Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-9294
Imo Industries Inc.
(Exact name of registrant as specified in its charter)
Delaware 21-0733751
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1009 Lenox Drive, Building Four West
Lawrenceville, New Jersey 08648
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code 609-896-7600
Indicate by check mark whether the Registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date: Common Stock, $1.00 Par Value--17,083,609
shares as of October 31, 1995.
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited).
Consolidated Statements of Income--Three and nine
months ended September 30, 1995 and 1994 2
Consolidated Balance Sheets--September 30, 1995 and
December 31, 1994 3
Consolidated Statements of Cash Flows--Nine
months ended September 30, 1995 and 1994 4
Notes to Consolidated Financial Statements--
September 30, 1995 5 - 10
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10 - 17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 18
Item 6. Exhibits and Reports on Form 8-K. 18
SIGNATURES 19
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands except per share amounts)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 109,428 $ 113,421 $ 361,031 $ 347,393
Cost of products sold 78,419 81,792 258,052 250,765
Gross Profit 31,009 31,629 102,979 96,628
Selling, general and
administrative expenses 19,085 19,571 64,995 63,123
Research and development expenses 1,721 1,333 5,566 4,471
Income From Operations 10,203 10,725 32,418 29,034
Interest expense 7,842 8,504 23,290 25,787
Interest income (402) (355) (1,694) (1,002)
Other income, net (165) (245) (855) (359)
Equity in (income) loss of
unconsolidated companies (25) (25) (277) 25
Income From Continuing
Operations Before Income
Taxes, Minority Interest and
Extraordinary Item 2,953 2,846 11,954 4,583
Income tax expense 695 861 2,630 1,766
Minority interest (69) (66) 37 267
Income From Continuing
Operations Before
Extraordinary Item 2,327 2,051 9,287 2,550
Discontinued Operations:
Income from Operations (net
of income taxes of $.3
million and $.6 million,
respectively, in 1994) --- 737 --- 2,895
Gain (Loss) on Disposal (net
of income taxes of $5.2
million for the nine
months ended September 30,
1995) (6,750) --- 32,863 ---
Total Income (Loss)
from Discontinued
Operations (6,750) 737 32,863 2,895
Extraordinary Item - Loss on
Extinguishment of Debt (304) (5,299) (4,444) (5,299)
Net Income (Loss) $ (4,727) $ (2,511) $ 37,706 $ 146
Earnings per share:
Continuing operations
before extraordinary item $ 0.14 $ 0.12 $ 0.55 $ 0.15
Discontinued operations $ (0.40) $ 0.04 $ 1.92 $ 0.17
Extraordinary item $ (0.02) $ (0.31) $ (0.26) $ (0.31)
Net income (Loss) $ (0.28) $ (0.15) $ 2.21 $ 0.01
Weighted average number of
shares outstanding 17,067,916 16,917,738 17,038,127 16,913,857
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<CAPTION>
September 30, December 31,
1995 1994
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 2,313 $ 26,942
Trade accounts and notes
receivable, less allowance of
$2,374 in 1995 and $2,659 in 1994 79,999 84,924
Inventories-net 94,795 86,823
Deferred income taxes 5,423 4,328
Net assets of discontinued
operations-current 3,409 68,697
Prepaid expenses and other
current assets 8,387 6,593
Total Current Assets 194,326 278,307
Property, Plant and Equipment-on
the basis of cost 201,056 183,701
Less allowance for depreciation
and amortization (103,625) (91,297)
Net Property, Plant and Equipment 97,431 92,404
Intangible Assets, Principally
Goodwill 81,494 82,435
Investments in and Advances to
Unconsolidated Companies 4,526 3,653
Net Assets of Discontinued
Operations - Noncurrent 15,636 76,273
Other Assets 53,701 41,587
Total Assets $ 447,114 $ 574,659
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Notes payable $ 10,286 $ 12,771
Trade accounts payable 46,559 47,696
Accrued expenses and other
liabilities 46,329 53,676
Accrued costs related to
discontinued operations 2,959 6,444
Income taxes payable 8,389 5,479
Current portion of long-term debt 1,680 17,039
Total Current Liabilities 116,202 143,105
Long-Term Debt 231,102 376,998
Deferred Income Taxes 6,355 7,364
Accrued Postretirement Benefits -
Long-Term 27,289 30,918
Accrued Pension Expense and Other
Liabilities 51,170 41,997
Total Liabilities 432,118 600,382
Minority Interest 1,947 2,281
SHAREHOLDERS' EQUITY
Preferred stock: $1.00 par value;
authorized and unissued 5,000,000
shares --- ---
Common stock: $1.00 par value;
authorized 25,000,000 shares
issued 18,754,897 and
18,680,428 in 1995 and 1994,
respectively 18,755 18,680
Additional paid-in capital 80,263 79,789
Retained earnings (deficit) (68,596) (106,302)
Cumulative foreign currency
translation adjustments 1,500 (1,298)
Minimum pension liability
adjustment (853) (853)
Treasury stock at cost -
1,672,788 shares in 1995
and 1994 (18,020) (18,020)
Total Shareholders' Equity 13,049 (28,004)
Total Liabilities and
Shareholders' Equity $ 447,114 $ 574,659
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<CAPTION>
Nine Months
Ended September 30,
1995 1994
(Unaudited)
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 37,706 $ 146
Adjustments to reconcile net income to
net cash provided by continuing operations:
Discontinued operations --- (2,895)
Net gain on sale of discontinued
operations (32,863) ---
Extraordinary item 4,444 5,299
Depreciation 11,670 12,344
Amortization 2,738 4,389
Other (395) 821
Other changes in operating assets
and liabilities:
Decrease (increase) in
accounts and notes receivable 4,925 (13,030)
Increase in inventories (7,972) (2,939)
Decrease in recoverable income
taxes --- 3,826
Increase in accounts payable and
accrued expenses (7,815) 6,689
Other operating assets and
liabilities (14,003) 4,057
Net cash (used) provided by
continuing operations (1,565) 18,707
Net cash (used) provided by discontinued
operations (13,709) 7,721
Net Cash (Used in) Provided by
Operating Activities (15,274) 26,428
INVESTING ACTIVITIES
Purchases of property, plant and
equipment (15,126) (4,395)
Proceeds from sale of businesses and
sales of property, plant and equipment 173,416 12,855
Net cash used by discontinued operations (3,955) (2,199)
Other (122) (1,097)
Net Cash Provided by Investing Activities 154,213 5,164
FINANCING ACTIVITIES
Decrease in notes payable (2,485) (32,860)
Proceeds from long-term borrowings 11,757 85,302
Principal payments on long-term debt (173,554) (50,245)
Payment of debt financing costs --- (10,953)
Other 547 258
Net Cash Used in Financing Activities (163,735) (8,498)
Effect of exchange rate changes on cash 167 354
(Decrease) Increase in Cash and Cash
Equivalents (24,629) 23,448
Cash and cash equivalents at beginning
of period 26,942 22,356
Cash and Cash Equivalents at End of
Period $ 2,313 $ 45,804
Supplemental disclosures of cash flow
information:
Cash paid (received) during the
period for:
Interest expense $ 28,713 $ 37,971
Income taxes $ 5,448 $ (8,680)
</TABLE>
See accompanying notes to consolidated financial statements.
