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.
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 11 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.
Discontinued Operations
In April 1997, August 1997 and February 1998, the Company sold its Electro-Optical Systems, Instrumentation and Roltra Morse businesses, respectively. In accordance with APB Opinion No. 30, the disposals of these business segments have been accounted for as discontinued operations and, accordingly, their operating results have been segregated and reported as Discontinued Operations in the accompanying Consolidated Statements of Income.
Roltra Morse
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.
Instrumentation
On August 29, 1997, the Company completed the sale of its Instrumentation business segment to Danaher Corporation for proceeds of $85 million, which approximated its net book value. Net cash proceeds were used to reduce domestic senior debt. The majority shareholders of the Company are also substantial shareholders of Danaher Corporation.
Electro-Optical Systems
On April 28, 1997, the Company completed the sale of the Varo Electronic Systems division to a small defense contractor for $12 million in cash, the proceeds of which were used to reduce its domestic senior debt. The sale of this business completed the sale of the Electro-Optical Systems business.
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
The Company's products are sold primarily through the Company's direct sales forces. During 1999, sales by the Company's direct sales forces were approximately 77% and 60% 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 1999, 1998 or 1997.
Backlog
The Company's backlog of unfilled orders at February 25, 2000 and 1999, and at December 31, 1999, 1998 and 1997, by business segment, was as follows:
February 25, December 31, 2000 1999 1999 1998 1997 (Dollars in millions) Fluid Handling $ 27.9 $ 33.0 $25.7 $ 32.1 $ 29.5 Industrial 36.6 29.8 33.3 30.2 31.8 Positioning $ 64.5 $ 62.8 $ 59.0 $ 62.3 $ 61.3
Backlog is considered significant only to the Fluid Handling segment, given that the products of that operation require long lead times for manufacture. Of the total backlog at December 31, 1999, the Company believes that all but approximately $1.1 million of its orders will be filled in 2000.
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 international countries. 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 1999, 1998 and 1997 by business segment were as follows:
Year Ended December 31, 1999 1998 1997 (Dollars in millions) Fluid Handling $1.5 $2.1 $2.1 Industrial Positioning 2.8 3.2 3.4 $4.3 $5.3 $5.5
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 therefore 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 25, 2000, the Company employed approximately 1,900 associates worldwide. Approximately 1,300 associates were employed in the United States, and approximately 600 associates were employed outside of the United States. There are approximately 400 associates worldwide covered by collective bargaining agreements with various unions expiring in 2000 through 2002. The Company considers its relations with its associates to be satisfactory.
Item 2.
Item 2. Properties.
The location of the Company's manufacturing facilities at February 25, 2000 are as follows:
Location Product Owned/Leased
Fluid Handling
Monroe, North Carolina Three-screw and two-screw pumps Owned Columbia, Kentucky Three-screw, gear and elevator 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 Clearwater, Florida Marine hose products Leased Hudson, Ohio Cables and controls Leased Litchfield, Illinois Marine and power equipment after-market Owned parts
Louisburg, North Carolina Worm gear speed reducers Owned Sarasota, Florida Marine hydraulics Owned York, Pennsylvania Electronic drives Owned Basildon, England Cables and controls Leased Heiligenhaus, Germany Cables and controls Owned Paris, France Cables and controls Leased Marsta, Sweden Cables and controls Owned Singapore Cables, controls and roller chain Leased Sydney, Australia Cables and controls 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.
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 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 New Jersey alleging failure in performance of equipment sold in 1986 by the Company's former Deltex 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. 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 have 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. The Company entered into an agreement with the plaintiff settling all claims. Co-Defendant, Federal Insurance Company, has recently filed a counterclaim for attorney's fees. 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 case is in the preliminary stages of pleading but 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 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. For additional information see section entitled Environmental Matters in Part I, Item 1 of this Form 10-K Report.
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 4.
Item 4. Submission of Matters to a Vote of Security Holders.
None
PART II
Item 5.
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.
Item 6. Selected Financial Data. (Dollars in millions except per share amounts) (a)
Post-Acquis. Pre-Acquis. Year Year August 29, January 1, Year Ended Ended Ended 1997 to 1997 December 31, December December December to August -------------- 31, 1999* 31, 1998* 31, 1997 28, 1997 1996 1995 - -------------------------------------------------------------------------------- Net sales $287.5 $308.9 $106.7 $210.2 $309.5 $297.1 Income (loss) from continuing operations before extraordinary item 15.3 10.9 (5.7) (31.3) (33.1) 7.2 Discontinued operations, net of taxes --- --- (12.2) 2.4 (16.8) 27.0 Extraordinary item (net of tax) (0.2) (5.2) (3.3) --- (8.5) (4.4) Net income (loss) 15.1 5.7 (21.2) (28.9) (58.4) 29.8 - -------------------------------------------------------------------------------- (Loss) earnings per share, basic and diluted: Continuing operations before extraordinary item (.33) (1.82) (1.93) .42
Discontinued operations, net of taxes (.71) .14 ( .99) 1.58 Extraordinary item (.20) --- (.49) (.26) Net (loss) income (1.24) (1.68) (3.41) 1.74 Cash dividends per share --- --- --- --- --- --- - -------------------------------------------------------------------------------- Total assets 377.1 389.0 463.3 330.9 365.4 Total long-term debt, including current portion 169.1 174.3 223.4 276.0 244.5 ================================================================================
(a) The notes to the consolidated financial statements located in Part IV of this Form 10-K Report as indexed atItem 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 1999 and 1998.
Item 7.
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, 1999, with the results for the years ended December 31, 1998 and 1997, are being presented on an historical basis. The year ended December 31, 1999 and 1998 and the four months ended December 31, 1997, include changes in depreciation and amortization that resulted from the application of the purchase method of accounting for the Acquisition. For further information on the pro forma effect of the Acquisition on the Company, see Note 2 in the Notes to Consolidated Financial Statements.
Recent Events
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.
Results of Operations
The Company's former Roltra Morse, Instrumentation and Electro-Optical Systems businesses are accounted for as discontinued operations. Accordingly, the operating results of these businesses 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.
