FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer Identification No.)
of incorporation or organization)
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.
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the Registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statement incorporated by reference in Part III of this Form
10-K or any amendment to the Form 10-K. (X)
Aggregate market value of the voting stock held by non-affiliates of
the Registrant computed by reference to the closing price of such stock on
the New York Stock Exchange, Inc. on
March 15, 1996...........................................$119,595,763
Shares of Registrant's common stock, $1.00 par value, outstanding as of
March 15, 1996 ............................................17,085,109
DOCUMENTS INCORPORATED BY REFERENCE
Identification of Documents Part into which Incorporated
Portions of the Company's Proxy Items 10, 11, 12 of Part III
Statement for its Annual Meeting of
Stockholders to be held May 21, 1996
TABLE OF CONTENTS
PART I
Item
1. Business.
General
History
Industry Segments
Discontinued Operations
Restructuring Plan
Competition
Product Distribution and Customers
Backlog
Raw Materials
Patents, Licenses and Trademarks
Research and Development
Environmental Matters
Employees
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
Executive Officers of the Registrant
PART II
5. Market for the Registrant's Common Equity
and Related Stockholder Matters
6. Selected Financial Data
7. Management's Discussion and Analysis of
Financial Condition and Results Operations
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
PART III
10. Directors and Executive Officers of the Registrant
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners
and Management
13. Certain Relationships and Related Transactions
PART IV
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K
Exhibit Index
Signatures
PART I
Item 1. Business.
General
Imo Industries Inc. (hereinafter with its subsidiaries
referred to as the "Company") is an integrated multinational
industrial manufacturer of a broad range of industrial
products through its four core business segments - Power
Transmission, Pumps, Instrumentation and Morse Controls. The
Company's products are designed to regulate and control
motion, transfer liquids and monitor fluids. The Company
markets its products on a worldwide basis to a diverse
customer base. In February 1996, the Company announced it is
intending to sell its Italian-based Roltra-Morse business
segment, a supplier of latches, door panels, flexible cable
and window controls for automobiles. As a result of this
announcement, the Company has focused its operations on the
remaining four core business segments, as follows:
The Power Transmission business segment designs and produces
electronic adjustable-speed motor drives, gears and speed
reducers.
The Pumps business segment designs and produces a broad range
of rotary pumps, including a proprietary line of two and
three-screw pumps.
The Instrumentation business segment designs and produces
transducers and switches for sensing, measuring and
controlling pressure, temperature and liquid level and flow.
The Morse Controls business segment designs and produces push-
pull cable and remote control systems.
In addition to the four segments comprising the Company's
continuing core operations, the Company has a fifth business
segment entitled Other included in its continuing operations
for financial reporting purposes. This segment includes
operations previously sold and non-operating assets to be
sold as part of the Company's asset divestiture program.
The Company's Electro-Optical Systems, Turbomachinery and
Roltra-Morse businesses are being accounted for as
discontinued operations and, accordingly, have been excluded
from the Company's segments. The previously reported
financial information has been reclassified to reflect the
Roltra-Morse business segment as a discontinued operation.
History
The Company, founded in 1901 in the United States by Dr.
Carl Gustaf Patrick de Laval, a Swedish scientist, was
acquired by Transamerica Corporation ("Transamerica") in
1963. 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 ("Distribution") and since that time the
Company has operated on a stand-alone basis as a publicly
traded company.
Industry Segments
A description of the principal products and services
offered by each core business segment of the Company, as
well as the principal markets for such products and
services, are set forth below. Certain information in
response to this item with respect to net sales,
operating profit, and identifiable assets of each of these
segments and by geographic area is contained in Note 10 of
the Notes to Consolidated Financial Statements included in
Part IV of this Form 10-K Report as indexed at Item 14(a)(1).
Information regarding the businesses sold and held for sale
and the discontinued operations is provided later in this
section and is contained in Note 2 to the Consolidated
Financial Statements.
Power Transmission
The Power Transmission business segment operations produce
speed reducers and loose gearing that are recognized as
leading products in their market niches. The segment is
comprised of two units: Boston Gear, a leading producer of
gears and speed reducers, and Fincor Electronics, a producer
of adjustable-speed motor controllers. 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. The operations
also produce worm gear sets used as speed reducers by
original equipment manufacturers, and by oil and gas and
industrial machinery customers.
Pumps
The Pumps business segment is the largest worldwide
manufacturer of rotary screw pumps. The three businesses that
comprise the Pumps 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 vessels and in many 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.
Instrumentation
The Instrumentation business segment operations design and
manufacture products that perform a wide variety of critical
sensing, measuring, monitoring and control functions. The
business segment is comprised of two units: Gems Sensors, a
leading producer of level and flow switches, and
TransInstruments, a leading producer of pressure transducers
in Europe.
Tank level indicators, level switches, solid state relays and
flow meters are manufactured principally for marine and
general industrial applications. These indicators are used
in ocean-going tankers, military vessels, petrochemical
facilities and industrial and commercial products around the
world. Hundreds of varieties of liquid-level monitors,
indicators and switches are manufactured for use by more than
30,000 customers. Pressure transducers are used to measure
pressure as a continuous function and are sold to a wide
segment of the general industrial market.
Morse Controls
The Morse Controls business segment is a leading worldwide
manufacturer of precision mechanical and electronic control
products and systems that are primarily used for pleasure
marine and industrial vehicle applications.
This segment produces, among other products, push-pull cable
and control systems used to control and actuate functions,
such as steering and valve adjustment, and as an alternative
to electrical systems. Applications include throttle
control and steering systems for both off-the-road vehicles
and pleasure boats.
Discontinued Operations
Electro-Optical Systems
In January 1994, pursuant to a plan approved by the Board of
Directors, the Company announced its intention to dispose of
its Electro-Optical Systems operations which consisted of the
Company's subsidiaries Varo Inc. and Baird Corporation. On
January 3, 1995, the Company completed the sale of its Baird
Analytical Instruments Division to Thermo Instruments Systems
Inc. for approximately $12.3 million, which was used to repay
a portion of the Company's domestic senior debt. On June 2,
1995, the Company completed the sale of the Optical Systems
and Ni-Tec divisions of Varo Inc. and the Optical Systems
division of Baird, which represented the major part of its
Electro-Optical Systems business, to Litton Industries for
approximately book value. The proceeds were used to pay off
$8 million outstanding under the Company's revolving credit
facility on June 2, 1995 and to redeem $40 million of its
12.25% Senior Subordinated Debentures on July 6, 1995.
These divisions represented the major portion of the Electro-
Optical Systems business. Remaining assets to be sold
include the Electro-Optical Systems' Varo Electronic Systems
division and non-operating real estate, which continue to be
marketed to interested parties.
Turbomachinery
In August 1994 the Board of Directors approved a plan to sell
the Company's Turbomachinery operations. On January 17, 1995,
the Company completed the sale of its Delaval Turbine and
TurboCare divisions and its 50% interest in Delaval-Stork, to
Mannesmann Demag. The final adjusted purchase price was
$119.0 million, of which $109 million was received at
closing, with the remainder earning interest to the Company
and to be received at specified future contract dates subject
to adjustment as provided in the agreement. It is
management's expectation that there will be no further
adjustment to the purchase price. A portion of the proceeds
were used by the Company to pay off its domestic senior debt
in January 1995 and in March 1995 the Company redeemed $40
million of its 12.25% Senior Subordinated Debentures with
the remainder of the proceeds.
Roltra-Morse
On February 7, 1996 the Company announced a plan to sell
its Roltra-Morse operations. The Company has engaged an
investment banking firm to assist in the sale which is
expected to be completed in 1996.
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. Prior
year financial statements have been reclassified to conform
to the current year presentation.
See Note 2 to the Consolidated Financial Statements located
in Part IV of this Form 10-K Report as indexed at Item 14
(a)(1) for additional details regarding the discontinued
operations.
Restructuring Plan
Asset Sales
In October 1992, the Company announced a plan to strengthen
its balance sheet through the sale of certain businesses and
the application of the proceeds to reduce debt. Pursuant to
this plan, the Company divested its Heim Bearings, Aerospace,
Barksdale Controls and CEC Instruments businesses. In 1993,
the Company sold its Heim Bearings, Aerospace and Barksdale
Controls operations for proceeds of approximately $91
million, and in 1994, sold its CEC Instruments and Turboflex
Ltd. operations, its Corporate headquarters building and
other previously identified assets for aggregate proceeds of
$13.2 million. These proceeds, net of related expenses, were
used to repay senior debt in the amount of $81.9 million in
1993 and $13.2 million in 1994, in accordance with the terms
of the 1993 restructured credit facilities.
Other non-operating real estate, representing less than 10%
of the original value of assets announced to be sold in
October 1992, remains for sale. Results for the fourth
quarter of 1995 include an unusual charge of $5.0 million
related to the write-down of this non-operating real estate
to its net realizable value. The Company targets completion
of the divestitures over the next 9 to 12 months.
In the fourth quarter of 1993, management initiated a
strategy to reposition the Company on its less capital
intensive businesses that exhibited strong brand name
recognition, a broad customer base and market leadership with
less dependence on U.S. Government sales. In connection with
this strategy, the Company divested its Turbomachinery and
most of its Electro-Optical Systems businesses in 1995. This
repositioning will be completed upon the sale of the Roltra-
Morse business, and the remaining portion of the Electro-
Optical Systems business, which are expected to be completed
in 1996. See above discussion regarding Discontinued
Operations.
Cost Reduction Programs
In the fourth quarter of 1995, the Company recorded a charge
to continuing operations of $4.0 million, including severance
and other expenses related to a Company-wide program to
reduce general and administrative costs. This program
includes a reduction of 65 employees, or 2% of the total
number of Company employees, including a reduction of the
corporate headquarters staff by 20%. This program is
expected to reduce general and administrative expenses by
approximately $2.9 million in 1996, $4.0 million in 1997 and
$5.0 million annually thereafter. The required cash outlay
related to this program was $.4 million in 1995, and the
expected cash requirements during 1996 are $3.2 million. The
remainder represents non-cash charges.
In 1993, the Company recorded a charge to continuing
operations of $5.2 million for a cost reduction program which
benefited 1994 and 1995 operating results. The Company
implemented cost-cutting measures at its core operations to
reduce its expense structure and to eliminate duplicative
functions. In addition, in connection with this 1993 cost
reduction program, the Company consolidated certain
operations in its European Instruments and Morse Controls
businesses and revised operating processes and reduced
employment levels at its Pumps segment and other operations.
The number of Company employees in core operations declined
by 205, or 7%, between mid-1993 and mid-1994. These
organizational restructuring measures have been providing net
cash benefits, compared to 1993 levels, which approximated
$4.5 million and $1.5 million for continuing operations, in
1995 and 1994, respectively, and are expected to approximate
$5.5 million annually thereafter, based largely on reduced
employment costs.
See Note 3 to the Consolidated Financial Statements located
in Part IV of this Form 10-K Report as indexed at Item
14(a)(1) for additional details regarding the asset
divestiture and restructuring program.
Competition
The Company's products and services are marketed on a
worldwide basis. Approximately 90% of the Company's products
are marketed outside of the United States through wholly
owned subsidiaries, sales offices and several joint ventures.
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.
Product Distribution and Customers
The Company's products are sold primarily through the
Company's direct sales forces. During 1995, sales by the
Company's direct sales forces were approximately 30%, 81%,
87% and 83% of the Power Transmission, Pumps,
Instrumentation and Morse Controls segments, respectively.
The Company's remaining sales are made through
distributors, dealers and agents.
None of the 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. Total sales to the Department of Defense
in the form of prime and subcontracts were approximately 7%
of net sales in 1995, 9% of sales in 1994 and 14% of sales in
1993. No customer other than the United States Department of
Defense, accounted for 10% or more of consolidated sales in
1995, 1994 or 1993.
Backlog
The Company's continuing operations' backlog of unfilled
orders at month end February, 1996 and 1995 and at December
31, 1995, 1994 and 1993 by business segment was as
follows:
February 29, February 28, December 31
1996 1995 1995 1994 1993
(Dollars in millions)
Power Transmission $ 9.0 $10.0 $8.5 $9.6 $10.5
Pumps 34.3 30.9 33.7 28.9 33.6
Instrumentation 20.9 21.2 18.3 19.2 18.4
Morse Controls 21.6 23.9 21.9 22.8 20.2
Other --- --- --- --- 3.4
$85.8 $86.0 $82.4 $80.5 $86.1
Backlog is considered significant only to the Warren Pumps
business of the Pumps segment, given that the products of
that operation require long lead times for manufacture. Of
the total backlog from continuing operations at December 31,
1995, the Company believes that all but approximately $2.5
million of its orders will be filled in 1996.
Raw Materials
The Company's operations obtain 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
foreign countries and 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.
Following the removal of the distinctive modifier
"Transamerica" from the corporate name prior to the
Distribution, the Company changed its name to "Imo Delaval
Inc." in 1986 and to "Imo Industries Inc." in 1989. The
Company's use of the name "Delaval" is restricted as a
result of a contract by which the Company's assets were
acquired from their former Swedish owner preceding the
acquisition of the Company by Transamerica. In January 1995,
the Company transferred its rights to use the "Delaval" name
in connection with certain products of the Turbomachinery
segment to Mannesmann Demag as part of the divestiture of
its Turbomachinery business.
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 1995, 1994 and 1993 by
business segment were as follows:
Year Ended December 31
1995 1994 1993
(Dollars in millions)
Power Transmission $ .7 $ .7 $ .9
Pumps 1.5 1.8 1.8
Instrumentation .9 .7 .9
Morse Controls 1.7 1.3 1.6
Other --- .1 2.3
$4.8 $4.6 $7.5
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 by the New Jersey Department of
Environmental Protection and Energy (the "NJ DEP").
Remediation has been completed at the 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 NJ DEP 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 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. Although CERCLA and similar 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 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.
Employees
At December 31, 1995, the Company employed approximately
3,900 persons worldwide of which 2,900 relate to continuing
operations. Approximately 2,000 persons were employed in the
United States, and approximately 1,900 persons were employed
outside of the United States. Approximately 1,900 of the
employees associated with continuing operations are located
in the United States. There are approximately 900 persons
worldwide covered by collective bargaining agreements with
various unions expiring at various dates in 1996 through
1998. The Company considers its relations with its employees
to be satisfactory.
Item 2. Properties.
The Company's continuing operations have 22 manufacturing
facilities in 9 states in the United States, the United
Kingdom, Germany, Singapore, Sweden, Switzerland, France, and
Australia of which 17 are owned and 5 are leased. In
addition, the Company owns 12 closed manufacturing facilities
(approximately 1.5 million square feet of building space on
152.7 acres of land) that are being offered for sale. The
properties owned by the Company consist of approximately 3.0
million square feet of building space, inclusive of the 1.5
million square feet of the closed facilities, on
approximately 400 acres (including 169.6 acres of undeveloped
land). The leases expire over a period of years from 1996 to
2054 with renewal options for varying terms contained in 4 of
the leases. The Company's executive office, which is leased
by the Company, is located in Lawrenceville, New Jersey and
occupies approximately 37,140 square feet.
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 their current utilization without incurring
significant additional capital expenditures.
The manufacturing facilities of the Company by business
segment are summarized below:
Square Feet of
Building Space
Number of Plants (In thousands)
Owned Leased Owned Leased
Power Transmission 4 0 366 0
Pumps 4 0 554 0
Instrumentation 4 0 154 0
Morse Controls 5 5 335 253
Continuing Operations 17 5 1,409 253
Other (Including Discontinued
Operations) 3 3 56 434
20 8 1,465 687
Item 3. Legal Proceedings.
In August 1985, the Company was named as defendant in a
lawsuit filed by Long Island Lighting Company ("LILCO")
following the severing of a crankshaft in a diesel generator
sold to LILCO by the Company. LILCO's complaint contained 11
counts, including counts for breach of warranty, negligence
and fraud, and sought $250 million in damages. In various
decisions from 1986 through 1990, 10 of the original 11
counts and various additional amended counts were dismissed
with only the original breach of warranty count remaining.
In September 1993, the Second Circuit Court of Appeals
affirmed a previous trial court decision entering a judgment
against the Company in the amount of $18.3 million, and in
October 1993, the judgment was satisfied by payment to LILCO
of approximately $19.3 million by two of the Company's
insurers.
In January 1993, the Company was served with a complaint in a
case brought in the U.S. District Court for the Northern
District of California by one of its insurers, International
Insurance Company ("International"), alleging that, because,
among other things, its policies did not cover the matters in
question in the LILCO case, it was entitled to recover $10
million in defense costs previously paid in connection with
such case and $1.2 million of the judgment which was paid on
behalf of the Company. In June 1995, the Court entered a
judgment in favor of International awarding it $11.2 million,
plus interest from March 1995 (the "International Judgment").
The International Judgment, however, was not supported by an
order, and in July of 1995, the Court vacated the
International Judgment as being premature because certain
outstanding issues of recoverability of the $10 million in
defense costs had not been finally determined. The Company
is awaiting a final decision. If the International Judgment
is reinstated, the Company intends to appeal. If the
ultimate outcome of this matter is unfavorable, the Company
will record a charge for the judgment amount plus accrued
interest.
In June 1992, the Company filed an action, subsequently
transferred to the U.S. District Court, Southern District of
New York, that is currently pending against Granite State
Insurance Co. ("Granite State"), one of its insurers, in an
attempt to collect amounts for defense costs paid to counsel
retained by the Company in defense of the LILCO litigation.
After reimbursing the Company for $1.7 million in defense
costs, Granite State refused to reimburse the Company for
approximately an additional $8.5 million in defense costs
paid by the Company, alleging that defense costs above
reasonable levels were expended in defending the LILCO
litigation. The insurer subsequently paid $18.1 million of
the judgment rendered against the Company, thereby exhausting
its $20 million policy. The Company claims that the
insurer's refusal to pay defense costs was in bad faith and
the Company is entitled to its cost of money and other
damages. In a counterclaim, Granite State is seeking
reimbursement of all or part of the $1.7 million in defense
costs previously paid by it, and has indicated that it may
seek additional damages beyond the reimbursement of defense
costs, including recoupment of approximately $4.0 million of
the amount awarded by the jury in the LILCO litigation (which
represents amounts previously paid by LILCO to the Company
for generator repairs, and which Granite State had paid on
behalf of the Company).
The Company and one of its subsidiaries are two of a large
number of defendants in a number of lawsuits brought by
approximately 17,500 claimants who allege injury caused by
exposure to asbestos. Although neither the Company nor any
of its subsidiaries has ever been a producer or direct
supplier of asbestos, it is alleged that the industrial and
marine products sold by the Company and the subsidiary named
in such complaints contained components which contained
asbestos. Suits against the Company and its subsidiary have
been tendered to their insurers who are defending under their
stated reservation of rights. Should settlements for these
claims be reached at levels comparable to those reached by
the Company in the past, they would not be expected to have a
material effect on the Company.
The activities of certain employees of the Ni-Tec Division of
the Company's Varo Inc. subsidiary ("Ni-Tec"), headquartered
in Garland, Texas, are the focus of an ongoing investigation
by the Office of the Inspector General of the U.S. Department
of Defense and the Department of Justice (Criminal Division).
Ni-Tec received subpoenas for certain records as a part of
the investigation in 1992, 1993 and 1994, each of which was
responded to. The investigation appears directed at quality
control, testing and documentation activities which began at
Ni-Tec while it was a division of Optic-Electronic Corp.
Optic-Electronic Corp. was acquired by the Company in
November 1990 and subsequently merged with Varo Inc. in 1991.
The Company continues to cooperate fully with the
investigation and is pursuing settlement discussions with the
U.S. government. Should settlement be reached consistent
with current discussions, it would not be expected to have a
material effect on the Company.
The operations of the Company, like those of other companies
engaged in similar businesses, involve the use, disposal and
clean-up of substances regulated under environmental
protection laws. In a number of instances the Company has
been identified as a Potentially Responsible Party by the
U.S. Environmental Protection Agency, and in one instance by
the State of Washington, with respect to the disposal of
hazardous wastes at a number of facilities that have been
targeted for clean-up pursuant to CERCLA or similar State
law. Although CERCLA and corresponding State law liability
is joint and several, the Company believes that its liability
will not have a material adverse effect on the financial
condition of the Company since it believes that it either
qualifies as a de minimis or minor contributor at each site.
Accordingly, the Company believes that the portion of
remediation costs that it will be responsible for will not be
material. For additional information see section entitled
Environmental Matters in Part I, Item I of this Form 10-K
Report.
The Company also has a lawsuit pending against it in the U.S.
District Court for the Western District of Pennsylvania
alleging component failures in equipment sold by its former
diesel engine division and claiming damages of approximately
$3.0 million and a lawsuit in the Circuit Court of Cook
County, Illinois, alleging performance shortfalls in products
delivered by the Company's former Delaval Turbine Division
and claiming damages of approximately $8.0 million. Each
lawsuit is in the document discovery stage.
With respect to the litigation and claims described in the
preceding paragraphs, management of the Company believes that
it either expects to prevail, has adequate insurance coverage
or has established appropriate reserves to cover potential
liabilities. There can be no assurance, however, on the
ultimate outcome of any of these matters.
The Company is also involved in various other pending legal
proceedings arising out of the ordinary course of the
Company's business. The adverse outcome of any of these
legal proceedings is not expected to have a material adverse
effect on the financial condition of the Company. However,
if all or substantially all of these legal proceedings were
to be determined adversely to the Company, there could be a
material adverse effect on the financial condition of the
Company.
See Note 14 to the Consolidated Financial Statements located
in Part IV of this Form 10-K Report as indexed at Item
14(a)(1) for additional details relating to Contingencies.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Company's security
holders during the fourth quarter of 1995.
Executive Officers of the Registrant
The following table sets forth information concerning the
names, ages and principal occupations of the executive
officers of the Company:
Name Age Principal Occupation
Donald K. Farrar* 57 Chairman, Chief Executive
Officer and President
Thomas J. Bird, Jr. 52 Executive Vice President,
General Counsel and Secretary
William M. Brown 53 Executive Vice President, Chief
Financial Officer and Corporate
Controller
John J. Carr 53 Executive Vice President
Brian Lewis 62 Executive Vice President
David C. Christensen 62 Senior Vice President,
Human Resources
Robert A. Derr II 50 Vice President and Treasurer
Frederick W. Wojtowicz 44 Vice President and Director of Tax
* This executive officer is a director of the Company whose
current term as a director will expire in 1998.
Donald K. Farrar joined the Company as Chief Executive
Officer and President in September 1993 and was elected
Chairman in June 1994. Prior to joining the Company, Mr.
Farrar held various positions with Textron, Inc. and Avco
Corporation for 24 years. He served as President, Chief
Operating Officer and director of Avco until its 1985
acquisition by Textron. Thereafter, he served as Senior
Executive Vice President, Operations and a director of
Textron, Inc. until December 1989. From January 1990 until
joining the Company, Mr. Farrar was a private investor.
Thomas J. Bird, Jr. was promoted to his current position in
October 1994. Mr. Bird served as Senior Vice President,
General Counsel and Secretary from June 1992 to October 1994,
and as Vice President and Associate General Counsel from July
1990 to June 1992. Prior to joining the Company in July
1990, Mr. Bird held various positions with General Electric
Company for 18 years, most recently as Group Counsel RCA
Aerospace and Defense division from August 1987 to February
1988 and as General Counsel to GE Aerospace of General
Electric Company from February 1988 until joining the
Company.
William M. Brown joined the Company as Executive Vice
President and Chief Financial Officer in June 1992, and
assumed the additional responsibility of Corporate Controller
in January 1996. Prior to joining the Company, Mr. Brown held
various positions with ITT Corporation for 25 years, most
recently as Corporate Assistant Controller and General
Auditor from December 1986 to April 1991 and as Corporate
Vice President and Assistant Controller from April 1991 until
joining the Company.
John J. Carr was promoted to his current position in July
1989. From July 1985 to July 1989, Mr. Carr was a Group
Vice President of the Company. Mr. Carr is responsible for
the Morse Controls, Pumps, Power Transmission and
Instrumentation business segments of the Company.
Brian Lewis was promoted to his current position in July
1989. Mr. Lewis was President and Chief Operating Officer of
the Controls Group of Incom International Inc. (acquired by
the Company in December 1987) from 1985 until January 1988
and was a Group Vice President of the Company from January
1988 to July 1989. Mr. Lewis has responsibility for the
world-wide operations of Roltra-Morse.
David C. Christensen joined the company in his current
position in August 1990. Previously, he was Senior Vice
President, Human Resources for Pneumo Abex Corporation (and
its predecessor Abex Corporation) from 1980 to September
1988. From September 1988 until joining the Company, Mr.
Christensen was an independent human resources consultant.
Robert A. Derr II joined the Company as Vice President and
Corporate Controller in 1988. Mr. Derr was promoted to Vice
President and Treasurer in January 1996. Prior to joining
the Company, Mr. Derr held various positions with The Stanley
Works for nine years, most recently as Director of Corporate
Accounting from 1982 to 1986 and as the Controller of the
Vidmar Division of The Stanley Works from 1986 until joining
the Company.
Frederick W. Wojtowicz was promoted to his current position
in October 1994. Mr. Wojtowicz served as Executive Director
of Tax from July 1988 to October 1994. Prior to joining the
Company in July 1988, Mr. Wojtowicz held various positions
with Ernst & Young LLP, most recently as Senior Tax Manager.
Each of these executive officers will hold office until his
successor is chosen and qualifies or until his earlier
resignation or removal. Any officer may be removed at any
time by the Board of Directors without prejudice to any
contract rights which he may have.
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.
The Company's common stock (the "Common Stock") is listed on
the New York Stock Exchange (stock symbol IMD). The
following table sets forth, for the quarters indicated, the
high and low closing price per share for the Common Stock as
reported on the New York Stock Exchange Composite Tape and
the amount of per share cash dividends declared by the
Company during each quarter on its Common Stock.
Declared
Dividend
High Low Per Share
1994:
1st Quarter 10-1/8 7 ---
2nd Quarter 10-7/8 9-1/2 ---
3rd Quarter 12 9-3/8 ---
4th Quarter 12-1/4 8-3/4 ---
1995:
1st Quarter 11-1/2 6-1/4 ---
2nd Quarter 9-1/8 6-1/2 ---
3rd Quarter 9-7/8 8-1/4 ---
4th Quarter 9 5-3/4 ---
1996:
1st Quarter 7-5/8 5-3/4 ---
(through March 15, 1996)
The last sale price for the Company's Common Stock as
reported by the New York Stock Exchange on March 15, 1996,
was $7 per share. As of March 15, 1996, there were
approximately 22,795 holders of record of the Company's
Common Stock.
Three of the Company's long-term debt agreements contain,
among other provisions, a restriction on retained earnings
available for payment of dividends. Under the most
restrictive provisions the Company is prohibited from
declaring or paying cash dividends through at least July 31,
1997.
<TABLE>
Item 6. Selected Financial Data.
(Dollars in millions except per share amounts)
<CAPTION>
Year Ended December 31, (a) 1995 1994* 1993* 1992* 1991*
<S> <C> <C> <C> <C> <C>
Net sales $373.2 $360.8 $416.5 $462.9 $478.0
Gross profit 114.9 111.9 132.3 125.7 138.5
Selling, general and
administrative expenses 81.0 78.0 102.9 102.4 105.5
Research and development
expenses 4.8 4.6 7.5 8.1 7.0
Unusual items 9.0 --- 14.3 16.7 ---
Income from continuing operations
before interest expense, income
taxes, extraordinary item and
change in accounting principle 23.1 31.1 8.9 (1.0) 27.4
Interest expense 25.9 29.2 33.3 38.2 38.4
Income (loss) from continuing
operations before extraordinary
item and cumulative effect of
change in accounting principle 12.0 .2 (37.9) (24.8) (6.9)
Discontinued operations,
net of taxes 22.1 9.0 (214.5) (30.2) 18.3
Extraordinary item (4.4) (5.3) (18.1) --- ---
Cumulative effect of change in
accounting principle, net of
taxes (b) --- --- --- (27.6) ---
Net income (loss) 29.7 3.9 (270.6) (82.6) 11.4
Earnings (loss) per share:
Continuing operations before
cumulative effect of change in
accounting principle and
extraordinary item .71 .01 (2.25) (1.47) (.41)
Discontinued operations 1.29 .53 (12.70) (1.79) 1.09
Extraordinary item (.26) (.31) (1.07) --- ---
Cumulative effect of change in
accounting principle --- --- --- (1.64) ---
Net income (loss) 1.74 .23 (16.02) (4.90) .68
Cash dividends per share --- --- --- .375 .50
Capital expenditures 14.6 6.0 6.3 10.0 11.3
Depreciation and amortization
expense 15.2 18.6 19.8 20.0 20.0
Working capital 81.0 132.2 107.1 111.0 226.8
Total assets:
Continuing operations 349.5 348.1 395.0 520.8 506.3
Discontinued operations 34.4 164.5 156.5 338.8 376.9
Total assets 383.9 512.6 551.5 859.6 883.2
Total long-term debt including
current portion 246.6 386.0 351.1 386.7 389.5
Shareholders' equity 6.9 (25.8) (33.5) 239.9 332.6
(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.