Imo Industries Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Unaudited with
respect to September 30, 1995 and 1994 and the periods then
ended.)
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation: The accompanying unaudited
consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for
interim financial information and with the instructions to
Form 10-Q and Article 10 of Regulation S-X. Accordingly,
they do not include all of the information and footnotes
required by generally accepted accounting principles for
complete financial statements. In the opinion of management,
all adjustments (consisting only of normal recurring
accruals) considered necessary for a fair presentation have
been included. Operating results for the nine months ended
September 30, 1995 are not necessarily indicative of the
results that may be expected for the year ending December 31,
1995. The third quarter of 1995 benefited by $1.1 million
representing favorable changes in previously estimated costs.
For further information, refer to the consolidated financial
statements and footnotes thereto included in the Company's
annual report on Form 10-K for the year ended December 31,
1994.
NOTE B--DISCONTINUED OPERATIONS
The Company has accounted for its former Electro-Optical
Systems business and Turbomachinery business segments as
discontinued operations in accordance with Accounting
Principles Board Opinion No. 30. By the end of the second
quarter of 1995, the Company had completed the sales of its
Turbomachinery business and a substantial part of its Electro-
Optical Systems business. Not included in these sales were
certain idle facilities which are being held for sale, as
well as the Electro-Optical System's Varo Electronic Systems
division, which continues to be marketed to interested
parties.
In the third quarter of 1995, the Company recorded a
provision of $6.8 million related to contingencies associated
with the sale of the Electro-Optical Systems businesses. The
provision partially offset a $39.6 million gain on the sale
of the Turbomachinery business recorded in the first quarter
of 1995.
On July 6, 1995, the Company redeemed $40 million of its
12.25% senior subordinated debentures with the proceeds from
the June 1995 sale of most of its Electro-Optical Systems
business to Litton Industries. As a result of this early
extinguishment of debt, a $.3 million ($.02 per share) charge
was recorded as an extraordinary item in the third quarter of
1995. The charge consisted of the write-off of previously
deferred debt expense associated with the 12.25% senior
subordinated debentures redeemed.
Net sales of the discontinued operations were $4.9 million
and $80.2 million for the three months ended September 30,
1995 and 1994, and $53.2 million and $256.6 million for the
nine months ended September 30, 1995 and 1994, respectively.
The discontinued operations incurred a net loss of $.1
million and income of $.7 million for the three months ended
September 30, 1995 and 1994, and a loss of $2.3 million and
income of $2.9 million for the nine months ended September
30, 1995 and 1994, respectively. These results from
operations include allocated interest expense of $.4 million
and $4.2 million for the three months ended September 30,
1995 and 1994, and $4.5 million and $12.7 million for the
nine months ended September 30, 1995 and 1994, respectively.
The 1995 net loss, including allocated interest, was charged
against the reserve for anticipated losses previously
established by the Company.
See Note F for discussion of contingencies related to the
Electro-Optical Systems and Turbomachinery businesses.
NOTE C--INVENTORIES
Inventories (in thousands of dollars) are summarized as
follows:
September 30, December 31,
1995 1994
(Unaudited)
Finished products $ 36,039 $ 35,649
Work in process 33,874 31,990
Materials and supplies 37,326 32,952
107,239 100,591
Less customers' progress payments 795 1,635
Less valuation allowance 11,649 12,133
$ 94,795 $ 86,823
NOTE D--ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities (in thousands of
dollars) consist of the following:
September 30, December 31,
1995 1994
(Unaudited)
Accrued product warranty costs $ 2,171 $ 5,037
Accrued litigation and claim costs 1,844 4,493
Payroll and related items 15,764 12,773
Accrued interest payable 8,910 10,573
Accrued divestiture costs 4,050 8,582
Other 13,590 12,218
$ 46,329 $ 53,676
NOTE E--EARNINGS PER SHARE
Earnings per share for 1995 and 1994 are based upon the
weighted average number of shares of common stock
outstanding. Common stock equivalents related to stock
options and warrants are excluded because their effect is not
material.
NOTE F--CONTINGENCIES
In August 1985, the Company was named as defendant in a
lawsuit filed by Long Island Lighting Company ("LILCO"). The
action stemmed from the sale of three diesel generators to
LILCO for use at its Shoreham Nuclear Power Station. During
testing of the diesel generators, the crankshaft of one of
the diesel generators severed. On July 22, 1992, the trial
court entered a judgment against the Company in the amount of
$18.3 million which included interest to the judgment date.
On September 22, 1993, the Second Circuit Court of Appeals
affirmed all lower court decisions in this matter. On
October 25, 1993, the judgment was satisfied by payment to
LILCO of approximately $19.3 million by two of the Company's
insurers.
In late June 1992, the Company filed an action in the United
States District Court for the Northern District of California
against one of its insurers in an attempt to collect amounts
for defense costs paid to counsel retained by the Company in
defense of the LILCO litigation. The insurer has refused to
reimburse the Company for approximately $8.5 million in
defense costs paid by the Company alleging that defense costs
above reasonable levels were expended in defending this
litigation. In a counterclaim, the defendant is seeking
reimbursement of all or part of $1.7 million in defense costs
previously paid by this insurer. Upon motion by the defendant
this action has now been transferred to the Southern District
of New York where it is now pending.