1999 Compared to 1998
Sales. Net sales from continuing operations in 1999 decreased 6.9% to $287.5 million, compared with $308.9 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 32.2% compared with 32.5% in 1998, as a result of reduced sales volume and manufacturing levels.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 17.6% of net sales in the twelve months ended December 31, 1999, as compared with 18.3% 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.
1998 Compared to 1997
Sales. Net sales from continuing operations in 1998 decreased 2.5% to $308.9 million, compared with $316.9 million in 1997, as a result of the Fluid Handling segment's sales remaining flat and a decrease of 4.0% in the Industrial Positioning segment's sales. The decrease in the Industrial Positioning segment sales is primarily due to the sale of the Delroyd product line, which was sold on December 31, 1997.
Gross Profit. Gross profit in 1998 increased as a percentage of sales to 32.5% compared with 30.0% in 1997. The higher gross profit was a result of productivity improvements in each segment due to cost reduction and efficiency initiatives implemented after the Acquisition.
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased to 18.3% of net sales in the twelve months ended December 31, 1998, as compared with 21.5% in the 1997 period. The decrease in expenses, as a percent of sales in 1998, was primarily due to the reduction in corporate overhead expenses and Company-wide cost reduction programs instituted after the Acquisition.
Interest Expense. Average borrowings in 1998 were approximately $102.6 million lower than in 1997. Total interest expense of $21.3 million in 1998 was $5 million, or 19.0%, lower than in 1997, due primarily to the reduction of debt as a result of the sale of Roltra Morse and the Instrumentation business and the purchase of a portion of the 11.75% senior subordinated debentures during 1998.
Income (Loss) from Continuing Operations. The Company had income from continuing operations of $10.9 million in 1998. In 1997, the loss from continuing operations was $36.9 million, which included unusual charges of $31.3 million.
Income (Loss) from Discontinued Operations. Roltra Morse's net loss of $1.0 million, which includes $0.2 million of allocated interest, was included with the net book value of the assets on the date of sale February 27, 1998. Therefore there was no income from discontinued operations for the year ended December 31, 1998 compared with a loss of $9.8 million for the year ended December 31, 1997.
Other Operating Results
Unusual Items. During the year ended December 31, 1997, the Company recorded unusual charges of $31.3 million against income from continuing operations. The first nine months of 1997 included an unusual charge of $10.5 million relating to the settlement of a judgment against the Company in favor of International Insurance Company. In addition, the Company recorded unusual charges of $20.8 million in the third quarter of 1997. Of these charges, $15.8 million related to the sale of the Company and represent indirect and general expenses incurred by the Company in connection with the sale process which were paid in 1997, and $5 million related to an additional legal provision concerning certain litigation matters.
Extraordinary Items. The year ended December 31, 1999, include 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, 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 (the "New Credit Agreement") 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 $8.8 million, $7.0 million, and $1.5 million for 1999, 1998 and 1997, respectively.
Income tax expense for the year ended 1999, represents current tax expense of $1.1 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 benefit currently recorded at December 31, 1999, is $32.8 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, 1999 and December 31, 1998. In 1998, the Company reduced its valuation reserve by $51.6 million due to its belief that it is more likely than not these tax benefits will be realized in future years. The revision of the valuation reserve is due to the change in purchase accounting estimates during the first year after acquisition.
The Company has net operating loss carryforwards of approximately $82.9 million expiring in years 2000 through 2018, and minimum tax credits of approximately $2.6 million, which may be carried forward indefinitely. Tax credit carryforwards include foreign tax credits of approximately $3.4 million, expiring beginning in the year 2002. These carryforwards are available to offset future taxable income, 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 $1.3 million.
Liquidity and Capital Resources
Short-term and Long-term Debt
As of December 31, 1999, the Company had $10.4 million of outstanding standby letters of credit. The Company had $7.3 million in foreign short-term credit facilities with amounts outstanding at December 31, 1999 of $1.3 million. 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 million of its 11.75% senior subordinated notes due in 2006, $36.7 million of term loan borrowings, $52.3 million in revolver borrowings, and $5 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 cash of $39.5 million in 1999, compared with cash provided of $39.6 million in 1998. The cash provided in 1999 is principally due to net operating profits and the decrease in working capital.
The Company's total debt as a percent of its total capitalization decreased to 59.2% at December 31, 1999, compared with 62.6% at December 31, 1998, as a result of the debt paid down due to internal cash generation.
Capital expenditures of continuing operations increased to $6.4 million compared with the 1998 level of $6 million due to expenditures related to productivity improvements and new product development in the operating segments. In 1999 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 2000 will increase over the 1999 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, 1999.
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.
Year 2000
All of the Company's essential processes, systems, and business functions were compliant with the Year 2000 requirements by the end of 1999. The Company did not experience any Year 2000 consequences that affected its financial position, liquidity or results of operations.
The costs of the Company's Year 2000 compliance program were funded with cash flows from operations. Some of these costs related solely to the modification of existing systems, while others were for new systems that also improved business functionality. In total, these costs were not substantially different from the normal, recurring costs for system development, in part due to the reallocation of internal resources to implement the new business systems. Costs incurred related to Year 2000 issues, outside of normal and routine upgrades, were approximately $1.6 million in total which was spread over the last few years. The Company does not believe that there will be any significant future costs or problems related to the Year 2000.
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 1999, 1998 or 1997.
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 2000, 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.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
The Company periodically enters into foreign exchange contracts for purposes of hedging its exposure to foreign currency exchange rate fluctuations. These contracts hedge 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.
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.
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.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant.
Not Applicable
Item 11.
Item 11. Executive Compensation.
Not Applicable
Item 12.
Item 12. Security Ownership ofCertain Beneficial Owners and Management.
Not Applicable
Item 13.
Item 13. Certain Relationships and Related Transactions.
None
PART IV
Item 14.
