIES Increase in notes payable 231 5,693 Decrease in long-term debt (14,277) (53,170) Payment of premium on notes repurchased and debt financing costs (210) (4,699) Other --- (37) - ------------------------------------------------------------------------------- Net Cash Used by Financing Activities (14,256) (52,213) - ------------------------------------------------------------------------------ Effect of exchange rate changes on cash (755) 134 - ------------------------------------------------------------------------------ Increase (Decrease) in Cash and Cash Equivalents (3,120) 865 Cash and cash equivalents at beginning of period 6,230 3,528 - ------------------------------------------------------------------------------ Cash and Cash Equivalents at End of Period $3,110 $4,393 ============================================================================== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $9,536 $14,965 Income taxes $1,925 $1,922 The accompanying notes are an integral part of these consolidated condensed financial statements. Imo Industries Inc. and Subsidiaries Notes to Consolidated Condensed Financial Statements (Unaudited with respect to October 1, 1999 and October 2, 1998 and the periods then ended.) NOTE A - SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation: The accompanying unaudited consolidated condensed financial statements have been prepared in accordance with generally accepted accounting principles. 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, 1998. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the nine months ended October 1, 1999, are not necessarily indicative of the results that may be expected for the year ending December 31, 1999. NOTE B - DISCONTINUED OPERATIONS On February 27, 1998, the Company completed the sale of its Roltra Morse business segment to Magna International Inc. for cash of $30 million, plus the assumption of Roltra Morse's debt. Net sales of the discontinued operations were $14.4 million for the nine months ended October 2, 1998. Operating results of the discontinued operations resulted in net loss of $1.0 million for the nine months ended October 2, 1998. These operating results from discontinued operations include allocated interest expense of $.2 million for the nine months ended October 2, 1998. The operating loss for Roltra Morse was accrued as a portion of the estimated loss on disposal as of December 31, 1997. NOTE C - INVENTORIES Inventories are summarized as follows: October 1, December 31, (in thousands) 1999 1998 ------------- ------------- (Unaudited) Finished products $ 15,113 $ 18,926 Work in process 16,789 17,880 Materials and supplies 16,721 17,545 --------- --------- 48,623 54,351 Less customers' progress payments (989) (1,237) ========= ========= $ 47,634 $ 53,114 ========= ========= NOTE D - NOTES PAYABLE AND LONG-TERM DEBT As of October 1, 1999, the Company had $10.0 million of outstanding standby letters of credit under the Company's existing credit agreement. The Company had $7.3 million in foreign short-term credit facilities with amounts outstanding at October 1, 1999, of $1.0 million. In addition, the Company had outstanding $74.2 million (net of unamortized discount of $0.8 million) of its 11.75% senior subordinated notes ("Notes") due in 2006, $38.6 million of term loan borrowings, $41.3 million in revolver borrowings and $5.0 million due to Ameridrives International, L.P., whose majority shareholders are also the majority shareholders of the Company. During the first nine months of 1999 and 1998, the Company purchased, in the open market at a premium, Notes in the face amounts of $3.5 million and $42.6 million, respectively. As a result of the early extinguishment of these Notes, extraordinary charges of $0.2 million and $6.7 million were recognized in the first nine months of 1999 and 1998, respectively. NOTE E - SEGMENT INFORMATION 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 I of the Company's 1998 Form 10-K Report. Information about the business of the Company by business segment is presented below: Three Months Ended Nine Months Ended (Dollars in thousands) October 1, October October October 1999 2, 1998 1, 1999 2, 1998 - -------------------------------------------------------------------------------- Net Sales Fluid Handling $ 23,778 $ 28,499 $ 77,208 $ 87,643 Industrial Positioning 43,381 46,965 140,293 151,936 ================================================================================ Total net sales $ 67,159 $ 75,464 $ 217,501 $ 239,579 ================================================================================ Segment operating income Fluid Handling $ 5,088 $ 5,835 $ 17,061 $ 16,479 Industrial Positioning 4,884 6,182 18,517 20,508 - -------------------------------------------------------------------------------- Total segment operating income 9,972 12,017 35,578 36,987 - -------------------------------------------------------------------------------- Equity in income (loss) of unconsolidated companies --- 22 --- (18) Unallocated corporate expenses (1,903) (2,107) (5,696) (7,014) Net interest expense (4,188) (4,815) (12,349) (16,170) ================================================================================ Income from continuing operations before Income taxes and extraordinary item $ 3,881 $ 5,117 $ 17,533 $ 13,785 ================================================================================ A reconciliation of segment operating income to income from operations follows: Three Months Ended Nine Months Ended (Dollars in thousands) October 1, October October October 1999 2, 1998 1, 1999 2, 1998 - -------------------------------------------------------------------------------- Segment operating income $ 9,972 $ 12,017 $ 35,578 $ 36,987 Unallocated corporate expenses (1,903) (2,107) (5,696) (7,014) Other expense 35 45 111 215 ================================================================================ Income (loss) from operations $ 8,104 $ 9,955 $ 29,993 $ 30,188 ================================================================================ NOTE F - CONTINGENCIES 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 their insurers, who