(b) In 1992, the Company adopted FASB Statement No. 106 "Employer's
Accounting for Postretirement Benefits Other Than Pensions".
*Reclassified to conform to 1995 presentation.
</TABLE>
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.
Overview
In October 1992, the Company determined that it needed to
delever its balance sheet through the sale of certain
businesses and the application of the proceeds from the
divestitures to reduce debt. Pursuant to this decision, the
Company divested its Heim Bearings, Aerospace, Barksdale
Controls and CEC Instruments businesses. See "Liquidity and
Capital Resources" below. In 1993, management, under Donald
K. Farrar, who became Chief Executive Officer in September
1993, initiated a strategy to reposition the Company to focus
on its less capital intensive businesses that exhibited
strong brand name recognition, a broad customer base and
market leadership with less dependence on U.S. Government
sales. In connection with this strategy, the Company
divested its Turbomachinery and most of its Electro-Optical
Systems businesses. This repositioning will be completed upon
the sale of the Roltra-Morse business, the remaining portion
of the Electro-Optical Systems business and certain non-
operating real estate. See "Remaining Asset Sales" below.
The Company's continuing businesses are now grouped into four
core business segments for management and segment reporting
purposes: Power Transmission, Pumps, Instrumentation and
Morse Controls. Previously, the Power Transmission, Pumps and
the Instrumentation business segments were all included in a
single business segment and the Morse Controls business
segment included the Roltra-Morse business.
1995 Asset Sales
Electro-Optical Systems
In January 1994, the Company announced a plan to sell its
Electro-Optical Systems business. On January 3, 1995, the
Company completed the sale of the Analytical Instruments
division of its wholly owned subsidiary, Baird Corporation,
for $12.3 million in cash, the proceeds of which were used to
reduce outstanding amounts under its Credit Agreement dated
August 5, 1994 (the "Existing Credit Agreement").
On June 2, 1995, the Company completed the sale of the
Optical Systems and Ni-Tec divisions of its wholly owned
subsidiary, Varo, Inc. ("Varo"), and the Optical Systems
division of Baird for $50 million in cash, the proceeds of
which were used to redeem $40 million in aggregate principal
amount of the 12.25% senior subordinated debentures (the
"Debentures") and to reduce outstanding amounts under the
Existing Credit Agreement. In the second half of 1995, the
Company recorded provisions totaling $13.3 million related to
the Electro-Optical Systems business, $6.8 million of which
was recorded in the third quarter related to the resolution
of contingencies associated with such divisions sales, and
$6.5 million of which was recorded in the fourth quarter
related primarily to write-downs of remaining non-operating
real estate to estimated fair market value.
TurboMachinery
On January 17, 1995, the Company completed the sale of its
Delaval Turbine and TurboCare divisions, which comprised
substantially all of the Company's former Turbomachinery
business segment, and its 50% interest in Delaval-Stork, a
Dutch joint venture. The final adjusted purchase price was
$119 million, of which the Company received $109 million in
cash at closing, with the balance earning interest until it
is received at specified future contract dates, subject to
adjustment as provided in the agreement. It is management's
expectation that there will be no further adjustment to the
purchase price. The proceeds from this sale were used to
repay in full term and bridge loans outstanding under the
Existing Credit Agreement and to redeem $40 million in
aggregate principal amount of the 12.25% Debentures. In the
fourth quarter of 1995, the Company recorded a provision of
$4.6 million related primarily to the resolution of
contingencies associated with this sale. The fourth quarter
provision partially offset the after-tax gain of $39.6
million recorded in the first quarter of 1995, bringing the
net gain on these sales to $35.0 million.
Remaining Asset Sales
The remaining operation of the Company's Electro-Optical
Systems business, which is Varo's Electronic Systems
division, continues to be marketed to interested parties.
The Company expects to complete the sale of this business in
1996 and plans to use the proceeds to reduce debt.
In February 1996, the Company announced its intention to sell
its Roltra-Morse business. The Company expects to complete
the sale of this business in 1996 for proceeds in excess of
net book value and plans to use the proceeds to reduce debt.
Other non-operating real estate, representing less than 10%
of the original value of assets announced to be sold in
October 1992, remains for sale. Results for the fourth
quarter of 1995 include an unusual charge of $5.0 million
related to the write-down of this non-operating real estate
to its net realizable value.
Cost Reduction Programs
In the fourth quarter of 1995, the Company recorded a charge
to continuing operations of $4.0 million, including severance
and other expenses related to a Company-wide program to
reduce general and administrative costs. This program
includes a reduction of 65 employees, or 2% of the total
number of Company employees, including a reduction of the
corporate headquarters staff by 20%. This program is
expected to reduce general and administrative expenses by
approximately $2.9 million in 1996, $4.0 million in 1997 and
$5.0 million annually thereafter. The required cash outlay
related to this program was $.4 million in 1995, and the
expected cash requirements during 1996 are $3.2 million. The
remainder of the charges represent non-cash charges.
In 1993, the Company recorded a charge to continuing
operations of $5.2 million for a cost reduction program which
benefited 1994 and 1995 operating results. Following Mr.
Farrar joining as Chief Executive Officer, the Company
implemented cost-cutting measures at its core operations to
reduce its expense structure and to eliminate duplicative
functions. In addition, in connection with this 1993 cost
reduction program, the Company consolidated certain
operations in its European Instruments and Morse Controls
businesses and revised operating processes and reduced
employment levels at its Pumps segment and other operations.
The number of Company employees in core operations declined
by 205, or 7%, between mid-1993 and mid-1994. These
organizational restructuring measures have been providing net
cash benefits, compared to 1993 levels, which approximated
$4.5 million and $1.5 million for continuing operations, in
1995 and 1994, respectively, and are expected to approximate
$5.5 million annually thereafter, based largely on reduced
employment costs.
Results of Operations
The Electro-Optical, Turbomachinery and Roltra-Morse
businesses are accounted for as discontinued operations.
Accordingly, their operating results have been segregated and
reported as Discontinued Operations in the audited
Consolidated Financial Statements included elsewhere in this
Form 10-K. Financial results prior to 1995 have been
reclassified to conform to current year presentation.
1995 Compared to 1994
Sales. Net sales from continuing operations in 1995 were
$373.2 million, compared with $360.8 million in 1994. Sales
from core operations (excluding operations sold in 1994 that
were not accounted for as discontinued operations) increased
4.8% in 1995 compared with the 1994 level of $356.0 million.
All sales in 1995 were from core operations. Each of the
Company's four core business segments contributed to this
increase. See "Segment Operating Results" below.
Gross Profit. The gross profit in 1995 remained relatively
constant at 30.8% of sales compared with 31.0% in 1994. See
"Segment Operating Results" below.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses increased $3.0 million,
or 3.8%, in 1995 over the 1994 level. As a percent of sales,
selling, general and administrative expenses remained
relatively constant at 21.7% in 1995 compared with 21.6% in
1994. While 1995 benefited from a full year of savings from
the 1993 cost reduction program implemented during 1994, a
portion of these savings were offset by the Instrumentation
segment's efforts to expand marketing of transducer products
in the United States and Gems products in Europe, as well as
to increase sales in the Far East markets. Research and
development expenditures were 1.3% of sales in both 1995 and
1994.
Interest Expense. Average borrowings in 1995 were
approximately $120 million lower than in 1994. As a result,
total interest expense (before allocation to discontinued
operations) of $36.4 million in 1995 was $15.3 million, or
30%, less than in 1994. Interest expense for continuing
operations excludes interest expense incurred by the
discontinued operations of $3.0 million and $3.1 million in
1995 and 1994, respectively, as well as an interest
allocation to the discontinued operations. Interest
allocated to discontinued operations was $7.5 million in 1995
and $19.4 million in 1994.
Interest Expense: 1995 1994
Total (Before Allocations
to Discontinued Operations) $36.4 $51.7
Continuing Operations 25.9 29.2
Income from Continuing Operations. The Company had income
from continuing operations of $12.0 million, or $.71 per
share, in 1995, which included unusual charges of $9.0
million and a deferred tax benefit of $17.0 million. In
1994, income from continuing operations was $.2 million, or
$.01 per share. See "Other Operating Results" for discussion
regarding Unusual Items and Provision for Income Taxes.
Income (Loss) from Discontinued Operations. The Company had
income from discontinued operations of $22.1 million (net of
income tax expense of $6.1 million), or $1.29 per share, in
1995 as compared to income of $9.0 million (net of income tax
expense of $1.4 million), or $.53 per share, in 1994. The
income recorded in 1995 includes an aggregate net gain of
$21.6 million on the sale of the Company's former
Turbomachinery business and substantially all of its former
Electro-Optical Systems business. The Company retained
certain liabilities upon the sales of the Electro-Optical
Systems and Turbomachinery businesses of approximately $16.0
million and $25.0 million, respectively. 1995 required cash
outlays were $5.7 million and $14.1 million, and expected
1996 cash requirements are approximately $7.0 million and
$5.5 million, related to the Electro-Optical Systems and
Turbomachinery sales, respectively. Results from operations
for the discontinued operations include allocations for
interest of $7.5 million and $19.4 million for 1995 and 1994,
respectively.
Net Income . Net income in 1995 was $29.7 million compared
with $3.9 million in 1994. Net income per share in 1995 was
$1.74 compared with a net income per share of $.23 in 1994.
Net income (loss) per share by component for each year is
summarized below:
Earnings (loss) per share: 1995 1994
Continuing Operations
Before Extraordinary Item $ .71 $ .01
Discontinued Operations 1.29 .53
Extraordinary Item (.26) (.31)
Net income $1.74 $ .23
1994 Compared to 1993
Sales. Net sales from continuing operations in 1994 were
$360.8 million, compared with $416.5 million in 1993. Sales
from core operations (excluding operations sold in 1994 and
1993 that were not accounted for as discontinued operations)
were $356.0 million in 1994 compared with $340.8 million in
1993, an increase of 4.5%. Sales in the Power Transmission
and Morse Controls business segments increased 8.6% and
10.1%, respectively, in 1994 compared with 1993. Sales in
the Pumps and the Instrumentation business segments in 1994
remained near 1993 levels. See "Segment Operating Results"
below.
Gross Profit. The gross profit margin in 1994 decreased
slightly to 31.0% of sales compared with 31.8% in 1993. See
"Segment Operating Results" below.
Selling, General and Administrative Expenses. Selling,
general and administrative expenses declined $24.9 million,
or 24.2%, in 1994 from the 1993 level, with most of the
decline attributable to businesses sold subsequent to June
30, 1993, the phase-out of certain postretirement benefit
subsidies in 1994, and lower levels of general and
administrative staff in 1994 as a result of the 1993 cost
reduction plan. As a percent of sales, selling, general and
administrative expenses decreased to 21.6% in 1994 compared
with 24.7% in 1993. Research and development expenditures
were 1.3% of sales in 1994 compared with 1.8% in 1993.
Interest Expense. Average borrowings in 1994 were
approximately $50 million lower than in 1993. As a result,
total interest expense (before allocation to discontinued
operations) of $51.7 million in 1994 was $5.5 million, or
10%, less than in 1993. Interest expense for continuing
operations excludes interest expense incurred by discontinued
operations of $3.1 million and $4.3 million in 1994 and 1993,
respectively, as well as an interest allocation to
discontinued operations of $19.4 million in 1994 and $19.6
million in 1993.
Interest Expense: 1994 1993
Total (Before Allocations
to Discontinued Operations) $51.7 $57.2
Continuing Operations 29.2 33.3
Income (Loss) from Continuing Operations. The Company had
income from continuing operations of $.2 million, or $.01 per
share, in 1994. In 1993, loss from continuing operations was
$37.9 million, or $2.25 per share, primarily as a result of
the net unusual charges of $14.3 million and a $13.5 million
tax reserve provided against previously recorded future tax
benefits. See "Other Operating Results" for discussion
regarding Unusual Items and Provision for Income Taxes.
Income (Loss) from Discontinued Operations. The Company had
income from discontinued operations of $9.0 million (net of
income tax expense of $1.4 million),or $.53 per share, in
1994 as compared to a net loss of $214.5 million (including
income tax expense of $1.5 million), or $12.70 per share, in
1993. The loss recorded in 1993 includes an estimated loss
on the disposal of the Company's Electro-Optical Systems
business of $168.0 million, most of which represented a non-
cash adjustment to reduce the carrying value of assets to
estimated realizable value. Of the total estimated loss on
disposal recorded in 1993, required cash outlays were
approximately $8.4 million and $4.6 million in 1995 and
1994, respectively, the remainder of which, represented non-
cash charges. Results from operations for the discontinued
operations include allocations for interest of $19.4 million
and $19.6 million for 1994 and 1993, respectively.
Net Income (Loss). Net income in 1994 was $3.9 million
compared with a net loss of $270.6 million in 1993. Net
income per share in 1994 was $.23 compared with a net loss
per share of $16.02 in 1993. Net income (loss) per share by
component for each of the periods is summarized below:
Earnings (loss) per share: 1994 1993
Continuing Operations
Before Extraordinary Item $ .01 $ (2.25)
Discontinued Operations .53 (12.70)
Extraordinary Item (.31) (1.07)
Net income (loss) $ .23 $(16.02)
Other Operating Results
Unusual Items. During the fourth quarter of 1995, the
Company recognized unusual charges of $9.0 million, or $.53
per share, in income from continuing operations. These
charges include $4.0 million in severance benefits and other
expenses related to a Company-wide program to reduce general
and administrative costs ($.9 million included in the
Instrumentation segment, $1.5 million included in the Morse
Controls segment and $1.6 million included in Corporate
Expense), and $5.0 million related to the write-down of non-
operating real estate to net realizable value (included in
Corporate Expense). Of the $9.0 million of unusual charges,
the required cash outlay in 1995 was $.4 million and the
expected cash requirements during 1996 are $3.2 million. The
remainder represents non-cash charges. There were no unusual
items in 1994.
During the twelve months ended December 31, 1993, the Company
recognized unusual charges of $14.3 million, or $.85 per
share, in loss from continuing operations. During the fourth
quarter of 1993, the Company recognized charges of $20.3
million that include provisions of $5.2 million related to
the restructuring and consolidation of certain of the
Company's operating units ($.2 million, $.5 million, $.9
million, $2.4 million and $1.2 million, included in the Power
Transmission, Pumps, Instrumentation and Morse Controls
segments and Corporate Expense, respectively), $10.1 million
expected net loss overall related to the Company's asset
divestiture program (included in a non-core segment entitled
"Other") and $5.0 million in debt related financing fees
(included in Corporate Expense). These charges are net of
unusual income of $6.0 million recorded in the third quarter
of 1993 as a result of a change in estimate related to legal
costs associated with pending litigation (included in the
Other segment). Of the $20.3 million of unusual charges,
required cash outlays were approximately $1.3 million, $7.1
million, and $.2 million in 1995, 1994 and 1993,
respectively, with the remainder representing non-cash
charges.
Extraordinary Items. The twelve months ended December 31,
1995 include an extraordinary charge of $4.4 million after-
tax, or $.26 per share, representing charges related to the
early extinguishment of portions of its debt under the
Existing Credit Agreement and the 12.25% Debentures.
The twelve months ended December 31, 1994 include an
extraordinary charge of $5.3 million after-tax, $.31 per
share, representing fees and charges related to
extinguishment of debt in connection with the restructuring
of the Company's credit facilities in August 1994.
The results of operations for the twelve months ended
December 31, 1993 included an extraordinary item of $18.1
million, $1.07 per share, representing fees and expenses
related to extinguishment of senior debt of which
approximately $4.0 million required immediate cash outlays,
approximately $2.0 million related to the write-off of
previously deferred debt expense and approximately $12.0
million was provided as an estimate for the prepayment of its
senior notes. Additionally, approximately $4.0 million of
fees related to the 1993 restructuring of the Company's
credit facilities were paid in 1993. This amount was being
amortized until August 1994, at which time, the balance was
recognized as an extraordinary charge in connection with the
extinguishment of the restructured credit facilities.
Provision for Income Taxes. Income tax expense (benefit)
from continuing operations was a benefit of $(14.8) million
for 1995, and expense of $1.8 million and $13.5 million for
1994 and 1993, respectively. The 1995 amount is comprised of
current tax expense of $2.2 million representing foreign and
state income taxes, as the Company is utilizing existing U.S.
net operating loss carryforwards on its domestic earnings.
This amount is offset by a deferred tax benefit in 1995 of
$(17.0) million, representing a reduction in the deferred tax
valuation allowance against U.S. net operating loss
carryforwards.
The 1994 income tax expense represents foreign and state
income taxes. The 1993 amount is principally comprised of the
provision of a reserve against previously recorded tax
benefits. The Company did not record a benefit for the 1993
loss as a valuation allowance was established in accordance
with the provisions of FASB Statement No. 109, "Accounting
for Income Taxes." The Company is recognizing these benefits
only as reassessment demonstrates that it is more likely than
not that they will be realized. This was the basis for the
benefit of $(17.0) million recognized in 1995.
The Company has a net operating loss carryforward of
approximately $85 million expiring in years 2002 through
2010, foreign tax credit carryforwards of approximately $8.3
million expiring through 2000, and minimum tax credits of
approximately $2.1 million which may be carried forward
indefinitely. These carryforwards are available to offset
future taxable income. These existing tax loss carryforwards
will allow the Company's future earnings to be essentially
free from the payment of U.S. taxes for the foreseeable
future.
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 $.9 million.
Retiree Medical and Life Insurance. In March 1994, the
Company amended its policy regarding retiree medical and life
insurance plans. This amendment, which affects some current
retirees and all future retirees, phases out the Company
subsidy for retiree medical and life insurance over a three-
year period ending December 31, 1996. The Company expects to
amortize associated reserves to income from continuing
operations over the phase-out period. The pre-tax amount
amortized to income from continuing operations was $4.6
million and $4.4 million in 1995 and 1994, respectively. The
Company does not anticipate a significant increase or
decrease in cash requirements related to this change in
policy during the phase-out period.
Segment Operating Results
Operating results by business segment for the years 1995,
1994 and 1993 are summarized below:
Power Transmission: 1995 1994 1993
Net Sales $ 95.1 $ 93.3 $ 85.9
Segment Operating Income
Before Unusual Items 11.3 8.9 2.5
Unusual Items --- --- (.2)
Segment Operating Income $ 11.3 $ 8.9 $ 2.3
Power Transmission segment net sales remained strong across
substantially all markets in 1995, increasing 1.9% over 1994,
despite a nearly $2.0 million decline in sales to the
printing market. Operating income rose more than 25% for the
year, largely as a result of cost containment efforts and a
shift in product mix which resulted in a higher level of
manufacturing activity.
Power Transmission segment net sales increased 8.6% while
operating profit more than tripled in 1994 as compared with
1993 levels, as results benefited from an upturn in the
general mechanical and printing markets in the United States,
as well as the favorable effect of the phasing out the
subsidy for certain benefit plans. See "Retiree Medical and
Life Insurance" above.
Pumps: 1995 1994 1993
Net Sales $94.4 $90.4 $91.6
Segment Operating Income
Before Unusual Items 9.9 10.4 10.9
Unusual Items --- --- (.5)
Segment Operating Income $ 9.9 $10.4 $10.4
Pumps segment net sales in 1995 were up 4.4% from 1994, 2.1%
of which was due to the effects of foreign exchange rates.
However, segment operating income decreased 5.4% due to a
shift in product mix. Startup costs related to a new line of
corrosive-resistant composite pumps also adversely affected
income, as did expenses caused by now resolved technical
difficulties related to a custom, high performance product
order.
The Company is in the process of acquiring substantially all
of the assets of a long-time three-screw pump licensee in
France, which will allow the Company to gain additional
market penetration in Europe and North Africa.
Pumps segment net sales and operating profit in 1995 and 1994
were adversely affected by a decline in U.S. Navy sales of
over $6.0 million in 1994 and over $10.0 million in 1995, as
compared with 1993 levels. These declines were offset by
increases in commercial sales of over $5.0 million in 1994
and over $13.5 million in 1995, as compared with 1993 levels.
Instrumentation: 1995 1994 1993
Net Sales $76.1 $72.2 $72.4
Segment Operating Income
Before Unusual Items 7.6 9.8 8.9
Unusual Items (.9) --- (.9)
Segment Operating Income $ 6.7 $9.8 $ 8.0
Instrumentation segment experienced a double-digit growth
rate in its industrial business in 1995, offset by a 40% drop
in sales to the U.S. Navy. The result was an overall
increase in net sales of 5.4% for the year. 1995 earnings
were negatively impacted by the costs associated with a
restructuring of this segment's European operations coupled
with a significant investment in new marketing and sales
initiatives.
During 1995, the Instrumentation segment closed its plant in
Frankfurt, Germany and shifted production of certain products
into a lower-cost manufacturing facility in the United
Kingdom. Total fourth quarter costs relating to this
relocation exceeded $1.2 million, including $.9 million of
unusual items. In response to the growing global markets for
fluid sensor products, the Company spent an additional $2.0
million in 1995 to upgrade its sales and marketing
organization and launched several new marketing initiatives.
The marketing efforts included an aggressive new trade
advertising program designed to produce a continuing source
of new sales leads. These investments should result in lower
manufacturing costs and greater sales beginning in 1996.
Instrumentation segment net sales in 1994 were approximately
$.2 million less than 1993 net sales. Segment operating
income in 1994, however, increased 23.1% from 1993. Excluding
the unusual charge of $.9 million incurred in 1993, segment
income in 1994 increased 10.6% from 1993 levels resulting
from improved performance in the European operations.
Morse Controls: 1995 1994 1993
Net Sales $107.7 $100.1 $ 90.9
Segment Operating Income
Before Unusual Items 6.8 5.7 2.9
Unusual Items (1.5) --- (2.4)
Segment Operating Income $ 5.3 $ 5.7 $ .5
Morse Controls segment net sales of $107.7 million were up
7.6% for 1995, as compared with $100.1 million in net sales
in 1994, due to increases in the mobile equipment, aviation
and other general industrial markets. 1995 segment
operating income of $5.3 million decreased only $.4 million,
as compared with the 1994 level of $5.7 million. In the
fourth quarter of 1995, the segment recorded unusual charges
of $1.5 million related to a major downsizing of its European
operations, and non-cash adjustments of $1.5 million,
principally related to inventory. Excluding unusual items
and non-cash charges, segment operating income increased to
$8.3 million in 1995, as compared with $5.7 million in 1994.
In the third quarter of 1995, Morse entered into a joint-
venture in China with an affiliate of Dong Feng Motor
Corporation, China's largest truck manufacturer. The joint-
venture will manufacture push-pull cables, pull-only cables
and other products used in trucks and other vehicles. In the
last quarter in 1995, Morse also completed the strategic
acquisition of RMH Controls, a small, specialized
manufacturer of electronic controls with operations in Sweden
and the United Kingdom. RMH's technology will permit Morse
to expand its product offering in microprocessor-based
electronic controls for marine and industrial applications.
The Morse Controls segment had net sales of $100.1 million in
1994, compared with net sales of $90.9 million for 1993, an
increase of 10.1%, based on increased pleasure marine sales.
The increased sales level resulted in operating income for
the segment of $5.7 million in 1994, compared with $.5
million in 1993. Operating income in 1993 included unusual
charges of $2.4 million related to restructuring and
facilities consolidations.
Company-wide Fourth Quarter Results
Net sales from continuing operations in the fourth quarter of
1995 were $90.0 million, compared with $90.3 million in the
fourth quarter of 1994. The Company had income from
continuing operations of $4.0 million, or $.23 per share, in
the fourth quarter of 1995 compared with a loss from
continuing operations of $.3 million, or $.02 per share, in
the comparable 1994 period. Income from continuing
operations benefited from a reduction in deferred tax asset
valuation allowances of $17.0 million, partially offset by
the unusual charges of $9.0 million in the fourth quarter of
1995.
Power Transmission segment net sales experienced a decline of
3.6% to $22.4 million in the fourth quarter of 1995 compared
to the same period in 1994 as the general mechanical market
slowed. Despite this sales decrease, segment operating
income increased 11.7% to $2.2 million in the 1995 fourth
quarter as compared with the 1994 period, largely as a result
of cost containment efforts and a shift in product mix.
Pumps segment net sales of $24.8 million were up 4.9% in the
fourth quarter of 1995 compared to the same period in 1994.
Segment operating income was down 20.8% to $1.6 million,
when compared to the same period in 1994, due in part to a
shift in product mix and to startup costs related to a new
line of corrosive-resistant composite pumps and expenses
caused by now-resolved technical difficulties related to
a custom, high performance product order.
Instrumentation segment fourth quarter 1995 net sales
were $18.6 million, a decrease of 2.9%, compared with the
same period in 1994. Fourth quarter 1995 earnings of $.2
million, which compared with $ 2.8 million in the fourth
quarter of 1994, were negatively impacted primarily by the
costs associated with a restructuring of its European
operations. Total costs relating to this relocation exceeded
$1.2 million including $.9 million of unusual items. In
addition, the increased investment in new marketing and sales
initiatives during 1995 contributed to the decrease compared
to the 1994 fourth-quarter period.
Morse Controls segment net sales in the fourth quarter of
both 1995 and 1994 were $24.2 million. The segment incurred
an operating loss of $1.9 million in the fourth quarter of
1995, as compared with operating income of $1.3 million in
the comparable 1994 period. Unusual items totaling $1.5
million were recorded related to a major downsizing of its
European Operations. Additionally, fourth quarter 1995
results were negatively impacted by approximately $1.5
million of non-cash adjustments principally related to
inventory.
Liquidity and Capital Resources
Short-term and Long-term Debt
The Company's domestic liquidity requirements are currently
served by the $60 million revolving credit facility
(including a letter of credit subfacility) under the Existing
Credit Agreement, while its needs outside the United States
are covered by short and intermediate term credit facilities
from foreign banks. As of December 31, 1995, there were
$18.2 million of revolving credit borrowings and $7.8 million
of standby letters of credit outstanding under the Existing
Credit Agreement .
The Company also has, in the aggregate, foreign short-term
credit facilities of approximately $35.5 million. As of
December 31, 1995, $18.8 million is outstanding under these
foreign facilities, of which $9.8 million relates to
indebtedness of discontinued operations.
In addition, at December 31, 1995, the Company had
outstanding $70.0 million in aggregate principal amount of
the 12.25% Debentures, maturing in 1997, and $150 million in
aggregate principal amount of the 12% Debentures, maturing in
amounts of $37.5 million in 1999, $37.5 million in 2000 and
$75.0 million in 2001. The Debentures contain covenants
that, among other things, restrict indebtedness to specified
levels. Under certain circumstances, such covenants could
result in the Company's inability to fully utilize the
revolving credit facility under the Existing Credit Agreement
and the foreign short-term credit facilities.
The Company sold its CEC Instruments division, corporate
headquarters building and other previously identified assets
for aggregate proceeds of $13.2 million in 1994, and its Heim
Bearings, Aerospace and Barksdale Controls operations for
aggregate proceeds of approximately $91 million in 1993.
The Company used the net proceeds from these sales to reduce
amounts outstanding under its then existing senior notes and
revolving credit facility. In the first quarter of 1995, the
Company repaid outstanding term and bridge loans under the
Existing Credit Agreement in the aggregate principal amounts
of $36.7 million and $45.0 million, respectively. In 1995,
the Company redeemed $80 million in aggregate principal
amount of the 12.25% Debentures at 100% of their principal
amount, $40 million of which were redeemed in March 1995 with
proceeds from the sale of the Company's former Turbomachinery
business, and an additional $40 million of which were
redeemed in July 1995 with proceeds from the sale of a
majority of the Company's Electro-Optical Systems business.
As a result of these actions, total interest expense has been
significantly reduced as compared with prior period levels.