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 Years Ended December 31, 1999, December 31, 1998, the period from January 1, 1997 to August 28, 1997 (pre-Acquisition) and the period from August 29, 1997 to December 31, 1997 (post-Acquisition)
Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Cash Flows for the Years Ended December 31, 1999, December 31, 1998, the period from January 1, 1997 to August 28, 1997 (pre-Acquisition) and the period from August 29, 1997 to December 31, 1997 (post-Acquisition)
Consolidated Statements of Shareholders' Equity (Deficit) for the Years Ended December 31, 1999, December 31, 1998, the period from January 1, 1997 to August 28, 1997 (pre-Acquisition) and the period from August 29, 1997 to December 31, 1997 (post-Acquisition)
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, 1999 and 1998, the period from January 1, 1997 to August 28, 1997 (pre-Acquisition) and the period from August 29, 1997 to December 31, 1997 (post-Acquisition) 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) Seventh Amendment to Credit and Guaranty Agreement dated as of August 3, 1999
(I) Eighth Amendment to Credit and Guaranty Agreement dated as of November 29, 1999
10.28 (27) Stock Purchase Agreement dated as of January 30, 1998 between the Registrant and Magna International Inc.
10.29 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 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 Stock Purchase Agreement by and between Echlin Inc. and Imo Industries, Inc. dated as of October 13,
21 Subsidiaries of the Company
27 Financial Data Schedule as of December 31, 1999
- ----------------------------------------------- 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.
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: March 30, 2000
IMO INDUSTRIES INC.
By: /s/ JOHN A. YOUNG
John A. Young
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/ PHILIP W. KNISELY Chief Executive Officer, Philip W. Knisely President and Director (principal executive officer) March 30, 2000
/s/ JOHN A. YOUNG Vice President and John A. Young Chief Financial Officer (principal financial officer) March 30, 2000
/s/ G. SCOTT FAISON Corporate Controller G. Scott Faison (principal accounting officer) March 30, 2000
/s/ STEVEN M. RALES Director March 30, 2000 Steven M. Rales
/s/ MITCHELL P. RALES Director March 30, 2000 Mitchell P. Rales
/s/ NEIL D. COHEN Director March 30, 2000 Neil D. Cohen
Consolidated Statements of Income and Comprehensive Income (Dollars in thousands except per share amounts)
Post-Acquis. Pre-Acquis. Year Ended Year Ended Aug.29, 1997 Jan.1, 1997 December December to Dec. to Aug. 31, 1999 31, 1998 31, 1997 28, 1997 - --------------------------------------------------------------------------------
Net Sales $287,507 $308,870 $106,711 $210,151 Cost of products sold 194,936 208,579 76,597 145,276 - -------------------------------------------------------------------------------- Gross Profit 92,571 100,291 30,114 64,875 Selling, general and administrative expenses 50,516 56,464 21,411 46,724 Research and development expenses 4,344 5,317 1,913 3,636 Unusual items --- --- 5,000 26,344 - -------------------------------------------------------------------------------- Income (Loss) From Operations 37,711 38,510 1,790 (11,829) Other income 1,045 684 825 22 Gain on sale of assets 2,066 --- --- --- Interest expense 16,668 21,293 8,069 18,190 - -------------------------------------------------------------------------------- Income (Loss) From Continuing Operations Before Income
Taxes and Extraordinary Item 24,154 17,901 (5,454) (29,997) Income taxes 8,840 7,008 235 1,254 - -------------------------------------------------------------------------------- Income (Loss) From Continuing Operations Before
Extraordinary Item 15,314 10,893 (5,689) (31,251) Discontinued operations: Income (loss) from operations (net of income tax expense of $0, $0, $77 and $664) --- --- (3,753) 2,372 Estimated loss on disposal --- --- (8,430) --- - -------------------------------------------------------------------------------- Total Income (Loss) from
Discontinued Operations --- --- (12,183) 2,372 - -------------------------------------------------------------------------------- Extraordinary item - loss on extinguishment of debt (net of tax) (216) (5,223) (3,348) --- - -------------------------------------------------------------------------------- Net Income (Loss) $ 15,098 $5,670 $(21,220) $(28,879) ================================================================================ Other comprehensive income (loss), net of taxes - Foreign currency translation adjustments (1,774) (266) 2,122 (3,346) - -------------------------------------------------------------------------------- Comprehensive Income (Loss) $ 13,324 $5,404 $(19,098) $(32,225) ================================================================================
Earnings (loss) per share, basic and diluted: (See Note 1) Continuing operations before extraordinary item $ (.33) $(1.82) Discontinued operations (.71) .14 Extraordinary item (.20) --- - -------------------------------------------------------------------------------- Net loss $(1.24) $(1.68) - -------------------------------------------------------------------------------- Weighted average number of shares outstanding 17,127,859 17,126,192 ================================================================================
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, 1999 1998 - ------------------------------------------------------------------ Assets Current Assets
Cash and cash equivalents $2,898 $ 6,230 Trade accounts and notes receivable, less allowance of $1,348 in 1999 and $1,058 in 1998 30,075 40,125 Inventories 57,844 53,114 Deferred income tax assets 11,972 16,096 Prepaid expenses and other current assets 3,051 2,525 - ------------------------------------------------------------------ Total Current Assets 105,840 118,090 - ------------------------------------------------------------------ Property, plant and equipment Land 4,710 4,450 Buildings and improvements 20,745 21,063 Machinery and equipment 49,040 41,577 - ------------------------------------------------------------------ 74,495 67,090 Less accumulated depreciation and amortization (12,911) (7,660) - ------------------------------------------------------------------- Net property, plant and equipment 61,584 59,430 Intangible assets, principally goodwill, net 180,746 177,826 Investments in and advances to unconsolidated companies 5,069 4,536 Deferred income tax assets 20,845 25,680 Other assets 2,637 3,410 - ------------------------------------------------------------------ Total Assets $ 376,721 $ 388,972 ================================================================== Liabilities and Shareholders' Equity Current Liabilities