In January 1993, the Company was served with a complaint in a
case brought in the United States District Court for the
Northern District of California by another insurer alleging
that the insurer was entitled to recover $10 million in
defense costs previously paid in connection with the LILCO
matter and $1.2 million of the judgment which was paid on
behalf of the Company. The complaint alleges inter alia that
the insurer's policies did not cover the matters in question
in the LILCO case. In response, the Company filed a
counterclaim against the insurer seeking payment of $8.5
million in defense costs that the Company previously paid in
connection with the LILCO litigation. On January 25, 1995,
the Court entered a judgment, based on a December 15, 1994
memorandum and order, dismissing the Company's counterclaim,
denying the Company's motion for summary judgment, and
finding sua sponte that there was no coverage under the
insurer's policy for the LILCO matter. Subsequent to entry of
the District Court judgment, the insurer moved to have the
judgment modified to award the insurer the $10 million
defense costs and $1.2 million indemnity payment. The Company
filed a motion in opposition. Oral arguments relating to
this motion were held on February 24, 1995 and the Company
received in March 1995 the District Court's tentative
decision, which if made final, would award the insurer
reimbursement of the $11.2 million. In the tentative ruling,
the District Court expressly provided the Company with the
opportunity to submit a Memorandum of Points and Authorities
as to why the Court's tentative conclusion was erroneous and
invited briefing on an additional issue, not previously
considered by the Court, regarding the insurer's obligation
to pay the $10 million in defense costs. The Company
submitted its Memorandum on April 19, 1995. In June 1995 the
Company received a copy of a judgment entered by the District
Court awarding $11.2 million with interest accruing from
March 1995. The judgment was not supported by an order ruling
upon the remaining open issues. In response to a request
from the Company on July 13, 1995 the Court vacated the
judgment as being premature as the outstanding issue of
recoverability of the $10 million defense costs had not been
finally determined, returned an appeal bond posted by the
Company, and indicated that it would be issuing an order on
open issues shortly. The Company is still awaiting a
decision.
The Company and one of its subsidiaries are two of a large
number of defendants in a number of lawsuits brought by
approximately 13,500 claimants who allege injury caused by
exposure to asbestos. Although the Company and its
subsidiary have never been producers or direct suppliers of
asbestos, it is alleged that the industrial and marine
products sold by the Company and the subsidiary had
components which contained asbestos. The allegations state a
claim for asbestos exposure when Company-manufactured
equipment was maintained or installed. Suits against the
Company have been tendered to its insurers who are defending
under their stated reservation of rights. Certain insurers
for the subsidiary have been identified and have been
provided notice. Should settlements for these claims be
reached at levels comparable to those reached by the Company
in the past, they would not be expected to have a material
effect on the Company.
The activities of certain employees of the Ni-Tec Division of
the Company's former Varo Inc. subsidiary ("Ni-Tec"),
headquartered in Garland, Texas, are the focus of an ongoing
investigation by the Office of the Inspector General of the
United States Department of Defense and the Department of
Justice (Criminal Division). On July 16, 1992, Ni-Tec
received a subpoena for certain records as a part of the
investigation, which subpoena has been responded to.
Additional subpoenas for additional documents were received
in September 1992, February 1993, and March 1994. The
Company responded to the September and March subpoenas and
the government subsequently withdrew the February subpoena.
The investigation appears directed at quality control,
testing and documentation activities which began at Ni-Tec
while it was a division of Optic-Electronic Corp. ("OEC").
OEC was acquired by the Company in November 1990 and
subsequently merged with Varo Inc. in 1991. The Company
continues to cooperate fully with the investigation and is
negotiating a possible basis for settlement with the
government. The Company sold the operations relating to Ni-
Tec to Litton Industries in June 1995 but retained
liabilities associated with this investigation.
Regarding environmental matters, 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 United States
Environmental Protection Agency, and in one instance the
State of Washington, alleging that because various of its
divisions had arranged for 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. 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 also has a lawsuit pending against it relating to
equipment sold by its former diesel engine division and a
lawsuit relating to performance shortfalls in products
delivered by its former Delaval Turbine Division.
With respect to the litigation and claims described in the
preceding paragraphs, it is management's opinion that the
Company either expects to prevail, has adequate insurance
coverage or has established appropriate reserves to cover
potential liabilities; however, the ultimate outcome of any
of these matters is indeterminable at this time.
In addition, the Company is involved in various other pending
legal proceedings arising out of the Company's business. The
adverse outcome of any of these legal proceedings is not
expected to have a material adverse effect on the financial
condition of the Company. However, if all or substantially
all of these legal proceedings were to be determined
adversely to the Company, which is viewed by the Company as
only a remote possibility, there could be a material adverse
effect on the financial condition of the Company.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
The following paragraphs provide Management's discussion and
analysis of the significant factors which have affected the
Company's financial condition and results of operations
during the three and nine month periods ended September 30,
1995.
Restructuring Plan
By mid-year 1995, the Company had substantially completed the
sale of businesses included in the restructuring program
initially begun in October 1992. Remaining assets to be sold
include the Electro-Optical System's Varo Electronic Systems
division and certain idle facilities, which continue to be
marketed to interested parties. Through the end of the third
quarter, proceeds from asset sales completed during the first
half of 1995 have been used to repay the Company's
outstanding senior domestic bank debt as well as to redeem
$80 million of its 12.25% senior subordinated debentures.
Additionally, as a result of the $32.9 million after-tax gain
recognized on the 1995 sales of discontinued operations and
positive results for the first nine months of 1995,
shareholders' equity was $13.0 million at September 30, 1995
as compared with a deficit of $28.0 million at December 31,
1994.
On June 2, 1995, the Company completed the sale of its
Optical Systems and Ni-Tec divisions of Varo, Inc. and the
Optical systems division of Baird to Litton Industries for
$50 million in cash, which approximated book value. These
divisions represented the major portion of its Electro-
Optical Systems business. In the third quarter of 1995, the
Company recorded a provision of $6.8 million related to
contingencies associated with this sale to Litton Industries.
This provision partially offset a $39.6 million gain on the
sale of the Turbomachinery business recorded in the first
quarter of 1995.
Refer to the 1994 Annual Report on Form 10-K for further
details related to previous asset sales.
Results of Operations
The Company's former Electro-Optical and Turbomachinery
businesses have been accounted for as discontinued operations
in the accompanying consolidated financial statements.