As a result of the early extinguishment of debt referred to
above, a $4.1 million, or $.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 debt repaid under the
Existing Credit Agreement and the redemption of a portion of
the 12.25% Debentures. The redemption of $40 million in
aggregate principal amount of the 12.25% Debentures on July
6, 1995 resulted in an extraordinary charge of approximately
$.3 million, or $0.02 per share, in the third quarter of
1995.
Management continues to actively pursue opportunities to
further reduce its high interest debt. The Company plans to
use the proceeds from the sales of its Roltra-Morse and
Varo's Electronic Systems businesses to reduce debt.
Moreover, the Company is currently negotiating to refinance
the Existing Credit Agreement and the Debentures. Management
expects to complete the refinancing in the first half of
1996.
Cash Flow
The Company's operating activities used cash of $31.7 million
in 1995, compared with providing cash of $16.8 million in
1994, due principally to cash requirements of $22.0 million
related to discontinued operations, cash requirements related
to previously sold operations (not classified as discontinued
operations) and a net increase in working capital items
within the Company's continuing operations. Net cash
provided by investing activities was $145.5 million in 1995,
compared with cash used of $.3 million in 1994. The 1995
increase in net cash provided by investing activities is
principally a result of $174.9 million of net proceeds
generated from the sale of businesses and assets in 1995
versus $13.6 million in 1994. Cash and cash equivalents
decreased to $3.8 million at December 31, 1995 from $26.9
million at December 31, 1994, due to cash used by operating
activities and increased capital expenditures during 1995.
Working capital at December 31, 1995 was $81.0 million, a
decrease of $51.2 million from the end of 1994, due
principally to the sales of the Company's former
Turbomachinery business and substantially all of its Electro-
Optical Systems business. The reduction in assets was
partially offset by a reduction in current debt and accrual
levels (related primarily to previously sold businesses) in
1995. The ratio of current assets to current liabilities was
2.0 at December 31, 1995, compared with 2.2 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 1995, the
Company's total debt as a percent of its total capitalization
decreased to 97.2%, compared to 107.0% and 109.4% at December
31, 1994 and 1993, respectively.
Capital expenditures of continuing operations of $14.6
million increased significantly over the 1994 level of $6.0
million. The 1995 level was a planned increase over the 1994
level in order to make investments to maintain and to improve
competitive advantages at the Company's operations. The
Company anticipates that capital expenditures in 1996 will
increase slightly over the 1995 level primarily to improve
productivity. There were no material outstanding commitments
for the acquisition of property, plant and equipment at
December 31, 1995.
Management of the Company believes that cash flow from
operations, cash available from unused credit facilities and
cash generated by additional asset sales will be sufficient
to meet its foreseeable liquidity needs.
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.
Total sales to the United States Department of Defense in the
form of prime and subcontracts were approximately 7% of net
sales from continuing operations in 1995, 9% of sales in 1994
and 14% of sales in 1993.
Approximately 31% of the property, plant and equipment of the
Company's continuing operations has been acquired over the
past five years and has a remaining useful life ranging from
five years to fifteen years for equipment to thirty years for
buildings. In addition, property, plant and equipment of the
businesses acquired by the Company have been adjusted to
their fair value at the time of acquisition. Assets acquired
in prior years are expected to be replaced at higher costs
but this will take place over many years. The newer assets
will result in higher depreciation charges but, in many
cases, due to technological improvements, there will be
operating cost savings as well. The Company considers these
matters in establishing its pricing policies.
Item 8. Financial Statements and Supplementary Data.
The consolidated financial statements and supplementary data
required by Part II, Item 8 of Form 10-K are included in Part
IV of this Form 10-K Report as indexed at Item 14(a)(1).
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not Applicable.
PART III
Item 10. Directors and Executive Officers of the Registrant.
Reference is made to the information to be set forth in the
section entitled "Election of Directors" in the Company's
Proxy Statement, for the Annual Meeting of Stockholders which
will be held on May 21, 1996 (the "Proxy Statement"), which
section is incorporated herein by reference. The Proxy
Statement will be filed with the Securities and Exchange
Commission not later than 120 days after December 31, 1995,
pursuant to Regulation 14A of the Securities Exchange Act of
1934, as amended.
The information under the caption "Executive Officers of the
Company," following Item 4 of Part I of this Form 10-K
Report, is incorporated herein by reference.
None of the executive officers or directors of the Company is
related to any of the other executive officers or directors
of the Company.
Item 11. Executive Compensation.
Reference is made to the information to be set forth in the
section entitled "Executive Compensation" in the Proxy
Statement, which section (except for its Compensation
Committee Report and its Performance Graph) is incorporated
herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
Reference is made to the information to be set forth in the
section entitled "Beneficial Ownership of Common Stock" in
the Proxy Statement, which section is incorporated herein by
reference.
Item 13. Certain Relationships and Related Transactions.
Not Applicable.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) (1) Financial Statements
The Financial Statements and Supplementary Data required by
Part II, Item 8 of Form 10-K are included in this Part IV of
this Form 10-K Report as follows:
Consolidated Financial Statements Page
Consolidated Statements of Income for the Years
Ended December 31, 1995, 1994 and 1993................F-1
Consolidated Balance Sheets at December 31, 1995
and 1994..............................................F-2
Consolidated Statements of Cash Flows for the
Years Ended December 31, 1995, 1994 and 1993......... F-3
Consolidated Statements of Shareholders' Equity
for the Years Ended December 31, 1995, 1994 and 1993..F-4
Notes to Consolidated Financial Statements............. F-5
Report of Independent Auditors..........................F-28
Quarterly Financial Information.........................F-29
(2) Financial Statement Schedules
The following consolidated financial statement schedule for
the year ended December 31, 1995, 1994 and 1993 is filed as
part of this Report and should be read in conjunction with the
Company's Consolidated Financial Statements.
Schedule Page
II Valuation and Qualifying Accounts.......... S-1
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
Not Applicable.
EXHIBIT INDEX
Exhibit No. Note No. Description
3(i) (10) The Company's Restated Certificate of Incorporation,
as amended March 10, 1989 and November 10, 1992
3(ii) (14) The Company's Bylaws
4.1 (A) (6) Indenture agreement dated August 15, 1987 between the
Company and IBJ Schroder Bank & Trust Company, Trustee
(B) (12) First Supplemental Indenture dated as of February 14,
1994 between the Company and IBJ Schroder Bank & Trust
Company, Trustee
4.2 (6) Indenture agreement dated November 1, 1989 between the
Company and IBJ Schroder Bank & Trust Company, Trustee
4.3 (A) (3) Rights Agreement dated as of April 22, 1987 between the
Company and Philadelphia National Bank, as Rights Agent
(B) (10) Amendment dated December 16, 1991 between the Company
and First Chicago Trust Company of New York
Management Contracts, Compensatory Plans and Arrangements:
10.1 (16) Amended and restated Equity Incentive Plan for Key
Employees
10.2 (18) Amended and restated 1988 Equity Incentive Plan for
Outside Directors
10.3 (17) 1995 Equity Incentive Plan for Outside Directors
10.4 The Company's Supplemental Retirement Income Plan
10.5 (10) Change in Control Agreement dated January 9, 1987 between
the Company and John J. Carr
10.6 (10) Change in Control Agreement dated December 23, 1988
between the Company and Brian Lewis
10.7 (10) Change in Control Agreement dated August 5, 1992 between
the Company and William M. Brown
10.8 (10) Change in Control Agreement dated August 13, 1992 between
the Company and Thomas J. Bird
10.9 (A) (12) Employment Agreement dated September 13, 1993 between the
Company and Donald K. Farrar
(B) (14) Amendment dated November 17, 1994 to the Employment
Agreement between the Company and Donald K. Farrar
10.10 (12) Change in Control Agreement dated September 13, 1993
between the Company and Donald K. Farrar
10.11 Change in Control Agreement dated October 2, 1995 between
the Company and David C. Christensen
Other Material Contracts:
10.12(A) (4), (6) The Company's Salaried Employees Stock Savings Plan as
amended on July 1,1987 and as amended on June 14, 1988
(B) (9) Amendment dated March 16, 1989 to the Imo Industries Inc.
Employees Stock Savings Plan
(C) (7) Amendments dated September 6, 1990 and February 14, 1991
to the Imo Industries Inc. Employees Stock Savings Plan
(D) (8) Amendment dated May 9, 1991 to the Imo Industries Inc.
Employees Stock Savings Plan
(E) (10) Amendments dated December 30, 1991 and August 3, 1992 to
the Imo Industries Inc. Employees Stock Savings Plan
(F) (14) 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) (11) 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) Agreement and Plan of Merger, dated as of August 21,
1988 by and among the Company, VI Acquisition Corp. and
Varo Inc.
10.18 (5) Stock option agreement, dated as of August 21, 1988,
between VI Acquisition Corp. and Varo Inc.
10.19 (6) Agreement for the purchase of the stock of Warren Pumps
Inc. by the Company dated April 3, 1989 among the
Company, Warren Pumps Inc. and the holders of all of the
issued and outstanding stock of Warren Pumps Inc.
10.20 (7) Stock Purchase Agreement dated as of May 31, 1990 among
United Scientific Holdings PLC, United Scientific Inc.
and the Company
10.21 (12) 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
10.22 (12) German Asset Purchase Agreement among Imo Industries
GmbH, Mark Controls GmbH i. Gr., the Company and Mark
Controls Corporation, as amended
10.23(A) (13) Credit Agreement dated as of August 5, 1994 among the
Company, as Borrower, Baird Corporation, as Guarantor,
Warren Pumps Inc., as Guarantor, the Institutions from
time to time party thereto as Lenders and as Issuing
Banks, and Citibank, N.A., as Agent
(B) (14) First Amendment dated as of November 18, 1994, Second
Amendment dated as of January 11, 1995, and Third
Amendment dated as of February 17, 1995 to the Credit
Agreement dated as of August 5, 1994 among the Company as
Borrower, Baird Corporation, as Guarantor, Warren Pumps
Inc., as Guarantor, the Institutions from time to time
party thereto as Lenders and as Issuing Banks, and
Citibank, N.A., as Agent
(C) Fourth Amendment dated as of May 3, 1995, Fifth
Amendment dated as of August 14, 1995, Sixth Amendment
dated as of December 11, 1995, and Seventh Amendment
dated as of March 4, 1996 to the Credit Agreement dated
as of August 4, 1994 among the Company as Borrower,
Baird Corporation, as Guarantor, Warren Pumps Inc., as
Guarantor, the Institutions from time to time party
thereto as Lenders and as Issuing Banks, and Citibank,
N.A., as Agent
10.24(A) (13) Asset Purchase Agreement dated as of November 4, 1994 by
and among the Company, Imo Industries International Inc.
and Mannesmann Capital Corporation
(B) (14) Agreement, Amendment and Waiver dated January 17, 1995
by and among the Company and Mannesmann Capital
Corporation
10.25 (14) Asset and Stock Purchase Agreement dated as of January 1,
1995 by and among the Company and Thermo Jarrell Ash
Corporation
10.26 (15) 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
20 Proxy Statement for the Company's 1996 Annual Meeting of
Stockholders (incorporated by reference to the Company's
Proxy Statement to be filed separately with the Commission
pursuant to Regulation 14A of the Securities Exchange Act
of 1934, as amended)
21 Subsidiaries of the Company
23 Consent of Ernst & Young LLP dated March 25, 1996
27 Financial Data Schedule as of December 31, 1995
_______________________________________________
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 Company's Form 8-K filed with the
Commission on May 4, 1987.
(4) Incorporated by reference to the Imo Industries Inc. Employees Stock
Savings Plan Form 11-K filed with the Commission on April 13, 1988.
(5) Incorporated by reference to the Company's Form 8-K filed with the
Commission on October 14, 1988.
(6) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 29, 1990.
(7) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 28, 1991.
(8) Incorporated by reference to the Company's Form S-8 filed with the
Commission on June 17, 1991.
(9) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 26, 1992.
(10) Incorporated by reference to the Company's Form 10-K filed with the
Commission on April 19, 1993.
(11) 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.
(12) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 31, 1994.
(13) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on November 14, 1994.
(14) Incorporated by reference to the Company's Form 10-K filed with the
Commission on March 29, 1995.
(15) Incorporated by reference to the Company's Form 8-K filed with the
Commission on June 19, 1995.
(16) Incorporated by reference to the Company's Form S-8 as filed with the
Commission on June 23, 1995, Registration No. 33-60533
(17) Incorporated by reference to the Company's Form S-8 as filed with the
Commission on June 23, 1995, Registration No. 33-60535
(18) Incorporated by reference to the Company's Form 10-Q filed with the
Commission on November 13, 1995.
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 25, 1996
IMO INDUSTRIES INC.
By: /s/ DONALD K. FARRAR
Donald K. Farrar
Chief Executive Officer,
President and Director
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/ DONALD K. FARRAR Chief Executive Officer,
Donald K. Farrar President and Director
(principal executive officer) March 25, 1996
/s/ WILLIAM M. BROWN Executive Vice President,
William M. Brown Chief Financial Officer/
Corporate Controller
(principal financial and
accounting officer) March 25, 1996
/s/ JAMES B. EDWARDS Director March 25, 1996
James B. Edwards
/s/ J. SPENCER GOULD Director March 25, 1996
J. Spencer Gould
/s/ RICHARD J. GROSH Director March 25, 1996
Richard J. Grosh
/s/ CARTER P. THACHER Director March 25, 1996
Carter P. Thacher
/s/ DONALD C. TRAUSCHT Director March 25, 1996
Donald C. Trauscht
/s/ ARTHUR E. VAN LEUVEN Director March 25, 1996
Arthur E. Van Leuven
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Income
(Dollars in thousands except per share amounts)
<CAPTION>
Year Ended December 31, 1995 1994* 1993*
<S> <C> <C> <C>
Net Sales $373,227 $360,785 $416,526
Cost of products sold 258,335 248,835 284,227
Gross Profit 114,892 111,950 132,299
Selling, general and administrative
expenses 80,964 77,973 102,916
Research and development expenses 4,831 4,646 7,537
Unusual items 9,020 --- 14,338
Income from Operations 20,077 29,331 7,508
Interest expense 25,860 29,168 33,341
Interest income (1,980) (1,592) (511)
Other income (739) (219) (1,074)
Equity in (income) loss of
unconsolidated companies (302) --- 231
Income (Loss) From Continuing
Operations Before Taxes and
Extraordinary Item (2,762) 1,974 (24,479)
Income taxes (benefit):
Current 2,209 1,790 ---
Deferred (17,000) --- 13,450
Total Income Taxes (Benefit) (14,791) 1,790 13,450
Income (Loss) From Continuing Operations
Before Extraordinary Item 12,029 184 (37,929)
Discontinued Operations:
Income (Loss) from Operations (net of
income tax expense of $.9 million
in 1995, $1.4 million in 1994 and
$1.5 million in 1993) 500 9,046 (46,528)
Estimated Gain (Loss) on Disposal (net
of income taxes of $5.2 million in
1995) 21,625 --- (168,014)
Total Income (Loss) from
Discontinued Operations 22,125 9,046 (214,542)
Extraordinary Item - Loss on
Extinguishment of Debt (4,444) (5,299) (18,095)
Net Income (Loss) $ 29,710 $ 3,931 $(270,566)
Earnings (loss) per share:
Continuing operations before
extraordinary item $ .71 $ .01 $ (2.25)
Discontinued operations $ 1.29 $ .53 $(12.70)
Extraordinary item $ (.26) $ (.31) $ (1.07)
Net income (loss) $ 1.74 $ .23 $(16.02)
Weighted average number of shares
outstanding 17,048,622 16,926,071 16,890,501
See accompanying notes to consolidated financial statements.
*Reclassified to conform to 1995 presentation.
F-1
</TABLE>
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Balance Sheets
(Dollars in thousands)
<CAPTION>
December 31, 1995 1994*
<S> <C> <C>
Assets
Current Assets
Cash and cash equivalents $ 3,809 $ 26,942
Trade accounts and notes receivable, less
allowance of $2,030 in 1995 and $2,192 in 1994 53,965 53,909
Inventories-net 85,030 76,902
Deferred income taxes 11,371 4,328
Net assets of discontinued operations - current 5,220 75,165
Prepaid expenses and other current assets 4,617 5,089
Total Current Assets 164,012 242,335
Property, Plant and Equipment - on the basis of cost
Land 10,407 5,930
Buildings and improvements 44,786 40,449
Machinery and equipment 109,156 102,730
164,349 149,109
Less allowances for depreciation and amortization (82,996) (71,867)
Net Property, Plant and Equipment 81,353 77,242
Intangible Assets, Principally Goodwill 68,664 73,834
Investments in and Advances to Unconsolidated Companies 5,415 3,653
Deferred income taxes - Long-Term 4,609 ---
Net Assets of Discontinued Operations - Noncurrent 29,190 89,313
Other Assets 30,644 26,242
Total Assets $ 383,887 $ 512,619
Liabilities and Shareholders' Equity
Current Liabilities
Notes payable $ 9,019 $ 9,699
Trade accounts payable 23,733 22,012
Accrued expenses and other liabilities 38,069 51,620
Accrued costs related to discontinued operations 3,055 6,444
Income taxes payable 8,354 6,671
Current portion of long-term debt 805 13,675
Total Current Liabilities 83,035 110,121
Long-Term Debt 245,802 372,365
Deferred Income Taxes --- 7,364
Accrued Postretirement Benefits - Long-Term 24,372 30,918
Accrued Pension Expense and Other Liabilities 23,794 17,696
Total Liabilities 377,003 538,464
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 18,756,397 and 18,680,428 in 1995
and 1994, respectively 18,756 18,680
Additional paid-in capital 80,275 79,789
Retained earnings (deficit) (76,592) (106,302)
Cumulative foreign currency translation adjustments 4,266 861
Minimum pension liability adjustment (1,801) (853)
Treasury stock at cost - 1,672,788 shares
in 1995 and 1994 (18,020) (18,020)
Total Shareholders' Equity 6,884 (25,845)
Total Liabilities and Shareholders' Equity $ 383,887 $ 512,619
See accompanying notes to consolidated financial statements.
* Restated to conform to 1995 presentation.
F-2
</TABLE>
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Dollars in thousands)
<CAPTION>
Year Ended December 31, 1995 1994* 1993*
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $29,710 $ 3,931 $(270,566)
Adjustments to reconcile net income
(loss) to net cash (used by) provided
by continuing operations:
Discontinued operations (22,125) (9,046) 214,542
Depreciation 12,100 12,771 15,325
Amortization 3,122 5,832 4,471
Provision (credit) for deferred
income taxes (17,000) --- 13,450
Extraordinary item 4,444 5,299 18,095
Unusual items 9,020 --- 14,338
Other 172 666 1,243
Other changes in operating assets
and liabilities:
Decrease (increase) in accounts and
notes receivable 236 (1,557) 9,491
(Increase) decrease in inventories (7,157) (368) 7,198
Decrease in recoverable income taxes --- 3,826 7,270
(Decrease) increase in accounts
payable and accrued expenses (13,273) (9,160) 7
Other operating assets and
liabilities (9,014) (5,387) (8,846)
Net cash (used by) provided by continuing
operations (9,765) 6,807 26,018
Net cash (used by) provided by
discontinued operations (21,978) 9,971 986
Net Cash (Used in) Provided by Operating
Activities (31,743) 16,778 27,004
INVESTING ACTIVITIES
Net proceeds from sale of businesses and
sales of property, plant and equipment 174,922 13,568 86,619
Purchases of property, plant and equipment (14,600) (6,025) (6,343)
Acquisitions, net of cash acquired (5,247) --- ---
Net investing activities of discontinued
operations (9,426) (6,994) (9,724)
Other (122) (857) 252
Net Cash Provided by (Used in) Investing
Activities 145,527 (308) 70,804
FINANCING ACTIVITIES
(Decrease) increase in notes payable 5,407 (31,346) (29,915)
Proceeds from long-term borrowings 45,461 86,951 4,377
Principal payments on long-term debt (188,200) (56,759) (55,575)
Payment of debt financing costs (401) (11,277) (8,326)
Proceeds from stock options exercised 535 415 ---
Other 59 15 (318)
Net Cash Used in Financing Activities (137,139) (12,001) (89,757)
Effect of exchange rate changes on cash 222 117 (462)
(Decrease) increase in Cash and Cash
Equivalents (23,133) 4,586 7,589
Cash and cash equivalents at
beginning of year 26,942 22,356 14,767
Cash and Cash Equivalents at
End of Year $ 3,809 $26,942 $22,356
See accompanying notes to consolidated financial statements.
*Reclassified to conform to 1995 presentation.
F-3
</TABLE>
<TABLE>
Imo Industries Inc. and Subsidiaries
Consolidated Statements of Shareholders' Equity
(Dollars in thousands)
<CAPTION>
Cumulative
Addit- Foreign Minimum
ional Retained Currency Pension
Common Paid-In Earnings Translation Liability Treasury
Stock Capital (Deficit) Adjustments Adjustment Stock Total
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at
January 1,
1993 * $18,554 $78,557 $160,333 $ 491 $ --- $(18,020) $239,915
Net loss --- --- (270,566) --- --- --- (270,566)
Foreign currency
translation
adjustments --- --- --- (1,638) --- --- (1,638)
Minimum pension
liability
adjustment --- --- --- --- (1,768) --- (1,768)
Issuance of
common stock
warrants --- 336 --- --- --- --- 336
Restricted shares
issued under
the equity
incentive plan 30 187 --- --- --- --- 217
Balance at
December 31,
1993 * 18,584 79,080 (110,233) (1,147) (1,768) (18,020) (33,504)
Net income --- --- 3,931 --- --- --- 3,931
Foreign currency
translation
adjustments --- --- --- 2,008 --- --- 2,008
Minimum pension
liability
adjustment --- --- --- --- 915 --- 915
Shares issued
under stock
option plan 56 359 --- --- --- --- 415
Restricted shares
issued under
the equity
incentive plan 40 350 --- --- --- --- 390
Balance at
December 31,
1994 * 18,680 79,789 (106,302) 861 (853) (18,020) (25,845)
Net income --- --- 29,710 --- --- --- 29,710
Foreign currency
translation
adjustments --- --- --- 3,405 --- --- 3,405
Minimum pension
liability
adjustment --- --- --- --- (948) --- (948)
Shares issued
under stock
option plan 73 462 --- --- --- --- 535
Restricted shares
issued under
the equity
incentive plan 3 24 --- --- --- --- 27
Balance at
December 31,
1995 $18,756 $80,275 $(76,592) $4,266 $(1,801) $(18,020) $6,884
See accompanying notes to consolidated financial statements.
* Reclassified to conform to current year presentation.
F-4
</TABLE>
Imo Industries Inc. and Subsidiaries
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.
Translation of Foreign Currencies: Assets and
liabilities of international operations are translated
into U.S. dollars at current 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.
Cash Equivalents: Cash equivalents include investments
in government securities funds and certificates of
deposit. Investment periods are generally less than one
month.
Financial Instruments: The Company uses forward
exchange contracts to hedge certain firm foreign
commitments denominated in foreign currencies. Gains or
losses on forward contracts are deferred and offset
against the foreign exchange gains and losses on the
underlying hedged item. The forward exchange contracts
are for periods of less than one year, and the amounts
outstanding as well as gains or losses on such contracts
are not material.
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.
Revenue Recognition: Revenues are recorded generally
when the Company's products are shipped.
Depreciation and Amortization: Depreciation and
amortization of plant and equipment are computed
principally by the straight-line method.
Interest Expense: Interest expense incurred during the
construction of facilities and equipment is capitalized
as part of the cost of those assets. Total interest
paid by the Company amounted to $39.5 million in 1995,
$49.5 million in 1994 and $56.7 million in 1993. There
was no interest capitalized in 1995. Interest
capitalized in 1994 and 1993 was $.2 million and $.1
million, respectively.
Earnings Per Share: Earnings per share are based upon
the weighted average number of shares of common stock
outstanding. Common stock equivalents related to stock
options are excluded because their effect is not
material.
Impact of Recently Issued Accounting Standards: In March
1995, the FASB issued Statement No. 121, "Accounting for
the Impairment of Long-Lived Assets to Be Disposed Of",
which requires impairment losses to be recorded on long-
lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than
the assets' carrying amount. Statement 121 also
addresses the accounting for long-lived assets that are
expected to be disposed of. The Company will adopt
Statement 121 in the first quarter of 1996 and, based on
current circumstances, does not believe the effect of
adoption will be material.
Stock Compensation: The Company grants stock options
and shares of restricted stock to certain employees
under its Equity Incentive Plan. The stock options are
for a fixed number of shares and have an exercise price
equal to the fair value of the shares at the date of
grant. Restricted shares are valued at fair value of
the shares at the date of grant and compensation expense
is recognized over the vesting period.
The Company accounts for its stock compensation
arrangements under the provisions of APB 25, "Accounting
for Stock Issued to Employees", and intends to continue
to do so.
Intangible Assets: Goodwill of companies 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 related to
continuing operations at December 31, 1995 and 1994 was
$63.1 million and $61.2 million, respectively, net of
respective accumulated amortization of $14.6 million and
$12.9 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.
Restatements: The Consolidated Financial Statements,
and the notes thereto, have been restated to reflect the
Company's Roltra-Morse business segment as a
discontinued operation in accordance with Accounting
Principles Board Opinion No. 30. Certain prior year
amounts have been reclassified to conform to the current
year presentation.
Note 2 Discontinued Operations
Electro-Optical Systems
In January 1994, pursuant to a plan approved by the
Board of Directors, the Company announced its intention
to dispose of its Electro-Optical Systems operations. On
January 3, 1995, the Company completed the sale of its
Baird Analytical Instruments Division to Thermo
Instruments Systems Inc. for approximately $12.3
million, which was used to repay a portion of the
Company's domestic senior debt. On June 2, 1995, the
Company completed the sale of the Optical Systems and Ni-
Tec divisions of Varo Inc. and the Optical Systems
division of Baird Corporation, which represented the
major part of its Electro-Optical Systems business, to
Litton Industries for approximately book value. The
proceeds were used to pay off $8 million outstanding
under the revolving credit facility on June 2, 1995 and
to redeem $40 million of its 12.25% senior subordinated
debentures on July 6, 1995. Remaining assets to be sold
include the Electro-Optical System's Varo Electronic
Systems division and non-operating real estate, which
continue to be marketed to interested parties.
Turbomachinery
In August 1994 the Board of Directors approved a plan to
sell the Company's Turbomachinery operations. On January
17, 1995, the Company completed the sale of its Delaval
Turbine and TurboCare divisions and its 50% interest in
Delaval-Stork, to Mannesmann Demag. The final adjusted
purchase price was $119 million of which, $109 million
was received at closing, with the remainder earning
interest to the Company and to be received at specified
future contract dates subject to adjustment as provided
in the agreement. It is management's expectation that
there will be no further adjustment to the purchase
price. A portion of the proceeds were used by the
Company to pay off its domestic senior debt in January
1995 and in March 1995 the Company redeemed $40 million
of its 12.25% senior subordinated debentures with the
remainder of the proceeds.
Roltra-Morse
In February 1996 the Company announced a plan to sell
its Roltra-Morse operations. The Company has engaged an
investment banking firm to assist in the sale which is
expected to be completed in 1996 with proceeds in excess
of net book value of the operations.
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. Prior year financial statements
have been reclassified to conform to the current year
presentation.
Discontinued operations include management's best
estimates of amounts expected to be realized at the time
of disposal. The amounts the Company will ultimately
realize could differ materially in the near term from
the amounts used to determine the gain or loss on
disposal of the discontinued operations.
Net assets and liabilities of the Discontinued
Operations consist of the following:
December 31 (Dollars in thousands) 1995 1994
Current Assets:
Receivables $ 25,956 $ 88,793
Inventories 21,484 70,194
Other current assets 6,351 4,986
53,791 163,973
Current Liabilities:
Notes Payable 9,849 3,072
Trade accounts payable 27,687 46,733
Other current liabilities 11,035 39,003
48,571 88,808
Net Current Assets $ 5,220 $ 75,165
Long-term Assets:
Property $ 22,112 $ 82,684
Intangible assets 12,645 12,589
Other long-term assets 11,666 9,308
46,423 104,581
Long-term Liabilities 17,233 15,268
Net Long-term Assets $ 29,190 $ 89,313
Net Assets $ 34,410 $164,478
Net assets related to the Electro-Optical Systems
business are $11.9 million and $85 million as of
December 31, 1995 and 1994, respectively; net assets
related to the Turbomachinery business are $1.0 million
and $60 million as of December 31, 1995 and 1994,
respectively; and net assets related to the Roltra-Morse
business are $21.5 million and $19.5 million as of
December 31, 1995 and 1994, respectively.
