FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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 March 31, 1997
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 1-5502
ZURN INDUSTRIES, INC.
State of Address and IRS Employer
Incorporation Telephone Number Identification Number
Pennsylvania One Zurn Place 25-1040754
Erie, Pennsylvania 16505
814-452-2111
Securities Registered Pursuant to Section 12(b) of the Act
Title of Each Class Exchange on Which Registered
Common Stock, $.50 Par Value New York Stock Exchange, Inc.
Pacific Exchange, Inc.
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, 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 statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
The aggregate market value of the voting stock held by nonaffiliates of the
registrant was $327,539,000 based on the closing sale price per share for the
12,359,962 shares of Common Stock, $.50 par value, outstanding on May 30, 1997
and excluding the value of 2,072 shares of preferred stock which have no
quoted market value.
Documents Incorporated by Reference
Portions of Annual Report to Shareholders for the year ended March 31, 1997
incorporated by reference in Parts I and II
Portions of Proxy Statement dated June 27, 1997 incorporated by reference in
Part III
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PART I
ITEM 1 - BUSINESS
General Development Of Business
Zurn Industries, Inc., founded in 1900 and incorporated in 1932, together with
its subsidiaries ("Company") designs, constructs, manufactures, markets, and
operates in two industry segments: Building Products and Water Resource
Construction. The categorization of the Company's businesses in these
segments in fiscal 1997 resulted from the acquisition of Eljer Industries,
Inc., a manufacturer and marketer of plumbing and HVAC building products and a
decision to sell the Power Systems segment businesses.
The first and third paragraphs of "Notes to Consolidated Financial Statements
- - Commitments and Contingencies" on page 37 of the Annual Report to
Shareholders for the year ended March 31, 1997 which discuss the bankruptcy
status of an indirect, wholly-owned subsidiary are incorporated herein by
reference.
Financial Information About Industry Segments
"Industry Segment Data" on page 29 of the Annual Report to Shareholders for
the year ended March 31, 1997 is incorporated herein by reference.
Narrative Description Of Business
"Notes to Consolidated Financial Statements - Business Description" on page 30
of the Annual Report to Shareholders for the year ended March 31, 1997,
excluding the last sentence of the first paragraph and the fourth paragraph,
is incorporated herein by reference.
Product Class Sales
Year Ended March 31
Segment And Products 1997 1996 1995
(Thousands)
Building Products
Plumbing products $202,658 $140,925 $121,133
Fire protection systems 45,415 38,230 34,541
Other products 23,127 1,635 990
Water Resource Construction
Construction and construction services 69,145 84,245 58,808
Other products 12,673 19,648 18,380
Building Products - Plumbing and HVAC products for the construction and
remodeling markets, including: vitreous china toilets and lavatories, enameled
cast iron tubs, lavatories and whirlpools, plumbing connectors, flexible
systems and supplies; roof, floor, and trench drains, primers, traps,
backwater valves, hair, grease, oil, and solids interceptors and recovery
systems, cleanouts, off-the-floor fixture supports, service basins, water
hammer arrestors, hydrants, floor and mop sinks, ferrous castings, flush
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valves, shower heads, faucets, and hand dryers; tubular brass and plastic
plumbing supplies, sink strainers, shower heads, and toilet tank accessories;
pressure reducing and regulating valves, temperature/pressure relief valves,
swing-away ball valves, reduced pressure backflow preventers, pressure vacuum
breakers, check valves, double check valves, water gravity flow systems; and,
registers, venting grilles and systems, prefabricated chimneys, air difusers,
fireplaces. Automatic interior fire protection sprinkler systems for new
construction and remodeling projects.
Water Resource Construction - Construction of water resource and treatment
systems and general construction services for civil, structural, and
mechanical piping.
Segment Status
No new segment or product is being planned or developed which will require the
investment of a material amount of the Company's assets, or which otherwise is
material.
Sources And Availability Of Raw Materials
The Company's businesses use clay, ferrous and nonferrous metals, and plastics
purchased from various domestic and foreign suppliers. The sources of supply
are adequate and the Company is not substantially dependent upon any one
supplier.