Notes payable $ 1,295 $ 817 Trade accounts payable 21,854 15,350 Accrued expenses and other liabilities 31,928 43,125 Accrued costs related to discontinued operations 2,559 4,289 Income taxes payable --- 5,505 Current portion of long-term debt 9,447 8,486 - ------------------------------------------------------------------ Total Current Liabilities 67,083 77,572 - ------------------------------------------------------------------ Long-term debt 159,624 165,843 Accrued postretirement benefits - long-term 8,555 9,155 Accrued pension expense and other liabilities 23,869 32,136 - ------------------------------------------------------------------ Total Liabilities 259,131 284,706 - ------------------------------------------------------------------ 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 deficit (452) (15,550) Cumulative foreign currency translation adjustments (2,710) (936) - ------------------------------------------------------------------ Total Shareholders' Equity 117,590 104,266 - ------------------------------------------------------------------ Total Liabilities and Shareholders' Equity $ 376,721 $ 388,972 ==================================================================
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) Post-Acquis. Pre-Acquis. Year Ended Year Ended Aug.29, 1997 Jan.1, 1997 December December to Dec. to Aug. 31, 1999 31, 1998 31, 1997 28, 1997 - -------------------------------------------------------------------------------- OPERATING ACTIVITIES Net income (loss) $ 15,098 $5,670 $(21,220) $ (28,879) Adjustments to reconcile net income (loss) to net cash provided by (used by) continuing operations: Discontinued operations --- --- 12,183 (2,372) Depreciation 5,597 4,880 3,674 6,747 Amortization 5,354 6,872 2,007 1,867 Provision for deferred income taxes 7,730 4,668 --- --- Extraordinary item 216 5,223 3,348 --- Unusual items --- --- 5,000 26,344 Other 111 49 369 750
Other changes in operating assets and liabilities (excluding the effects of acquisitions and dispositions):
Accounts and notes receivable 15,413 13,549 (6,467) 1,730 Inventories 5,737 11,774 1,759 (1,930) Accounts payable and accrued expenses (5,330) (21,019) (17,028) (9,794) Other operating assets and liabilities (8,713) 9,163 (1,608) (3,855) - -------------------------------------------------------------------------------- Net cash provided by (used by) continuing operations 41,213 40,829 (17,983) (9,392) Net cash used by discontinued operations (1,730) (1,219) (1,342) (1,377) - -------------------------------------------------------------------------------- Net Cash Provided by (Used by) Operating Activities 39,483 39,610 (19,325) (10,769) - -------------------------------------------------------------------------------- INVESTING ACTIVITIES Net proceeds from sale of businesses and sales of property, plant and equipment 2,332 32,726 88,024 25,235 Purchases of property, plant and equipment (6,402) (6,049) (3,740) (4,555) Acquisition of Sierra International Inc. (33,036) --- --- --- Net investing activities of discontinued operations --- (1,164) (5,104) (3,692) Other --- 80 (497) 141 - -------------------------------------------------------------------------------- Net Cash (Used by) Provided by
Investing Activities (37,106) 25,593 78,683 17,129 - -------------------------------------------------------------------------------- FINANCING ACTIVITIES Increase (decrease) in notes payable 511 (2,421) (15,900) 18,786 Proceeds from long-term borrowings 68,500 23,559 129,270 119 Principal payments on long-term debt(73,685) (71,583) (164,719) (25,792) Purchase of minority shares --- (6,247) --- --- Payment of debt financing costs --- --- (5,368) (384) Premium payment on repurchase of long-term debt (210) (5,822) --- --- Other --- (37) 281 (102) - -------------------------------------------------------------------------------- Net Cash (Used by) Provided by
Financing Activities (4,884) (62,551) (56,436) (7,373) - -------------------------------------------------------------------------------- Effect of exchange rate changes on cash(825) 50 453 (253) - -------------------------------------------------------------------------------- (Decrease) Increase in Cash and Cash
Equivalents (3,332) 2,702 3,375 (1,266) Cash and cash equivalents at beginning of the period 6,230 3,528 153 1,419 - -------------------------------------------------------------------------------- Cash and Cash Equivalents at End of
the Period $2,898 $6,230 $ 3,528 $ 153 ================================================================================ Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $15,560 $22,443 $ 13,344 $ 19,564 Income taxes $ 2,671 $ 2,725 $ 1,263 $ 2,006
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 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. Revenue is recorded on unshipped, completed products when certain criteria are met, including the customer requesting to be billed prior to shipment and the title and risk of loss passing to the customer at the billing date.
Depreciation and Amortization: Depreciation and amortization of plant and equipment are computed principally by the straight-line method based on 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: Basic and diluted net income (loss) per share for 1997 is calculated based on the actual weighted average shares outstanding. For 1997, outstanding stock options and warrants are not considered as their effect is antidulutive. As a result of the back-end merger on July 2, 1998, earnings per share is not presented for 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 materially affected by the adoption of this statement.
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, 1999 and 1998 was $177.2 million and $173.1 million, respectively, net of respective accumulated amortization of $12.0 million and $7.5 million. Patents are amortized over the shorter of their legal or estimated useful lives.
Management Estimates: The preparation of financial statements in conformity with generally accepted accounting principles 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, 1999, 942,693 of the outstanding 1,221,888 common shares held by minority shareholders were converted to cash. A payable of $2.0 million was accrued at December 31, 1999, for the remaining 279,195 shares that were not converted as of that date. Total consideration for the purchase of Imo was $120.7 million.
The Acquisition has been accounted for under the purchase method. The purchase price was allocated as follows: tangible assets - $314.5 million; other intangible assets - $8.4 million; and liabilities - $382.7 million. The allocation was based on the estimated fair values at the date of acquisition and resulted in an excess of purchase price over assets acquired, liabilities assumed, and additional purchase liabilities recorded, for continuing operations of $180.5 million, which is being amortized on a straight-line basis over 40 years.
Included in the liabilities above were approximately $18.6 million for severance and related costs, and consolidation of certain acquired facilities. At December 31, 1999, none of these liabilities remained on the balance sheet and $3.1 million remained at December 31, 1998. Of the $18.6 million charged against the liability, $16.2 million related to restructuring and $2.4 million related to severance payments.
In conjunction with the Acquisition, the Company recorded a charge of $15.8 million including a $10.0 million contract fee paid to United Dominion Industries ("UDI") as a result of the termination of a merger agreement between UDI and the Company, $3.4 million of commissions, advisory and legal fees, and $2.4 million of employee retention bonuses. (See Note 7).