The Discontinued Operations have $19.4 million in
foreign short-term credit facilities with amounts
outstanding at December 31, 1995 of $9.8 million. Total
long-term debt of discontinued operations amounted to
$7.1 million and $9.6 million as of December 31, 1995
and 1994, respectively. Of these amounts, $1.6 million
and $3.4 million represent the current portion.
A condensed summary of operations for the Discontinued
Operations is as follows:
Year Ended December 31
(Dollars in thousands) 1995 1994 1993
Net Sales $159,339 $444,656 $396,731
Income (loss) from
operations before
income taxes and
minority interest 653 10,882 (44,431)
Income taxes 878 1,443 1,550
Minority interest (725) 393 547
Income (loss) from
operations $ 500 $ 9,046 $(46,528)
The income (loss) from operations of the Discontinued
Operations for 1995, 1994 and 1993 includes allocated
interest expense. Interest expense of $7.5 million,
$19.4 million, and $19.6 million, respectively, was
allocated based on the ratio of the estimated net assets
to be sold in relation to the sum of the Company's
shareholders' equity and the aggregate of outstanding
debt at each year end.
Electro-Optical Business
The Electro-Optical loss from operations was $45.3
million for 1993. Losses from the Electro-Optical
Systems operations for 1995 and 1994 resulted in a net
charge of $1.0 million and $6.2 million, respectively,
to reserves established as of December 31, 1993.
The Company recorded charges of $155.3 million at
December 31, 1993, which included a $104.6 million
goodwill write-off to reduce the carrying amount of the
Electro-Optical discontinued operation to estimated
realizable value. During 1995 the Company recognized an
additional $13.3 million loss on disposal. Included in
the additional loss was $6.8 million related to the
resolution of contingencies associated with the sale of
the business and fourth quarter charges of $6.5 million
primarily to write-down remaining non-operating real
estate to net realizable value. As of December 31, 1995,
the Company has an accrual for anticipated operating
losses of $.6 million (including $.9 million of
allocated interest) through the date of sale, which is
expected to occur during the second half of 1996.
Turbomachinery Business
The Turbomachinery business income from operations was
$5.6 million and $1.0 million for 1994 and 1993,
respectively.
As a result of the sale of the Turbomachinery business
in 1995, the Company recognized an estimated gain on
disposal of $35.0 million, net of income taxes of $5.2
million. The gain is net of fourth quarter charges of
$4.6 million, related to the resolution of
contingencies associated with the sale to Mannesmann
Demag and to a write-down of remaining assets to net
realizable value.
Roltra-Morse
The Roltra-Morse business had income from operations of
$.5 million and $3.5 million for 1995 and 1994,
respectively, and a loss from operations of $2.1 million
in 1993.
Note 3 Restructuring Plan
Asset Sales
In October 1992, the Company announced a plan to
strengthen its balance sheet through the sale of certain
businesses and the application of the proceeds to reduce
debt. Pursuant to this plan, the Company divested its
Heim Bearings, Aerospace, Barksdale Controls and CEC
Instruments businesses. In 1993, the Company sold its
Heim Bearings, Aerospace and Barksdale Controls
operations for proceeds of approximately $91 million,
and in 1994, sold its CEC Instruments and Turboflex Ltd.
operations, its Corporate headquarters building and
other previously identified assets for aggregate
proceeds of $13.2 million. These proceeds, net of
related expenses, were used to repay senior debt in the
amount of $81.9 million in 1993 and $13.2 million in
1994, in accordance with the terms of the 1993
restructured credit facilities.
Other non-operating real estate, representing less than
10% of the original value of assets announced to be sold
in October 1992, remain for sale. Results for the
fourth quarter of 1995 include an unusual charge of $5.0
million related to the write-down of this non-operating
real estate to its net realizable value (See Note 6).
The Company targets completion of the divestitures over
the next 9 to 12 months.
In the fourth quarter of 1993, management initiated a
strategy to reposition the Company on its less capital
intensive businesses that exhibited strong brand name
recognition, a broad customer base and market leadership
with less dependence on U.S. Government sales. In
connection with this strategy, the Company divested its
Turbomachinery and most of its Electro-Optical Systems
businesses in 1995. This repositioning will be completed
upon the sales of the Roltra-Morse business, and the
remaining portion of the Electro-Optical Systems
business, which are expected to be completed in 1996
(See Note 2).
Cost Reduction Programs
In the fourth quarter of 1995, the Company recorded a
charge to continuing operations of $4.0 million,
including severance and other expenses related to a
Company-wide program to reduce general and
administrative costs (See Note 6). This program
includes a reduction of 65 employees, or 2% of the total
number of Company employees, including a reduction of
the corporate headquarters staff by 20%. This program
is expected to reduce general and administrative
expenses by approximately $2.9 million in 1996, $4.0
million in 1997 and $5.0 million annually thereafter.
The required cash outlay related to this program was $.4
million in 1995, and the expected cash requirements
during 1996 are $3.2 million. The remainder represents
non-cash charges.
In 1993, the Company recorded a charge to continuing
operations of $5.2 million for a cost reduction program
which benefited 1994 and 1995 operating results (See
Note 6). The Company implemented cost-cutting measures
at its core operations to reduce its expense structure
and to eliminate duplicative functions. In addition, in
connection with this 1993 cost reduction program, the
Company consolidated certain operations in its European
Instruments and Morse Controls businesses and revised
operating processes and reduced employment levels at its
Pumps segment and other operations. The number of
Company employees in core operations declined by 205, or
7%, between mid-1993 and mid-1994. These organizational
restructuring measures have been providing net cash
benefits, compared to 1993 levels, which approximated
$4.5 million and $1.5 million for continuing operations,
in 1995 and 1994, respectively, and are expected to
approximate $5.5 million annually thereafter, based
largely on reduced employment costs.
Note 4 Inventories
Inventories are summarized as follows:
December 31 (Dollars in thousands) 1995 1994
Finished products $ 39,684 $ 33,350
Work in process 31,235 30,049
Materials and supplies 26,372 27,022
97,291 90,421
Less customers' progress payments 689 1,635
Less valuation allowance 11,572 11,884
$ 85,030 $ 76,902
Note 5 Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the
following:
December 31 (Dollars in thousands) 1995 1994
Accrued contract completion costs $ 94 $ 556
Accrued product warranty costs 2,737 4,310
Accrued litigation and claims costs 1,674 4,493
Payroll and related items 14,328 12,547
Accrued interest payable 6,511 10,167
Accrued restructuring costs 1,688 960
Accrued divestiture costs 2,861 8,582
Other 8,176 10,005
$ 38,069 $ 51,620
Note 6 Unusual Items
During the fourth quarter of 1995, the Company
recognized unusual charges of $9.0 million ($.53 per
share) in income from continuing operations. These
charges include $4.0 million in severance benefits and
other expenses related to a Company-wide program to
reduce general and administrative costs (See Note 3) and
$5.0 million related to the write-down of certain non-
operating real estate to net realizable value (See Note
3).
During the twelve months ended December 31, 1993, the
Company recognized unusual charges of $14.3 million
($.85 per share) in loss from continuing operations.
During the fourth quarter of 1993, the Company
recognized charges of $20.3 million that include
provisions of $5.2 million related to the restructuring
and consolidation of certain of the Company's operating
units (See Note 3), $10.1 million expected net loss
overall related to the Company's asset divestiture
program (See Note 3) and $5.0 million in debt related
financing fees associated with obtaining consents from
holders of its 12.25% senior subordinated debentures to
amend the indenture governing these debentures and
obtain waivers from its senior lenders for non-
compliance with certain financial covenants as of
December 31, 1993, as a result of the fourth quarter net
loss. These charges are net of unusual income of $6.0
million recorded in the third quarter of 1993 as a
result of a change in estimate related to legal costs
associated with pending litigation.
Note 7 Income Taxes
The components of income tax expense (benefit) from
continuing operations are:
Year Ended December 31
(Dollars in thousands) 1995 1994 1993
Current:
Federal $ --- $ --- $ ---
Foreign 1,906 1,330 ---
State 303 460 ---
2,209 1,790 ---
Deferred:
Federal (17,000) --- 13,000
Foreign and State --- --- 450
(17,000) --- 13,450
$(14,791) $ 1,790 $ 13,450
Income tax expense from discontinued operations, in
thousands, is as follows: 1995 - $878; 1994 - $1,443;
and 1993 - $1,550.
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, 1995 and 1994
are as follows:
December 31
(Dollars in thousands) 1995 1994
Current Long-term Current Long-term
Deferred tax assets:
Postretirement benefit
obligation $ 765 $ 8,940 $ 765 $ 11,593
Expenses not currently
deductible 19,101 9,895 19,174 25,879
Net operating loss carryover --- 30,041 --- 24,673
Tax credit carryover --- 5,033 --- 8,653
Total deferred tax assets 19,866 53,909 19,939 70,798
Valuation allowance for
deferred tax assets (8,495) (23,180) (15,140) (53,770)
Net deferred tax assets 11,371 30,729 4,799 17,028
Deferred tax liabilities:
Tax over book depreciation --- 18,593 --- 18,838
Difference between book
and tax basis of income
recognition --- --- 471 1,230
Other --- 7,527 --- 4,324
Total deferred tax liabilities --- 26,120 471 24,392
Net deferred tax assets
(liabilities) $11,371 $ 4,609 $ 4,328 $ (7,364)
At December 31, 1995, unremitted earnings of foreign
subsidiaries were approximately $23.4 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 $.9 million.
The components of income (loss) from continuing
operations before income taxes and extraordinary item:
Year Ended December 31
(Dollars in thousands) 1995 1994 1993
United States $(5,584) $ (322) $(21,086)
Foreign 2,822 2,296 (3,393)
$(2,762) $ 1,974 $(24,479)
U.S. income tax expense (benefit) at the statutory tax
rate is reconciled below to the overall U.S. and foreign
income tax expense (benefit).
Year Ended December 31
(Dollars in thousands) 1995 1994 1993
Tax at U.S. federal income tax rate $ (967) $ 691 $ (8,567)
State taxes, net of federal income
tax effect 197 299 396
Impact of foreign tax rates and
credits 918 526 ---
Net U.S. tax on distributions of
current foreign earnings 586 935 ---
Goodwill amortization 643 656 694
Other/valuation reserve (16,168) (1,317) 20,927
Income tax expense (benefit) $ (14,791) $ (1,790) $ 13,450
Net income taxes paid during 1995 and 1994 were $6.3
million and $.2 million, respectively, and net income
tax refunds received during 1993 were $7 million.
The Company has net operating loss carryforwards of
approximately $85 million expiring in years 2002 through
2010, foreign tax credit carryforwards of approximately
$8.3 million expiring through 2000, which, for financial
reporting purposes, are reflected as deductible foreign
taxes, and minimum tax credits of approximately $2.1
million which may be carried forward indefinitely.
These carryforwards are available to offset future
federal taxable income.
In 1995, the Company reduced the valuation allowance
applied against the net operating loss carryforward by
$17 million to a level where management believes it is
more likely than not that the tax benefit will be
realized. The total amount of future taxable income in
the U.S. necessary to realize the asset is approximately
$48 million. The Company would generate this income
from the execution of reasonable and prudent tax
planning strategies and based upon future income
projections, including the Company's announced plan to
sell Roltra-Morse SpA in 1996. The amount of the
deferred tax asset considered realizable, however, could
be reduced in the near term if estimates of future
taxable income during the carryforward period are
reduced.
Note 8 Notes Payable and Long-Term Debt
In August 1994, the Company obtained credit facilities
for borrowings up to $150 million from a group of
lenders (the "Existing Credit Agreement"), secured by
the assets of the Company's domestic operations and all
or a portion of the stock of certain of the Company's
subsidiaries. The Existing Credit Agreement provided for
a $65 million revolving credit facility through July 31,
1997, a $40 million term loan amortizing to July 1997,
and a $45 million bridge loan maturing January 1996.
The revolving credit facility is extendible to July 1999
under certain conditions. Proceeds from the Existing
Credit Agreement were used to repay the Company's
working capital loans under the former domestic senior
credit facilities, as well as other outstanding senior
debt obligations.
In January 1995, proceeds from the sales of the Baird
Analytical Instruments division and the Turbomachinery
business were used to repay amounts outstanding on the
term and bridge loans of $36.7 million and $45 million,
respectively (See Note 2). At the same time, and in
keeping with the terms of the Existing Credit Agreement,
the $65 million revolving credit facility was reduced to
$50.0 million. In December 1995, the Existing Credit
Agreement was amended to increase the revolving credit
facility to $60 million. At December 31, 1995 the
Company had borrowings of $18.2 million outstanding
under the revolving credit facility in addition to $7.8
million of outstanding standby letters of credit. The
Company's continuing operations currently have $16.1
million in foreign short-term credit facilities with
amounts outstanding at December 31, 1995 of $9.0
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. The
weighted average interest rate on short-term notes
payable was 8.0% and 8.5% at December 31, 1995 and 1994,
respectively.
Long-term debt of continuing operations consists of the
following:
December 31 (Dollars in thousands) 1995 1994
Borrowings on revolving credit facility
expiring July 31, 1997 (1) $18,200 $ ---
Bridge loan due January 31, 1996 --- 45,000
Term loan, $3.3 million due quarterly
October 31, 1994 to July 31, 1997 --- 36,667
Senior subordinated debentures with
interest at 12.25%, due August 15, 1997 70,000 150,000
Senior subordinated debentures with
interest at 12%, due November 1,
1999 to 2001 150,000 150,000
Other 8,407 4,373
246,607 386,040
Less current portion 805 13,675
$245,802 $372,365
(1) These loans bear interest at a rate equal to LIBOR plus 2.25%.
___________________________________________________________________
The aggregate annual maturities of long-term debt from
continuing operations, in thousands, for the four years
subsequent to 1996 are: 1997 - $90,460; 1998 - $935;
1999 - $37,672; and 2000 - $37,662.
The 12.25% senior subordinated debentures are redeemable
in whole or in part, at the option of the Company at any
time, at 100% of their principal amount, plus accrued
interest. Interest is payable semi-annually on February
15 and August 15. The fair value of these instruments at
December 31, 1995, based on market bid prices, was $70.4
million. In March 1995, $40 million of the 12.25% senior
subordinated debentures were redeemed from the proceeds
received from the sale of the Turbomachinery business in
January 1995 and on July 6, 1995 an additional $40
million were redeemed with proceeds from the sale of the
Company's Electro-Optical Systems businesses (See Note
2).
The 12% senior subordinated debentures are currently
redeemable in whole or in part, at the option of the
Company, at 102.5% of their principal amount, plus
accrued interest. The redemption price declines to 100%
on or after November 1, 1996. Interest is payable semi-
annually on May 1 and November 1. The fair value of
these instruments at December 31, 1995, based on market
bid prices, was $153.0 million.
The Existing Credit Agreement requires the Company to
meet certain objectives with respect to financial ratios
and it and the 12.25% and 12% senior subordinated
debentures contain provisions which place certain
limitations on dividend payments and outside borrowings.
Under the most restrictive of such provisions, the
Company must maintain certain minimum consolidated net
worth levels, interest coverage and fixed charge
coverage levels and the Company is prohibited from
declaring or paying cash dividends through at least July
31, 1997. The senior subordinated debentures contain
covenants that, among other things, restrict
indebtedness to specified levels. Under certain
circumstances, such covenants could result in the
Company's inability to fully utilize the revolving
credit facility under the Existing Credit Agreement and
the foreign short-term credit facilities. At December
31, 1995, the Company was in technical violation of one
of the covenants under the Existing Credit Agreement
which was subsequently amended. The Company received a
waiver of this technical violation.
In connection with the early repayment and redemption of
domestic senior debt and $80 million of the 12.25%
senior subordinated debentures, as discussed in the
preceding paragraphs, a $4.4 million ($.26 per share)
charge was recorded as an extraordinary item in 1995.
The charge consisted of the write-off of deferred debt
expense associated with portions of the domestic senior
debt repaid and the 12.25% senior subordinated
debentures redeemed.
Bank, advisory and legal fees associated with the 1994
refinancing of the Existing Credit Agreement amounted to
approximately $5.6 million in 1994. In addition, a $5.3
million ($.31 per share) charge related to the
extinguishment of senior debt under the former domestic
senior credit facilities was recorded as an
extraordinary charge in 1994. The $5.3 million charge is
comprised of a $3.7 million premium paid in 1994 on the
prepayment of its $30 million 12.75% senior promissory
note and the write-off of approximately $1.6 million of
previously deferred loan costs.
Bank, advisory and legal fees associated with the 1993
restructuring of the Company's domestic senior credit
facilities amounted to approximately $8.0 million
payable in 1993. In addition, 200,000 warrants for the
Company's common stock, valued at approximately $.4
million, were issued to one senior lender and, as part
of the $125 million repayment plan, the Company has
recognized a charge in 1993 of approximately $12 million
on the prepayment of its senior notes which was
partially financed with Make-Whole Notes issued to one
of its senior lenders and the write-off of approximately
$2 million of previously deferred loan costs.
Approximately $18.1 million ($1.07 per share) of the
above amounts relate to the extinguishment of senior
debt and were recorded as an extraordinary item in 1993.
Note 9 Shareholders' Equity
Equity Incentive Plan
Under the Company's Equity Incentive plan, up to
3,050,000 shares of the Company's $1.00 par value common
stock can be issued pursuant to the granting of stock
options, stock appreciation rights, restricted stock
awards and restricted unit awards to key employees.
Options can be granted at no less than 100 percent of
the fair market value of the stock on the date of grant
or on the prospective date fixed by the Board of
Directors. None of these options can be exercised for
at least a one-year period from the date of grant.
After this waiting period, 25 percent of each option, on
a cumulative basis, can be exercised in each of the
following four years. Additionally, each option shall
terminate no later than 10 years from the date of grant.
On August 17, 1993, the Board of Directors approved the
repricing of certain outstanding non-qualified stock
options granted on previous dates under the Plan. This
resulted in the replacement of 468,000 non-qualified
stock options at various exercise prices ranging from
$10.375 to $20.375, by 272,865 non-qualified stock
options at an exercise price of $7.375, the fair market
value at the date of the replacement grant, subject to
the market price of the Company's stock exceeding $10
per share for a period of 30 days. During 1994, the
aforementioned criteria was met. Vested dates are based
on the original grant dates of the replaced options.
On June 20, 1994, certain additional outstanding non-
qualified stock options, granted on previous dates under
the Plan, were repriced pursuant to the August 17, 1993
Board of Directors approval. This resulted in the
replacement of 15,000 non-qualified stock options at
various exercise prices ranging from $11.625 to $20.375,
by 9,970 non-qualified stock options at an exercise
price of $10.25, the fair market value at the date of
the replacement grant. Vested dates are based on the
original grant dates of the replaced options.
On June 23, 1995, the Company's Equity Incentive Plan
was amended to increase the total issuable shares by
850,000 to 3,050,000 and to prohibit repricing without
prior shareholder approval.
The Plan permits awards of restricted stock to key
employees subject to a restricted period and a purchase
price, if any, to be paid by the employee as determined
by the Committee of the Equity Incentive Plan. Grants
of 40,000 shares and 30,000 shares of restricted stock
were made in 1994 and 1993, respectively, all of which
were outstanding as of December 31, 1995. Vesting of
such awards is subject to a defined vesting period and
to the Company's stock achieving certain performance
levels during such period.
Stock option activity under the plan was as follows:
Year Ended December 31
(Shares in thousands) 1995 1994 1993
Options:
Granted 250 410 498
Exercised (73) (56) ---
Canceled (210) (159) (150)
Repricing
Canceled --- (15) (468)
Issued --- 10 273
Outstanding at end of year 1,464 1,497 1,307
Exercisable at end of year 691 654 652
Available for grant at end of year 865 55 341
Option price range per share:
Granted $ 6.00 $ 9.75- $ 7.375
$ 10.25
Exercised $ 7.00- $ 7.00- ---
$ 7.375 $ 7.375
During 1988, the Company adopted the Equity Incentive
Plan for Outside Directors. The plan provides for the
granting of non-qualified stock options of up to 360,000
shares of the Company's common stock to directors of the
Company who are not employees of the Company or any of
its affiliates. Pursuant to this plan, options can be
granted at no less than 100 percent of the fair market
value of the stock on a date five business days after
the option is granted and no option granted may be
exercised during the first year after its grant. After
this waiting period, 25 percent of each option, on a
cumulative basis, can be exercised in each of the
following four years. In February 1988, 320,000 stock
options were granted at $16.19 per share, all of which
were exercisable as of December 31, 1995. In December
1990, 40,000 stock options were granted at $10.375 per
share, all of which were exercisable as of December 31,
1995. In June 1995, the Plan was amended to reduce the
number of shares issuable to an aggregate of 360,000.
In June 1995, the Company adopted the 1995 Equity
Incentive Plan for Outside Directors. The Plan provides
for the granting of restricted stock awards and non-
qualified stock options of up to 240,000 shares of the
Company's common stock to outside directors of the
Company who are not employees of the Company or any of
its affiliates. Pursuant to this Plan, each outside
director will be granted, on an annual basis, options to
purchase 4,000 shares of the Company's common stock. The
exercise price of the options will be 100 percent of
the fair market value of the common stock at the date of
grant and no option granted may be exercised during the
first year after its grant subject to certain plan
provisions. After this waiting period, the options
become exercisable in four equal annual installments of
1,000 shares. Additionally, each option terminates no
later than 10 years from the date of grant. The plan
also provides for the granting of an annual restricted
stock award of 1,000 shares of the Company's common
stock. Each award is made in four quarterly installments
of 250 shares beginning July 1, 1995. The shares
comprising the restricted stock awards may not be sold
or otherwise transferred by the outside director until
termination from service. During 1995, 24,000 stock
options were granted at $8.00 per share, none of which
were excercisable as of December 31, 1995, and 3,000
shares of restricted stock awards were issued.
Preferred Stock Purchase Rights
On April 22, 1987, the Board of Directors declared a
distribution of one Preferred Stock Purchase Right for
each share of common stock outstanding. Each right will
entitle the holder to buy from the Company a unit
consisting of 1/100 of a share of Junior Participating
Preferred Stock, Series A, at an exercise price of $70
per unit. The rights become exercisable ten days after
public announcement that a person or group has acquired
20 percent or more of the Company's common stock or has
commenced a tender offer for 30 percent or more of
common stock. The rights may be redeemed prior to
becoming exercisable by action of the Board of Directors
at a redemption price of $0.025 per right. If more than
35 percent of the Company's common stock becomes held by
a beneficial owner, other than pursuant to an offer
deemed in the best interest of the shareholders by the
Company's independent directors, each right may be
exercised for common stock, or other property, of the
Company having a value of twice the exercise price of
each right. If the Company is acquired by any person
after the rights become exercisable, each right will
entitle its holder to receive common stock of the
acquiring company having a market value of twice the
exercise price of each right. The rights expire on May
4, 1997.
Employee Stock Savings Plan
Up to 600,000 shares of the Company's common stock are
reserved for issuance under the Company's Employee Stock
Savings Plan. (See Note 11)
Common Stock Warrants
In July 1993, the Company issued warrants to purchase
200,000 shares of its common stock at $9.02 per share
(subject to adjustment in certain events), to one of its
senior lenders in connection with the restructuring of
its senior credit facilities. The warrants are
exercisable on or before December 31, 1998.
Note 10 Operations by Industry Segment and Geographic
Area
The Company classifies its continuing operations into
four core business segments: Power Transmission, Pumps,
Instrumentation and Morse Controls. 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. A fifth business segment
entitled Other is included in continuing operations for
financial reporting purposes, and includes operations
previously sold and operations to be sold as part of the
Company's asset divestiture program. The 1994 and 1993
amounts have been restated to reflect Roltra-Morse as a
discontinued operation and the redefinition of the
Company's business segments. 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) 1995 1994 1993
Net Sales
Power Transmission $ 95,075 $ 93,308 $ 85,906
Pumps 94,375 90,428 91,556
Instrumentation 76,113 72,226 72,434
Morse Controls 107,664 100,075 90,876
Other --- 4,748 75,754
Total net sales $373,227 $360,785 $416,526
Segment operating income
Power Transmission $ 11,348 $ 8,905 $ 2,338
Pumps 9,884 10,447 10,357
Instrumentation 6,746 9,791 7,951
Morse Controls 5,292 5,743 457
Other --- (216) 886
Total segment operating income 33,270 34,670 21,989
Equity in income (loss) of
unconsolidated companies 302 --- (231)
Unallocated corporate expenses (12,454) (5,120) (13,407)
Net interest expense (23,880) (27,576) (32,830)
Income (loss) from continuing
operations before income taxes
and extraordinary item $ (2,762) $ 1,974 $ (24,479)
A reconciliation of segment operating income to income from
operations follows:
Year Ended December 31
(Dollars in thousands) 1995 1994 1993
Segment operating income $ 33,270 $ 34,670 $ 21,989
Unallocated corporate expenses (12,454) (5,120) (13,407)
Other income (739) (219) (1,074)
Income from operations $ 20,077 $ 29,331 $ 7,508
Segment operating income for the year ended December 31,
1995, includes $2.4 million of unusual charges, of which
$.9 million and $1.5 million relate to the
Instrumentation and Morse Controls segments,
respectively. Unallocated corporate expenses include
unusual charges of $6.6 million for the year ended
December 31, 1995.
Segment operating income for the year ended December 31,
1993, includes $8.1 million of unusual charges, of which
$.2 million, $.5 million, $.9 million, $2.4 million and
$4.1 million relates to the Power Transmission, Pumps,
Instrumentation, Morse Controls, and Other segments,
respectively. Unallocated corporate expenses include
unusual charges of $6.2 million for the year ended
December 31, 1993.
The Pumps and Instrumentation segments had sales to the
United States Department of Defense, in the form of
prime and subcontracts, which accounted for 14% of
consolidated sales in 1993. No one customer accounted
for 10% or more of consolidated sales in 1995 and 1994.
Year Ended December
(Dollars in thousands) 1995 1994 1993
Identifiable assets
Power Transmission $ 86,343 $ 88,284 $ 89,301
Pumps 69,347 63,172 60,430
Instrumentation 42,538 44,862 47,017
Morse Controls 111,482 107,471 101,986
Other 13,321 18,054 40,413
Corporate 26,446 26,298 55,915
Discontinued Operations:
Electro-Optical 11,893 85,000 85,000
Turbomachinery 983 59,970 56,711
Roltra-Morse 21,534 19,508 14,765
Total identifiable assets $383,887 $512,619 $551,538
Depreciation and amortization
Power Transmission $ 4,618 $ 4,778 $ 4,053
Pumps 3,972 3,578 3,878
Instrumentation 1,840 1,464 1,518
Morse Controls 3,392 4,155 3,518
Other --- 655 3,313
Corporate 1,400 3,973 3,516
Total depreciation and amortization $ 15,222 $ 18,603 $ 19,796
Capital expenditures
Power Transmission $ 3,384 $ 1,245 $ 1,317
Pumps 7,367 2,164 1,694
Instrumentation 1,445 1,177 1,054
Morse Controls 2,131 1,080 886
Other --- 39 1,042
Corporate 273 320 350
Total capital expenditures $ 14,600 $ 6,025 $ 6,343
The continuing operations of the Company on a geographic
basis are as follows:
Year Ended December 31
(Dollars in thousands) 1995 1994 1993
Net sales
United States $244,341 $246,601 $307,918
Foreign (principally Europe) 128,886 114,184 108,608
Total net sales $373,227 $360,785 $416,526
Segment operating income
United States $ 29,642 $ 31,679 $ 26,046
Foreign 3,628 2,991 (4,057)
Total segment operating income $ 33,270 $ 34,670 $ 21,989
Identifiable assets
Continuing Operations:
United States $234,382 $238,916 $283,614
Foreign 115,095 109,225 111,448
Discontinued Operations:
United States 12,876 141,053 135,585
Foreign 21,534 23,425 20,891
Total identifiable assets $383,887 $512,619 $551,538
Export sales
Asia $ 4,060 2,763 4,362
Latin America 2,747 2,368 1,699
Canada 4,643 3,748 3,132
Mexico 472 861 701
Europe 2,704 2,857 2,750
Other 2,568 3,293 2,596
Total export sales $ 17,194 $ 15,890 $ 15,240
Note 11 Pension Plans
The Company and its subsidiaries have various pension
plans covering substantially all of their employees.