Patents And Licenses
The Company owns numerous patents relating to the design and manufacture of
its products and systems. From time to time the Company grants licenses to
others under certain of its patents and obtains licenses under the patents of
others. While the Company considers that, in the aggregate, its patents and
licenses are important in the operation of its businesses, it believes that
the successful manufacture and sale of its products generally depends more
upon its technological know-how and manufacturing, marketing, and construction
skills.
Seasonal Business
Neither of the industry segments is considered to have significant seasonal
business.
Working Capital Requirements
Certain products of the Building Products segment are considered standard
items and significant amounts of inventory are required to meet rapid delivery
requirements of customers.
Customer Dependence
Neither of the industry segments has a customer the loss of which would have a
material adverse effect on the segment.
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Customer Identity
There are no customers the loss of which would have a material adverse effect
on the Company.
Backlog
The backlog of unshipped orders was as follows:
March 31
1997 1996
(Thousands)
Building Products $ 50,000 $30,000
Water Resource Construction 81,000 68,000
$131,000 $98,000
Approximately 41% of the Water Resource Construction backlog is expected to be
completed in fiscal years ending after March 31, 1998.
Government Contracts
No material portion of the business of either industry segment is subject to
renegotiation of profits or termination of contracts or subcontracts at the
election of the Government.
Competitive Conditions
The Company's major markets are commercial, consumer, industrial, and
municipal. The Company competes with a number and variety of diverse
manufacturers and distributors, both large and small. Because of the
multiplicity and diversity of such markets, it is impracticable to ascertain a
proper competitive rating index.
In general, all the Company's products and systems are sold for the most part
in world-wide markets characterized by substantial price, service, and product
quality competition.
Research And Development
Research and development expenditures were not material in any of the last
three years.
Impact Of Environmental Laws And Regulations
Federal, state, and local regulations enacted to regulate the discharge of
materials into the environment are not expected to have any material effect on
the Company's capital expenditures, earnings, or competitive position.
Number Of Employees
The Company has approximately 5,100 employees.
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Foreign And Domestic Operations And Export Sales
The Company's foreign operations represented less than 10% of consolidated
sales, operating income, and assets in each of the last three years and
exports sales were not significant.
ITEM 2 - PROPERTIES
The Company principally operates in various locations throughout the United
States with other facilities in Canada and Europe all of which are considered
to be in good condition, well maintained, and adequate for its purposes. The
approximate square feet of floor space utilized at operating capacities
ranging from approximately 45% to 95% is as follows:
Owned Leased
Building Products 4,011,800 1,469,400
Water Resource Construction 42,400
Corporate Headquarters and Others 212,300
4,266,500 1,469,400
ITEM 3 - LEGAL PROCEEDINGS
United States Brass Corporation Bankruptcy
On May 23, 1994, the Company's indirect, wholly-owned subsidiary, United
States Brass Corporation ("US Brass") filed a voluntary petition for
reorganization under Chapter 11 of the Federal Bankruptcy Code ("Bankruptcy
Code") in the United States Bankruptcy Court for the Eastern District of Texas
("Bankruptcy Court") for the purpose of systematically resolving issues
resulting from sales of polybutylene plumbing systems ("Systems") and related
litigation and to seek confirmation of a plan of reorganization ("Plan")
which, among other things, provides for the payment, satisfaction and
discharge of all claims against US Brass involving the Systems. US Brass is
conducting its business and managing its properties as a debtor-in-possession
under Section 1108 of the Bankruptcy Code subject to the supervision and
orders of the Bankruptcy Court.
US Brass is a defendant, together in some cases with the Company's wholly-
owned subsidiary Eljer Industries, Inc. (Eljer) and its subsidiary, Eljer
Manufacturing, Inc. ("EMI"), in a number of lawsuits arising out of the
manufacture and sale of the Systems. Other defendants in the Systems lawsuits
are Shell Chemical Company ("Shell"), the manufacturer of polybutylene resin
from which US Brass extruded the pipe used in the Systems, Hoechst Celanese
Corporation ("Hoechst Celanese"), the manufacturer of a resin from which US
Brass molded Celcon acetal fittings formerly used in the Systems, other pipe
and fittings manufacturers, and builders, developers and plumbing contractors.
These lawsuits allege that the Systems leaked and seek recovery based on
negligence, breach of warranty, strict tort liability and, in some cases,
fraud or misrepresentation.