Accordingly, the discussion that follows concerns only the
results of continuing operations. As a result of
discontinuing the Electro-Optical Systems and Turbomachinery
business segments, the Company has focused its operations on
the remaining two business segments, the Morse Controls
segment and the Pumps, Power Transmission & Instrumentation
segment.
Three Months Ended September 30, 1995 Compared with 1994
Net Sales
Net sales for the three months ended September 30, 1995 were
$109.4 million, compared with $113.4 million in the 1994
period, a decrease of 3.5%. The decrease was attributable to
a 5.5% decrease in the Company's Morse Controls segment while
sales remained flat in the Pumps, Power Transmission &
Instrumentation segment compared with the 1994 period.
Costs and Expenses
The Company's overall gross profit margin increased to 28.3%
of net sales for the third quarter of 1995 as compared with
27.9% in the 1994 period. The increase was attributable to a
5% increase in the Pumps, Power Transmission &
Instrumentation segment partially offset by a decrease in the
Morse Controls segment.
Selling, general and administrative expenses as a percent of
sales increased during the third quarter of 1995 to 18.4%,
compared with 17.3% during the comparable 1994 period. The
Morse Controls segment's selling, general and administrative
expenses as a percent of sales increased from 10.6% to 13.1%
due to lower sales volume as well as increased spending for
future growth. The Pumps, Power Transmission &
Instrumentation segment's selling, general and administrative
expenses remained flat compared with the 1994 period, as cost
savings benefits realized in 1995, as a result of the 1994
restructuring, were offset by the Instrumentation group's
efforts to expand sales coverage of transducer products in
the U.S., Gems products in Europe and increase exposure to
Far East markets. Research and development expenditures
increased slightly to 1.5% of net sales, from 1.2% in the
comparable 1994 period, principally due to increased spending
by the Company's Roltra-Morse group to meet future product
requirements.
Near the end of the third quarter, a formal company-wide
review was begun to identify ways to significantly reduce
general and administrative expenses. Implementation of the
cost reduction program is planned to begin in the fourth
quarter of 1995. Costs associated with this program and other
restructurings in the fourth quarter are expected to exceed
fourth quarter earnings. Future savings associated with
these programs are expected to be significant.
Total interest expense (before allocation to discontinued
operations) in the third quarter of 1995 was 10% lower than
in the 1995 second quarter, reflecting the favorable effects
of debt paydowns from asset sale proceeds. Total interest
expense of $8.3 million for the three months ended September
30, 1995 was $4.4 million, or 34.8%, less than the three
months ended September 30, 1994. This decrease was a result
of average borrowings in the third quarter of 1995 being
approximately $150.7 million lower than the comparable 1994
period. The interest expense for continuing operations as
shown on the Consolidated Statements of Income excludes
interest expense incurred by the discontinued operations as
well as an interest allocation to the discontinued operations
of $.5 million and $4.2 million for the three months ended
September 30, 1995 and 1994, respectively.
The effective income tax rate for continuing operations for
the third quarter of 1995 was 23.5% compared with 30.2% in
the comparable 1994 period. The amounts in both periods
represent foreign and state income taxes. The Company is
utilizing existing U.S. net operating loss carryforwards on
its domestic earnings. The decrease in the effective tax rate
in 1995 is a result of the larger domestic earnings component
of pretax income compared with the corresponding 1994 period.
Income from continuing operations before extraordinary item
was $2.3 million ($.14 per share) in the third quarter of
1995, compared with $2.1 million ($0.12 per share) in the
same period of 1994. The third quarter of 1995 benefited by
$1.1 million representing favorable changes in previously
estimated costs.
After giving effect to an extraordinary charge of $.3 million
($0.02 per share) related to the early extinguishment of debt
in connection with the redemption of $40 million of 12.25%
senior subordinated debentures and a loss on disposal of
discontinued operations of $6.8 million ($0.40 per share), a
net loss of $4.7 million ($0.28 per share) was recorded in
the third quarter. There was a net loss in the third quarter
of 1994 primarily due to an extraordinary charge of $5.3
million ($0.31 per share) related to the early extinguishment
of debt in connection with the restructuring of the Company's
senior credit facilities offset by income from discontinued
operations of $.7 million ($0.04 per share).
Segment Operating Results (Three Months Ended September 30,
1995 Compared with 1994)
The Morse Controls segment consists of the Roltra-Morse group
and the Morse Controls group. The segment's net sales
decreased in the third quarter of 1995 to $46.3 million, as
compared with $49.0 million in the third quarter a year ago.
Operating income decreased by 35% to $3.4 million as both
groups were adversely affected by decreased sales volume and
general market conditions.
The segment's Morse Controls group net sales decreased 4.5%
for the three months ended September 30, 1995, compared with
the 1994 period (net of a 3.1% increase due to the favorable
effects of exchange rate changes). The decreases from
operations in both sales and income was primarily a result of
a general slowdown in end markets and changes in the mix of
pleasure marine business in the U.S. Additionally, temporary
component shortages and delayed shipments adversely affected
sales in Germany. Income was primarily affected by the
decline in sales volume as well as increased spending for
future growth.
The Roltra-Morse group's third quarter 1995 net sales
decreased 6.7% compared with the 1994 period, due to a
reduction in customer requirements for certain automotive
components, and a 3% unfavorable effect related to exchange
rate changes for the Italian lira. This lower sales level and
an increase in research and development spending to meet
future product requirements reduced the group's operating
income in the quarter below that of a year ago.
Segment bookings were up 5% from prior year levels, with an
increase at Roltra more than offsetting a decline in the
Controls group. Backlog is down from prior-year levels,
primarily as the result of anticipated reduced requirements
for certain automotive components.
The Pumps, Power Transmission & Instrumentation segment
consists of the Pumps group, the Power Transmission group and
the Instrumentation group. Segment sales were relatively flat
with those of the comparable period last year, while
operating income was 10% ahead of prior year.
Net sales of the Pumps group remained flat in the third
quarter of 1995, as compared with the 1994 period, with gains
by the Imo Pump divisions offsetting a decline at Warren
Pumps. Sales at Warren Pumps were impacted by a reduced level
of Navy business and technical difficulties that caused a
delay in shipments. These same factors had a negative impact
on the group's operating profit, reducing it below the prior
year's level. Bookings in the recent third quarter were 28%
ahead of bookings in the same quarter last year due to
significant orders for Navy, oilfield and processing markets.
