IMO Reports Q2 Earnings
17 July 1997
IMO Reports Earnings of 14 Cents Per Share In Second Quarter; Announces Settlement of International Insurance Litigation
LAWRENCEVILLE, N.J., July 17 -- Imo Industries Inc.
today reported net income of $2.4 million or 14 cents a share for
the second quarter ended June 30, 1997, compared with a net loss of $7.6
million or 44 cents a share for the second quarter of last year.
Sales of $126.6 million were 6% higher than last year's second quarter
and segment operating income of $11.3 million was 4% higher. Bookings were 4%
ahead of last year.
Imo also announced that it had negotiated a settlement of litigation with
International Insurance Company that reduces the amount of a judgment entered
against Imo earlier this year. Imo had previously recorded a $12.9 million
charge to income, which was the amount of the judgment and interest awarded by
the court. Imo has agreed to drop an appeal currently pending in the case. As
a result of the settlement, second quarter net income was positively impacted
by a $2.4 million favorable adjustment.
Segment operating income comparisons with last year were adversely
affected by the phase-out of certain postretirement benefits, completed in
December 1996. This non-cash gain, created when the Company amended its policy
regarding retiree medical and life insurance benefits in 1994, was amortized
to income over the phase-out years 1994-1996. The second quarter of 1996
benefited by $1.1 million from this phase-out. Year to date, the favorable
impact on 1996 was $2.2 million.
Year-to-date 1997 sales of $246.2 million were slightly ahead of 1996
sales of $241.4 million for the comparable period. Operating income of $21.8
million was down $1 million from 1996 at mid-year. Excluding the favorable
OPEB adjustment in 1996, operating income for the first six months of 1997 was
$1.1 million ahead of last year.
Imo Chairman and Chief Executive Officer Donald K. Farrar said second
quarter sales were ahead of last year at all five business units. In the U.S.,
pump sales were up 11%, instrumentation sales were up 13% and power
transmission sales were up 8%. This performance was dampened by a downturn in
volumes and margins in the European instrumentation and pumps businesses.
Segment operating income at Morse Controls was down for the quarter due
primarily to lower margins in Germany. Foreign exchange rates also impacted
European results.
Sales at the Roltra-Morse unit have bounced back well, Farrar said,
a reflection of the continuing high demand for automobiles in Italy and
Poland. Second quarter sales were up 16% compared to last year, though
operating inefficiencies reduced margins for the quarter. Start up costs at a
new Brazilian joint venture also impacted results for the quarter.
Power Transmission: Sales of $22.9 million were 8% ahead of last year, and
segment operating income of $2.4 million was 42% higher than 1996. Sales and
operating income are about the same as last year on a year-to-date basis
(segment operating income up 23.6% excluding the 1996 OPEB adjustment). Market
penetration of recently introduced new electrical products is beginning to
pick up momentum. The sale of Fincor variable speed drives was up 16% in the
quarter, compared to last year. Sales to the newspaper business are also
improved over a weak 1996. Fincor is the leading U.S. supplier of drives used
to control large printing presses.
Pumps: The Pumps segment continued its positive sales and earnings
growth in the second quarter, supported primarily by increased orders for
equipment used in the transport and processing of crude oil and fuel pumps for
turbine-generators used in electric power generation. Segment operating income
of $4.1 million was 17% ahead of last year's second quarter, on a 5% increase
in sales to $28.7 million. Year-to-date sales are up about 4% and segment-
operating income is up 11% compared to 1996 (up 21.2% excluding the 1996 OPEB
adjustment). The turnaround at the Warren Pumps facility is making a strong
contribution to profitability.
Instrumentation: Sales of $19.4 million were about the same as last
year's second quarter. Segment operating income of $2.4 million was down 4%
for the quarter. Year-to-date sales of $37.6 million were down 3% from 1996
and operating income of $4.8 million was 2% ahead of last year (up 9.7%
excluding the 1996 OPEB adjustment). In North America, which constitutes
nearly two-thirds of the segment's annual revenue, year-to-date sales are up
13% and operating income is up 30% over last year's first half. A new
management team at the European operation has improved on-time performance and
is planning to recapture the market share lost when production schedules
slipped badly during the past two years. Cost savings planned for 1997 are
expected to be realized in the last half of the year.
Morse Controls: Sales of $29.7 million in the second quarter were about
the same as last year's comparable period. Segment operating income of $2.2
million was down 15%. Year-to-date operating income of $4.3 million is down
18% (down 13.7% excluding the 1996 OPEB adjustment) on sales of $58.1 million,
down 3% from last year's $59.7 million. Persistent problems at Morse's
operation in Germany, which has undergone extensive restructuring, are
expected to begin showing improvement later in the year, now that industrial
segments of the German economy are beginning to show signs of recovery.
Morse's U.S. operation posted record bookings and shipments in April, as the
pleasure boating season picked up steam after a slow start.