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Between 1988 and July 1991, US Brass, Shell, and Hoechst Celanese shared the
cost of repairs and replacements of Systems and Shell and Hoechst Celanese
have settled and continue to settle cases and repair or replace Systems for
which they contend US Brass was or is partially responsible. Litigation filed
by Hoechst Celanese and Shell in New Jersey state court against US Brass and
EMI relating to the Systems and the sharing of repair and replacement costs
remains pending in the Bankruptcy Court on a motion for reconsideration filed
by EMI following a decision by the Bankruptcy Court to remand those claims
back to New Jersey state court.
Since 1985 Eljer has been involved in litigation with its insurance carriers
concerning coverage for Systems litigation. In 1992, the United States Court
of Appeals for the Seventh Circuit ("Seventh Circuit") issued an opinion
holding that the policy period of coverage of a Systems claim is triggered by
the date of installation of the System as opposed to the date when the leak
occurs. However, significant insurance coverage litigation remains pending
and the Seventh Circuit opinion is not necessarily binding on all insurance
carriers issuing coverage to Eljer. Various insurance carriers filed state
court actions seeking declaratory relief that they are not obligated to
provide insurance coverage for Systems litigation. These actions were removed
to the Bankruptcy Court for the Northern District of Illinois and, in November
1994, the court denied a US Brass motion to transfer venue to the United
States District Court for the Eastern District of Texas and granted the
insurer's motion to abstain from hearing the case and to remand to the state
courts. The appeal filed by US Brass to the United States District Court for
the Northern District of Illinois was denied on July 2, 1996, and US Brass has
appealed to the Seventh Circuit which affirmed the lower court's decision on
April 2, 1997. The actions have been remanded to the state courts, but remain
subject to the automatic stay as a result of the bankruptcy of US Brass. The
United States District Court for the Eastern District of Texas has not ruled
on US Brass' appeal from the dismissal of an adversary action filed by US
Brass in the Bankruptcy Court against all insurance companies involved in the
Illinois state court actions as well as one additional carrier.
On March 22, 1995, Eljer, EMI, and US Brass filed with the Bankruptcy Court a
proposed Plan for US Brass under Chapter 11 of the Bankruptcy Code. The
Bankruptcy Court rejected the Plan on the basis that it was not confirmable
and an appeal is pending. An Amended Plan of Reorganization ("Amended Brass
Plan"), containing proposed settlements with Eljer, EMI and Shell, and an
Amended Disclosure Statement ("Amended Brass Disclosure Statement") have been
filed. A hearing was held on objections filed by various parties to the
Amended Brass Disclosure Statement on August 22, 1995.
The Official Polybutylene Claimants Committee ("PB Committee") in the US Brass
bankruptcy filed a proposed plan of reorganization ("PB Committee Plan") and
proposed disclosure statement ("PB Committee Disclosure Statement"). A
hearing was held on June 20, 1995 by the Bankruptcy Court on objections filed
by various parties to the PB Committee Disclosure Statement.
On April 8, 1996, the Bankruptcy Court approved the Amended Brass Disclosure
Statement and the Amended Brass Plan and the PB Committee Plan and the PB
Committee Disclosure Statement. However, because significant developments had
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occurred, the Bankruptcy Court permitted the parties to update disclosure
statements and modify their plans. On November 29, 1996, Eljer, EMI, and US
Brass filed the Third Amended Brass Plan of Reorganization ("Third Amended
Brass Plan") and the Third Amended Disclosure Statement ("Third Amended Brass
Disclosure Statement") and the PB Committee filed its Second Amended
Disclosure Statement ("Amended PB Committee Disclosure Statement") and its
Second Amended Plan of Reorganization ("Amended PB Committee Plan"). The
Third Amended Brass Plan contains proposed settlements with Eljer, EMI, Shell,
Celanese, and the class in the case entitled "Tina Cox et al. v. Shell Oil
Company et al." ("Cox") which includes class members formerly in the case
entitled "Garria Spencer, et al. v. Shell Oil Company et al." ("Spencer").
The Bankruptcy Court held a hearing on January 22, 1997 to consider the Third
Amended Brass Disclosure Statement, the Amended PB Disclosure Statement, and
objections thereto, but has not yet ruled on the two disclosure statements.
