Correcting Derlan Industries Limited Reports Financial Results for Fiscal 1996.

TORONTO--(BUSINESS WIRE)--Feb. 26, 1997--DERLAN INDUSTRIES LIMITED (TSE: DRL, DRL.PR.A):

CORRECTION FROM SOURCE: There was an error in the news release transmitted on FEBRUARY 25, 1997 for DERLAN INDUSTRIES LIMITED. In the table for Consolidated Statement of Earnings under three months ended December 31, 1995 for Provision for Goodwill, Other Assets and Restructuring Costs should have read 1.5 million. The complete and correct release follows:

Derlan Industries announced today results for the fourth quarter and full year 1996. For the three months ended December 31, 1996 net earnings were $3.1 million (10 cents per share), which includes a gain on the divestment of Porcelain Industries of 6 cents per share. This compares to a net loss of $1.2 million (loss of 4 cents per share) in the fourth quarter of 1995. Profit improvements in the Aerospace Sector were the main reason for the better results.

For the year 1996, Derlan reported a net loss of $28.9 million (loss of $1.78 per share after preference share dividends and related taxes). This loss resulted from a $30 million special provision booked in the third quarter to reflect a write down in Derlan's investment in under-performing assets and to provide for certain other non-operating costs. For fiscal 1995, Derlan reported net income of $25.1 million or $1.34 per share, including a $60 million pre-tax divestment gain on the sale of Multilin and a $16.5 million provision for goodwill and other assets.

Pre-tax profit before divestment gains, minority interests and the special provision in 1996 was $2.4 million compared to a loss of $5.2 million a year earlier. Lower interest expense and improved operating performance, particularly from the Aerospace Sector, contributed to this turnaround. Before special provision and divestment gains the company reported a loss of 19 cents per share compared with a loss of 55 cents per share on a comparable basis in 1995.

Cash flow for both 1995 and 1996 was impacted by special provisions and divestment gains, especially 1995 which included a major gain on the divestment of Multilin. Cash flow per share before special provisions and divestment gains was 70 cents in 1996, up from 59 cents in 1995.

As a result of divestments, sales for the 1996 fourth quarter and year have fallen from 1995 to $83.1 million and $311.7 million respectively. Comparable sales for operations owned effective January 1, 1997 increased in the fourth quarter by over 15 percent to $81.2 million in 1996 from $70.4 million in 1995. For the year 1996 the comparable sales increase was almost 10 percent to $273.8 million from $249.8 million in 1995.

Pretax operating profit from Derlan's two business segments increased from $25.5 million in 1995 to $27.9 million in 1996. Excluding the impact of operations divested in 1995 and 1996, earnings from continuing operations improved from $19.5 million in 1995 to $26.6 million in 1996. The improvement was most pronounced in the Aerospace Sector where earnings of $16.1 million were up $6.1 million from 1995. In the Industrial Technologies Sector, earnings from continuing operations were $10.4 million, up from $9.5 million on a comparable basis in 1995.

During 1996, Derlan made continued progress on its three major strategic objectives of improving Aerospace sector profitability, improving the Balance Sheet through selective divestments and narrowing the Company's focus to the strongest growth areas. Four strategic divestments were made during 1996 and one shortly after year end. Continental Manufacturing Inc., Porcelain Industries Inc., Carriere Technical Industries and the Wireless Division of K & M Electronics Inc. were divested in 1996 and the Securamax Division was sold in February 1997. The proceeds from these divestments were used to reduce debt which resulted in interest being $4.3 million lower than in 1995.

In January 1997 a major refinancing of the company was completed: US$110 million of 10 percent unsecured senior notes were issued and a new $50 million revolving credit facility established. The proceeds from the issue were used firstly to repay existing secured debt and secondly to provide Derlan with additional cash and a more flexible and longer term debt structure from which to invest and grow its core operations.

Outlook

The backlog at December 31, 1996 has increased to $407 million from a comparable $238 million in 1995, after 1996 divestments. The backlog for the Aerospace Group continues to build and stands at $366 million at December 31, 1996, up from $200 million a year earlier, which is an indication of stronger medium to long-term earnings.

The California based aerospace division and the Roberts industrial automation division continue to operate at less than optimal capacity. However, there are significant bids for new contracts outstanding which, if successful, will enable these facilities to realize their potential. Conditions in the Aerospace industry continue to improve. With the divestments made over the last two years and planned for 1997, the Industrial Technologies Sector will be focused on key growth operations in two main areas, industrial automation and fluid handling.

Over the last three years, Derlan has narrowed its focus from 22 smaller diversified operations to nine, currently, while maintaining approximately the same sales levels. Further selective divestments of non-core activities are planned for 1997. With the completion of divestments over the last few years and the recent refinancing, Derlan has narrowed its focus and re-established a solid financial base from which to grow its operations. The objective going forward is to enhance profitability in both Aerospace and Industrial Technology through the growth of core operations and in turn to enhance shareholder value. -0-

                     (thousands of dollars
                    except per share amounts)

                    DERLAN INDUSTRIES LIMITED
               CONSOLIDATED STATEMENT OF EARNINGS
       FOR THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND 1995
                           (Unaudited)


                       THREE MONTHS ENDED   TWELVE MONTHS ENDED
                          DECEMBER 31           DECEMBER 31
                        1996      1995        1996      1995
                        -----     -----       ----      -----