Benefits are based on either years of service or years
of service and average compensation during the years
immediately preceding retirement. It is the general
policy of the Company to fund its pension plans in
conformity with requirements of applicable laws and
regulations.
Pension expense was $4.2 million in 1995, $7.9 million
in 1994 and $8.4 million in 1993, and includes
amortization of prior service cost and transition
amounts for periods of 5 to 15 years. The 1995 expense
includes costs related to retained pension liabilities
of discontinued operations. In 1994 and 1993 these
amounts were charged to discontinued operations. In
1993 the Company's divestiture program resulted in a
decrease in U.S. pension plan participants. The total
curtailment and settlement gain, in 1993, of $1.2
million was applied to the reserve for divestitures (See
Note 3). The Company included $2.0 million of
curtailment and settlement losses in its gain on
disposal related to the discontinued operations in 1995.
Net pension expense (including $5.7 million and $4.5
million charged to discontinued operations in 1994 and
1993, respectively) is comprised of the following:
Year Ended December 31
(Dollars in thousands) 1995 1994 1993
Service cost $ 4,297 $ 7,237 $ 7,678
Interest cost on projected
benefit obligation 13,429 14,158 13,802
Actual return on plan assets (17,797) (449) (22,646)
Net amortization and deferral 4,274 (12,963) 9,567
Net pension expense $ 4,203 $ 7,983 $ 8,401
Assumptions used in the accounting for the Company-
sponsored defined benefit plans:
Year Ended December 31 1995 1994 1993
Weighted average discount rate 7.5% 8.5% 7.5%
Rate of increase in compensation levels 5.3% 5.3% 5.3%
Expected long-term rate of return on assets 9.0% 9.0% 9.0%
The following table sets forth the funded status and
amounts recognized in the consolidated balance sheet for
the defined benefit pension plans:
Year Ended December 31
(Dollars in thousands) 1995
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $117,455 $ 46,445
Accumulated benefit obligation $124,808 $ 46,564
Projected benefit obligation $138,866 $ 47,454
Plan assets at fair value 148,275 35,226
Plan assets in excess of (less than)
projected benefit obligation 9,409 (12,228)
Unrecognized net (gain) or loss (9,566) 107
Prior service cost not yet recognized
in net periodic pension cost 2,812 956
Unrecognized net (asset) obligation
at transition 2,037 171
Adjustment required to recognize
minimum liability --- (3,132)
Pension asset (liability) recognized
in the balance sheet $ 4,692 $(14,126)
Year Ended December 31
(Dollars in thousands) 1994
Assets Accumulated
Exceed Benefits
Accumulated Exceed
Benefits Assets
Actuarial present value of
benefit obligations:
Vested benefit obligation $101,869 $ 60,492
Accumulated benefit obligation $105,020 $ 61,253
Projected benefit obligation $119,886 $ 62,661
Plan assets at fair value 127,850 47,542
Plan assets in excess of (less than)
projected benefit obligation 7,964 (15,119)
Unrecognized net (gain) or loss (5,897) (175)
Prior service cost not yet recognized
in net periodic pension cost 4,066 3,348
Unrecognized net (asset) obligation
at transition 3,407 821
Adjustment required to recognize
minimum liability --- (4,165)
Pension asset (liability) recognized
in the balance sheet $ 9,540 $ (15,290)
Plan assets at December 31, 1995, are invested in fixed
dollar guaranteed investment contracts, United States
Government obligations, fixed income investments,
guaranteed annuity contracts and equity securities whose
values are subject to fluctuations of the securities
market.
The Company maintains two defined contribution (Employee
Stock Savings) plans covering substantially all
domestic, non-union employees. Eligible employees may
generally contribute from 1% to 12% of their
compensation on a pre-tax basis. Company contributions
to the plans are based on a percentage of employee
contributions. In July 1995 the Company restored its
matching contribution, previously suspended in July
1992, at 25% of the first 6% of each participant's pre-
tax contribution. The Company's expense for 1995 was
$.3 million.
Note 12 Postretirement Benefits
In addition to providing pension benefits, the Company
provides certain health care and life insurance benefits
for retired employees. Substantially all of the
Company's non-union employees retiring from active
service and immediately receiving retirement benefits
from one of the Company's pension plans would be
eligible to receive such benefits. 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.
In March 1994, the Company amended its policy regarding
retiree medical and life insurance. This amendment,
which affects some current retirees and all future
retirees, phases out the Company subsidy for retiree
medical and life insurance over a three year period
ending January 1, 1997. The pre-tax amount amortized to
income from continuing operations was $4.6 million and
$4.4 million in 1995 and 1994, respectively. The Company
will amortize remaining associated reserves of
approximately $5 million to income in 1996. The
amendment has not resulted in a significant increase or
decrease in cash requirements during the phase-out
period.
The following tables set forth the plans' combined
status reconciled with the amounts included in the
consolidated balance sheet:
December 31 (Dollars in thousands) 1995
Life
Medical Insurance
Plans Plans Total
Accumulated postretirement
benefit obligation:
Retirees $11,780 $4,974 $16,754
Fully eligible active plan
participants 1,277 312 1,589
Other active plan participants 1,011 81 1,092
14,068 5,367 19,435
Plan assets --- --- ---
Unrecognized prior service cost 3,109 3,924 7,033
Unrecognized net gain (loss) 2,379 (2,290) 89
Postretirement benefit liability
recognized in the balance sheet $19,556 $7,001 $26,557
December 31 (Dollars in thousands) 1994
Life
Medical Insurance
Plans Plans Total
Accumulated postretirement
benefit obligation:
Retirees $16,709 $ 4,826 $21,535
Fully eligible active plan
participants 1,365 262 1,873
Other active plan participants 1,326 68 1,148
19,400 5,156 24,556
Plan assets --- --- ---
Unrecognized prior service cost 7,840 7,376 15,216
Unrecognized net loss (2,423) (2,043) (4,466)
Postretirement benefit liability
recognized in the balance sheet $24,817 $10,489 $35,306
The 1995 accrued postretirement benefits amount is
classified as follows: $2.2 million current liabilities
and $24.4 million long-term liabilities. For 1994,
these amounts are $2.2 million current liabilities,
$30.9 million long-term liabilities and $2.2 million in
net assets of discontinued operations - noncurrent.
As a result of the divestitures in 1994 and 1993, the
Company recognized a $0.3 million gain and a $2.2
million gain, respectively, related to the curtailment
of its postretirement benefit plans. These curtailment
gains were applied to the reserve for divestitures (See
Note 3).
As a result of the Company's decision to sell its
Electro-Optical Systems operations a curtailment gain of
$1.3 million was recognized in 1993. This curtailment
gain is a component of the loss on disposal of
discontinued operations (See Note 2).
Net periodic postretirement benefit cost (including $2.3
million credited in 1994 and $1.0 million charged in
1993 to discontinued operations) included the following
components:
Year Ended December 31
(Dollars in thousands) 1995
Life
Medical Insurance
Plans Plans Total
Service cost $ 59 $ 5 $ 64
Interest cost 1,057 415 1,472
Amortization of prior service cost (3,110) (2,319) (5,429)
Amortization of gain (loss) (166) 102 (64)
Net periodic postretirement
benefit cost $(2,160) $(1,797) $(3,957)
Year Ended December 31
(Dollars in thousands) 1994
Life
Medical Insurance
Plans Plans Total
Service cost $ 100 $ 7 $ 107
Interest cost 1,547 289 1,836
Amortization of prior service cost (5,955) (1,967) (7,922)
Amortization of loss 543 103 646
Net periodic postretirement
benefit cost $(3,765) $(1,568) $(5,333)
Year Ended December 31
(Dollars in thousands) 1993
Life
Medical Insurance
Plans Plans Total
Service cost $ 372 $ 63 $ 435
Interest cost 2,999 750 3,749
Amortization of prior service cost --- --- ---
Amortization of loss --- --- ---
Net periodic postretirement
benefit cost $ 3,371 $ 813 $ 4,184
Actual negotiated health care premiums were used in
calculating 1995, 1994 and 1993 health care costs. It
is expected that the annual increase in medical costs
will be 8.0% from 1995 to 1996, grading down in future
years by 1.0% per year until it reaches a future general
medical inflation level of 5%. Inflation has been
capped at 200% for active non-union employees. The
health care cost trend rate assumption has a significant
effect on the amounts reported. For example, a 1%
increase in the health care trend rate would increase
the accumulated postretirement benefit obligation at
December 31, 1995 by $1.1 million and the net periodic
cost by $.1 million for the year. Effective January 1,
1995, the Company changed its medical inflation rate to
reflect actual experience. Such change resulted in a
reduction of the 1995 net periodic cost of $.8 million.
The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was
7.5% and 8.5% in 1995 and 1994, respectively.
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, 1995, are:
(Dollars in thousands)
1996 $5,355
1997 4,362
1998 3,799
1999 2,649
2000 1,268
Thereafter 4,854
Total minimum lease payments $22,287
Total rental expense under operating leases charged
against continuing operations was $7.3 million in 1995,
$8.2 million in 1994 and $8.0 million in 1993.
Note 14 Contingencies
Legal Proceedings
LILCO Litigation. In August 1985, the Company was named
as defendant in a lawsuit filed by Long Island Lighting
Company ("LILCO") following the severing of a crankshaft
in a diesel generator sold to LILCO by the Company.
LILCO's complaint contained 11 counts, including counts
for breach of warranty, negligence and fraud, and sought
$250 million in damages. In various decisions from 1986
through 1990, 10 of the original 11 counts and various
additional amended counts were dismissed with only the
original breach of warranty count remaining. In
September 1993, the Second Circuit Court of Appeals
affirmed a previous trial court decision entering a
judgment against the Company in the amount of $18.3
million, and in October 1993, the judgment was satisfied
by payment to LILCO of approximately $19.3 million by
two of the Company's insurers.
In January 1993, the Company was served with a complaint
in a case brought in the U.S. District Court for the
Northern District of California by one of its insurers,
International Insurance Company ("International"),
alleging that, because, among other things, its policies
did not cover the matters in question in the LILCO case,
it was entitled to recover $10 million in defense costs
previously paid in connection with such case and $1.2
million of the judgment which was paid on behalf of the
Company. In June 1995, the Court entered a judgment in
favor of International awarding it $11.2 million, plus
interest from March 1995 (the "International Judgment").
The International Judgment, however, was not supported
by an order, and in July of 1995, the court vacated the
International Judgment as being premature because
certain outstanding issues of recoverability of the $10
million in defense costs had not been finally
determined. The Company is awaiting a final decision.
If the International Judgment is reinstated, the Company
intends to appeal. If the ultimate outcome of this
matter is unfavorable, the Company will record a charge
for the judgment amount plus accrued interest.
In June 1992, the Company filed an action, subsequently
transferred to the U.S. District Court, Southern
District of New York, that is currently pending against
Granite State Insurance Co. ("Granite State"), one of
its insurers, in an attempt to collect amounts for
defense costs paid to counsel retained by the Company in
defense of the LILCO litigation. After reimbursing the
Company for $1.7 million in defense costs, Granite State
refused to reimburse the Company for an additional $8.5
million in defense costs paid by the Company, alleging
that defense costs above reasonable levels were expended
in defending the LILCO litigation. The insurer
subsequently paid $18.1 million of the judgment rendered
against the Company, thereby exhausting its $20 million
policy. The Company claims that the insurer's refusal
to pay defense costs was in bad faith and the Company is
entitled to its cost of money and other damages. In a
counterclaim, Granite State is seeking reimbursement of
all or part of the $1.7 million in defense costs
previously paid by it, and has indicated that it may
seek additional damages beyond the reimbursement of
defense costs, including recoupment of approximately
$4.0 million of the amount awarded by the jury in the
LILCO litigation (which represents amounts previously
paid by LILCO to the Company for generator repairs and
which Granite State had paid on behalf of the Company).
Additional Litigation. The Company and one of its
subsidiaries are two of a large number of defendants in
a number of lawsuits brought by approximately 17,500
claimants who allege injury caused by exposure to
asbestos. Although neither the Company nor any of its
subsidiaries has ever been a producer or direct supplier
of asbestos, it is alleged that the industrial and
marine products sold by the Company and the subsidiary
named in such complaints contained components which
contained asbestos. Suits against the Company and its
subsidiary have been tendered to their insurers who are
defending under their stated reservation of rights.
Should settlements for these claims be reached at levels
comparable to those reached by the Company in the past,
they would not be expected to have a material effect on
the Company.
The activities of certain employees of the Ni-Tec
Division of the Company's Varo Inc. subsidiary ("Ni-
Tec"), headquartered in Garland, Texas, are the focus of
an ongoing investigation by the Office of the Inspector
General of the U.S. Department of Defense and the
Department of Justice (Criminal Division). Ni-Tec
received subpoenas for certain records as a part of the
investigation in 1992, 1993 and 1994, each of which was
responded to. The investigation appears directed at
quality control, testing and documentation activities
which began at Ni-Tec while it was a division of Optic-
Electronic Corp. Optic-Electronic Corp. was acquired by
the Company in November 1990 and subsequently merged
with Varo Inc. in 1991. The Company continues to
cooperate fully with the investigation and is pursuing
settlement discussions with the U.S. government. Should
settlement be reached consistent with current
discussions, it would not be expected to have a material
effect on the Company.
The operations of the Company, like those of other
companies engaged in similar businesses, involve the
use, disposal and clean-up of substances regulated under
environmental protection laws. In a number of instances
the Company has been identified as a Potentially
Responsible Party by the U.S. Environmental Protection
Agency, and in one instance by the State of Washington,
with respect to the disposal of hazardous wastes at a
number of facilities that have been targeted for clean-
up pursuant to CERCLA or similar State law. Although
CERCLA and corresponding State law liability is joint
and several, the Company believes that its liability
will not have a material adverse effect on the financial
condition of the Company since it believes that it
either qualifies as a de minimis or minor contributor at
each site. Accordingly, the Company believes that the
portion of remediation costs that it will be responsible
for will not be material. For additional information
see section entitled Environmental Matters in Part I,
Item I of this Form 10-K Report.
The Company also has a lawsuit pending against it in the
U.S. District Court for the Western District of
Pennsylvania alleging component failures in equipment
sold by its former diesel engine division and claiming
damages of approximately $3.0 million and a lawsuit in
the Circuit Court of Cook County, Illinois, alleging
performance shortfalls in products delivered by the
Company's former Delaval Turbine Division and claiming
damages of approximately $8.0 million. Each lawsuit is
in the document discovery stage.
With respect to the litigation and claims described in
the preceding paragraphs, management of the Company
believes that it either expects to prevail, has adequate
insurance coverage or has established appropriate
reserves to cover potential liabilities. There can be
no assurance, however, on the ultimate outcome of any of
these matters.
The Company is also involved in various other pending
legal proceedings arising out of the ordinary course of
the Company's business. The adverse outcome of any of
these legal proceedings is not expected to have a
material adverse effect on the financial condition of
the Company. However, if all or substantially all of
these legal proceedings were to be determined adversely
to the Company, there could be a material adverse effect
on the financial condition of the Company.
Reported profits from the sale of certain products to
the U.S. Government and its agencies are subject to
adjustments. In the opinion of management, refunds, if
any, will not have a material effect upon the
consolidated financial statements.
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 AUDITORS
Board of Directors,
Imo Industries Inc.
We have audited the accompanying consolidated balance sheets
of Imo Industries Inc. and subsidiaries as of December 31,
1995 and 1994, and the related consolidated statements of
income, cash flows and shareholders' equity for each of the
three years in the period ended December 31,1995. Our audits
also included the financial statement schedule listed in the
Index at Item 14(a). These financial statements and schedule
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements and schedule based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatements. 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 financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Imo Industries Inc. and subsidiaries
at December 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in
conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement
schedule, when considered in relation to the basic financial
statements as a whole, presents fairly in all material
respects the information set forth therein.
ERNST & YOUNG LLP
Princeton, New Jersey
February 15, 1996
Imo Industries Inc. and Subsidiaries
Quarterly Financial Information (Unaudited)
Quarterly financial information for 1995 and 1994 is as
follows:
1995 (Dollars in thousands except 1st* 2nd* 3rd* 4th
per share amounts (a) Quarter Quarter Quarter Quarter
Net Sales $95,884 $98,576 $88,727 $90,040
Gross profit 30,894 30,943 27,389 25,666
Income (loss) before
extraordinary item:
Continuing Operations 2,586 2,962 2,515 3,966
Discontinued Operations 40,577 448 (6,938) (11,962)
Extraordinary Item (4,140) --- (304) ---
Net income (loss) 39,023 3,410 (4,727) (7,996)
Earnings (loss) per share:
Before extraordinary item:
Continuing Operations .15 .18 .15 .23
Discontinued Operations 2.38 .02 (.41) (.70)
Extraordinary Item (.24) --- (.02) ---
Net income (loss) 2.29 .20 (.28) (.47)
1994 (Dollars in thousands except 1st* 2nd* 3rd* 4th*
per share amounts (a) Quarter Quarter Quarter Quarter
Net Sales $87,800 $91,478 $91,235 $90,272
Gross profit 27,759 28,296 27,278 28,617
Income (loss) before
extraordinary item:
Continuing Operations 341 (1,045) 1,208 (320)
Discontinued Operations 564 2,797 1,580 4,105
Extraordinary Item --- --- (5,299) ---
Net income (loss) 905 1,752 (2,511) 3,785
Earnings (loss) per share:
Before extraordinary item:
Continuing Operations .02 (.06) .07 (.02)
Discontinued Operations .03 .17 .09 .24
Extraordinary Item --- --- (.31) ---
Net income (loss) .05 .11 (.15) .22
(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.
* Reclassified to conform to 1995 full year presentation.
<TABLE>
SCHEDULE II
IMO INDUSTRIES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
(Dollars in thousands)
THREE-YEAR PERIOD ENDED DECEMBER 31, 1995
<CAPTION>
ADDITIONS
BALANCE AT CHARGED TO BALANCE
BEGINNING COSTS AND OTHER - DEDUCTIONS - AT END
OF YEAR EXPENSES DESCRIBE DESCRIBE OF YEAR
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995:
Allowance for doubtful
accounts $ 2,192 $ 394 $ 74(2) $ 642(4) $ 2,030
12(9)
Inventory Valuation
Allowance $11,884 $ 2,454 $ 312(2) $ 2,918(7) $11,572
30(9) 190(3)
Valuation allowance for
deferred tax assets $68,910 $ --- $ --- $15,550(3) $31,675
17,000(10)
4,685(11)
Accrued product warranty
liability $ 4,310 $ 1,563 $ 9(9) $ 1,341(5) $ 2,737
45(2) 2,253(3)
404(3)
Accrued contract completion
costs $ 556 $ 91 $ --- $ 183(6) $ 94
370(3)
YEAR ENDED DECEMBER 31, 1994: *
Allowance for
doubtful accounts $ 2,371 $ 742 $ 123(2) $ 839(4) $ 2,192
205(3)
Inventory Valuation
Allowance $11,577 $ 5,452 $ --- $ 4,381(7) $11,884
764(3)
Valuation allowance for
deferred tax assets $60,215 $ --- $ 8,695(3) $ --- $68,910
Accrued product warranty
liability $ 3,777 $ 1,188 $ 17(2) $ 672(5) $ 4,310
Accrued contract completion
costs $ 886 $ 324 $ --- $ 179(3) $ 556
475(6)
YEAR ENDED DECEMBER 31, 1993: *
Allowance for
doubtful accounts $ 2,338 $ 1,374 $ --- $ 327(8) $ 2,371
914(4)
37(2)
63(3)
Inventory Valuation
Allowance $14,033 $ 3,435 $ --- $ 2,591(7) $11,577
1,870(3)
1,430(8)
Valuation allowance for
deferred tax assets $ 1,500 $15,000 $43,715(1) $ --- $60,215
Accrued product warranty
liability $ 5,272 $ 1,191 $ 30(2) $ 2,719(5) $ 3,777
63(3) 60(3)
Accrued contract completion
costs $ 701 $ 627 $ 60(3) $ 502(6) $ 886
* Reclassified to conform to the 1995 presentation (continuing operations).
(1) Net change in allowance primarily to offset tax benefit of current year tax loss.
(2) Foreign exchange adjustments.
(3) Reclassification and adjustments.
(4) Uncollectible accounts written off, net of recoveries.
(5) Product warranty claims honored during the year.
(6) Current year charges for contract completion.
(7) Charges against inventory valuation account during the year.
(8) Ending balances of businesses sold.
(9) Opening balance of companies acquired during the year.
(10) Reduction due to revaluation of realizable tax benefit.
(11) Utilization of net operating loss carryforwards by discontinued operations.
S-1
</TABLE>
IMO INDUSTRIES INC.
SUPPLEMENTAL RETIREMENT INCOME PLAN
Whereas, Sections 401(a) (17) and 415 of the Internal
Revenue Code of 1986, as amended, place limitations on the
benefits which can be paid to participants in the Retirement
Plan for Salaried U.S. Employees of Imo Industries Inc. and
Affiliates (the "IMO Plan"), the Incom International Inc.
Retirement Income Plan for Salaried Employees (the "Incom
Plan"), and the Retirement Plan for Salaried Employees of
Warren Pumps, Inc. (the "Warren Plan") (said plans
collectively referred to as the "Retirement Plans"); and
Whereas, in consideration of the past services of certain
employees who are affected by the Sections 401(a) (17) and
415 Limitations and in consideration of the agreement of
each such employee to abide by the terms and conditions of
this Plan, Imo Industries Inc. (the "Company") desires to
provide unfunded supplemental retirement benefits in excess
of the Sections 401(a) (17) and 415 Limitations under this
Plan which benefit a select group of management and/or
highly compensated employees, subject to and in accordance
with the terms hereof; and
Whereas, the Company has previously adopted a Supplemental
Retirement Income Plan to restore benefits under the
Retirement Plans that are affected by the Section 415
Limitations; and
Whereas, the Company desires to make certain changes in the
Supplemental Retirement Income Plan;
Now therefore, the Company does hereby adopt effective as of
January 1, 1989, the amended and restated Imo Industries
Inc. Supplemental Retirement Income Plan.
ARTICLE I
Definitions
In this Plan, unless the context clearly implies otherwise,
the singular includes the plural, the masculine includes the
feminine, and initially capitalized words have the following
meaning:
1.1 Actuarial Equivalent. An amount or benefit of
equivalent current value to the amount or benefit which
otherwise would have been provided to or on account of a
Participant or Beneficiary determined on the basis of the
actuarial assumptions then in effect under the Retirement
Plans and such other assumptions as may be deemed necessary
by an actuary selected by the Committee.
1.2 Beneficiary. The person or entity designated by a
Participant or former Participant on a beneficiary
designation form signed by such Participant or Former
Participant and filed with the Committee, and where
applicable, the spouse or other contingent annuitant who is
entitled to receive benefits under this Plan.
1.3 Board. The Board of Directors of Imo Industries Inc.
as constituted from time to time.
1.4 Code. The Internal Revenue Code of 1986, as amended.
1.5 Committee. The Imo Industries Inc. Retirement Plan
Administration Committee appointed by the Board to
administer this Plan. The Committee shall be responsible
for the administration of this Plan in accordance with
Article VI.
1.6 Company. Imo Industries Inc. or any successor thereto.
1.7 Eligible Employee. Any salaried person engaged in
rendering personal services under the direction or control
of the Company on or after January 1, 1989 and who is a
participant in any one or more of the Retirement Plans and
whose benefits payable under such Retirement Plans are
reduced by the Sections 401(a) (17) and 415 Limitations.
1.8 Former Participant. A person who has a benefit payable
under this Plan but who is no longer an Eligible Employee.
1.9 Limited Retirement Plan Benefit. The retirement
benefit actually paid during a Plan Year to the Participant
or his Beneficiary (including a spouse or other contingent
annuitant) pursuant to the benefit formula (contained in
Article 1.1 of the IMO Plan, Sections 4.1 and 5.1 of the
Incom Plan, or Section 3.01 of the Warren Plan, defining the
"Accrued Benefit" or other comparable term) which is
applicable to such Participant and the method of payment
selected by the Participant under the applicable Retirement
Plans after reduction by the Sections 401(a) (17) and 415
Limitations contained in Articles 1.6 and 4.6 of the IMO
Plan, Section 4.8 of the Incom Plan, or Section 3.02 of the
Warren Plan, whichever shall apply. All references to
articles or specific sections of the Retirement Plans shall
include any successor article or section.
1.10 Participant. An Eligible Employee or a former
Eligible Employee who agrees to be bound by the terms of
this Plan by filing such form or forms as the Committee may
require. However, no employee shall have any interest or
rights under this Plan if he is never actively employed by
an Employer on or after January l, 1989. Any excluded
employee who was a participant in the Plan prior to its
amendment and restatement effective January 1, 1989, and the
beneficiary of any such excluded employee who has died,
shall only be entitled to his benefits under the prior Plan
as of the earlier of the termination of his employment or
December 31, 1988.
1.11 Plan. The Imo Industries Inc. Supplemental Retirement
Income Plan and as amended and/or restated from time to
time.
1.12 Plan Year. Each twelve (12) consecutive month fiscal
year beginning January 1 and ending December 31.
1.13 Retirement Plans. The Retirement Plan for Salaried
U.S. Employees of Imo Industries Inc. and Affiliates, the
Incom International Inc. Retirement Income Plan for Salaried
Employees, and the Retirement Plan for Salaried Employees of
Warren Pumps, Inc. as in effect on the date this Plan is
adopted and as each such plan is further amended and/or
restated from time to time. In addition, the Retirement
Plans shall include such other retirement plans of the
Company or such other affiliates, subsidiaries or divisions
of the Company as the Board of Directors of the Company may
expressly include from time to time.
1.14 Supplemental Retirement Plan Benefit. The portion of
a Participant's retirement benefit under this Plan
determined in accordance with Section 2.1.
1.15 Section 401(a) (17) Limitation. The limitation on
compensation taken into account under the Retirement Plans
pursuant to Section 401(a) (17) of the Code. In the event
any one or more of the Retirement Plans have not been
formally amended to include this limitation on compensation,
the limitation shall, nonetheless apply, to the extent such
Retirement Plans are operated in compliance with the
statutory limitation on compensation.
1.16 Section 415 Limitation. The limitation on benefits
payable from the Retirement Plans imposed by Section 415 of
the Code.
1.17 Termination of Employment. The date on which a
Participant incurs a "Termination of Employment" under the
applicable Retirement Plans.
1.18 Unlimited Retirement Benefit. The retirement benefit
which would have been paid during a Plan Year to the
Participant or his Beneficiary (including a spouse or other
contingent annuitant) pursuant to the benefit formula
(contained in Article 1.1 of the IMO Plan, Sections 4.1 and
5.1 of the Incom Plan, and Section 3.01 of the Warren Plan,
defining "Accrued Benefit" or other comparable term) which
is applicable to such Participant and the method of payment
selected by the Participant under such Retirement Plans
without taking into account the Sections 401(a) (17) and 415
Limitations contained in Articles 1.6 and 4.6 of the IMO
Plan, Section 4.8 of the Incom Plan, and Section 3.02 of the
Warren Plan. All references to articles or specific
sections of the Retirement Plans shall include any successor
article or section.
ARTICLE II
Supplemental Benefits
2.1 Supplemental Retirement Plan Benefit. Subject to
Sections 2.2 and 7.6, a Participant's Supplemental
Retirement Plan Benefit, if any, shall be the difference
between his or her Unlimited Retirement Benefit and his or
her Limited Retirement Plan Benefit.
2.2 Reemployment. Following the recommencement of Company
employment by a Participant or Former Participant whose
employment with the Company or any of its subsidiaries was
terminated at a time when such Participant or Former
Participant had a Supplemental Retirement Plan Benefit and
whose benefit had commenced to be paid under this Plan,
payment of such Supplemental Retirement Plan Benefit shall
be suspended until such individual again ceases to be
employed under circumstances under which benefits are
payable under the Plan.
ARTICLE III
Vesting of Supplemental Benefits
3.1 Supplemental Retirement Plan Benefit. Except as
otherwise provided in Section 7.6, a Participant shall
become vested in his Supplemental Retirement Plan Benefit in
accordance with the same schedule and rules as are
applicable in determining when he or she becomes vested in
his or her Retirement Plans' Benefit.