On October 10, 1996, a motion to lift stay ("Stay Motion") was filed seeking
modification of the automatic stay to permit the filing and prosecution of a
national class action in the United States District Court for the Eastern
District of Texas ("1996 Complaint"). The 1996 Complaint seeks to certify a
class of plumbing claims consisting of substantially all plumbing claimants
not covered by the settlement in "Cox", plus a vaguely defined subset of the
class covered by "Cox". On April 15, 1997, the Stay Motion was denied.
On October 28, 1996, the PB Committee filed a Motion to Convert the US Brass
Chapter 11 bankruptcy to a case under Chapter 7 of the Bankruptcy Code
("Conversion Motion"). Consideration of the Conversion Motion has been
postponed several times without objection by the PB Committee. If the
Conversion Motion is granted, US Brass would be liquidated.
In connection with settlements reached by various parties in the Cox and
Spencer litigation ("Cox-Spencer Agreement"), Eljer, EMI, and US Brass entered
into a tentative settlement contingent upon confirming a reorganization plan
in the US Brass bankruptcy embodying the terms of the tentative settlement and
finalization of an agreement with the parties to the Cox-Spencer Agreement.
The tentative settlement provides that EMI and US Brass will contribute an
amount equal to any proceeds of their insurance policies and Eljer will
contribute $53.4 million in cash and a noninterest bearing note for $20
million payable over 10 years. In exchange for such consideration, Eljer,
EMI, and US Brass will receive relief satisfactory to them from claims arising
from polybutylene sales to date and US Brass will remain an indirect, wholly-
owned operating subsidiary of the Company. The terms of the Cox-Spencer
Agreement are contained in the Third Amended Brass Plan. If the tentative
settlement does not result in a confirmed Plan of Reorganization, it is not
presently possible to estimate the ultimate number or dollar value of Systems
claims that may be filed and allowed in the bankruptcy case. As of February
15, 1997, approximately 1,535 claims had been filed with the Bankruptcy Court,
asserting the aggregate amount of approximately $2.15 billion, consisting
primarily of alleged Systems related damages. Additional claims may be filed.
Many claims are disputed or based on contingencies that have not occurred.
Other claims have been made which do not specify the amount of damages.
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Certain parties have alleged that claims exist against EMI and Eljer relating
to the Systems. Approximately 59 lawsuits representing approximately 25,000
homes have been filed in state or federal courts in eight different states
that name Eljer and/or EMI or its predecessor, Household Manufacturing, Inc.,
in addition to other parties, as defendants. These claims include allegations
of direct and alter ego liability. It is not known what effect the Cox-
Spencer Agreement will have on these lawsuits, although it is expected that
some of them may be dismissed following finalization of the Cox-Spencer
Agreement.
Environmental Matters
EMI has submitted a closure plan for a brass foundry in Marysville, Ohio which
was closed in 1987 to the Ohio Environmental Protection Agency ("Ohio EPA").
Despite meeting certain financial assurance requirements, EMI received
correspondence from the Ohio Attorney General threatening commencement of a
lawsuit for failure to meet all of its obligations. On July 7, 1995, the
Attorney General informed EMI of the intent to assess a $2.5 million civil
penalty for financial assurance violations. On December 11, 1995, a Consent
Order was entered by the Court of Common Pleas for Union County, Ohio wherein
EMI agreed to pay a reduced cash penalty of $750,000, with an additional fine
of $500,000 to be suspended pending completion of closure activities at the
Marysville site in accordance with a closure plan approved by the Ohio EPA.
To meet EMI's remaining financial assurance obligations, the Consent Order
also required funding an $8.5 million trust account during 1996 to be used to
pay for implementation of the Marysville closure plan. EMI has paid the
$750,000 penalty and funded $5.5 million into the trust account. As a result
of its failure to timely fund the final payment, the Ohio EPA assessed, and
EMI paid, the maximum stipulated penalty of $100,000 as provided in the
Consent Order. EMI has since notified the Ohio EPA of its intent to fund the
final $3.0 million trust account payment in July 1997.