Power Transmission group net sales decreased 7.2% in the
third quarter of 1995, over the third quarter of 1994,
reflecting a slowdown in general economic activity. Orders
for maintenance and repair parts were more affected than
those for the OEM sector.
Instrumentation group sales in the third quarter of 1995 were
slightly ahead of sales in the third quarter of 1994.
Increased investment in marketing initiatives in the U.S.
largely offset operating income increases at European
operations.
Nine Months Ended September 30, 1995 Compared with 1994
Net Sales
Net sales for the nine months ended September 30, 1995 were
$361.0 million, compared with $347.4 million in the 1994
period, an increase of 3.9%. Both of the Company's business
segments contributed, with increases over the prior year of
5.6% and 5.2% in the Morse Controls and the Pumps, Power
Transmission & Instrumentation segments, respectively.
Costs and Expenses
The Company's overall gross profit margin for the first nine
months of 1995 continued to compare favorably to the prior
year, as its Morse Controls segment was flat compared to
prior year and its Pumps, Power Transmission &
Instrumentation business segment experienced a slight
increase.
Selling, general and administrative expenses as a percent of
sales increased slightly for the first nine months of 1995 to
18.3%, compared with the comparable 1994 period. The Morse
Controls segment's selling, general and administrative
expenses as a percent of sales compared favorably to 1994 as
benefits were realized from the increased sales volume as
well as cost savings as a result of the restructuring efforts
started in early 1994. The decrease as a percent of sales in
the Morse Controls segment was partially offset by increased
selling expenses in the Pumps, Power Transmission &
Instrumentation segment due to the Instrumentation group's
efforts to expand sales coverage of transducer products in
the U.S., Gems products in Europe and increase exposure to
Far East markets.
Average borrowings during the first nine months of 1995 were
$110.9 million lower than the comparable 1994 period due to
the repayments of debt from asset sale proceeds. As a result,
total interest expense of $27.8 million (before allocation of
$4.5 million to discontinued operations) for the nine months
ended September 30, 1995 was $10.7 million, or 27.8%, less
than the 1994 period total interest of $38.5 million (before
allocation of $12.7 million to discontinued operations). The
interest expense for continuing operations as shown on the
Consolidated Statements of Income excludes interest expense
incurred by the discontinued operations as well as an
interest allocation to the discontinued operations.
The effective income tax rate for continuing operations for
the first nine months of 1995 was 22.0% compared with 38.5%
in the comparable 1994 period. The amounts in both periods
represent foreign and state income taxes. The Company is
utilizing existing U.S. net operating loss carryforwards on
its domestic earnings. The decrease in the effective tax rate
in 1995 is a result of the larger domestic earnings component
of pretax income compared with the corresponding 1994 period.
Income from continuing operations before extraordinary item
was $9.3 million ($0.55 per share) for the nine months ended
September 30, 1995, compared with $2.5 million ($0.15 per
share) in the same period of 1994. Net income for the first
nine months of 1995 was $37.7 million ($2.21 per share) and
included an after-tax gain on the disposal of discontinued
operations of $32.7 million ($1.92 per share) and an
extraordinary charge of $4.4 million ($.26 per share) related
to the early extinguishment of debt. Net income for the
first nine months of 1994 was $.1 million ($.01 per share)
and included income of discontinued operations of $2.9
million ($0.17 per share) and an extraordinary charge of $5.3
million ($0.31 per share) related to the early extinguishment
of debt.
Segment Operating Results (Nine Months Ended September 30,
1995 Compared with 1994)
Morse Controls segment sales increased 5.6% (including a 1.7%
benefit from changes in foreign exchange rates) to $161.3
million in the first nine months of 1995, as compared with
$152.8 million for the 1994 period. The segment's Morse
Controls group sales increased by 10.0% in the first nine
months of 1995 (including a 5% benefit from changes in
foreign exchange rates), as a result of a better economic
environment for the group's products in Germany, and gains in
the marine and most industrial equipment markets.. The
Roltra-Morse group, the segment's automotive components
supplier, had a slight increase in sales for the first nine
months of 1995, as compared with the 1994 period, due to
increases in production of automobiles in Italy using the
group's products, partially offset by the third quarter
reduction for certain automotive products and unfavorable
change in foreign exchange rates.
Segment operating income increased 19.5% to $13.2 million for
the first nine months of 1995, compared with $11.0 million
for the first nine months of 1994. The Morse Controls group
operating income increased as compared with the 1994 period,
benefiting from the increased sales volume along with the
resolution of a number of difficulties in consolidating
divisional operations in Germany that negatively affected
1994 results. Roltra-Morse group earnings decreased for the
first nine months of 1995 due to relatively flat sales
levels, increased research and development expenses and
operating costs, and unfavorable effects of exchange rate
changes.
Pumps, Power Transmission & Instrumentation segment sales
were $199.7 million during the first nine months of 1995, an
increase of 5.2% compared to the prior year level of $189.8
million. The segment's earnings of $23.8 were 6.9% ahead of
the 1994 period. All three groups in the segment contributed
to the increase in sales. The segment's Power Transmission
group earnings increased during the first nine months of
1995, compared with 1994, benefiting from the increased
volume. This increase was offset by decreased earnings for
the segment's Pumps and Instrumentation groups caused
primarily by shifts in product mix, increased spending
directed toward development of the sales and marketing
organizations, and the reduced level of Navy business and
technical difficulties that caused a delay in shipments at
Warren Pumps.
Liquidity and Capital Resources
The Company's domestic liquidity requirements are served by a
$50 million revolving credit facility, while its needs
outside the U.S. are covered by short and intermediate term
credit facilities from foreign banks.
As of September 30, 1995, there were $1.0 million of
borrowings and $8.2 million of standby letters of credit
outstanding under the $50 million revolving credit facility.
The Company also has approximately $32.7 million in foreign
short-term credit facilities with approximately $10.3 million
outstanding as of September 30, 1995.
At September 30, 1995, the Company had outstanding $70.0
million of 12.25% senior subordinated debentures maturing in
1997 and $150 million of 12% senior subordinated debentures
maturing in amounts of $37.5 million in 1999, $37.5 million
in 2000 and $75.0 million in 2001.