Roltra-Morse: Sales of $25.9 million in the second quarter were up 16%
from 1996's comparable period, but delays in implementing both restructuring
plans and the introduction of new lower-cost components held segment operating
income to $.2 million, about half last year's second quarter. Year-to-date
sales of $48.2 million are 9% ahead of last year, but income of $.6 million is
off significantly from 1996's total of $1.4 million. Roltra is expected
to benefit in the second half of the year from the continuing high level of
auto sales in Italy. As previously announced, the Company has entered into a
definitive merger agreement providing for the acquisition of Imo by United
Dominion Industries Limited ("UDI"). Subsequent to the
announcement, UDI commenced a tender offer for all outstanding shares of Imo
common stock at a price of $6.00 per share, net in cash, as well as a tender
offer to purchase for cash at 120% of the principal amount, all of the
Company's 11 3/4% Senior Subordinated Notes due 2006 and obtain consents to
amend or remove certain restrictive covenants contained in the Indenture
governing the Notes.
UDI today announced that all of the outstanding notes had been tendered
and consents from the holders of the Notes had been received with respect to
the amendment of the Indenture. UDI indicated that these amendments will not
become operative unless the Notes are accepted for payment. UDI's obligation
to accept and pay for the notes is conditioned upon, among other things,
successful completion of its tender offer for the common stock of Imo. The
tender offers will expire on July 30, 1997 unless extended.
Imo Industries, with 1996 sales of $469 million, is a diversified
manufacturer of pumps, fluid sensors, motion control products, remote control
systems and automotive components, with operations worldwide.
IMO INDUSTRIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Amounts in thousands, except per share data)
Three Months
Ended June 30
(Unaudited)
1997 1996 (A)
Net Sales (A) $ 126,613 $119,988
Gross Profit 37,271 34,582
Segment Operating Income (A) (C) 11,298 10,812
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interest and
Extraordinary Item (A) (E) 3,092 1,833
Income Taxes 637 1,046
Minority Interest 26 (69)
Income (Loss) From Continuing Operations
Before Extraordinary Item 2,429 856
Discontinued Operations, Net of Taxes: (A)(B)
Income from Operations --- ---
Extraordinary Item (D) --- (8,455)
Net Income (Loss) $ 2,429 $ (7,599)
Earnings Per Share:
Continuing Operations
Before Extraordinary Item $ 0.14 $ 0.05
Discontinued Operations $ --- $ ---
Extraordinary Item $ --- $ (0.49)
Net Income (Loss) $ 0.14 $ (0.44)
Average Shares Outstanding 17,126 17,086
Bookings: (A)
Power Transmission $ 22,909 $ 21,098
Pumps 28,019 29,788
Instrumentation 18,805 20,290
Morse Controls 29,131 29,624
Roltra-Morse 21,995 15,365
Total $ 120,859 $116,165
See notes.
IMO INDUSTRIES INC. AND SUBSIDIARIES
Condensed Consolidated Statements of Income
(Amounts in thousands, except per share data)
Six Months
Ended June 30
(Unaudited)
1997 1996 (A)
Net Sales (A) $ 246,159 $ 241,403
Gross Profit 72,730 70,140
Segment Operating Income (A) (C) 21,808 22,817
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interest and
Extraordinary Item (A) (E) (9,120) 4,739
Income Taxes 1,292 1,994
Minority Interest 1 (51)
Income (Loss) From Continuing Operations
Before Extraordinary Item (10,413) 2,796
Discontinued Operations, Net of Taxes: (A)(B)
Income from Operations --- ---
Extraordinary Item (D) --- (8,455)
Net Income (Loss) $ (10,413) $ (5,659)
Earnings Per Share:
Continuing Operations
Before Extraordinary Item $ (0.61) $ 0.16
Discontinued Operations $ --- $ ---
Extraordinary Item $ --- $ (0.49)
Net Income (Loss) $ (0.61) $ (0.33)
Average Shares Outstanding 17,126 17,086
Bookings: (A)
Power Transmission $ 46,858 $ 45,766
Pumps 58,606 58,958
Instrumentation 37,385 42,465
Morse Controls 57,264 57,997
Roltra-Morse 42,604 33,786
Total $ 242,717 $ 238,972
Backlog $ 100,484 $ 107,967
See notes.
IMO INDUSTRIES INC. AND SUBSIDIARIES
Segment Information and Financial Highlights
Excludes Discontinued Operations
(Dollars in thousands)
Three Months
Ended June 30
(Unaudited)
1997 1996 (A)
Net Sales: (A)
Power Transmission $ 22,931 $ 21,222
Pumps 28,715 27,430
Instrumentation 19,423 19,360
Morse Controls 29,659 29,647
Roltra-Morse 25,885 22,329
Total Net Sales 126,613 119,988
Segment Operating Income : (A) (C)
Power Transmission 2,405 1,694
Pumps 4,103 3,515
Instrumentation 2,418 2,529
Morse Controls 2,166 2,543
Roltra-Morse 206 531
Total Segment Operating Income 11,298 10,812
Equity in Income (Loss) of
Unconsolidated Companies (222) 25
Corporate Expense (E) 90 (1,287)
Net Interest Expense (B) (8,074) (7,717)
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interest and
Extraordinary Item (A)(B)(C)$ 3,092 $ 1,833
Memo:
Income (Loss) Before Interest, Taxes, Depreciation
and Amortization (EBITDA):
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interest and
Extraordinary Item $ 3,092 $ 1,833
Add Back: Interest Expense (B) 8,555 8,024
Depreciation and Amortization 4,763 4,698
EBITDA 16,410 14,555
Add Back: Unusual Items (E) (2,400) ---
EBITDA (Excluding Unusual Items) $ 14,010 $ 14,555
See notes.