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 outlay related to this program was $8.1 million in 1997, $7.4 million in 1998 and $3.1 million during 1999.
Note 3 Discontinued Operations
In February 1998 and August 1997, the Company sold its Roltra Morse and Instrumentation businesses, respectively. In April 1997, the Company completed the sale of the Varo Electronic Systems division. In accordance with APB Opinion No. 30, the disposals of these business segments have been accounted for as discontinued operations and, accordingly, their 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 and 1997 includes allocated interest expense of $0.2 million and $2.7 million ($2.4 million - pre-Acquisition), respectively. 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.
Roltra Morse
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.
The Roltra Morse business had operating losses of $0.9 million and $6.7 million for 1998 and 1997, respectively. The 1997 operating loss included an unusual charge of $0.7 million (pre-Acquisition) due to fees incurred related to the previously failed attempt to sell the Roltra Morse business.
Instrumentation
On August 29, 1997, the Company completed the sale of its Instrumentation business segment to Danaher Corporation for approximately $85 million, which approximated its net book value. The majority shareholders of the Company are also substantial shareholders of Danaher Corporation. The purchase price was determined on the basis of arms length negotiations between the Company and Danaher Corporation. A portion of the proceeds was used to reduce domestic senior debt by $68.1 million.
The Instrumentation business had income from operations of $5.3 million for 1997.
Electro-Optical Systems
On April 28, 1997, the Company completed the sale of the Varo Electronic Systems division to a small defense contractor for $12 million, which was used to reduce senior domestic debt. The sale of this business completed the disposal of the Electro-Optical Systems business.
In the third quarter of 1997, the Company recorded an additional $3.4 million loss on disposal related to changes in estimates on certain reserve requirements associated with the retained liabilities of this business.
The Electro-Optical Systems business had income from operations of $0.8 million for 1997. The income in 1997 offset increases in estimated reserve requirements.
Note 4 Restructuring Asset Sales
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.
1997 Asset Sales: On August 29, 1997, the Company completed the sale of its Instrumentation business segment to Danaher Corporation for proceeds of $85 million, which approximated its net book value. In April 1997, the Company completed the sale of its Varo Electronic Systems division to a small defense contractor for $12 million. The sale of this business completed the sale of the Electro-Optical Systems business. In 1997, the Company also completed sales of certain of its non-operating real estate for total proceeds of approximately $14.1 million.
On December 31, 1997, the Company sold certain assets of its Delroyd business unit to Nuttall Gear LLC for $2.3 million in cash. Also on December 31, 1997, the Company acquired certain assets of the Centric Clutch business unit of Ameridrives International, L.P. for $1.3 million in cash. The majority owners of Nuttall Gear and Ameridrives International, L.P. are also majority owners of the Company. The transactions were negotiated on an arms length basis, and were based on the valuations of independent appraisers.
Note 5 Inventories
Inventories are summarized as follows:
December 31 (Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------- Finished products $ 24,740 $ 18,926 Work in process 14,277 17,880 Materials and supplies 19,904 17,545 - ------------------------------------------------------------------------- 58,921 54,351 Less customers' progress payments (1,077) (1,237) - -------------------------------------------------------------------------- $ 57,844 $ 53,114 =========================================================================
Note 6 Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following:
December 31 (Dollars in thousands) 1999 1998 - ------------------------------------------------------------------------- Accrued product warranty costs $2,507 $ 1,423 Accrued litigation and claims costs 7,124 15,003 Payroll and related items 8,403 8,845 Accrued interest payable 2,496 2,014 Accrued restructuring costs 909 3,126 Accrued divestiture costs 977 1,502 Accrued environmental costs 1,548 1,934 Advance customer payments 539 1,363 Other 7,425 7,915 - ------------------------------------------------------------------------- $ 31,928 $ 43,125 =========================================================================
Note 7 Unusual Items
During the year ended December 31, 1997, the Company recorded unusual charges of $31.3 million in income from continuing operations. The first eight months of 1997 included an unusual charge of $10.5 million relating to the judgment against the Company in favor of International Insurance Company. In addition, the Company recorded unusual charges of $20.8 million in the third quarter of 1997. Of these charges, $15.8 million related to the sale of the Company and represented indirect and general expenses incurred by the Company in connection with the sale process which were paid in 1997, and $5 million related to an additional legal provision concerning certain litigation matters.
Note 8 Income Taxes
The components of income tax expense from continuing operations are: Post-Acquis. Pre-Acquis. August 29, January 1, 1997 1997 Year Ended December 31, to December to August
(Dollars in thousands) 1999 1998 31, 1997 28, 1997 - ----------------------------------------------------------------------
Current: Federal $ (449) $ 233 $ --- $ --- Foreign 1,326 1,801 94 994 State 233 306 141 260 - ---------------------------------------------------------------------- 1,110 2,340 235 1,254 - ---------------------------------------------------------------------- Deferred: Federal 6,450 4,668 --- --- Foreign and State 1,280 --- --- --- - ---------------------------------------------------------------------- 7,730 4,668 --- --- - ---------------------------------------------------------------------- $8,840 $7,008 $235 $1,254 ======================================================================
Income tax expense for 1997 from discontinued operations was $.7 million. There was no income tax expense for discontinued operations during 1998 or 1999.
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, 1999 and 1998 are as follows:
December 31 (Dollars in thousands) 1999 1998 - ---------------------------------------------------------------------- Current Long-term Current Long-term
- ---------------------------------------------------------------------- Deferred tax assets: Postretirement benefit $ 234 $ 3,235 $ 234 $ 3,204 obligation Expenses not currently 12,942 6,467 17,066 7,720 deductible Net operating loss --- 29,026 --- 32,299 carryover Tax credit carryover --- 6,071 --- 4,471 - ---------------------------------------------------------------------- Total deferred tax assets 13,176 44,799 17,300 47,694 Valuation allowance for
deferred tax assets (1,204) (516) (1,204) (516) - ---------------------------------------------------------------------- Net deferred tax assets 11,972 44,283 16,096 47,178 - ---------------------------------------------------------------------- Deferred tax liabilities: Tax over book depreciation --- 16,835 --- 14,487 Other --- 6,603 --- 7,011 - ---------------------------------------------------------------------- Total deferred tax liabilities --- 23,438 --- 21,498 - ---------------------------------------------------------------------- Net deferred tax assets $ 11,972 $ 20,845 $ 16,096 $ 25,680 ======================================================================
The net deferred tax asset currently recorded at December 31, 1999 is $32.8 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, 1999 and December 31, 1998. In 1998, the Company reduced its valuation reserve by $51.6 million due to its belief that it is more likely than not that these tax benefits will be realized in future years. The revision of the valuation reserve is due to the change in purchase accounting estimates during the first year after acquisition.