3.2 Forfeitures. Any amount forfeited by a Participant who
does not become vested in a benefit under this Plan shall
constitute a reduction of the Company's liability under the
Plan and shall not be allocated to the remaining
Participants.
ARTICLE IV
Form of Payment of Supplemental Retirement Plan Benefits
4.1 Supplemental Retirement Plan Benefit. Except as
otherwise provided in Section 7.6, a Participant's
Supplemental Retirement Plan Benefit, if any and if vested,
shall commence to be paid at the time payments are made to
the Participant under the applicable Retirement Plans. If a
Participant begins to receive retirement income payments
before age 65 under any one or more of the Retirement Plans,
then the Participant's Supplemental Retirement Plan Benefit
shall commence at the same time as payments from the
applicable Retirement Plans and shall be reduced by the same
early retirement reduction factors applicable to his benefit
from such Retirement Plans.
Payment of a Participant's Supplemental Retirement Plan
Benefit shall be in the same form which the Participant has
elected, or is deemed to have elected, pursuant to the
applicable Retirement Plans. Notwithstanding the foregoing,
any Participant who has elected a level income option to
augment this benefit under the Retirement Plans on account
of his retirement before he is eligible for retirement
benefits under the federal Social Security system (as such
optional form is described in Article 5.3 of the IMO Plan)
shall receive his Supplemental Retirement Plan Benefit in
the form of a single life annuity, as reduced in the
preceding paragraph. The Committee shall have the sole and
absolute discretion and authority to approve or reject a
Participant's request for a different method of payment than
specified herein.
ARTICLE V
Death Benefit
5.1 Supplemental Retirement Plan Death Benefit. Upon the
death of a married Participant while employed by the Company
or one of its subsidiaries, a death benefit shall be payable
under this Plan to the spouse or Beneficiary of such
Participant if a qualified pre-retirement survivor annuity,
surviving spouse benefit or surviving dependent benefit, as
defined in the relevant Retirement Plans, would be payable
to the Participant's spouse or Beneficiary under the
relevant Retirement Plans. Such death benefit, if any,
shall be equal to the difference between the annuity or
benefit payable for the life of the spouse or other
Beneficiary under the relevant Retirement Plans and the
annuity which would have been paid thereunder (without
taking into account the Sections 401(a) (17) and 415
Limitations contained in Articles 1.6 and 4.6 of the IMO
Plan, Section 4.8 of the Incom Plan, and Section 3.02 of the
Warren Plan).
5.2 Simultaneous Death. In the event of the simultaneous
death of a Participant eligible for a death benefit under
this Article V and his or her Beneficiary or spouse so that
it is not possible to determine which one was the survivor,
it shall be presumed for purposes of this Section 5.2 that
the Beneficiary or spouse predeceased the Participant.
ARTICLE VI
Administration of the Plan
6.1 Powers and Duties of the Committee. The Committee
shall be generally responsible for the operation and
administration of the Plan. To the extent that powers are
not delegated to others pursuant to provisions of this Plan,
the Committee shall have such powers as may be necessary to
carry out the provisions of the Plan and to perform its
duties hereunder, including, without limiting the generality
of the foregoing, the power:
(a) To appoint, retain, and terminate such persons as it
deems necessary or advisable to assist in the administration
of the Plan or to render advice with respect to the
responsibilities of the Committee under the Plan, including
accountants, actuaries, administrators, attorneys and
physicians.
(b) To make use of the services of the employees of the
Company in administrative matters.
(c) To obtain and act on the basis of all tables,
valuations, certificates, opinions, and reports furnished by
the persons described in paragraph (a) or (b) above. Any
determination of Actuarial Equivalent benefits by the
actuary selected by the Committee shall be conclusive and
binding on the Company, the Committee and all Participants
or Former Participants.
(d) To review the manner in which benefit claims and other
aspects of the Plan administration have been handled by the
employees of the Company.
(e) To determine all benefits and resolve all questions
pertaining to the administration and interpretation of the
Plan provisions, either by rules of general applicability or
by particular decisions. To the maximum extent permitted
by law, all interpretations of the Plan and other decisions
of the Committee shall be conclusive and binding on all
parties.
(f) To adopt such forms, rules and regulations as it shall
deem necessary or appropriate for the administration of the
Plan and the conduct of its affairs, provided that any such
forms, rules and regulations shall not be inconsistent with
the provisions of the Plan.
(g) To remedy any inequity resulting from incorrect
information received or communicated or from administrative
error.
(h) To commence or defend any litigation arising from the
operation of the Plan in any legal or administrative
proceeding.
6.2 Required Information. Any Participant, Former
Participant and any Beneficiary eligible to receive benefits
under the Plan shall furnish to the Committee any
information or proof requested by the Committee and
reasonably required for the proper administration of the
Plan. Failure on the part of the Participant, Former
Participant or Beneficiary to comply with any such request
within a reasonable period of time shall be sufficient
grounds for delay in the payment of benefits under the Plan
until such information or proof is received by the
Committee.
6.3 Expenses. All expenses incident to the operation and
administration of the Plan reasonably incurred, including,
without limitation by way or specification, the fees and
expenses of attorneys and advisors, and for such other
professional, technical and clerical assistance as may be
required, shall be paid by the Company.
6.4 Indemnification. To the extent coverage is not
provided by any applicable insurance policy, the Company
hereby agrees to indemnify the Committee and each of its
members and the Board and each of its members, and to hold
them harmless against all liability, joint and several, for
their acts, omissions and conduct and for the acts,
omissions and conduct of their duly appointed agents made in
good faith pursuant to the provisions of the Plan, including
any out-of-pocket expenses reasonably incurred in the
defense of any claim relating thereto; provided, however,
that no person or entity so indemnified shall voluntarily
assume or admit any liability, nor, expect at its or his own
cost, shall any of the foregoing make any payment, assume
any obligations or incur any expense without the prior
written consent of the Board. The Company may purchase, at
its expense, liability insurance to protect the Company and
the persons indemnified hereunder from liability incurred in
the good faith administration of this Plan.
6.5 Claims Procedure and Review.
(a) Claims for benefits under the Plan shall be filed in
writing by a claimant with the Committee. Within sixty (60)
days after receipt of such claim, the Committee shall act on
the claim and shall notify the claimant in writing as to
whether the claim has been granted in whole or in part;
provided, however, if the claimant has not received written
notice of such decision within such sixty-day period, the
claimant shall, for the purpose of subsection (c) of this
Section, regard his claim as having been denied.
(b) Any notice of denial of a claim in whole or in part
shall set forth (i) the specific reason or reasons for the
denial, (ii) reference to the Plan provisions on which the
denial is based, and (iii) a copy of the Plan's claim and
review provisions.
(c) Any claimant who has been denied a claim in whole or in
part under the Plan shall be entitled, upon the filing of a
written request for review with the Committee within sixty
(60) days after receipt by the claimant of written notice of
denial of his claim (or, if the claimant had not received
written notice of the decision within the sixty-day period
described in subsection (a) of this Section, within one
hundred twenty (120) days of receipt of the claim form by
the Committee) to appeal the denial of his claim to the
Committee.
(d) The claimant shall be entitled in connection with such
appeal to examine pertinent documents and submit issues and
comments in writing to the Committee. Any decision on
review by the Committee shall be in writing, and shall
include specific reasons for the decision (including
reference to the Plan provisions on which the decision is
based). Such decision shall be made by the Committee not
later than sixty (60) days after receipt by it of the
claimant's request for review.
ARTICLE VII
Miscellaneous
7.1 Benefits Payable by the Company. All benefits payable
under this Plan shall constitute an unfunded obligation of
the Company. Payments shall be made, as due, from the
general funds of the Company. The Company, at its option,
may maintain one or more bookkeeping reserve accounts to
reflect its obligations under the Plan and may make such
investments as it may deem desirable to assist it in meeting
such obligations. Any such investments shall be assets of
the Company subject to claims of its general creditors. No
person eligible for a benefit under this Plan shall have any
right, title or interest in any such investments.
7.2 Amendment or Termination.
(a) The Board reserves the right to amend, modify, restate
or terminate the Plan; provided, however that no such action
by the Board shall reduce a Participant's Supplemental
Retirement Plan Benefit accrued as of the time thereof.
(b) If the Plan is terminated, a determination shall be
made of the Participant's Supplemental Retirement Plan
Benefit as of the Plan termination date (determined in
accordance with Section 7.2(a)). The amount of such benefit
or benefits shall be payable to the Participant at the time
it would have been payable under Article IV if the Plan had
not been terminated. If a Participant dies after
termination of the Plan but prior to Termination of
Employment his or her Beneficiary or Beneficiaries shall
receive a distribution of his or her Supplemental Retirement
Plan Death Benefit, determined in accordance with Section
5.1, but based on the Participant's Supplemental Retirement
Plan Benefit as of the Plan termination date.
7.3 Status of Employment. Nothing herein contained shall
be deemed: (a) to give any Participant the right to be
retained in the employ of the Company or a subsidiary or
affiliate; (b) to affect the right of the Company to
discipline or discharge any Participant at any time; (c) to
give the Company or a subsidiary or affiliate the right to
require any Participant to remain in its employ; or (d) to
affect any Participant's right to terminate his or her
employment at any time.
7.4 Payments to Minors and Incompetents. If a Participant
or Beneficiary entitled to receive any benefits hereunder is
a minor or is deemed by the Committee or is adjudged to be
legally incapable of giving a valid receipt and discharge
for such benefits, they will be paid to the duly appointed
guardian of such minor or incompetent or to such other
legally appointed person as the Committee may designate.
Such payment shall, to the extent made, be deemed a complete
discharge of any liability for such payment under the Plan.
7.5 Inalienability of Benefits. The right of any person to
any benefit or payment under the Plan shall not be subject
to voluntary or involuntary transfer, alienation or
assignment, and, to the fullest extent permitted by law,
shall not be subject to attachment, execution, garnishment,
sequestration or other legal or equitable process. In the
event a person who is receiving or is entitled to receive
benefits under the Plan attempts to assign, transfer or
dispose of such right, or if an attempt is made to subject
said right to such process, such assignment, transfer or
disposition shall be null and void.
7.6 Governing Law. Except to the extent preempted by
federal law, the Plan shall be governed by and construed in
accordance with the laws of the State of New Jersey.
October 2, 1995
Mr. David C. Christensen
Senior Vice President
Imo Industries Inc.
1009 Lenox Drive
Lawrenceville, NJ 08648
Dear Mr. Christensen:
The Board of Directors (the "Board") of Imo Industries Inc. (the
"Company") considers it to be in the best interests of its
stockholders to foster the continuous employment of key
management personnel of the Company and its subsidiaries in the
event of a possible change in control of the Company.
In order to induce you, in the event of a possible change in
control of the Company, to remain in the employ of the Company or
its subsidiaries and to give your continued attention and
dedication to your assigned duties without distraction, and in
consideration of your agreement set forth in Section 2(ii)
hereof, the Company agrees that you shall receive the severance
benefits hereinafter set forth in the event your employment with
the Company or its subsidiaries is terminated subsequent to a
"change in control of the Company" (as defined in Section 2
hereof) under the circumstances described below.
1. Term of Agreement. This Agreement shall commence on
the date hereof and shall continue in effect through December 31,
1995 provided, however, that commencing on January 1, 1996 and
each January 1 thereafter, the term of this Agreement shall
automatically be extended for one additional year unless not
later than November 1 of the preceding year, the Company shall
have given notice that it does not wish to extend this Agreement;
and provided, further, that notwithstanding any such notice by
the Company not to extend, this Agreement shall continue in
effect for the lesser of (i) a period of 36 months beyond the
term provided herein or (ii) a period of such number of months to
your 65th birthday, if a change in control of the Company, as
defined in Section 2 hereof, shall have occurred during such
term.
2. Change in Control.
(i) No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set
forth below, and your employment by the Company or its
subsidiaries shall thereafter have been terminated in accordance
with Section 3 hereof. For purposes of this Agreement, a "change
in control of the Company" shall be deemed to have occurred if
following the date hereof (A) any "person" (as defined in
Sections 13(d) and 14(d) of the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) is or becomes 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; (B) during the term of this Agreement,
individuals who at the beginning of such term constitute the
board, including for this purpose any new director whose election
or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors still
in office who were directors at the beginning of such term,
cease, for any reason to constitute a majority thereof; or (C)
more than 50% of the assets of the Company, including the
business or businesses for which your services are principally
performed, is disposed of by the Company pursuant to a partial or
complete liquidation of the Company, a sale of assets (including
stock of a subsidiary or subsidiaries) of the Company or
otherwise.
(ii) For purposes of this Agreement, a "potential
change in control of the Company" shall be deemed to have
occurred if following the date hereof (A) the Company enters into
an agreement, the consummation of which would result in the
occurrence of a change in control of the Company, (B) any person
(including the Company) publicly announces an intention to take
or to consider taking actions which if consummated would
constitute a change in control of the Company; or (C) the Board
of Directors adopts a resolution to the effect that a potential
change in control of the Company for purposes of this Agreement
has occurred. You agree that, subject to the terms and
conditions of this Agreement, in the event of a potential change
in control of the Company, you will remain in the employ of the
Company or its subsidiaries during the pendency of any such
potential change in control and for a period of one year after
the occurrence of an actual change in control of the Company.
However, nothing in this Agreement shall confer upon you any
right to continue in the employ of the Company or its
subsidiaries prior to an actual change in control of the Company
or shall interfere with or restrict in any way the rights of the
Company or its subsidiaries, which are hereby expressly reserved,
to discharge you at any time prior to an actual change in control
of the Company for any reason whatsoever, with or without cause.
3. Termination Following Change in Control. If any of the
events described in Section 2 hereof constituting a change in
control of the Company shall have occurred, you shall be entitled
to the benefits provided in Section 4 hereof upon the subsequent
termination of your employment by the Company or its subsidiaries
within three years of a change in control of the Company during
the term of this Agreement unless such termination is (A) because
of your Death or Retirement, (B) by the Company for Cause or
Disability, or (C) by you other than for Good Reason.
(i) Disability; Retirement. If, as a result of your
incapacity due to physical or mental illness, you shall have been
absent from your duties with the Company or its subsidiaries on a
full-time basis for six consecutive months, and within thirty
(30) days after written notice of termination is given, you shall
not have returned to the full-time performance of your duties,
the Company may terminate your employment with the Company or its
subsidiaries for "Disability". Termination by the Company or you
of your employment with the Company or its subsidiaries based on
"Retirement" shall mean termination in accordance with the
retirement policy of the Company, or the subsidiary of the
Company by which you are employed, generally applicable to its
salaried employees, including early retirement, or in accordance
with any retirement arrangement established with your consent
with respect to you.
(ii) Cause. Termination by the Company of your
employment with the Company or its subsidiaries for "Cause" shall
mean termination upon the willful engaging by you in misconduct
which is demonstrably and materially injurious to the Company and
its subsidiaries taken as a whole. No act, or failure to act, on
your part shall be considered "willful" unless done, or omitted
to be done, by you not in good faith and without reasonable
belief that your action or omission was in the best interest of
the Company or its subsidiaries. Notwithstanding the foregoing,
you shall not be deemed to have been terminated for Cause unless
and until there have been delivered to you a copy of a resolution
duly adopted by the affirmative vote of not less than three-
quarters of the entire membership of the Board at a meeting of
the Board called and held for the purpose (after reasonable
notice to you and an opportunity for you, together with your
counsel, to be heard before the Board), finding that in the good
faith opinion of the Board you were guilty of misconduct set
further above in this Subsection and specifying the particulars
thereof in detail.
(iii) Good Reason. You shall be entitled to
terminate your employment for Good Reason within three years of a
change in control of the Company during the term of this
Agreement. For purposes of this Agreement, "Good Reason" shall
mean any of the following events which occurs without your
express written consent.
(A) the assignment to you of any duties
inconsistent with your status as Senior Vice President of the
Company or a substantial alteration in the nature or status of
your responsibilities from those in effect immediately prior to a
change in control of the Company other than any such alteration
primarily attributable to the fact that the Company may no longer
be a public Company;
(B) a reduction by the Company in your annual
base salary as in effect on the date hereof or as the same may be
increased from time to time, except for across-the-board salary
reductions similarly affecting all executives of the Company and
its subsidiaries and all executives of any organization in
control of the Company;
(C) the relocation of the Company's principal
executive offices to a location outside the Lawrenceville, New
Jersey area or the Company requiring you to be based anywhere
other than Company's principal executive offices except for
required travel on the Company's business to an extent
substantially consistent with your present travel obligations;
(D) the failure by the Company to continue in
effect any compensation plan of the Company in which you
participate, including but not limited to the Company's Equity
Incentive Plan (the "Stock Option Plan") or any substitute or
additional plans adopted prior to the change in control, unless
an equitable arrangement (embodied in an ongoing substitute or
alternative plan) has been made with respect to such plan in
connection with the change in control of the Company, or the
failure by the Company to continue your participation therein;
(E) the failure by the Company or its
subsidiaries to continue to provide you with benefits
substantially similar to those enjoyed by you under the Company's
Salaried Employees Stock Savings Plan or any of the pension, life
insurance, medical, health and accident, or disability plans of
the Company or its subsidiaries in which you were participating
at the time of a change in control of the Company, or the taking
of any action by the Company or its subsidiaries which would
directly or indirectly materially reduce any of such benefits or
deprive you of any material fringe benefit enjoyed by you at the
time of the change in control of the Company, or the failure by
the Company or its subsidiaries to provide you with the number of
paid vacation days to which you are entitled on the basis of
years of service with the Company or its subsidiaries in
accordance with the normal vacation policy of the Company or the
subsidiary by which you are employed as in effect at the time of
the change in control;
(F) the failure of the Company to obtain a
satisfactory agreement from any successor to assume and agree to
perform this Agreement, as contemplated in Section 5 hereof; or
(G) any purported termination of your employment
which is not effected pursuant to a Notice of Termination
satisfying the requirements of Subsection (iv) below (and, if
applicable, Subsection (ii) above); and for purposes of this
Agreement, no such purported termination shall be effective.
Your right to terminate your employment pursuant to this
Subsection shall not be affected by your incapacity due to
physical or mental illness.
(iv) Notice of Termination. Any purported termination
by the Company or by you shall be communicated by written Notice
of Termination to the other party hereto in accordance with
Section 7 hereof. A "Notice of Termination" shall mean a notice
which indicates the specific termination provision in this
Agreement relied upon and sets forth in reasonable detail the
facts and circumstances claimed to provide a basis for
termination of your employment.
(v) Date of Termination, Etc. "Date of Termination"
shall mean (A) if your employment is terminated for Disability,
thirty (30) days after Notice of Termination is given (provided
that you shall not have returned to the performance of your
duties on a full-time basis during such thirty (30) day period,
and (B) if your employment is terminated pursuant to Subsection
(ii) or (iii) above or for any other reason, the date specified
in the Notice of Termination (which shall be not less than thirty
(30) days from the date such Notice of Termination is given).
4. Compensation Upon Termination or During Disability.
(i) During any period that you fail to perform your
duties hereunder as a result of incapacity due to physical or
mental illness, you shall continue to receive your full base
salary at the rate then in effect until this Agreement is
terminated pursuant to Section 3(i) hereof. Thereafter, your
benefits shall be determined in accordance with the Company's
disability program (without regard to any amendment to such
disability program made subsequent to a change in control of the
Company and on or prior to the Date of Termination, which
amendment adversely affects in any way the computation of
benefits thereunder).
(ii) If your employment shall be terminated for Cause,
the Company shall pay you your full base salary through the Date
of Termination at the rate in effect at the time Notice of
Termination is given and the Company and its subsidiaries shall
have no further obligations to you under this Agreement.
(iii) If your employment by the Company shall be
terminated during the term of this Agreement (a) by the Company
other than for Cause, Retirement or Disability within a period of
three years of a change in control of the Company or (b) by you
for Good Reason within a period of three years of the occurrence
of such a change in control, then you shall be entitled to the
benefits provided below.
(A) the Company shall pay for your full base
salary through the Date of Termination at the rate in effect at
the time Notice of Termination is given;
(B) in lieu of any further salary payments to you
for periods subsequent to the Date of Termination, the Company
shall pay as severance pay to you, not later than the fifth day
following the Date of Termination, a lump sum severance payment
(together with the payments provided in Subsections (C), (D), (F)
and (G) below (the "Severance Payments")) equal to 299.999% of
your average taxable compensation from the Company during the
five taxable years of the Company, immediately preceding the
change in control of the Company (or, if your employment by the
Company began during such five-years period, during the portion
of the period following your employment); provided that, in the
event there are fewer than 36 whole or partial months remaining
from the Date of Termination to your 65th birthday, the amount
provided for in this Subsection (B) will be reduced by
multiplying it by a fraction the numerator of which is the number
of whole or partial months so remaining to your 65th birthday and
the denominator of which is 36;
(C) notwithstanding any provisions of the
Company's bonus plan, the Company shall pay to you, not later
than the fifth day following the Date of Termination, a lump sum
amount equal to the sum of (x) any incentive compensation which
has been allocated for the fiscal year preceding that in which
the Date of Termination occurs but has not yet been paid, and (y)
any award under the Company's bonus plan, if any, which has not
yet been paid for any other period which has closed prior to the
Date of Termination;
(D) in lieu of shares of common stock of the
Company ("Company Shares") issuable upon the exercise of
outstanding options ("Options"), if any, granted to you under the
Company's Stock Option Plan or any other stock option plan of the
Company (which Options shall be cancelled upon the making of the
payment referred to below), the Company shall pay to you, not
later than the fifth day following the Date of Termination, a
lump sum equal to the sum of:
(x) in the case of Options which are
incentive stock options ("Incentive Stock Options"), as defined
under Section 422A of the Internal Revenue Code of 1986, as it
may hereafter be amended (the "Code"), granted after the date of
this Agreement, the product of (a) the difference (to the Extent
such difference is a positive number) obtained by subtracting the
per share exercise price of each such Incentive Stock Option held
by you (to the extent then exercisable) from the higher of (i)
the closing price of Company Shares as reported on the New York
Stock Exchange on the Date of Termination or (ii) the highest
price per Company Share actually paid in connection with any
change in control of the Company (but not more than the fair
market value per share, within the meaning of Section 422A of the
Code and the regulations promulgated thereunder), on the date of
payment thereof and (b) the number of Company shares covered by
each such Incentive Stock Option;
(y) in the case of all other Options (other
than Incentive Stock Options granted on or before the date of
this Agreement, with respect to which no provision is made herein
for payment and which Incentive Stock Options shall not be
cancelled pursuant to this Agreement), the product of (a) the
difference (to the extent that such difference is a positive
number) obtained by subtracting the per share exercise price of
each such Option held by you whether or not then fully
exercisable from the higher of (i) the closing price of Company
Shares as reported on the New York Stock Exchange on the Date of
Termination, or (ii) the highest price per Company Share actually
paid in connection with any change in control of the Company, and
(b) the number of Company Shares covered by such Option;
(E) the Company shall also pay to you all legal
fees and expenses incurred by you as a result of such termination
(including all such fees and expenses, if any, incurred in
contesting or disputing any such termination or in seeking to
obtain or enforce any right or benefit provided by this
Agreement);
(F) the Company shall arrange to provide you, for
a 36-month period after such termination (or such lesser number
of months to your 65th birthday), with life, disability, accident
and health insurance substantially similar to those which you are
receiving immediately prior to the Notice of Termination.
Benefits otherwise receivable by you pursuant to this Section 4
(iii)(F) shall be reduced to the extent comparable benefits are
actually received by you during the 36-month period following
your termination (or such shorter number of months to your 65th
birthday), and any such benefits actually received by you shall
be reported by you to the Company; and
(G) in addition to the retirement benefits to
which you are entitled under the qualified and supplemental
pension plans of the Company or any of its subsidiaries in which
you participate (the "Pension Plans") or any successor plans
thereto, the Company shall pay you in one sum in cash on the
fifth day following the Date of Termination, a lump sum equal to
the actuarial equivalent of the excess of (x) the retirement
pension (determined as a straight life annuity commencing at age
65) which you would have accrued under the terms of the Pension
Plans (without regard to any amendment to the Pension Plans made
subsequent to a change in control of the Company and on or prior
to the Date of Termination, which amendment adversely affects in
any manner the computation of retirement benefits thereunder),
determined as if you were fully vested thereunder and had
accumulated (after the Date of Termination) 36 additional months
of benefit accrual and service credit thereunder at your highest
annual rate of compensation during the 12 months immediately
preceding the Date of Termination (but in no event shall you be
deemed to have accumulated additional months of service credit
after your 65th birthday), over (y) the vested retirement pension
(determined as a straight life annuity commencing at age 65)
which you had then accrued pursuant to the provisions of the
Pension Plans. For purposes of clause (x), the term
"compensation" shall include amounts payable pursuant to Section
4(iii)(B) hereof, and amounts payable pursuant to Section
4(iii)(B) hereof shall be deemed to represent 36 months of
compensation (or such lesser number of months of compensation to
your 65th birthday) for purposes of determining benefits under
the Pension Plans. For purposes of this Subsection, "actuarial
equivalent" shall be determined using the same methods and
assumptions utilized under the Pension Plans immediately prior to
the change in control of the Company;
(H) in the event that any payment or benefit
received or to be received by you in connection with either the
termination of your employment or a change in control of the
Company (whether payable pursuant to the terms of this Agreement
or any other plan, arrangement or agreement with the Company, any
successor to the Company or any corporation ("Affiliate")
affiliated with the Company or which becomes so affiliated
pursuant to the transactions resulting in a change in control of
the Company, both within the meaning of Section 1504 of the Code,
(collectively with the Severance Payments, "Total Payment"))
would not be deductible (in whole or part) by the Company or an
Affiliate as a result of Section 280G of the Code, the Severance
Payments shall be reduced (to zero, if necessary) until no
portion of the Total Payments is not deductible as a result of
Section 280G of the Code, or the Severance Payments are not
reduced to zero. For purposes of this limitation, (i) no portion
of the Total Payments, the receipt or enjoyment of which you
shall have effectively waived in writing prior to the date of
payment of the Severance Payments, shall be taken into account,
(ii) no portion of the Total Payments shall be taken into account
which in the opinion of tax counsel selected by the Company's
independent auditors and acceptable to you does not constitute a
"parachute payment" within the meaning of Section 280G(b)(2) of
the Code, (iii) the Severance Payments shall be reduced only to
the extent necessary so that the Total Payments (other than those
referred to in clause (ii)) in their entirety constituted
reasonable compensation for services actually rendered within the
meaning of Section 280G(b)(4) of the Code, in the opinion of the
tax counsel referred to in clause (ii), and (iv) the value of any
non-cash benefit or any deferred cash payment included in the
Total Payments shall be determined by the Company's independent
auditors in accordance with the principles of Sections 280G(d)(3)
and (4) of the Code.
(iv) You shall not be required to mitigate the amount
of any payment provided for in this Section 4 by seeking other
employment or otherwise, nor shall the amount of any payment or
benefit provided for in this Section 4 be reduced by any
compensation earned by you as the result of employment by another
employer or by retirement benefits after the Date of Termination
or otherwise.
(v) In addition to all other amounts payable to you
under this Section 4, you shall be entitled to receive all
benefits payable to you under the Pension Plans, and any other
plan or agreement relating to retirement benefits.
5. Letter of Credit Preceding Termination. In the event a
potential change in control of the Company shall have occurred,
the Company will promptly (and in no event more than seven days
thereafter) establish an irrevocable letter of credit (the
"Letter of Credit") in your favor in an amount equal to the
aggregate of the amounts which would be payable to you pursuant
to Subsections 4(iii)(B), (C), (D) and (E) hereof as if you were
immediately entitled to payment pursuant thereto plus $100,000,
such Letter of Credit to be issued by a commercial bank which is
not an affiliate of the Company, but which is a national banking
association or established under the laws of one of the states of
the United States, and which has equity in excess of $100 million
(the "Bank"). The Letter of Credit shall be in form and
substance reasonably satisfactory to you and the Company and will
provide that the Bank shall pay you the amount of your draft, at
sight, on presentation to the Bank of a statement, signed by you
or your authorized representative, setting forth (i) a statement
that pursuant to any or all of Subsections 4(iii), 4(iv) or 4(v)
of this Agreement you are entitled to payments of not less than
the amount of such draft and (ii) the Date of Termination of your
employment. Each time you shall draw on the Letter of Credit,
you shall provide the Company with a copy of such draft and the
accompanying statement referred to above. The Company shall
maintain the Letter of Credit in effect for a period of two years
from the date on which it is issued; provided, however, that if
during any such two-year period any event shall occur which,
pursuant to this Section 5, would have required the Company to
establish a Letter of Credit had none then existed, then the
Company shall maintain the Letter of Credit in effect for a
period to two years following such event, unless further extended
pursuant to this Section 5. During the period in which a Letter
of Credit is required to be maintained, the Company shall, at six-
month intervals commencing with the date the Letter of Credit is
established, calculate the amount which would be payable to you
pursuant to Subsections 4(iii) (B), (C), (D) and (E) hereof as if
you were immediately entitled to payment pursuant thereto. If
the amount so calculated plus $100,000 exceeds the amount
available to be drawn upon under the Letter of Credit then in
effect, the Company shall promptly (and in no event later than
seven days thereafter) cause the amount payable under the Letter
of Credit to be increased by the amount of such excess.