In addition to repaying the $36.7 million and $45 million
term and bridge loans outstanding, respectively, under its
credit facilities in the first quarter of 1995, the Company
has redeemed $80 million of its 12.25% senior subordinated
debentures, at 100% of their principal amount, with proceeds
from its asset sales. In March 1995, $40 million were
redeemed with proceeds from the sale of its Turbomachinery
business, and on July 6, 1995 an additional $40 million were
redeemed with proceeds from the sale of the Company's Electro-
Optical Systems businesses. As a result of these actions,
interest expense has been reduced as compared with prior
period levels. Management is continuing to pursue
opportunities to further reduce its high interest debt and is
considering the possibility of additional asset sales and
refinancing its remaining subordinated debentures to achieve
this objective.
As a result of this early extinguishment of debt, a $4.1
million ($.24 per share) charge was recorded as an
extraordinary item in the first quarter of 1995. The charge
consisted of the write-off of deferred debt expense
associated with the portions of the domestic senior debt
repaid and the 12.25% senior subordinated debentures
redeemed. The $40 million redemption of 12.25% senior
subordinated debentures on July 6, 1995 resulted in an
extraordinary charge of approximately $.3 million ($0.02 per
share) in the third quarter of 1995.
The Company's operating activities used cash of $15.3 million
in the first nine months of 1995, compared with providing
cash of $26.4 million in the comparable 1994 period, due
principally to cash requirements related to discontinued
operations and a net increase in working capital items within
the Company's continuing operations. Net cash provided by
investing activities was $154.2 million in 1995, compared
with cash provided of $5.2 million in the 1994 period. The
increase in net cash provided by investing activities is
principally a result of $173.4 million of net proceeds
generated from the sale of businesses and assets in the first
nine months of 1995 versus $12.9 million in 1994. Cash and
cash equivalents decreased to $2.3 million at September 30,
1995 from $26.9 million at December 31, 1994, due to cash
used by operating activities and increased capital
expenditures during the first nine months of 1995.
Working capital at September 30, 1995 was $78.1 million, a
decrease of $57.1 million from the end of 1994, due
principally to the sales of the Company's Turbomachinery
business segment and most of its Electro-Optical Systems
business in the first nine months of 1995. The ratio of
current assets to current liabilities was 1.7 at September
30, 1995, compared with 1.9 at December 31, 1994.
Principally as a result of the aforementioned sales of
businesses, the gain on the disposal of the Turbomachinery
business and the related debt repayments during the first
nine months of 1995, the Company's total debt as a percent of
its total capitalization was reduced to 94.9% at September
30, 1995 from 107.5% at December 31, 1994.
The Company believes that cash flow from operations, cash
available from unused credit facilities, and cash generated
by additional asset sales will be sufficient to meet its
liquidity needs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
For information regarding certain pending lawsuits, reference
is made to the Company's Form 10-K for the year ended
December 31, 1994, which is incorporated herein by reference,
and to Note F in Part I of this report.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The following exhibits are being filed as part
of this Report:
Exhibit No. Description
10.1 (C) Amended and Restated Equity Incentive
Plan for Key Employees effective May 18,
1995 (incorporated by reference to the
Company's Form S-8 as filed with the
Commission on June 23, 1995,
Registration No. 33-60533)
10.2 (C) Amended and Restated 1988 Equity
Incentive Plan for Outside Directors
effective March 23, 1995
10.2 (D) The 1995 Equity Incentive Plan for
Outside Directors effective May 18, 1995
(incorporated by reference to the
Company's Form S-8 as filed with the
Commission on June 23, 1995,
Registration No. 33-60535)
27 Financial Data Schedule as of September
30, 1995
(b) Reports on Form 8-K:
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Imo Industries Inc.
(Registrant)
Date November 10, 1995 /s/ DONALD K. FARRAR
Donald K. Farrar
Chairman, Chief Executive Officer,
President and Director
(principal executive officer)
Date November 10, 1995 /s/ WILLIAM M. BROWN
William M. Brown
Executive Vice President and
Chief Financial Officer
(principal financial officer)
Date November 10, 1995 /s/ ROBERT A. DERR II
Robert A. Derr II
Vice President and
Corporate Controller
(principal accounting officer)
IMO INDUSTRIES INC.
AMENDED AND RESTATED
1988 EQUITY INCENTIVE PLAN
FOR OUTSIDE DIRECTORS
(As Amended Through March 23, 1995)
IMO INDUSTRIES INC., a corporation organized under the laws
of the State of Delaware, hereby sets forth the Equity Incentive
Plan for Outside Directors. The Plan provides for the grant of
nonqualified stock options to Outside Directors.
The Plan was originally adopted by the Board of Directors on
February 10, 1988 and approved by the stockholders on April 28,
1988. The Plan was amended by the Board of Directors effective
July 2, 1990 and March 23, 1995; such amendments did not require
stockholder approval. All references to any number of shares of
the Company's Common Stock have been adjusted to reflect the 2-
for-1 split of the Company's Common Stock effected on April 22,
1988.
1. Definitions. Whenever the following terms are used in
this Plan they shall have the meanings specified below unless the
context clearly indicates to the contrary.
"Company" shall mean Imo Industries Inc., a Delaware corp-
oration.
"Affiliate" shall mean any corporation in which the Company
owns, directly or indirectly, 25% or more of the voting stock.
"Board" shall mean the Board of Directors of the Company.
"Committee" shall mean the committee which has been appointed
to administer the Plan under the provisions of Section 2
of the Plan.
"Director" shall mean a member of the Board.
"Option" shall mean an option granted under the provisions
of Section 4 of the Plan to purchase common stock of the Company.
"Optionee" shall mean an Outside Director to whom an
Option is granted.
"Fair Market Value" shall be either (i) the mean between
the highest and lowest sale prices of the Company's common stock
quoted in the New York Stock Exchange Composite Transactions
Index (the "Index") for the date in question, as published in the
Wall Street Journal, or (ii) the closing price of the Company's
common stock quoted in the Index for the date in question. If no
sale prices are quoted in the Index for such date, the next pre-
ceding date for which such sale prices are quoted shall be used.
The Committee shall determine in each case which definition shall
apply.
"Outside Director" shall mean a Director who is not also
an employee of the Company or any Affiliate.
"Code" shall mean the Internal Revenue Code of 1986, as it
may hereafter be amended. Reference to a specific section of the
Code shall include such section, any valid regulation promulgated
thereunder and any comparable provision of any future legislation
amending, supplementing or superseding such section.