At December 31, 1999, unremitted earnings of foreign subsidiaries were approximately $26 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 $1.3 million.
The components of income (loss) from continuing operations before income taxes and extraordinary item:
Post-Acquisition Pre-Acquisition August 29, January 1, 1997 1997 Year Ended December 31 to December to August (Dollars in thousands) 1999 1998 31, 1997 28, 1997 - ----------------------------------------------------------------------- United States $ 14,291 $ 7,963 $(7,612) $(29,023) Foreign 9,863 9,938 2,158 (974) - ----------------------------------------------------------------------- $24,154 $17,901 $(5,454) $(29,997) =======================================================================
U.S. income tax expense (benefit) at the statutory tax rate is reconciled below to the overall U.S. and foreign income tax expense.
Post-Acquisition Pre-Acquisition August 29, January 1, 1997 1997 Year Ended December 31 to December to August (Dollars in thousands) 1999 1998 31, 1997 28, 1997 - ----------------------------------------------------------------------------- Tax at U.S. federal income $ 8,454 $ 6,265 $ (1,909) $ (10,499) tax rate State taxes, net of federal income tax effect 151 198 92 169 Impact of foreign tax rates and credits, and tax refunds (1,247) (1,677) 228 (660) Net U.S. tax on distributions of current foreign earnings 486 266 355 --- Goodwill amortization and
write-off 1,574 1,995 458 222 Change in valuation reserve --- --- 1,720 7,472 Nondeductible foreign losses --- --- 89 1,017 Other (578) (39) (798) 3,533 - ----------------------------------------------------------------------------- Income tax expense $ 8,840 $ 7,008 $ 235 $ 1,254 =============================================================================
The Company has net operating loss carryforwards of approximately $82.9 million expiring in years 2000 through 2018, and minimum tax credits of approximately $2.6 million, which may be carried forward indefinitely. Tax credit carryforwards include foreign tax credits of approximately $3.4 million that expire beginning in the year 2002. These carryforwards are available to offset future federal taxable income, subject to the Section 382 limitations, due to the Acquisition.
Note 9 Long-Term Debt and Notes Payable
Long-Term Debt
Long-term debt consists of the following:
December 31 (Dollars in thousands) 1999 1998 - --------------------------------------------------------------------- Term Loans (1) (2) $ 36,689 $46,538 Revolver Loans (1) (2) 52,250 41,000 Due to Amerdrives International, L.P. (3) 5,000 5,000 Senior subordinated notes with interest at 11.75%, due May 1, 2006, net of unamortized discount of $0.8 million in 1999 and $0.9 million in 1998 74,217 77,591 Other 915 4,200 - --------------------------------------------------------------------- 169,071 174,329 Less current portion (9,447) (8,486) - --------------------------------------------------------------------- $159,624 $165,843 =====================================================================
(1)Quarterly principal payments are as follows: $2.1 million due quarterly November 29, 1999 to August 29, 2000; $3.0 million due quarterly November 29, 2000 to August 29, 2001; and $4.5 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 August 29, 1997, the Company completed the refinancing of its domestic senior debt. Under terms of the refinancing, the Company entered into an agreement for $143 million in senior secured credit facilities with a group of lenders (the "Credit Agreement"). Initial borrowings under the Credit Agreement were approximately $127.1 million. Proceeds of the Credit Agreement were used to refinance all obligations under the Company's previous credit agreement. The cost of the implementation of the New Credit Agreement will be amortized over its term.
The Credit Agreement, which is secured by the assets of the Company's domestic operations and all or a portion of the stock of certain subsidiaries, provided for a five year, $70 million revolving credit facility ("Revolver Loans") (which includes a $30 million letter of credit sub-facility), and a $73 million term loan facility ("Term Loans") amortizing to August 29, 2002. Proceeds from the August 29, 1997 sale of the Instrumentation business were used to repay amounts on the Revolver Loans and Term Loans of $54.2 million and $13.9 million, respectively (See Note 3). At the same time, and in keeping with the terms of the Credit Agreement, the $73 million term loan facility was reduced to $59 million, which reduced the total facility to $129 million.
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 2000 are:
(Dollars in thousands) - ---------------------------------------------------------------------- 2001 $13,682 2002 70,895 2003 --- 2004 --- Thereafter 75,047 - ----------------------------------------------------------------------
Total $ 159,624 ======================================================================
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, 1999.
The Notes are not redeemable prior to May 1, 2001. On or after May 1, 2001, the Notes are redeemable at the option of the Company, in whole or in part, at 106% of their principal amount, plus accrued interest, declining to 100% of their principal amount plus accrued interest on or after May 1, 2004. Interest is payable semi-annually on May 1 and November 1.
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.
The year ended December 31, 1997 includes an extraordinary charge of $3.3 million. In the third quarter of 1997, a $0.3 million extraordinary charge consisting of the write-off of deferred debt expense was recorded related to the repayment of a portion of the Term Loans under the Credit Agreement with the proceeds from the sale of the Instrumentation business. An extraordinary charge of $3 million was recorded in the fourth quarter of 1997, as a result of the open market purchase of a portion of the Notes in November 1997. This charge represents a cash outlay of $2.3 million incurred in connection with the early extinguishment of the debt as well as the write-off of previously deferred loan costs.
Notes Payable
The Company's continuing operations had $7.3 million in foreign short-term credit facilities with amounts outstanding at December 31, 1999 of $1.3 million. 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, 1999, the Company had $10.4 million of outstanding standby letters of credit.