The payment by the Bank of the amount of your draft in
accordance with the terms hereof and of the Letter of Credit
shall not constitute a waiver by the Company of, or in any way
preclude the Company from asserting, any claim against you that
you are not entitled to some or all of such payment. In
addition, your drawing upon the Letter of Credit shall not
constitute a waiver by you, or in any way preclude you from
asserting, any claim against the Company that you are entitled to
amounts pursuant to this Agreement which were not paid by amounts
received under the Letter of Credit.
6. Successors; Binding Agreement.
(i) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or
assets of the Company to expressly assume and agree to perform
this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no such succession had
taken place. Failure of the Company to obtain such assumption
and agreement prior to the effectiveness of any such succession
shall be a breach of this Agreement and shall entitle you to
compensation from the Company in the same amount and on the same
terms as you would be entitled hereunder if you terminate your
employment for Good Reasons, except that for purposes of
implementing the foregoing, the date on which any such succession
becomes effective shall be deemed the Date of Termination. As
used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law, or otherwise.
(ii) This Agreement shall inure to the benefit of and
be enforceable by your personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees and legatees. If you should die while any amount would
still be payable to you hereunder if you had continued to live,
all such amounts, unless otherwise provided herein, shall be paid
in accordance with the terms of this Agreement to your devisee,
legatee or other designee or if there is no such designee, to
your estate.
7. Notice. Notices and all other communications provided
for in this Agreement shall be in writing and shall be deemed to
have been duly given when delivered or mailed by the United
States registered mail, return receipt requested, postage
prepaid, addressed to the respective addresses set forth on the
first page of this Agreement, provided that all notices to the
Company shall be directed to the attention of the Board with a
copy to the Secretary of the Company, or to such other address as
either party may have furnished to the other in writing in
accordance herewith, except that notice of change of address
shall be effective only upon receipt.
8. Miscellaneous. No provision of this Agreement may be
modified, waived or discharged unless in writing and signed by
you and such officer as may be specifically designated by the
Board. No waiver by either party hereto at any time of any
breach by the other party hereto of, or compliance with, any
condition or provision of this Agreement to be performed by such
other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or
subsequent time. No agreements or representations, oral or
otherwise, express or implied, with respect to the subject matter
hereof have been made by either party which are not expressly set
forth in this Agreement. The validity, interpretation,
construction and performance of this Agreement shall be governed
by the laws of the State of New Jersey.
9. Validity. The invalidity or unenforceability of any
provisions of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which
shall remain in full force and effect.
If this letter correctly sets forth our agreement on the subject
matter hereof, kindly sign and return to the Company the enclosed
copy of this letter which will then constitute our agreement on
this subject.
IMO INDUSTRIES INC.
By: /s/ T.J. Bird
Name: T.J. Bird
Title:Executive Vice President
Agreed to this fifth day
of October, 1995
/s/ David C. Christensen
EXECUTION COPY
FOURTH AMENDMENT TO
CREDIT AGREEMENT
Fourth Amendment (this "Amendment") dated as of
May 3, 1995 among Imo Industries Inc. (with its successors and
permitted assigns, the "Borrower") and the undersigned Lenders
(as defined below), to the Credit Agreement dated as of August 5,
1994 (as previously amended by the First Amendment thereto dated
as of November 18, 1994, the Second Amendment thereto dated as of
January 11, 1995, and the Third Amendment thereto dated as of
February 17, 1995, and as such agreement may be further amended,
supplemented or modified from time to time, the "Credit
Agreement") among the Borrower, Baird Corporation ("Baird"), Varo
Inc. ("Varo"), Warren Pumps Inc., the institutions from time to
time party thereto as lenders (the "Lenders"), the institutions
from time to time party thereto as issuing banks (the "Issuing
Banks"), and Citibank, N.A., in its capacity as agent and
collateral agent for the Lenders and the Issuing Banks (in such
capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the above premises,
the Borrower and the undersigned Lenders agree as follows:
SECTION 1. Defined Terms. Capitalized terms used
herein without definition shall have the meanings ascribed to
such terms in the Credit Agreement.
SECTION 2. Amendment of Section 9.01.
(a) Clause (ix) of Section 9.01 of the Credit
Agreement is, effective as of the Amendment Effective Date,
hereby amended to read in full as follows:
(ix) Indebtedness under appeal bonds in connection with
judgments which do not result in an Event of Default or
Default or any other breach hereunder; provided that,
notwithstanding the foregoing, the Borrower may create and
become liable with respect to an appeal bond in an amount of
up to $18,000,000 in connection with the case titled
International Insurance Company, Plaintiff vs. Red and White
Company, Transamerica Corp., Transamerica
Delaval, Inc., Imo Delaval, Inc. and Does 1 to 100,
inclusive, Defendants; and
(b) Clause (xiii) of Section 9.01 of the Credit
Agreement is, effective as of the Amendment Effective Date,
hereby amended to read in full as follows:
(xiii) Indebtedness incurred by an Unrestricted
Subsidiary; provided that such Indebtedness (i) is not
guaranteed or otherwise supported in whole or part
(other than pursuant to (x) one or more Permitted
Existing Accommodation Obligations or (y) the
Accommodation Obligations permitted pursuant to Section
9.05(viii)) by the Borrower or any Restricted
Subsidiary and (without limiting the generality of the
foregoing, but subject to the immediately preceding
parenthetical clause) neither the Borrower nor any
Restricted Subsidiary has any liability (contractual or
otherwise) in respect of such Indebtedness and (ii) is
not secured in whole or in part by any asset of the
Borrower or any Restricted Subsidiary;
SECTION 3. Amendment of Section 9.05. Section 9.05 of
the Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended (x) by deleting the word "and" immediately
following clause (vii) thereof, (y) replacing the period at the
end of the clause (vii) of such Section with ";", and
(z) inserting the following clauses (viii) and (ix) at the end of
such Section:
(viii) Accommodation Obligations of the Borrower in
respect of obligations of any Unrestricted Subsidiary;
provided that the aggregate amount of such
Accommodation Obligations shall not exceed $12,000,000
at any one time outstanding; and
(ix) appeal bonds permitted in accordance with clause
(ix) of Section 9.01.
SECTION 4. Waiver. Effective as of the Amendment
Effective Date and continuing through the end of the applicable
appeal period, the undersigned Lenders hereby waive any Default
arising out of any judgment in an amount of up to $12,000,000
which may be rendered against the Borrower in the case referred
to in the proviso to Section 9.01(ix) of the Credit Agreement.
SECTION 5. Conditions Precedent to the Effectiveness
of this Amendment. This Amendment shall become effective as of
the date hereof on the date (the "Amendment Effective Date") when
the following conditions precedent have been satisfied (unless
waived by the Lenders):
5.01 The Agent shall have received a copy of this
Amendment duly executed by the Borrower and the Requisite
Lenders.
5.02 Each of the representations and warranties of the
Borrower and the Guarantors contained in the Credit Agreement and
in the other Loan Documents shall be true and correct on and as
of the Amendment Effective Date, except to the extent that any
such representation or warranty expressly relates to a prior
date, in which case, such representation and warranty shall be
true and correct as of such earlier date.
5.03 All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with
the transactions contemplated by this Amendment, shall be
satisfactory in all respects in form and substance to the Agent.
5.04 No Default or Event of Default shall have
occurred and be continuing on the Amendment Effective Date.
5.05 All fees and expenses payable on or prior to the
Amendment Effective Date shall have been paid to the Lenders, the
Issuing Banks and the Agent.
SECTION 6. Representations and Warranties. The
Borrower hereby represents and warrants to the Lenders, the
Issuing Banks and the Agent that (a) as of the date hereof no
Default or Event of Default under the Credit Agreement shall have
occurred and be continuing and (b) all of the representations and
warranties of the Borrower and the Guarantors contained in the
Credit Agreement and in any other Loan Document continue to be
true and correct as of the date of execution hereof, as though
made on and as of such date, except to the extent that such
representations or warranties expressly relate to prior dates, in
which case, such representations and warranties shall be true and
correct as of such earlier dates.
SECTION 7. Reference to and Effect on the Loan
Documents.
7.01 Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import,
and each reference in the other Loan Documents to the Credit
Agreement, shall mean and be a reference to the Credit Agreement
as amended hereby.
7.02 Except as specifically amended above, all of the
terms of the Credit Agreement and all other Loan Documents shall
remain unchanged and in full force and effect.
7.03 The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate
as a waiver of any right, power or remedy of any Lender, any
Issuing Bank or the Agent, nor constitute a waiver of any
provision of the Credit Agreement or any of the Loan Documents.
SECTION 8. Costs and Expenses. The Borrower agrees to
pay on demand in accordance with the terms of Section 14.02 of
the Credit Agreement all costs and expenses in connection with
the preparation, reproduction, execution and delivery of this
Amendment, including the reasonable fees and out-of-pocket
expenses of Sidley & Austin, counsel for the Agent.
SECTION 9. Execution in Counterparts. This Amendment
may be executed and delivered in any number of counterparts and
by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original
and all of which taken together shall constitute one and the same
original agreement.
SECTION 10. Governing Law. THIS AMENDMENT SHALL BE
INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, this Amendment has been duly
executed on the date set forth above.
IMO INDUSTRIES INC.
By:/s/ G.M. Dobson
Name:
Title: Vice President and Treasurer
CITIBANK, N.A., as Agent and as
a Lender
By:/s/ Timothy L. Freeeman
Name:
Title: Vice President
THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: /s/ Stephen V. Mangiante
Name:
Title: Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Catherine L. Midkiff
Name:
Title: V.P. Commercial Finance
HELLER FINANCIAL, INC.
By: /s/ Albert J. Forzano
Name:
Title: VP
NATIONAL WESTMINSTER BANK Plc
By:/s/ Ian M. Cressy
Name:
Title: Senior Vice President
SANWA BUSINESS CREDIT CORPORATION
By: /s/Peter L. Skavla
Name:
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
Name:
Title: Vice President
Acknowledged and agreed
to:
BAIRD CORPORATION
By:/s/ G.M. Dobson
Name:
Title: Vice President and Treasurer
VARO INC.
By:/s/ G.M. Dobson
Name:
Title: Vice President and Treasurer
WARREN PUMPS INC.
By:/s/ G.M. Dobson
Name:
Title: Vice President, Chief Financial Officer
and Treasurer
EXECUTION COPY
FIFTH AMENDMENT TO
CREDIT AGREEMENT
Fifth Amendment (this "Amendment") dated as of
August 14, 1995 among Imo Industries Inc. (with its successors
and permitted assigns, the "Borrower") and the undersigned
Lenders (as defined below), to the Credit Agreement dated as of
August 5, 1994 (as previously amended by the First Amendment
thereto dated as of November 18, 1994, the Second Amendment
thereto dated as of January 11, 1995, the Third Amendment thereto
dated as of February 17, 1995, the Fourth Amendment thereto dated
as of May 3, 1995, and as such agreement may be further amended,
supplemented or modified from time to time, the "Credit
Agreement") among the Borrower, Baird Corporation ("Baird"), Varo
Inc. ("Varo"), Warren Pumps Inc., the institutions from time to
time party thereto as lenders (the "Lenders"), the institutions
from time to time party thereto as issuing banks (the "Issuing
Banks"), and Citibank, N.A., in its capacity as agent and
collateral agent for the Lenders and the Issuing Banks (in such
capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the above premises,
the Borrower and the undersigned Lenders agree as follows:
SECTION 1. Defined Terms. Capitalized terms used
herein without definition shall have the meanings ascribed to
such terms in the Credit Agreement.
SECTION 2. Amendment of Section 9.03. Section 9.03 of
the Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended by (x) deleting the word "and" immediately
following clause (ix) thereof; (y) replacing the period at the
end of the clause (x) with "; and", and (z) inserting the
following clause at the end of such section:
(xi) Liens granted by the Borrower on bank deposits
denominated in Dollars supporting loans by banks in China in
connection with the joint venture in China between the
Borrower, through its Morse Controls Division, and Xiangfan
Dong Feng Motor Instrument Co., Ltd.; provided that such
deposits shall be in an aggregate amount not to exceed
$2,000,000.
SECTION 3. Amendment of Section 9.04. Section 9.04 of
the Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended by (x) replacing the period at the end of
clause (x) with a semicolon, (y) replacing the period at the end
of clause (xi) of such Section with "; and", and (z) inserting
the following clause (xii) at the end of such Section:
(xii) Investments by the Borrower in the joint venture
in China between the Borrower, through its Morse Controls
Division, and Xiangfan Dong Feng Motor Instrument Co., Ltd.;
provided, that the aggregate amount of such Investments,
determined with respect to each such Investment at the time
such Investment is made, shall not exceed $2,000,000.
SECTION 4. Amendment of Section 9.05. Section 9.05 of
the Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended by (x) deleting the word "and" immediately
following clause (viii) thereof, (y) replacing the period at the
end of clause (ix) of such Section with "; and", and (z)
inserting the following clause at the end of such Section:
(x) Accommodation Obligations of the Borrower
consisting of letters of credit, guaranties and/or
cross-guaranties of loans by banks in China to the
joint venture in China between the Borrower, through
its Morse Controls Division, and Xiangfan Dong Feng
Motor Instrument Co., Ltd.; provided, that the
aggregate amount of such Accommodation Obligations
shall not exceed $4,000,000 at any one time
outstanding.
SECTION 5. Amendment of Section 9.09. Section 9.09 of
the Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended by inserting the following at the end of
clause (b) of such Section:
, other than the joint venture in China between
the Borrower, through its Morse Controls Division, and
Xiangfan Dong Feng Motor Instrument Co., Ltd.
SECTION 6. Conditions Precedent to the Effectiveness
of this Amendment. This Amendment shall become effective as of
the date hereof on the date (the "Amendment Effective Date") when
the following conditions precedent have been satisfied (unless
waived by the Lenders):
6.01 The Agent shall have received a copy of this
Amendment duly executed by the Borrower and the Requisite
Lenders.
6.02 Each of the representations and warranties of the
Borrower and the Guarantors contained in the Credit Agreement and
in the other Loan Documents shall be true and correct on and as
of the Amendment Effective Date, except to the extent that any
such representation or warranty expressly relates to a prior
date, in which case, such representation and warranty shall be
true and correct as of such earlier date.
6.03 All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with
the transactions contemplated by this Amendment, shall be
satisfactory in all respects in form and substance to the Agent.
6.04 No Default or Event of Default shall have
occurred and be continuing on the Amendment Effective Date.
6.05 All fees and expenses payable on or prior to the
Amendment Effective Date shall have been paid to the Lenders, the
Issuing Banks and the Agent.
SECTION 7. Representations and Warranties. The
Borrower hereby represents and warrants to the Lenders, the
Issuing Banks and the Agent that (a) as of the date hereof no
Default or Event of Default under the Credit Agreement shall have
occurred and be continuing and (b) all of the representations and
warranties of the Borrower and the Guarantors contained in the
Credit Agreement and in any other Loan Document continue to be
true and correct as of the date of execution hereof, as though
made on and as of such date, except to the extent that such
representations or warranties expressly relate to prior dates, in
which case, such representations and warranties shall be true and
correct as of such earlier dates.
SECTION 8. Reference to and Effect on the Loan
Documents.
8.01 Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import,
and each reference in the other Loan Documents to the Credit
Agreement, shall mean and be a reference to the Credit Agreement
as amended hereby.
8.02 Except as specifically amended above, all of the
terms of the Credit Agreement and all other Loan Documents shall
remain unchanged and in full force and effect.
8.03 The execution, delivery and effectiveness of this
Amendment shall not, except as expressly provided herein, operate
as a waiver of any right, power or remedy of any Lender, any
Issuing Bank or the Agent, nor constitute a waiver of any
provision of the Credit Agreement or any of the Loan Documents.
SECTION 9. Costs and Expenses. The Borrower agrees to
pay on demand in accordance with the terms of Section 14.02 of
the Credit Agreement all costs and expenses in connection with
the preparation, reproduction, execution and delivery of this
Amendment, including the reasonable fees and out-of-pocket
expenses of Sidley & Austin, counsel for the Agent.
SECTION 10. Execution in Counterparts. This Amendment
may be executed and delivered in any number of counterparts and
by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original
and all of which taken together shall constitute one and the same
original agreement.
SECTION 11. Governing Law. THIS AMENDMENT SHALL BE
INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, this Amendment has been duly
executed on the date set forth above.
IMO INDUSTRIES INC.
By: /s/ G.M. Dobson
Name:
Title: Vice President and Treasurer
CITIBANK, N.A., as Agent and as
a Lender
By: /s/ Timothy L. Freeman
Name:
Title: Vice President
THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: /s/ Stephen V. Mangiante
Name:
Title: Vice President
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Catherine L. Midkiff
Name:
Title: V.P. Commercial Finance
HELLER FINANCIAL, INC.
By: /s/ John Capperella
Name:
Title: V.P.
NATIONAL WESTMINSTER BANK Plc
By:/s/ Ian M. Cressy
Name:
Title: Senior Vice President
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Peter L. Skavla
Name:
Title: Vice President
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
Name:
Title: Vice President
Acknowledged and agreed
to:
BAIRD CORPORATION
By:/s/ G.M. Dobson
Name:
Title: Vice President & Treasurer
VARO INC.
By:/s/ G.M. Dobson
Name:
Title: Vice President & Treasurer
WARREN PUMPS INC.
By:/s/ G.M. Dobson
Name:
Title: Vice President, Chief Financial
Officer and Treasurer
EXECUTION COPY
SIXTH AMENDMENT TO
CREDIT AGREEMENT
Sixth Amendment (this "Amendment") dated as of
December 11, 1995 among Imo Industries Inc. (with its successors
and permitted assigns, the "Borrower") and the undersigned
Lenders (as defined below), to the Credit Agreement dated as of
August 5, 1994 (as previously amended by the First Amendment
thereto dated as of November 18, 1994, the Second Amendment
thereto dated as of January 11, 1995, the Third Amendment thereto
dated as of February 17, 1995, the Fourth Amendment thereto dated
as of May 3, 1995, and the Fifth Amendment thereto dated as of
August 14, 1995, and as such agreement may be further amended,
supplemented or modified from time to time, the "Credit
Agreement") among the Borrower, Baird Corporation ("Baird"), Varo
Inc. ("Varo"), Warren Pumps Inc., the institutions from time to
time party thereto as lenders (the "Lenders"), the institutions
from time to time party thereto as issuing banks (the "Issuing
Banks"), and Citibank, N.A., in its capacity as agent and
collateral agent for the Lenders and the Issuing Banks (in such
capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, the parties hereto desire to amend the Credit
Agreement as hereinafter set forth;
NOW, THEREFORE, in consideration of the above premises,
the Borrower and the undersigned Lenders agree as follows:
SECTION 1. Defined Terms. Capitalized terms used
herein without definition shall have the meanings ascribed to
such terms in the Credit Agreement.
SECTION 2. Amendment of Section 1.01.
(a) The definition of "Borrowing Base" contained in
Section 1.01 of the Credit Agreement is, effective as of the
Amendment Effective Date, hereby amended to read in full as
follows:
"Borrowing Base" means, as of any date of determina
tion, an amount equal to (i) eighty-five percent (85%) of
the face amount of (x) Eligible Receivables (net of maximum
discounts, allowances, retainage and any other amounts
deferred with respect thereto) of the Borrower at such time
plus (y) Eligible Receivables (net of maximum discounts,
allowances, retainage and any other amounts deferred with
respect thereto) of Warren Pumps at such time, plus (ii) the
applicable percentage(s) set forth in Schedule 1.01.8 of (x)
Eligible Raw Materials of the Borrower at such time and (y)
Eligible Raw Materials of Warren Pumps at such time, plus
(iii) the applicable percentage(s) set forth in Schedule
1.01.8 of (x) Eligible Work In Process of the Borrower at
such time plus (y) Eligible Work In Process of Warren Pumps
at such time, plus (iv) the applicable percentage(s) set
forth in Schedule 1.01.8 of (x) Eligible Finished Goods of
the Borrower at such time plus (y) Eligible Finished Goods
of Warren Pumps at such time, plus (v) one hundred percent
(100%) of the aggregate amount of cash proceeds of
Collateral on deposit in the Concentration Account and the
Investment Account at such time, plus (vi) the lesser of (x)
one hundred percent (100%) of the aggregate values set forth
in Schedule 1.01.12 of Eligible Fixed Assets at such time
and (y) $20,000,000. For purposes of this definition,
Eligible Receivables, Eligible Raw Materials, Eligible
Finished Goods, Eligible Work In Process and Eligible Fixed
Assets, as of any date of determination, shall be determined
after deduction of all Eligibility Reserves then effective
with respect to such items.
(b) The definition of "Borrowing Base Certificate"
contained in Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended to read in
full as follows:
"Borrowing Base Certificate" means a certificate, in
substantially the form of Exhibit C attached hereto and made
a part hereof, setting forth Eligible Receivables, Eligible
Raw Materials, Eligible Work In Process, Eligible Finished
Goods and Eligible Fixed Assets.
(c) The definition of "Consolidated Net Worth"
contained in Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended to read in
full as follows:
"Consolidated Net Worth" means, with respect to any
Person, at any time, (i) consolidated stockholders' equity
of such Person and its consolidated Subsidiaries, determined
in accordance with GAAP, plus (ii) any minimum pension
liability adjustment applicable to such Person in accordance
with GAAP plus (iii) any negative (or minus any positive)
cumulative foreign currency translation adjustments
applicable to such Person in accordance with GAAP; provided
that, in calculating Consolidated Net Worth for purposes of
Section 10.01, any increase in Consolidated Net Worth
resulting from the sale of Roltra-Morse S.p.A. or Varo's
electronic systems division shall be excluded.
(d) The definition of "EBITDA" contained in Section
1.01 of the Credit Agreement is, effective as of the Amendment
Effective Date, hereby amended to read in full as follows:
"EBITDA" means, for any period on a consolidated basis
for any Person and its Subsidiaries, (i) the sum of the
amounts for such period for such Person and its Subsidiaries
on a consolidated basis of (A) Consolidated Net Income, (B)
depreciation, amortization expense and other non-cash
charges, (C) Consolidated Cash Interest Expense, (D) charges
for federal, state, local and foreign income taxes, (E)
extraordinary losses which have been deducted in the
determination of Consolidated Net Income and (F) net income
(if any) of less than wholly-owned Subsidiaries which has
been attributed to minority interests in accordance with
GAAP, minus (ii) extraordinary gains not already excluded
from the determination of Consolidated Net Income, minus
(iii) net loss (if any) of less than wholly-owned
Subsidiaries which has been attributed to minority interests
in accordance with GAAP; provided that, in calculating
EBITDA for purposes of determining Excess Cash Flow, the
Fixed Charge Coverage Ratio and the Interest Coverage Ratio,
any increase in EBITDA resulting from the sale of Roltra-
Morse S.p.A or Varo's electronic systems division shall be
excluded.
(e) The following definition of "Eligible Fixed
Assets" is, effective as of the Amendment Effective Date, hereby
inserted into Section 1.01 of the Credit Agreement in the
appropriate alphabetical order:
"Eligible Fixed Assets" means Property of the Borrower
set forth in Schedule 1.01.12 (i) with respect to which the
Agent has a valid and perfected first priority Lien,
(ii) with respect to which no warranty contained in any of
the Loan Documents has been breached and (iii) which the
Agent, in its reasonable credit judgment, deems to be
Eligible Fixed Assets, based on such credit and collateral
considerations as the Agent may deem appropriate.
(f) The definition of "Eligible Receivable" contained
in Section 1.01 of the Agreement is, effective as of the
Amendment Effective Date, hereby amended by deleting the proviso
at the end of such definition and by replacing the semicolon
immediately preceding such proviso with a period.
(g) The definition of "Eligibility Reserves" contained
in Section 1.01 of the Agreement is, effective as of the
Amendment Effective Date, hereby amended to read in full as
follows:
"Eligibility Reserves" means, as of five (5) days after
the date of written notice of any determination thereof to
the Borrower by the Agent, or to the Borrower and the Agent
by the Class A Requisite Lenders, such amounts as the Agent,
or the Class A Requisite Lenders, as the case may be, in the
exercise of its or their reasonable credit judgment and in
accordance with its or their customary criteria, may from
time to time establish against the gross amounts of Eligible
Receivables, Eligible Raw Materials, Eligible Work In
Process, Eligible Finished Goods and Eligible Fixed Assets
to reflect risks or contingencies arising after the Closing
Date which may affect such items and which have not already
been taken into account in the determination of Eligible
Receivables, Eligible Raw Materials, Eligible Work In
Process, Eligible Finished Goods or Eligible Fixed Assets,
as the case may be.
(h) The definition of "Revolving Credit Commitment"
contained in Section 1.01 of the Credit Agreement is, effective
as of the Amendment Effective Date, hereby amended to read in
full as follows:
"Revolving Credit Commitment" means, with respect to
any Lender, the obligation of such Lender to make Revolving
Loans and to participate in Letters of Credit and Swing
Loans pursuant to the terms and conditions hereof, which
obligation shall not exceed the principal amount set forth
opposite such Lender's name under the heading "Revolving
Credit Commitment" on Schedule 1.01.1 or the signature page
of the Assignment and Acceptance by which it became a
Lender, as modified from time to time pursuant to the terms
hereof or to give effect to any applicable Assignment and
Acceptance, and "Revolving Credit Commitments" means the
aggregate principal amount of the Revolving Credit
Commitments of all the Lenders, the maximum aggregate
principal amount of which shall not exceed $60,000,000, as
reduced from time to time pursuant to the terms hereof.
(i) The following new definitions are, effective as of
the Amendment Effective Date, hereby added to Section 1.01 of the
Credit Agreement in the appropriate alphabetical order:
"Letter of Credit Availability" means, at any
particular time, the amount by which the Letter of Credit
Sublimit exceeds the Letter of Credit Obligations
outstanding at such time.
"Letter of Credit Sublimit" means thirty million
Dollars ($30,000,000).
(j) The definitions of "Eligible Letter of Credit" and
"Release Status" contained in Section 1.01 of the Credit
Agreement are, effective as of the Amendment Effective Date,
hereby deleted in their entirety.
SECTION 3. Amendment of Section 2.04. The preamble to
Section 2.04 of the Credit Agreement is, effective as of the
Amendment Effective Date, hereby amended to read in full as
follows:
2.04. Letters of Credit. Subject to the terms and
conditions set forth herein, each Issuing Bank hereby
severally agrees to Issue for the account of the Borrower
one or more Letters of Credit, up to an aggregate face
amount with respect to all Issuing Banks at any time
outstanding equal to the Letter of Credit Availability,
subject to the following provisions:
SECTION 4. Amendment of Section 3.01.
The first sentence of Section 3.01(c)(i) of the Credit Agreement
is, effective as of the Amendment Effective Date, hereby amended
to read in full as follows:
(c) Mandatory Prepayments of Revolving Loans. (i)
Immediately, if (x) the Revolving Credit Obligations are
greater than the Maximum Revolving Credit Amount or (y) the
aggregate amount of the Swing Loans, the Revolving Loans and
the Reimbursement Obligations, is greater than the amount of
the Swing Loans, the Revolving Loans or the Reimbursement
Obligations, as the case may be, permitted to exist at such
time in accordance with the terms of the 12% Debenture
Indenture or the 12.25% Debenture Indenture, the Borrower
shall make a mandatory repayment of the Revolving Credit
Obligations in an amount equal to such excess, such amount
to be applied in accordance with Section 3.02.