"Total Disability" shall mean a permanent and total dis-
ability as determined in accordance with Section 72(m)(7) of the
Code.
"Secretary" shall mean the Corporate Secretary or an Assistant
Secretary of the Company.
"Plan" shall mean the Equity Incentive Plan for Outside
Directors.
"Subsidiary" shall mean any corporation in an unbroken
chain of corporations beginning with the Company if each of the
corporations other than the last corporation in the unbroken
chain then owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
"Termination of Service" shall mean a cessation of an Outside
Director's service as a member of the Board whether as a
result of resignation, failure to be reelected or any other
reason.
"Change in Control" shall mean a change in the power to
direct or cause the direction of the management and policies of
the Company arising from (1) any "person" (as defined in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) becoming the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of securities of the Company representing 35% or more
of the combined voting power of the Company's then outstanding
securities or (2) more than 50% of the assets of the Company
being disposed of by the Company pursuant to a partial or com-
plete liquidation of the Company, a sale of assets (including
stock of a subsidiary or subsidiaries) of the Company or otherwise.
2. Administration.
(a) Appointment of Committee. The Committee shall consist of
at least one Director, appointed by and holding office at the
pleasure of the Board. No Options may be granted to any member
of the Committee during the term of his or her membership on the
Committee. A Director shall be eligible to serve on the
Committee only if he or she is not then eligible to be granted an
Option and has not at any time within one year prior thereto been
eligible for selection as a person to whom Options may be granted
under this Plan.
(b) Duty and Power of Committee. It shall be the duty of the
Committee to conduct the general administration of the Plan in
accordance with its provisions. The Committee shall have the power
to interpret the Plan, the Options and to adopt rules for the
administration, interpretation and application of the Plan as are
consistent therewith and to interpret, amend or revoke any such
rules. The Committee shall not have any discretion to determine
who will be granted Options or to determine the number of Options
to be granted to any Outside Director.
(c) Committee Actions. The Committee may act either by vote
of a majority of its members at a meeting or by a memorandum or
other written instrument signed by all members of the Committee.
(d) Compensation; Professional Assistance; Good Faith Actions.
Members of the Committee shall not receive any compensation for
their services as members, but all expenses and liabilities they
incur in connection with the administration of the Plan shall be
borne by the Company. The Committee may, with the approval of
the Board, employ attorneys, consultants, accountants, or other
persons. The Committee, the Company, and its officers and
directors shall be entitled to rely upon the advice, opinions or
valuations of any such persons. All actions taken and all
interpretations and determinations made by the Committee in good
faith shall be final and binding upon all Optionees, the Company
and all other interested persons. No member of the Committee
shall be personally liable for any action, determination, or
interpretation made in good faith with respect to the Plan and
all members of the Committee shall be fully protected and
indemnified by the Company in respect to any such action,
determination or interpretation.
3. Shares Subject to Plan.
(a) Limitations. The shares of stock issuable pursuant to
Options shall be shares of the Company's $1.00 par value common
stock. The total number of such shares which may be subjected to
Options granted under the Plan shall not exceed 360,000 in the
aggregate.
(b) Effect of Unexercised or Cancelled Options. If an Option
expires or is cancelled for any reason without having been fully
exercised or vested, the number of shares subject to such Option
which were not purchased or did not vest prior to such expiration
or cancellation may again be made subject to an Option granted
hereunder (to the same Optionee or to a different Optionee).
(c) Changes in Company's Shares. In the event that the out-
standing shares of common stock of the Company are hereafter
increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company, or
of another corporation, by reason of reorganization, merger,
consolidation, recapitalization, reclassification, stock split-
up, stock dividend (either in shares of the Company's common
stock or of another class of the Company's stock), spin-off or
combination of shares, appropriate adjustments shall be made by
the Committee in the aggregate number and kind of shares which
may be issued on exercise of Options.
4. Stock Options.
(a) Granting of Options.
(1) Eligibility. Outside Directors who joined the Board prior
to March 23, 1995 were eligible to be granted Options as provided
in Section 4(a)(2).
(2) Granting of Options.
(A) Each Outside Director on February 10, 1988
shall, on such date or within 15 days thereafter, as determined
by the Committee, be granted an Option for 80,000 shares (on a
post-split basis).
(B) Each individual who becomes an Outside Director
after February 10, 1988 but before July 1, 1990 shall 15
days following election to the Board be granted an Option for
80,000 shares (on a post-split basis). Each individual who
becomes an Outside Director on or after July 1, 1990 shall,
within six months following election to the Board, be granted an
Option for 40,000 shares.
(C) Each individual who becomes an Outside
Director after March 22, 1995 shall not be eligible to receive
Options under the Plan.
(b) Terms of Options.
(1) Option Agreement. Each Option shall be evidenced by a
written stock option agreement which shall be executed by the
Optionee and the Company and which shall contain such terms and
conditions as the Committee determines are required by the Plan.
(2) Option Price. The price of the shares subject to each
Option shall be 100% of the Fair Market Value for such shares on
a date five business days after the Option is granted as
determined by the Committee.
(3) Date of Grant. The date on which an Option shall be
granted shall be the date determined under Section 4(a)(2).
(4) Commencement of Exercisability.
(A) No Option may be exercised in whole or in
part during the first year after such Option is granted.
Thereafter, except as otherwise provided in Section 4(b)(7), the
Option shall become exercisable in four equal cumulative installments,
each in the amount of one-fourth of the total number of shares
specified pursuant to Section 4(a)(2)(B), commencing on the first
anniversary of the grant date and on each of the next three
anniversaries of the grant date.
(B) No portion of an Option that is unexer-
cisable at the time of the Optionee's Termination of Service
shall thereafter become exercisable; provided, however, that, in
the event of an Optionee's Termination of Service due to the
Optionee's retirement from the Board at the normal retirement age
of 72 years in accordance with the By-Laws of the Company, all
Options held by such Optionee shall become exercisable, if not
otherwise exercisable on the date of such Optionee's Termination
of Service.
(5) Expiration of Options.
(A) Each Option shall terminate in all events
on the expiration of ten years from the date the Option was
granted.
(B) Subject to Section 4(b)(5)(A), each
Option, or portion thereof, which has become exercisable may be
exercised until the expiration of three years from the date of
the Optionee's Termination of Service, except that, in the event
of an Optionee's removal for cause, all Options shall terminate
immediately upon such Optionee's Termination of Service.