IMO INDUSTRIES INC. AND SUBSIDIARIES
Segment Information and Financial Highlights
Excludes Discontinued Operations
(Dollars in thousands)
Six Months
Ended June 30
(Unaudited)
1997 1996 (A)
Net Sales: (A)
Power Transmission $ 45,968 $ 44,919
Pumps 56,127 53,776
Instrumentation 37,639 38,710
Morse Controls 58,137 59,666
Roltra-Morse 48,288 44,332
Total Net Sales 246,159 241,403
Segment Operating Income : (A) (C)
Power Transmission 4,369 4,460
Pumps 7,729 6,981
Instrumentation 4,784 4,674
Morse Controls 4,302 5,276
Roltra-Morse 624 1,426
Total Segment Operating Income 21,808 22,817
Equity in Income (Loss) of
Unconsolidated Companies (400) 50
Corporate Expense (E) (14,337) (2,518)
Net Interest Expense (B) (16,191) (15,610)
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interest and
Extraordinary Item (A)(B)(C)$(9,120) $ 4,739
Memo:
Income (Loss) Before Interest, Taxes, Depreciation
and Amortization (EBITDA):
Income (Loss) From Continuing Operations Before
Income Taxes, Minority Interest and
Extraordinary Item $ (9,120) $ 4,739
Add Back: Interest Expense (B) 16,957 16,314
Depreciation and Amortization 9,544 9,371
EBITDA 17,381 30,424
Add Back: Unusual Items (E) 10,500 ---
EBITDA (Excluding Unusual Items) $ 27,881 $ 30,424
See notes.
IMO INDUSTRIES INC. AND SUBSIDIARIES
(A) As shown on the Segment Information and Financial Highlights, the
Company's Continuing Operations are comprised of the Power Transmission,
Pumps, Instrumentation, Morse Controls, and Roltra-Morse business segments.
Prior year amounts have been restated to reflect the Roltra-Morse
business segment as a continuing operation due to its withdrawal from
potential sale in November 1996.
The Company sold substantially all of its Electro-Optical Systems
business segment and its Turbomachinery business segment in 1995. In April
1997, the Company sold its Electronic Systems Division thereby completing the
divestiture of its Electro-Optical Systems business segment. These business
segments have been accounted for as discontinued operations and, accordingly,
their operations are shown in the Condensed Consolidated Statements of Income
as Discontinued Operations.
(B) Interest amounts included in income from continuing operations exclude
interest allocated to the Discontinued Operations of $.1 million and $.5
million for the three months ended June 30, 1997 and 1996, respectively, and
$.5 million and $.9 million for the six months ended June 30, 1997 and 1996,
respectively. The amounts allocated are included in income from operations of
discontinued operations.
Amounts indicated as net are net of interest income of $.5 million and
$.3 million for the three months ended June 30, 1997 and 1996, respectively,
and $.8 million and $.7 million for the six months ended June 30, 1997 and
1996, respectively.
(C) The three and six months ended June 30, 1996 benefited from a
favorable adjustment related to the Company phase-out of accumulated
postretirement benefit obligations of $1.1 million ($.5 million in the Power
Transmission segment, $.3 million in the Pumps segment, $.2 million in
the Instrumentation segment, $.1 million in the Morse Controls segment) and
$2.2 million ($1.0 million in the Power Transmission segment, $.6 million in
the Pumps segment, $.4 million in the Instrumentation segment, $.2 million in
the Morse Controls segment), respectively. In March 1994, the Company amended
its policy regarding retiree medical and life insurance plans. This
amendment, which affected all current retirees and future retirees, phased out
the Company subsidy for retiree medical and life insurance over the three-year
period ended December 31, 1996.
(D) The three and six months ended June 30, 1996 include an extraordinary
charge of $8.5 million ($.49 per share), representing the costs incurred in
connection with the early extinguishment of debt as well as the write-off of
previously deferred loan costs.
(E) The three and six month periods ended June 30, 1997 include an unusual
income item of $2.4 million and an unusual charge of $10.5 million,
respectively, relating to a judgment against the Company (included in
Corporate Expense). On May 8, 1997, the Company was informed that
the U.S. District Court for the Northern District of California had reinstated
the International Insurance Company ("International") judgment, awarding
International $11.2 million, plus interest from March 1995. Based on the
judgment, the Company recorded a provision of $12.9 million as of March 31,
1997. In late May 1997, the Company entered into settlement discussions
with International and reached a settlement agreement on July 15, 1997, ending
the dispute. In the three months ended June 30, 1997, the Company reversed
$2.4 million of the previously recorded $12.9 million provision.
SOURCE Imo Industries Inc.