Note 10 Shareholders' Equity
On August 29, 1997, the Board of Directors accelerated the exercisability and deemed exercised for cash all stock options outstanding under the Company's Equity Incentive Plan for Key Employees, the Equity Incentive Plan for Outside Directors, and the 1995 Equity Incentive Plan for Outside Directors, (collectively the "Plans"). The cash paid for outstanding stock options deemed exercised was based upon the greater of the excess of the tender offer price of Acquisition Corp. of $7.05 over the per share option exercise price and zero. The cash payment of outstanding options resulted in no options remaining outstanding as of August 29, 1997. In addition, on November 5, 1997, pursuant to resolution of the Board of Directors, the Plans were terminated effective August 29, 1997.
On July 2, 1998, Colfax Corporation's wholly-owned subsidiary, Imo Merger Corp., merged with and into Imo, pursuant to a short-form merger under Delaware law ("back-end merger"). Imo was the surviving corporation in the back-end merger and as a result became a wholly-owned subsidiary of Colfax. At the merger date, Imo assumed the capital structure of Imo Merger Corp., of 100 shares of common stock, par value $.01 per share.
Employees Stock Savings Plan
Prior to August 1, 1997, up to 1,600,000 shares of the Company's common stock were reserved for issuance under the Company's Employee Stock Savings Plan ("ESSP"). The Committee of the ESSP approved a policy change, effective August 1, 1997, in that employer matching contributions to the ESSP are to be paid in cash rather than through issuance of Company common stock. As of August 1, 1997, this plan policy change effectively eliminated the restriction on the use of authorized but unissued shares of common stock.
Treasury Stock
On August 29, 1997, the Company canceled the shares of treasury stock outstanding as of that date totaling 1,672,788 shares of the Company's common stock with a cost basis of approximately $18 million.
Note 11 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) 1999 1998 1997 - -------------------------------------------------------------------------- Net Sales
Fluid Handling $101,094 $112,768 $112,486 Industrial Positioning 186,413 196,102 204,376 - -------------------------------------------------------------------------- Total net sales $287,507 $308,870 $316,862 ========================================================================== Segment operating income
Fluid Handling $ 22,779 $ 21,462 $14,503 Industrial Positioning 23,198 26,323 12,984 - -------------------------------------------------------------------------- Total segment operating income 45,977 47,785 27,487 - -------------------------------------------------------------------------- Equity in income (loss) of --- 31 (519) unconsolidated companies Unallocated corporate expenses (1) (7,344) (9,275) (37,703) Gain on sale of assets 2,066 --- --- Net interest expense (16,545) (20,640) (24,716) - -------------------------------------------------------------------------- Income (loss) from continuing operations before income taxes and extraordinary item $ 24,154 $ 17,901 $(35,451) ==========================================================================
A reconciliation of segment operating income to income from operations follows:
Year Ended December 31 (Dollars in thousands) 1999 1998 1997 - ------------------------------------------------------------------- Segment operating income $ 45,977 $ 47,785 $27,487 Unallocated corporate expenses (1) (7,344) (9,275) (37,703) Other income (expense) (922) --- 177 - ------------------------------------------------------------------- Income (loss) from operations $ 37,711 $ 38,510 $ (10,039) ====================================================================
(1)Unallocated corporate expenses include unusual items of $31.3 million for the year ended December 31, 1997.
Year Ended December 31 (Dollars in thousands) 1999 1998 - --------------------------------------------------------- Identifiable assets
Fluid Handling $ 53,536 $ 58,090 Industrial Positioning 125,018 105,169 Corporate 198,167 225,713 - --------------------------------------------------------- Total identifiable assets $376,721 $388,972 ========================================================= Depreciation and amortization
Fluid Handling $ 1,978 $ 1,651 Industrial Positioning 3,360 2,930 Corporate 5,613 7,171 - --------------------------------------------------------- Total depreciation and
amortization $10,951 $11,752 ========================================================= Capital expenditures
Fluid Handling $1,362 $ 2,768 Industrial Positioning 4,738 3,233 Corporate 302 48 - --------------------------------------------------------- Total capital expenditures $6,402 $ 6,049 =========================================================
Identifiable assets of corporate at December 31, 1999 and 1998 include goodwill of $178.2 million and $173.1 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) 1999 1998 1997 - ---------------------------------------------------------------------- Net sales
United States $199,691 $203,685 $214,150 Foreign 87,816 105,185 102,712 - ---------------------------------------------------------------------- Total net sales $287,507 $308,870 $316,862 ====================================================================== Segment operating income
United States $ 34,881 $34,523 $25,050 Foreign 11,096 13,262 2,437 - ---------------------------------------------------------------------- Total segment operating income $ 45,977 $47,785 $27,487 ======================================================================
Year Ended December 31 (Dollars in thousands) 1999 1998 1997 - ---------------------------------------------------------------------- Identifiable assets Continuing Operations: United States $319,711 $327,720 $380,263 Foreign 57,010 61,252 68,110 Discontinued Operations: United States --- --- (562) Foreign --- --- 15,489 - ---------------------------------------------------------------------- Total identifiable assets $376,721 $388,972 $463,300 ======================================================================
Export sales
Asia $3,463 $5,277 $ 5,011 Canada 5,616 3,801 4,878 Europe 3,461 3,288 2,745 Latin America 1,105 1,241 779 Middle East & North Africa 544 769 604 South America 3,215 7,031 7,349 Other 2,183 3,440 2,236 - ---------------------------------------------------------------------- Total export sales $ 19,587 $ 24,847 $23,602 ======================================================================
No one customer accounted for 10% or more of consolidated sales in 1999, 1998 or 1997.