(6) Adjustment in Outstanding Options. In the event that the
outstanding shares of the stock subject to Options are increased
or decreased or changed into or exchanged for a different number
or kind of shares of the Company, or other securities of the
Company, or of another corporation, by reason of reorganization,
merger, consolidation, recapitalization, reclassification, stock
split-up, stock dividend (either in shares of the Company's
common stock or of another class of the Company's stock), spin-
off or combination of shares, the Committee shall make an
appropriate and equitable adjustment in the number and kind of
shares as to which all outstanding Options, or portions thereof
then unexercised, shall be exercisable, to the end that after
such event the Optionee's proportionate interest shall be
maintained as before the occurrence of such event. Such
adjustment in an outstanding Option shall be made without change
in the total price applicable to the Option or the unexercised
portion of the Option (except for any change in the aggregate
price resulting from rounding-off of share quantities or prices)
and with any necessary corresponding adjustment in Option price
per share. Any such adjustment made by the Committee shall be
final and binding upon all Optionees, the Company and all other
interested persons.
(7) Change in Control. In the event of a Change in Control
the Option shall become immediately exercisable, regardless of
whether the Option had otherwise become exercisable pursuant to
Section 4(b)(4).
(c) Exercise of Options.
(1) Person Eligible to Exercise. During the lifetime of the
Optionee, only he or she may exercise an Option granted to him or
her or any portion thereof. After the death of the Optionee, any
exercisable portion of an Option may be exercised by his or her
personal representative or by any person empowered to do so under
the deceased Optionee's will or under the then applicable laws of
descent and distribution. The Company may require appropriate
proof from any such other person of his or her right or power to
exercise the Option or any portion thereof.
(2) Fractional Shares. The Company shall not be required to
issue fractional shares on exercise of an Option.
(3) Manner of Exercise. An exercisable Option, or any exer-
cisable portion thereof, may be exercised solely by delivery to the
Secretary or his or her office of all of the following:
(A) Notice in writing signed by the Optionee
or other person then entitled to exercise such Option or portion
thereof, stating that such Option or portion is exercised, such
notice complying with all applicable rules established by the Com-
mittee;
(B) Full cash payment for the shares with re-
spect to which such Option or portion is thereby exercised and
which are to be delivered to him or her pursuant to such exer-
cise; and
(C) Such representations and documents as the
Committee, in its absolute discretion, deems necessary or advis-
able to effect compliance with all applicable provisions of the
Securities Act of 1933, as amended, and any other federal or
state securities laws or regulations. The Committee may, in its
absolute discretion, also take whatever additional actions it
deems appropriate to effect such compliance including, without
limitation, placing legends on share certificates and issuing
stop-transfer orders to transfer agents and registrars.
(4) Conditions to Issuance of Stock Certificates. The shares
of common stock deliverable upon exercise of an Option, or any
part thereof, may be either previously authorized but unissued
shares or issued shares which have then been reacquired by the
Company. The Company shall not be required to issue or deliver
any certificate or certificates for shares of common stock
purchased upon the exercise of any Option or portion thereof
prior to fulfillment of all of the following conditions:
(A) The admission of such shares to listing on
all stock exchanges on which such class of stock is then listed;
(B) The completion of any registration or other
qualification of such shares under any state or federal law or
under the rulings or regulations of the Securities and Exchange
Commission or any other governmental regulatory body, which the
Company shall, in its absolute discretion, deem necessary or
advisable;
(C) The obtaining of any approval or other
clearance from any state or federal governmental agency which the
Company shall, in its absolute discretion, determine to be neces-
sary or advisable;
(D) The provision for any income tax withholding
which the Company shall, in its absolute discretion, deter-
mine to be necessary or advisable; and
(E) The lapse of such reasonable period of
time following the exercise of the Option as the Company may
determine, in its absolute discretion, from time to time to be
necessary or advisable for reasons of administrative convenience.
(5) Rights of Stockholders. An Optionee shall not be, nor
have any of the rights of, a stockholder of the Company in
respect to any shares which may be purchased upon the exercise of
any Option or portion thereof unless and until certificates repre-
senting such shares have been issued by the Company to such
Optionee.
5. Miscellaneous Provisions.
(a) Options Not Transferable. No Option or interest or right
therein or part thereof shall be liable for the debts, contracts,
or engagements of the Optionee or his or her successors in
interest or shall be subject to disposition by transfer,
alienation, anticipation, pledge, encumbrance, assignment or any
other means, whether such disposition is voluntary or involuntary
or by operation of law by judgment, levy, attachment, garnish-
ment, or any other legal or equitable proceedings (including
bankruptcy) and any attempted disposition thereof shall be null
and void and of no effect; provided, however, that nothing in
this Section 5(a) shall prevent transfers by will or by the
applicable laws of descent and distribution.
(b) Amendment, Suspension or Termination of the Plan. The
Plan may be wholly or partially amended or otherwise modified,
suspended, or terminated at any time or from time to time by the
Board. However, without approval of the Company's stockholders
given within 12 months before or after the action by the Board,
no action of the Board may, except as provided in Section 3(c),
increase the limits imposed in Section 3(a) on the maximum number
of shares which may be the subject of Options granted under the
Plan, amend Section 4(b)(5)(A) or (B) to permit the exercise of
an Option after expiration of 10 years from the date the Option
was granted or otherwise materially increase the benefits
accruing to participants under the Plan. Neither the amendment,
suspension, nor termination of the Plan shall, without the
consent of the Optionee, alter or impair any rights or
obligations under any Option theretofore granted. No Option may
be granted during any period of suspension nor after termination
of the Plan.
(c) Titles. Titles are provided herein for convenience only
and are not to serve as a basis for interpretation or construc-
tion of the Plan.
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<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,313
<SECURITIES> 0
<RECEIVABLES> 82,373
<ALLOWANCES> 2,374
<INVENTORY> 94,795
<CURRENT-ASSETS> 194,326
<PP&E> 201,056
<DEPRECIATION> 103,625
<TOTAL-ASSETS> 447,114
<CURRENT-LIABILITIES> 116,202
<BONDS> 231,102
<COMMON> 18,755
0
0
<OTHER-SE> (5,706)
<TOTAL-LIABILITY-AND-EQUITY> 447,114
<SALES> 361,031
<TOTAL-REVENUES> 361,031
<CGS> 258,052
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