are defending under their stated reservation of rights. In addition, the Company and the subsidiary are named in cases involving approximately 32,000 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 brought in the United States District Court for the District of Mississippi that alleges negligence, breach of contract and breach of express and implied warranties arising out of a failure of a turbine in September 1995. The complaint seeks damages in excess of $3 million. The Company believes that there are legal and factual defenses to the claim and intends to defend the action vigorously. The Company is a defendant in a lawsuit brought in the United States District Court for the District of New Jersey alleging failure in performance of equipment sold in 1986 by the Company's former Delavel Turbine division. The complaint seeks damages in excess of $12 million. The Company believes that there are legal and factual defenses to the claim and intends to defend the action vigorously. On June 2, 1999, the Court granted a summary judgment motion filed by the Company which effectively dismissed all claims against it. Plaintiffs have appealed this judgment to the United States Court of Appeals for the Third Circuit. The Company was a defendant in a lawsuit in the U.S. District Court for the Western District of Pennsylvania, which alleged component failures in equipment sold by its former diesel engine division. The complaint sought damages of approximately $3 million. On September 30, 1997 the Court granted a summary judgment motion filed by the Company which effectively dismissed all claims against it. Plaintiffs appealed this judgment to the United States Court of Appeals for the Third Circuit. On June 3, 1999, the United States Court of Appeals for the Third Circuit upheld the District Court's September 30, 1997 decision thereby upholding the dismissal of all claims against the Company. The Company is 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 and claiming damages of approximately $8 million. To date the Court has granted a series of Summary Judgment motions filed by the Company which have significantly reduced the scope of damages which the Plaintiff may claim but has permitted additional discovery to determine whether any other damages exist which plaintiff may be entitled to seek at a trial, but the Company believes that there are legal and factual defenses to the claims 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 plus interest 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. 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, 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. 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 a 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 is 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 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 nine months ended October 1, 1999. This section should be read in conjunction with the Company's 1998 Form 10-K Management's Discussion and Analysis of Financial Condition and Results of Operations. Recent Events Sierra Acquisition: On October 18, 1999, the Company announced that it had signed a definitive agreement to acquire Sierra International Inc. ("Sierra") from Dana Corporation. The transaction is expected to be completed in the fourth quarter of 1999. Sierra will become part of the Company's Industrial Positioning segment. Results of Operations The Company's continuing businesses are grouped into two business segments for management and segment reporting purposes: Fluid Handling and Industrial Positioning. Three Months Ended October 1, 1999, Compared to Three Months Ended October 2, 1998 Sales. Net sales from continuing operations for the third quarter of 1999 were $67.2 million compared with $75.5 million in the comparable 1998 period. Third quarter 1999 net sales decreased 16.6% for the Fluid Handling segment and decreased 7.6% for the Industrial Positioning segment, respectively, compared to the prior year period. The decrease in the Fluid Handling segment is due to cyclicality in the crude oil, pulp & paper and machinery support markets. 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 decreased as a percentage of sales to 31.1% for the third quarter of 1999 compared with 31.9% in the third quarter of 1998, as a result of reduced sales volume and manufacturing levels. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased as a percentage of sales to 17.6% for the third quarter of 1999 compared with 16.9% in the third quarter of 1998. The increased expenses as a percentage of sales in 1999 was the result of reduced sales volume and manufacturing levels. Interest Expense. Average borrowings in the third quarter of 1999 were approximately $19.2 million lower than the third quarter of 1998. Total interest expense was $4.2 million for the third quarter of 1999 compared with $5.1 million for the same period in 1998. Provision for Income Taxes. Provision for income taxes for continuing operations was $1.6 million and $1.3 million for the third quarters of 1999 and 1998, respectively. These amounts represent both current tax expense for foreign income taxes and deferred federal income taxes, as the Company is utilizing existing U.S. net operating loss carryforwards with its U.S. earnings. Net Income. The net income in the third quarter of 1999 was $2.3 million compared with net income of $2.7 million in the comparable 1998 period. Nine Months Ended October 1, 1999, Compared to Nine Months Ended October 2, 1998 Sales. Net sales from continuing operations for the first nine months of 1999 were $217.5 million compared with $239.6 million in the comparable 1998 period. Net sales decreased 11.9% for the Fluid Handling segment and decreased 7.7% for the Industrial Positioning segment, respectively, compared to the prior year period. The decrease in the Fluid Handling segment is due to cyclicality in the crude oil, machinery support and pulp & paper markets and unfavorable foreign currency fluctuations of 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 increased as a percentage of sales to 32.3% for the first nine months of 1999 compared with 32.2% in the first nine months of 1998. Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased as a percentage of sales to 17.0% for the first nine months of 1999 compared with 17.9% in the first nine months of 1998. 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 the first nine months of 1999 were approximately $31.3 million lower than the first nine months of 1998. Total interest expense was $12.4 million for the first nine months of 1999 compared with $16.9 million for the same period in 1998. Provision for Income Taxes. Provision for income taxes for continuing operations was $6.6 million and $2.8 million for the first nine months of 1999 and 1998, respectively. These amounts represent both current tax expense for foreign income taxes and deferred federal income taxes, as the Company is utilizing existing U.S. net operating loss carryforwards with its U.S. earnings. Extraordinary Item. During the first nine months of 1999 and 1998, the Company purchased, in the open market at a premium, Notes in the face amount of $3.5 million and $42.6 million, respectively. As a result of the early extinguishment of these Notes, an extraordinary charge of $0.2 million and $6.7 million was recognized in the first nine months of 1999 and 1998. Net Income. The net income in the first nine months of 1999 was $10.7 million compared with net income of $4.2 million in the comparable 1998 period. Liquidity and Capital Resources Short-term and Long-term Debt As of October 1, 1999, the Company had $10.0 million of outstanding standby letters of credit under the Company's existing credit agreement. The Company had $7.3 million in foreign short-term credit facilities with amounts outstanding at October 1, 1999 of $1.0 million. In addition, the Company had outstanding $74.2 million (net of unamortized discount of $0.8 million) of its 11.75% senior subordinated notes due in 2006, $38.6 million of term loan borrowings, $41.3 million in revolver borrowings and $5.0 million due to Ameridrives International, L.P., whose majority shareholders are also the majority shareholders of the Company. Cash Flow The Company's operating activities provided net cash of $16.2 million in the first nine months of 1999 compared with cash provided of $28.3 million in the comparable 1998 period. The cash provided by operating activities in 1999 was attributable to net operating profits offset by the increase in working capital in the period. For the nine months ended October 1, 1999, total debt reduction was $14.0 million. Cash and cash equivalents were $3.1 million at October 1, 1999 compared with $6.2 million at December 31, 1998. Management believes that cash flow from operations and cash available from unused credit facilities will be sufficient to meet the Company's foreseeable liquidity needs. Year 2000 Compliance The Company has conducted a review of the software, databases, microcode, hardware, systems and devices with date-related functionality (collectively, "Systems") used in the businesses of Imo (whether used on a stand-alone basis or in combination with other software, hardware, systems or devices), and has taken, or is in the process of taking, all steps that the Company believes are necessary or appropriate to ensure that such Systems accurately process all dates, including those before, on or after January 1, 2000, without loss of functionality, interoperability or performance. The Company has assessed the impact of the Year 2000 issue on its embedded Systems and is not currently aware of any material risks. Although all such embedded Systems are not presently Year 2000 compliant, the Company believes it has identified all non-compliant embedded Systems and is seeking solutions to make such systems Year 2000 compliant. The Company has assessed the impact of the Year 2000 issue upon those third parties with which the Company has a material relationship, and the Company is not currently aware of any material third-party risks resulting from the Year 2000 issue. The Company estimates that the future aggregate cost of investigating and remediating (where required) any Year 2000 issues relating to its businesses will be less than $100,000. Due to the nature of its businesses, the Company does not believe that its customers or suppliers will be materially adversely affected by the Year 2000 issue. Although the Company's Boston Gear business unit relies to a significant extent on online ordering, the Company does not believe that the Year 2000 issue will materially adversely affect the Company's business or results of operations. 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-Q 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) Legal Proceedings - the future impact of legal proceedings on the financial condition of the Company; and, (ii) "Results of Operations" - the future performance of various programs and foreign market conditions in each segment and the impact of such programs and foreign market conditions on future sales and on operating income. 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. The Company is filing this report pursuant to the filing requirements related to the 11.75% Senior Subordinated Notes due in 2006. PART II. OTHER INFORMATION Item 1. Legal Proceedings. For information regarding certain pending lawsuits, reference is made to the Company's Form 10-K for the year ended December 31, 1998, which is incorporated herein by reference, and to Note F in Part I of this Form 10-Q Report. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits: The following exhibits are being filed as part of this Report: Exhibit No. Description 27 Financial Data Schedule as of October 1, 1999 (b) Reports on Form 8-K: None 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: November 16, 1999 /s/ JOHN A. YOUNG John A. Young Chief Financial Officer Date: November 16, 1999 /s/ SCOTT FAISON Scott Faison Corporate Controller EX-27 2 10/01/99 FDS
5 1,000 9-MOS DEC-31-1999 OCT-1-1999 3,110 0 44,521 (1,151) 47,634 112,988 70,828 (11,897) 376,832 75,001 151,050 0 0 1 113,815 376,832 217,501 217,501 147,184 147,184 0 0 12,443 17,533 6,582 10,951 0 (216) 0 10,735 0 0
-----END PRIVACY-ENHANCED MESSAGE-----