Sales                   83,072    87,052     311,673   345,438

Manufacturing Expenses  63,270    66,007     231,647   255,779

Selling, General
 and Administration
  Expenses              13,419    13,713      56,063    62,457

Other (Income) Expense  (2,230)   (1,980)     (5,263)   (2,493)

Depreciation
 and Amortization       3,364     6,898      15,726    19,489

Interest                3,356     3,567      11,110    15,389

Provision for Goodwill,
 Other Assets and
 Restructuring Costs        0     1,500      30,000    16,500

Divestment Gains       (2,005)        0      (2,005)  (60,000)
                       ------   -------      -------  --------
Earnings (Loss) before
 Income Taxes and
 Minority Interest      3,898    (2,653)    (25,605)   38,317

Provision for
  Income Taxes            600    (1,650)      2,400    11,800

Minority Shareholders'
 Interests in
 Earnings of Subsidiary
  Companies               221       194          891     1,417
                        ------    ------     -------   -------

Net Earnings (Loss)     3,077    (1,197)     (28,896)   25,100
                        ------    ------     -------   -------
                        ------    ------     -------   -------


Earnings (Loss) per
  share                 0.10     (0.04)       (1.78)      1.34
                        ------    ------     -------   -------
                        ------    ------     -------   -------


                     (thousands of dollars)

                    DERLAN INDUSTRIES LIMITED
                  CONSOLIDATED FINANCIAL SHEET
                  AT DECEMBER 31, 1996 AND 1995
                           (Unaudited)


                                               1996       1995
                                               -----      -----

Assets      Current Assets
             Cash and Term Deposits            7,403     26,749
             Accounts Receivable              69,181     61,217
             Inventories                      87,333     86,748
             Prepaids and Other                3,785      4,334
                                             --------   -------
                                             167,702    179,048

             Fixed Assets, Net                64,900     86,502
             Long-Term Notes Receivable        1,366      1,668
             Goodwill, Net                    20,960     28,405
             Other Assets, Net                15,668     21,948
                                            --------   --------
                                             270,596    317,571
                                            --------   --------
                                            --------   --------

Liabilities  Current Liabilities
               Bank Indebtedness                 817      2,986
               Accounts Payable
                and Accrued Liabilities       59,595     55,551
               Taxes Payable                   4,066      3,022
               Current Portion of Long-Term    1,362     27,943
                                            --------   --------
                                              65,840     89,502

               Long-Term Debt                112,371    107,018
               Deferred Taxes                  3,283      3,769
               Minority Shareholders' Interests
                in Subsidiary Companies        8,449      8,342
               Other Non-current Liabilities   6,599      4,739
                                            --------   --------
                                             196,542    213,370
                                            --------   --------

Shareholders'  Share Capital                 140,102    138,472
Equity         Currency Translation
               Adjustment                     (8,124)   (25,608)
               Retained Earnings (Deficit)   (57,924)    (8,663)
                                            --------    --------
                                              74,054    104,201
                                            --------    --------
                                             270,596    317,571
                                            --------    --------
                                            --------    --------


                     (thousands of dollars)

                    DERLAN INDUSTRIES LIMITED
      CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
          FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995

                          (Unaudited)

                                         1996          1995
                                         ----          ----
Operating Activities

Net Income (Loss) for the Year        $(28,896)    $ 25,100
Less: Divestment Gains, Net of Tax      (1,105)     (51,000)
Add: Non-cash Items-
 Depreciation and amortization          14,051       17,506
 Goodwill amortization                   1,675        1,983
Provision for goodwill, other
  assets and restructuring costs         8,770        7,100
Deferred income taxes                     (486)       1,616
Minority shareholders' interest
  in earnings of subsidiary companies      891        1,417
                                        -------     -------
                                        (5,100)       3,722

Net Change in Non-cash Working
 Capital Balances Related
 to Operations                         (14,433)      (2,955)
                                        -------     -------
                                       (19,533)         767
                                        -------     -------

Investing Activities
  Acquisitions                             -         (5,876)
  Dispositions                          26,966       67,926
  Capital Expenditures                  (8,153)     (10,515)
  Proceeds from Sale/Leasebacks
   of Fixed Assets                       1,915        4,796
  Net Change in Long-term
   Notes Receivable                        256        3,169
  Purchase of Minority Interests        (1,130)      (2,101)
  Other                                  4,495       (4,577)
                                       --------     --------
                                        24,349       52,822
                                       --------     --------

Financing Activities
 Additions to Long-term Debt            16,656       76,595
 Repayments and Reclassification
  of Long-term Debt                    (37,398)    (46,582)
 Shares Purchased Pursuant
  to Issuer Bid                            -           (33)
 Redemption and
  Reclassification of Share Capital     1,630       (4,671)
 Dividends Paid to Preference
  Shareholders                         (2,280)      (2,082)
 Refundable Advance Corporation Tax    (1,140)       1,400
                                      --------     -------
                                      (22,532)      24,627
                                      --------     -------

Effect of Translation of Foreign
 Currency Amounts in Self Sustaining
   Subsidiaries                          539       (3,634)
                                     --------     --------
Increase (Decrease) in
 Cash During the Year                (17,177)      74,582

Net Cash (Bank Indebtedness)
 at Beginning of Year                 23,763      (50,819)
                                     --------     --------
Net Cash at End of Year            $   6,586    $  23,763
                                     --------     --------

Cash is defined as cash and term deposits less bank indebtedness

CONTACT: Derlan Industries Limited

J. David Williamson, 416/364-5852

[e-mail]