Note 12 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 $(3.8) million in 1999, $0.7 million in 1998 and $3.8 million in 1997, and includes amortization of prior service cost and transition amounts for periods of 5 to 15 years. The 1999, 1998 and 1997 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) 1999 1998 1999 1998 - -------------------------------------------------------------------------------- Change in benefit obligation: Benefit obligation at beginning of year $219,638 $208,778 $10,004 $9,345 Service cost 331 2,367 19 9 Interest cost 14,882 15,169 643 674 Amendments --- 241 --- 85 Actuarial loss (gain) (12,813) 13,807 (705) 1,027 Purchase accounting --- (7,292) --- --- Effect of plan change 407 --- --- --- Estimated benefits paid (15,683) (13,432) (947) (1,136) - -------------------------------------------------------------------------------- Benefit obligation at end of year $206,762 $219,638 $ 9,014 $10,004 - --------------------------------------------------------------------------------
Change in plan assets: Fair value of plan assets at beginning of year $214,742 $201,638 --- --- Estimated return on plan assets 35,811 25,424 --- --- Employer contribution 844 1,112 947 1,136 Estimated benefits paid (15,683) (13,432) (947) (1,136) - -------------------------------------------------------------------------------- Fair value of plan assets at end of year $ 235,714 $214,742 --- --- - --------------------------------------------------------------------------------
Funded status $ 28,952 $ (4,896) $(9,014) $(10,004) Unrecognized actuarial (gain) loss (30,056) (340) (197) 508 Unrecognized prior service cost 583 55 79 85 Unrecognized net obligation 153 --- --- --- - -------------------------------------------------------------------------------- Accrued benefit cost $ (368) $ (5,181) $ (9,132) $(9,411) ================================================================================
Pension Benefits Other Benefits
- -------------------------------------------------------------------------------- Year Ended December 31 (Dollars in thousands) 1999 1998 1999 1998 - -------------------------------------------------------------------------------- Discount rate 7.75% 6.75% 7.75% 6.75% Expected return on plan assets 9.25% 9.0% --- --- Rate of compensation increase --- 5.3% --- ---
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 1999 because the plan was frozen on January 31, 1999.
Pension Benefits Other Benefits
- -------------------------------------------------------------------------------- Year Ended December 31 (Dollars in thousands) 1999 1998 1999 1998 - -------------------------------------------------------------------------------- Components of net periodic benefit cost:
Service cost $ 331 $2,367 $ 19 $ 9 Interest cost 14,882 15,169 643 674 Expected return on plan assets (19,128) (16,834) --- --- Amortization of prior service cost 132 (8) 6 --- - -------------------------------------------------------------------------------- Net periodic benefit (income) cost $ (3,783) $694 $668 $ 683 ================================================================================
The Canada pension plan had a curtailment loss of $.1 million for 1999. The Louisburg pension plan had a settlement loss of $.1 million for 1999.
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 Louisburg, Varo and Canada 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 $203.4 million, $203.4 million and $197.8 million, respectively, as of December 31, 1998 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 $ 55 $ (46) Effect on the postretirement benefit $688 $(595) obligation
Plan assets at December 31, 1999 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 1999, 1998 and 1997 was $2 million, $.4 million and $.6 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 13 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, 1999, are:
(Dollars in thousands) - ---------------------------------------------------------------------- 2000 $3,470 2001 2,723 2002 2,131 2003 1,693 2004 514 Thereafter 3,259 - ----------------------------------------------------------------------
Total minimum lease payments $ 13,790 ======================================================================
Total rental expense under operating leases charged against continuing operations was $6.5 million in 1999, $7.3 million in 1998 and $7.8 million in 1997.
Note 14 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 hedge 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.
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 15 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.
Note 16 Accounts Receivable Securitization
On November 29, 1999, the Company entered into an agreement to sell, on a revolving basis, an interest in a defined pool of trade accounts receivable of up to $35 million. At December 31, 1999, a $21 million interest had been sold under this agreement. Proceeds from the sale were used to finance a portion of the Sierra acquisition. The sale is reflected as a reduction of accounts receivable and as operating cash flows. As collections reduce previously sold interests, new accounts receivable are customarily sold. The discount fees were $0.1 million in 1999, and are included in interest expense. The Company, as agent for the purchaser, retains collection and administrative responsibilities for the participating interests of the defined pool.
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.
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 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 New Jersey alleging failure in performance of equipment sold in 1986 by the Company's former Deltex 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. 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 have 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. The Company entered into an agreement with the plaintiff settling all claims. Co-Defendant, Federal Insurance Company, has recently filed a counterclaim for attorney's fees. 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 case is in the preliminary stages of pleading but 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 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. For additional information see section entitled Environmental Matters in Part I, Item 1 of this Form 10-K Report.
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.
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, 1999 and 1998, and the related consolidated statements of income and comprehensive income, shareholders' equity and cash flows for the years ended December 31, 1999 and 1998, and for the periods from August 29, 1997, through December 31, 1997 (post-Acquisition), and from January 1, 1997, through August 28, 1997 (pre-Acquisition.) 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 generally accepted auditing standards. 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, 1999 and 1998, and the results of their operations and its cash flows for the years ended December 31, 1999 and 1998, and for the periods from August 29, 1997, through December 31, 1997 (post-Acquisition), and from January 1, 1997, through August 28, 1997 (pre-Acquisition), in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Richmond, Virginia February 11, 2000
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 generally accepted auditing standards 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, 1999 and 1998, and for the years ended December 31, 1999 and 1998, and for the periods from August 29, 1997, through December 31, 1997 (post-Acquisition), and from January 1, 1997, through August 28, 1997 (pre-Acquisition), and have issued our report thereon dated February 17, 2000. 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 February 11, 2000
Imo Industries Inc. and Subsidiaries Quarterly Financial Information (Unaudited) Quarterly financial information for 1999 and 1998 is as follows:
1st 2nd 3rd 4th 1999 (Dollars in thousands except per Quarter Quarter Quarter Quarter share amounts) (a)
Net Sales $ 74,499 $ 75,843 $ 67,159 $ 70,006 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
1st 2nd 3rd 4th 1998 (Dollars in thousands except per Quarter Quarter Quarter Quarter share amounts) (a)
Net Sales $ 83,031 $ 81,084 $ 75,464 $ 69,291 Gross profit 26,745 26,447 24,047 23,052 Income (loss)from continuing operations before extraordinary item 3,324 3,842 3,772 (45) Extraordinary Item (5,603) --- (1,114) 1,494 Net income (loss) (2,279) 3,842 2,658 1,449
(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.