SECTION 5. Amendment of Section 4.03.
Section 4.03(a)(ii) of the Credit Agreement is, effective as of
the Amendment Effective Date, hereby amended to read in full as
follows:
(ii) [intentionally omitted], and
SECTION 6. Amendment of Section 9.17. Section 9.17 of
the Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended by replacing the reference in the first
proviso thereof to "$40,000,000" with "$80,000,000".
SECTION 7. Amendment of Article 10.
(a) Section 10.01 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.01. Minimum Consolidated Net Worth. The
Consolidated Net Worth of the Borrower and its Subsidiaries
at all times during any period set forth below shall
not be less than the minimum amount set forth opposite such
period:
Period Minimum Amount
From September 30, 1995 to but
excluding December 31, 1995 $ 0
From December 31, 1995 to but
excluding March 31, 1996 $ 0
From March 31, 1996 to but
excluding June 30, 1996 $ 4,300,000
From June 30, 1996 to but
excluding September 30, 1996 $ 7,400,000
From September 30, 1996 to but
excluding December 31, 1996 $10,300,000
From December 31, 1996 to but
excluding March 31, 1997 $13,900,000
From March 31, 1997 to but
excluding June 30, 1997 $18,400,000
From June 30, 1997 to but
excluding September 30, 1997 $22,900,000
(b) Section 10.02 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.02. Minimum Fixed Charge Coverage Ratio. The Fixed Charge
Coverage Ratio of the Borrower and its Subsidiaries (other than Varo,
Baird and their respective Subsidiaries) on a consolidated basis, as
determined as of the last day of each fiscal quarter of the Borrower
set forth below for the twelve month period ending on such date, shall
not be less than the minimum ratio set forth opposite such fiscal
quarter:
Fiscal Quarter Minimum Ratio
Fourth fiscal quarter of 1995 1.10 to 1
First fiscal quarter of 1996 1.00 to 1
Second fiscal quarter of 1996 0.40 to 1
Third fiscal quarter of 1996 0.60 to 1
Fourth fiscal quarter of 1996 1.20 to 1
First fiscal quarter of 1997 1.20 to 1
Second fiscal quarter of 1997 1.20 to 1
(c) Section 10.03 of the Credit Agreement is,
effective as of the Amendment Effective Date, hereby amended to
read in full as follows:
10.03. Minimum Interest Coverage Ratio.
The Interest Coverage Ratio of the Borrower and its
Subsidiaries (other than Varo, Baird and their respective
Subsidiaries) on a consolidated basis, as determined as of the
last day of each fiscal quarter of the Borrower set forth below
for the twelve month period ending on such date, shall not be
less than the minimum ratio set forth opposite such fiscal
quarter:
Fiscal Quarter Minimum Ratio
Fourth fiscal quarter of 1995 1.55 to 1
First fiscal quarter of 1996 1.60 to 1
Second fiscal quarter of 1996 1.65 to 1
Third fiscal quarter of 1996 1.75 to 1
Fourth fiscal quarter of 1996 2.00 to 1
First fiscal quarter of 1997 2.40 to 1
Second fiscal quarter of 1997 2.50 to 1
SECTION 8. Amendment of Section 11.01.
Section 11.01(a) of the Credit Agreement is, effective as of the
Amendment Effective Date, hereby amended to read in full as
follows:
(a) Failure to Make Payments When Due. The Borrower
shall fail to pay (i) when due any principal or interest on
the Loans (including the Reimbursement Obligations) or (ii)
any other Obligation, and if such non-payment relates (x) to
interest, such non-payment continues for a period of three
(3) days after the due date thereof or (y) to a mandatory
prepayment under Section 3.01(c)(i)(y), such non-payment
continues for a period of thirty (30) days after the due
date thereof or (z) to Obligations other than interest or
principal, such non-payment continues for a period of five
(5) Business Days after the due date thereof.
SECTION 9. Amendment of Section 13.09.
Section 13.09(c)(i)(B) of the Credit Agreement is, effective as
of December 31, 1994, hereby amended to read in full as follows:
(B) [intentionally omitted]; and
SECTION 10. Amendment of Schedule 1.01.1. Section C
of Schedule 1.01.1 to the Credit Agreement is, effective as of
the Amendment Effective Date, hereby amended to read in full as
follows:
C. Revolving Credit Commitment
Citibank, N.A. $ 8,571,428.58
The Bank of New York Commercial Corporation $ 8,571,428.57
General Electric Capital Corporation $ 8,571,428.57
Heller Financial, Inc. $ 8,571,428.57
National Westminster Bank Plc $ 8,571,428.57
Sanwa Business Credit Corporation $ 8,571,428.57
Transamerica Business Credit Corporation $ 8,571,428.57
SECTION 11. New Schedule 1.01.12. Effective as of the
Amendment Effective Date, Schedule 1.01.12 to this Amendment is
hereby added to the Credit Agreement as Schedule 1.01.12 thereto.
SECTION 12. Amendment of Exhibit C. Exhibit C to the
Credit Agreement is, effective as of the Amendment Effective
Date, hereby replaced with Exhibit C hereto.
SECTION 13. Waiver.
13.01 Pursuant to Section 10.01 of the Credit
Agreement the Borrower agreed to comply with certain requirements
regarding the Minimum Consolidated Net Worth of the Borrower,
with which requirements the Borrower is not and has not been in
compliance. To the extent that the Borrower's failure to comply
with Section 10.01 of the Credit Agreement during the period from
and including November 1, 1995 to and including the Amendment
Effective Date constitutes a Default or Event of Default, as the
case may be, under the Credit Agreement, such Default or Event of
Default is, effective as of the Amendment Effective Date, hereby
waived by the undersigned Lenders.
13.02 To the extent that the Borrower's redemption of
up to $80,000,000 aggregate principal amount of the 12.25%
Debentures constitutes a Default or Event of Default, as the case
may be, under the Credit Agreement, such Default or Event of
Default is, effective as of the Amendment Effective Date, hereby
waived by the undersigned Lenders.
SECTION 14. Conditions Precedent to the Effectiveness
of this Amendment. This Amendment shall become effective as of
the date hereof on the date (the "Amendment Effective Date") when
the following conditions precedent have been satisfied (unless
waived by the undersigned Lenders):
14.01 The Agent shall have received on or before the
Amendment Effective Date all of the following, all of which,
except as otherwise specifically described below, shall be in
form and substance satisfactory to the Agent and the undersigned
and in sufficient copies for each of the Lenders party to this
Amendment:
(i) This Amendment duly executed by the Borrower and
each of the Lenders which is set forth on the signature
pages hereto;
(ii) New Revolving Credit Notes dated the Amendment
Effective Date and made by the Borrower in favor of the
Revolving Credit Lenders in the aggregate principal amount
of $60,000,000 evidencing the Obligations to repay the
Revolving Loans;
(iii) Any amendments to the Real Property Security
Documents listed in Section C of the List of Closing
Documents attached to the Credit Agreement as Exhibit F (the
"Closing List") which the Agent deems necessary or desirable
in connection with the increase in the aggregate Revolving
Credit Commitments from $50,000,000 to $60,000,000, together
with such endorsements to Title Policies, certified Surveys,
and local counsel opinions with respect thereto and such
other agreements, documents and instruments which the Agent
deems necessary or desirable;
(iv) A favorable opinion of Weil, Gotshal & Manges,
counsel to the Borrower and the Guarantors, dated the
Amendment Effective Date and addressed to the Agent, the
Lenders and the Issuing Banks, with respect to such matters
relating to this Amendment as the Agent may reasonably
request, including with respect to the 12% Debenture
Indenture and the 12.25% Debenture Indenture and a favorable
opinion of Thomas J. Bird, general counsel of the Borrower
and the Guarantors, dated the Amendment Effective Date and
addressed to the Agent, the Lenders and the Issuing Banks,
with respect to such matters relating to this Amendment as
the Agent may reasonably request; without limiting the
foregoing, the Borrower and the Guarantors hereby direct
their counsel, Weil, Gotshal & Manges, and their general
counsel, Thomas J. Bird, to prepare and deliver to the
Agent, the Lenders, the Issuing Banks and Sidley & Austin,
such opinions;
(v) An updated Borrowing Base Certificate (including,
without limitation, information with respect to Eligible
Fixed Assets), certified as being true, accurate and
complete as of October 31, 1995 by the chief financial
officer, treasurer or controller of the Borrower;
(vi) Updated organizational documents, good standing
certificates and Assistant Secretarys' or Assistant Clerks'
certificates for the Borrower and the Guarantors in
substantially the respective forms delivered on the Closing
Date pursuant to Section D of the Closing List, with such
changes as the Agent may deem appropriate in connection with
this Amendment;
(vii) The Borrower shall have paid to the Agent, for
the account of the Revolving Credit Lenders in accordance
with their respective Revolving Credit Pro Rata Shares
(calculated after giving effect to the effectiveness of this
Amendment), an amendment fee in an amount equal to $150,000;
and
(viii) A certificate of an officer of the Borrower
dated the Amendment Effective Date certifying as to the
matters set forth in Sections 14.02 and 14.04 of this
Amendment and certifying as to the Solvency of the Borrower
and the Borrower's Subsidiaries after giving effect to the
transactions contemplated by this Amendment.
14.02 Each of the representations and warranties of
the Borrower and the Guarantors contained in the Credit Agreement
and in the other Loan Documents (other than any representations
and warranties relating to the Borrower's compliance with Section
10.01 of the Credit Agreement, or to the matters referred to in
Section 13.02 hereof) shall be true and correct on and as of the
Amendment Effective Date, except to the extent that any such
representation or warranty expressly relates to a prior date, in
which case, such representation and warranty shall be true and
correct as of such earlier date.
14.03 All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with
the transactions contemplated by this Amendment, shall be
satisfactory in all respects in form and substance to the Agent.
14.04 No Default or Event of Default (other than any
Default or Event of Default relating to the Borrower's compliance
with Section 10.01 or Section 9.17 of the Credit Agreement) shall
have occurred and be continuing on the Amendment Effective Date.
14.05 All fees and expenses payable on or prior to the
Amendment Effective Date shall have been paid to the Lenders, the
Issuing Banks and the Agent.
SECTION 15. Representations and Warranties. The
Borrower hereby represents and warrants to the Lenders, the
Issuing Banks and the Agent that (a) as of the date hereof no
Default or Event of Default under the Credit Agreement shall have
occurred and be continuing (other than with respect to Section
10.01 or Section 9.17 thereof), (b) all of the representations
and warranties of the Borrower and the Guarantors contained in
the Credit Agreement (other than any representations and
warranties relating to the Borrower's compliance with Section
10.01 of the Credit Agreement, or to the matters referred to in
Section 13.02 hereof) and in any other Loan Document continue to
be true and correct as of the date hereof, as though made on and
as of such date, except to the extent that such representations
or warranties expressly relate to prior dates, in which case,
such representations and warranties shall be true and correct as
of such earlier dates and (c) Imo Industries (UK) Limited ("Imo
UK") is a corporation duly organized, validly existing and in
good standing under the laws of the United Kingdom, (ii) is duly
qualified to do business as a foreign corporation and is in good
standing under the laws of each jurisdiction in which failure to
be so qualified and in good standing shall have or is reasonably
likely to have a Material Adverse Effect, (iii) has all requisite
corporate power and authority to own, operate and encumber its
Securities and other Property and to conduct its business as
presently conducted and as proposed to be conducted and (iv) has
all requisite corporate power and authority to execute, deliver
and perform this Amendment and to continue to perform its
obligations under (x) the English Pledge Agreement (as defined in
the List of Closing Documents attached to the Credit Agreement as
Exhibit F) and (y) any documents or instruments executed in
connection therewith. The execution, delivery and performance of
this Amendment have been duly authorized by all necessary
corporate action on the part of Imo UK, and this Amendment and
the English Pledge Agreement constitute the legal, valid and
binding obligations of Imo UK, enforceable against Imo UK in
accordance with their respective terms.
SECTION 16. Affirmation of Liens and Guaranties.
Notwithstanding anything contained in the Loan Documents (either
before, on or after the Amendment Effective Date), (i) each of
the Borrower, the Guarantors and Imo UK, by its signature below,
reaffirms the Liens and reconfirms the grant of the liens to the
Agent for the benefit of the Lenders and the Issuing Banks
pursuant to the Loan Documents executed by such Person, which
Liens shall continue in full force and effect during the term of
the Credit Agreement and any renewals thereof and shall continue
to secure the Obligations, and (ii) each of the Guarantors, in
its capacity as guarantor under its Guaranty, hereby consents to
the execution, delivery and performance of this Amendment, and
all of the other Loan Documents to be executed in connection
herewith, reaffirms its respective obligations under its Guaranty
and agrees that such Guaranty shall remain in full force and
effect.
SECTION 17. Reference to and Effect on the Loan
Documents.
17.01 Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import,
and each reference in the other Loan Documents to the Credit
Agreement, shall mean and be a reference to the Credit Agreement
as amended hereby.
17.02 Except as specifically amended above, all of the
terms of the Credit Agreement and all other Loan Documents shall
remain unchanged and in full force and effect.
17.03 The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender,
any Issuing Bank or the Agent, nor constitute a waiver of any
provision of the Credit Agreement or any of the Loan Documents.
SECTION 18. Costs and Expenses. The Borrower agrees
to pay on demand in accordance with the terms of Section 14.02 of
the Credit Agreement all costs and expenses in connection with
the preparation, reproduction, execution and delivery of this
Amendment, including the reasonable fees and out-of-pocket
expenses of Sidley & Austin, counsel for the Agent.
SECTION 19. Execution in Counterparts. This Amendment
may be executed and delivered in any number of counterparts and
by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original
and all of which taken together shall constitute one and the same
original agreement.
SECTION 20. Governing Law. THIS AMENDMENT SHALL BE
INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED, IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF
NEW YORK.
IN WITNESS WHEREOF, this Amendment has been duly
executed on the date set forth above.
IMO INDUSTRIES INC.
By: /s/ G.M. Dobson
Name:
Title:V.P. and Treasurer
CITIBANK, N.A., as Agent and as
a Lender
By: /s/ Timothy L. Freeman
Name:
Title:
THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: /s/ Stephen V. Mangiante
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Catherine Midkiff
Name:
Title:
HELLER FINANCIAL, INC.
By: /s/ T. Bukawski
Name:
Title:
NATIONAL WESTMINSTER BANK Plc
By: /s/ David E. Yemer
Name:
Title:
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Peter L. Shavla
Name:
Title:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
Name:
Title:
Acknowledged and agreed
to:
BAIRD CORPORATION
By: _/s/ G.M. Dobson
Name:
Title:
VARO INC.
By:_/s/ G.M. Dobson
Name:
Title:
WARREN PUMPS INC.
By:_/s/ G.M. Dobson
Name:
Title:
IMO INDUSTRIES (UK) LIMITED
By:_/s/ T.J. Bird
Name:
Title:Director
EXECUTION COPY
SEVENTH AMENDMENT TO
CREDIT AGREEMENT
Seventh Amendment (this "Amendment") dated as of
March 4, 1996 among Imo Industries Inc. (with its successors and
permitted assigns, the "Borrower") and the undersigned Lenders
(as defined below), to the Credit Agreement dated as of August 5,
1994 (as previously amended by the First Amendment thereto dated
as of November 18, 1994, the Second Amendment thereto dated as of
January 11, 1995, the Third Amendment thereto dated as of
February 17, 1995, the Fourth Amendment thereto dated as of May
3, 1995, the Fifth Amendment thereto dated as of August 14, 1995,
and the Sixth Amendment thereto dated as of December 11, 1995,
and as such agreement may be further amended, supplemented or
modified from time to time, the "Credit Agreement") among the
Borrower, Baird Corporation ("Baird"), Varo Inc. ("Varo"), Warren
Pumps Inc., the institutions from time to time party thereto as
lenders (the "Lenders"), the institutions from time to time party
thereto as issuing banks (the "Issuing Banks"), and Citibank,
N.A., in its capacity as agent and collateral agent for the
Lenders and the Issuing Banks (in such capacity, the "Agent").
W I T N E S S E T H:
WHEREAS, pursuant to a letter dated February 14, 1996,
a copy of which is attached as Exhibit A (the "Letter"), the
Borrower has requested the undersigned, which constitute the
Requisite Lenders, to amend the Credit Agreement along the lines
set forth in the Letter; and
WHEREAS, the Lenders party hereto have agreed to amend
the Credit Agreement to accommodate the request of the Borrower,
subject to the terms set forth in this Agreement;
NOW, THEREFORE, in consideration of the above premises,
the Borrower and the undersigned Lenders agree as follows:
SECTION 1. Defined Terms. Capitalized terms used herein without
definition shall have the meanings ascribed to such terms in the
Credit Agreement.
SECTION 2. Amendment of Section 1.01. The definition of
"EBITDA" in Section 1.01 of the Credit Agreement is, effective as
of December 31, 1995, hereby amended by replacing the proviso at
the end of such definition with the following:
; provided, that (i) in calculating EBITDA for purposes
of determining Excess Cash Flow, the Fixed Charge Coverage
Ratio and the Interest Coverage Ratio, any increase in
EBITDA resulting from the sale of Roltra-Morse S.p.A. or
Varo's electronic systems division shall be excluded and
(ii) for purposes of determining the Interest Coverage Ratio
with respect to any period, decreases in Consolidated Net
Income for the fourth fiscal quarter of 1995 associated with
certain non-operating properties identified on Schedule
1.01.13 which are being marketed for sale in the amount set
forth opposite such properties on such Schedule 1.01.13,
shall be excluded.
SECTION 3. Amendment of Section 9.02. Section 9.02 of the
Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended by (x) deleting the word "and" after the end
of clause (xiv) of such Section, (y) by replacing the period at
the end of clause (xv) of such Section with "; and", and (z) by
inserting the following at the end of such Section:
(xvi) the Borrower may sell to a financial institution
certain machine tools and related equipment manufactured by
Toyoda which have been acquired by the Borrower for use in
the Louisburg, North Carolina facility of its Boston Gear
Division for a purchase price of not less than (x) the
acquisition cost of such machine tools and related equipment
and (y) no more than $2,600,000.
SECTION 4. Amendment of Section 9.10. Section 9.10 of the
Credit Agreement is, effective as of the Amendment Effective
Date, hereby amended by inserting the following proviso at the
end of such Section:
; provided, however, that the Borrower may enter into
an Operating Lease with a financial institution of certain
machine tools and related equipment sold pursuant to Section
9.02(xvi) and leased by the Borrower for use in the
Louisburg, North Carolina facility of its Boston Gear
Division.
SECTION 5. New Schedule 1.01.13. Effective as of December 31,
1995, Schedule 1.01.13 to this Amendment is hereby added to the
Credit Agreement as Schedule 1.01.13 thereto.
SECTION 6. Waiver. To the extent that the Borrower's failure to
comply with Section 10.03 of the Credit Agreement during the
period from and including the last day of the fourth fiscal
quarter of 1995 to and including the Amendment Effective Date
constitutes a Default or Event of Default, as the case may be,
under the Credit Agreement, such Default or Event of Default is,
effective as of the Amendment Effective Date, hereby waived by
the Requisite Lenders.
SECTION 7. Conditions Precedent to the Effectiveness of this
Amendment. This Amendment shall become effective as of the date
(the "Amendment Effective Date") when the following conditions
precedent have been satisfied (unless waived by the undersigned
Lenders):
7.01. The Agent shall have received a copy of this
Amendment duly executed by the Borrower and the Requisite
Lenders.
7.02. After giving effect to this Amendment, each of
the representations and warranties of the Borrower and the
Guarantors contained in the Credit Agreement and in the other
Loan Documents shall be true and correct on and as of the
Amendment Effective Date, except to the extent that any such
representation or warranty expressly relates to a prior date, in
which case, such representation and warranty shall be true and
correct as of such earlier date.
7.03. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with
the transactions contemplated by this Amendment, shall be
satisfactory in all respects in form and substance to the Agent.
7.04. After giving effect to this Amendment, no
Default or Event of Default shall have occurred and be continuing
on the Amendment Effective Date.
7.05. All fees and expenses payable on or prior to the
Amendment Effective Date shall have been paid to the Lenders, the
Issuing Banks and the Agent.
SECTION 8. Representations and Warranties. The Borrower hereby
represents and warrants to the Lenders, the Issuing Banks and the
Agent that after giving effect to this Amendment, (a) as of the
Amendment Effective Date no Default or Event of Default under the
Credit Agreement shall have occurred and be continuing and (b)
all of the representations and warranties of the Borrower and the
Guarantors contained in the Credit Agreement and in any other
Loan Document continue to be true and correct as of the date
hereof, as though made on and as of such date, except to the
extent that such representations or warranties expressly relate
to prior dates, in which case, such representations and
warranties shall be true and correct as of such earlier dates.
SECTION 9. Reference to and Effect on the Loan Documents.
9.01. Upon the effectiveness of this Amendment, on and
after the date hereof, each reference in the Credit Agreement to
"this Agreement", "hereunder", "hereof" or words of like import,
and each reference in the other Loan Documents to the Credit
Agreement, shall mean and be a reference to the Credit Agreement
as amended hereby.
9.02. Except as specifically amended above, all of the
terms of the Credit Agreement and all other Loan Documents shall
remain unchanged and in full force and effect.
9.03. The execution, delivery and effectiveness of
this Amendment shall not, except as expressly provided herein,
operate as a waiver of any right, power or remedy of any Lender,
any Issuing Bank or the Agent, nor constitute a waiver of any
provision of the Credit Agreement or any of the Loan Documents.
SECTION 10. Costs and Expenses. The Borrower agrees to
PAY ONdemand in accordance with the terms of Section 14.02 of the
Credit Agreement all costs and expenses in connection with the
preparation, reproduction, execution and delivery of this
Amendment, including the reasonable fees and out-of-pocket
expenses of Sidley & Austin, counsel for the Agent.
SECTION 11. Execution in Counterparts. This Amendment may be
executed and delivered in any number of counterparts and by
different parties hereto in separate counterparts, each of which
when so executed and delivered shall be deemed an original and
all of which taken together shall constitute one and the same
original agreement.
SECTION 12. Governing Law. THIS AMENDMENT SHALL BE INTERPRETED,
AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED,
IN ACCORDANCE WITH THE INTERNAL LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, this Amendment has been duly
executed on the date set forth above.
IMO INDUSTRIES INC.
By: /s/ R.A. Derr II
Name:
Title:Vice President & Treasurer
CITIBANK, N.A., as Agent and as
a Lender
By: /s/ Timothy L. Freeman
Name:
Title:
THE BANK OF NEW YORK COMMERCIAL
CORPORATION
By: /s/ Stephen V. Mangiante
Name:
Title:
GENERAL ELECTRIC CAPITAL
CORPORATION
By: /s/ Catherine L. Midkiff
Name:
Title:
HELLER FINANCIAL, INC.
By: /s/ Salvatore A. Salullo
Name:
NATIONAL WESTMINSTER BANK Plc
By:
Name:
Title:
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Peter L. Skavla
Name:
Title:
TRANSAMERICA BUSINESS CREDIT
CORPORATION
By: /s/ Perry Vavoules
Name:
Title:
Acknowledged and agreed
to:
BAIRD CORPORATION
By:_/s/ R.A. Derr II
Name:
Title:Vice President and Treasurer
VARO INC.
By:_/s/ R.A. Derr II
Name:
Title: Vice President and Treasurer
WARREN PUMPS INC.
By:_/s/ R.A. Derr II
Name:
Title: Vice President and Treasurer
SUBSIDIARIES AND AFFILIATES OF IMO INDUSTRIES INC.
Date: 3/8/95 STATE OR
COUNTRY OF
INCORPORATION
NAME OR ORGANIZATION
__________________________________________________________________________
IMO INDUSTRIES (UK) LIMITED ..............................ENGLAND
IMO INDUSTRIES LIMITED ...............................ENGLAND
IMO INDUSTRIES PENSION TRUSTEE LIMITED ...........ENGLAND
BAIRD ATOMIC LTD. ....................................ENGLAND
MORSE CONTROLS LIMITED ...............................ENGLAND
MORSE CONTROLS AB ................................SWEDEN
MORSE CONTROLS PTY. LTD. .........................NEW SOUTH WALES
MORSE CONTROLS (NZ) LIMITED ..................NEW ZEALAND
TELEFLEX-MORSE (N.Z.) LTD. ...................NEW ZEALAND
BOSTON GEAR COMPANY LIMITED ......................ENGLAND
TELEFLEX LIMITED .................................ENGLAND
TELEFLEX MORSE LTD. ..............................ENGLAND
IMO INDUSTRIES SRL .......................................ITALY
IMO INDUSTRIES SARL ......................................FRANCE
IMO INDUSTRIES GmbH ......................................GERMANY
MORSE CONTROLS GmbH ..................................GERMANY
TELEFLEX GmbH ........................................GERMANY (1)
MORSE CONTROLS SARL ......................................FRANCE
MORSE CONTROLS S.L. ......................................SPAIN
IMO INDUSTRIES PTE LTD ...................................SINGAPORE
NHK MORSE CO., LTD. ......................................JAPAN (2)
NHK JABSCO CO., LTD. .................................JAPAN (3)
WEKA AG ..................................................SWITZERLAND
IMO AB ...................................................SWEDEN
IMO PUMPEN AG ........................................SWITZERLAND
IMO GRESHAM PUMPS (INDIA) LTD. .......................INDIA (4)
IMO-PUMPEN GmbH ..........................................GERMANY
ROLTRA-MORSE S.p.A. ......................................ITALY (5)
ROLSAG S.p.A. ........................................ITALY (6)
SIRSA S.p.A. .........................................ITALY (6)
ROLTRA MORSE POLAND Spzoo ............................POLAND
IMO INDUSTRIES (CANADA) INC. .............................CANADA
DELSALESCO, INC...........................................U.S. VIRGIN ISLANDS
IMOVEST INC. .............................................DELAWARE
BAIRD CORPORATION ........................................MASSACHUSETTS
LABTEST EQUIPMENT COMPANY ............................CALIFORNIA
INCOM TRANSPORTATION, INC. ...............................DELAWARE
BOSTON GEAR INDUSTRIES OF CANADA INC. ....................CANADA
VARO INC. ................................................TEXAS
VARO TECHNOLOGY CENTER, INC. .........................TEXAS
VARO TECHNOLOGY CENTER JOINT VENTURE .............TEXAS (7)
TURBODEL INC. ........................................TEXAS
TRIPOWER VENTURE .................................TEXAS (8)
APPLIED OPTICS CENTER CORPORATION ....................MASSACHUSETTS
TECNOLOGIA ELECTRONICA de JUAREZ, S.A. de C.V. .......MEXICO
TRANSVARO ELEKTRON ALETLERI SANAYI VE TICARET A.S. ...TURKEY (9)
ITT AND VARO, A JOINT VENTURE ........................TEXAS (9)
KEI LASER, INC. ......................................MARYLAND
OPTIC-ELECTRONIC INTERNATIONAL, INC. .................TEXAS
WARREN PUMPS INC. ........................................DELAWARE
DELTEX SERVICE INC. ......................................TEXAS
____________________________
(1) 52% owned by Imo Industries GmbH and 48% owned by Morse Controls Ltd.
(2) 50% owned by Imo Industries Inc.
(3) 50% owned by NHK Morse Co., Ltd.
(4) 40% owned by IMO AB.
(5) 99% owned by Imo Industries Inc.
(6) 51% owned by Roltra-Morse S.p.A.
(7) 50% owned by Varo Technology Center, Inc. and 50% owned by Varo Inc.
(8) 50% owned by Turbodel Inc.
(9) 50% owned by Varo Inc.
EXHIBIT 23 -- CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 33-13362, No. 33-41260, and No. 33-
60533) pertaining to the Imo Industries Inc. Employees' Stock
Savings Plan, Registration Statement (Form S-8 No. 33-26118)
pertaining to the Imo Industries Inc. Equity Incentive Plan for
Key Employees and the Equity Incentive Plan for Outside Directors,
as amended on June 23, 1995, Registration Statement (Form S-8 No.
33-60535) pertaining to the Imo Industries Inc. 1995 Equity
Incentive Plan for Outside Directors of Imo Industries Inc. of our
report dated February 15, 1996, with respect to the consolidated
financial statements and schedule of Imo Industries Inc. included
in this Annual Report (Form 10-K) for the year ended December 31,
1995.
ERNST & YOUNG LLP
Princeton, New Jersey
March 25, 1996
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