EMI submitted a plan for closure of the hazardous waste management unit at its
Salem, Ohio facility to the Ohio EPA on April 30, 1993. Comments received
from the Ohio EPA indicate the closure plan will require modifications. The
current estimated cost of implementing the closure plan, excluding post-
closure care, is approximately $3.2 million. In connection with the
anticipated closure plan revisions, a proposal submitted by EMI for the
reduction of post-closure care costs from $1.9 million to $1.0 million
(undiscounted) was accepted by the Ohio EPA in September 1996. After March
1992, EMI was unable to meet its financial assurance obligations with respect
to the Salem site. The United States Department of Justice ("DOJ") sought
payment by EMI of a cash penalty of $175,000, with an additional fine of
$912,000 to be held in abeyance pending completion of the site closure
activities without any further violations of EMI's financial assurance
obligations. EMI accepted the offer and amendments to the 1990 consent decree
were approved and entered by the United States District Court for the Northern
District of Ohio on June 20, 1996 and EMI paid the $175,000 penalty.
EMI negotiated a settlement with the DOJ and the United States Environmental
Protection Agency ("EPA") for alleged violations of the Clean Water Act for
unpermitted discharge of wastewater streams at the Salem, Ohio facility. The
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settlement called for the payment of a $300,000 cash penalty and performance
of certain remedial work at the facility estimated to cost approximately
$690,000. On December 8, 1995, a consent decree was entered by the United
States District Court for the Northern District of Ohio approving the
negotiated settlement. On January 8, 1996, EMI paid the $300,000 civil
penalty and, on November 26,1996, EMI's environmental consulting engineers
completed implementation of the remedial work at the Salem facility. A final
report was submitted to the EPA on January 24, 1997 and is currently awaiting
final approval and certification.
In November 1996, EMI became aware that two individuals working for
environmental engineering consultants retained by EMI had been served with
subpoenas to testify before a grand jury. Subsequently, the consultants
produced information pursuant to a subpoena that requested documents relating
to remedial work performed at the Salem, Ohio facility. EMI also understands
the government's investigation is part of a joint environmental enforcement
task force consisting of government representatives in Ohio from state and
federal agencies. It is unknown at this time whether EMI or any of its
subsidiaries or employees are, or will be, the subject or target of the
ongoing investigation. It is also unknown what, if any, enforcement action
may result from this investigation.
The Company received an Administrative Order, effective April 30, 1992, issued
by the EPA pursuant to Section 106(a) of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 directing the Company and
thirty-five others to implement response activities at the Millcreek Dumpsite
in Erie County, Pennsylvania in accordance with a remedial plan. The Company
is informed that EPA has secured estimates of the cost of the remedial work
which approximate $12 million. The Company and seventeen of the other
respondents have notified EPA of their intention to undertake the remedial
action.
Certain of the Company's plants may have disposed of waste at sites which have
or may become a part of federal Comprehensive Environmental Response,
Compensation and Liability Act of 1980 clean-up efforts. Through notifications
from the EPA, the Company believes its total liabilities are immaterial
(approximately $45,000 at March 31, 1997) if liability and contributions are
assessed in an equitable manner among all responsible parties.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Positions Period Served
Robert R. Womack 59 Chairman Since 1995
Director and Chief
Executive Officer Since 1994
Independent Consultant 1993 - 1994
Vice Chairman and Chief Executive
Officer - Imo Industries, Inc.
(controls, pumps, and engineered
power products) 1990 - 1993
Donald L. Butynski 53 Group Vice President Since 1995
President - National Energy
Production Corporation
(a subsidiary of the Company) Since 1986
Frank E. Sheeder 54 Group Vice President Since 1995
President and Chief Executive
Officer - Furmanite, Inc.
(engineering and maintenance
services), a subsidiary of
Kaneb Services, Inc. 1994 - 1995
Independent Consultant 1992 - 1994
John R. Mellett 47 Senior Vice President-
Chief Financial Officer Since 1995
Senior Vice President and
Chief Financial Officer and
Vice President-Finance (1992-1994)
- LeFebure (financial institution
capital equipment and services),
a subsidiary of De La Rue, PLC 1992 - 1995
James A. Zurn 55 Senior Vice President Since 1981
William J. Durbin 52 Vice President-Human Resources Since 1996
Vice President-Human Resources
Amcast Industrial Corporation
(castings and fittings
manufacturer) 1984 - 1996
John E. Rutzler III 56 Vice President-Controller Since 1989
Dennis Haines 44 General Counsel and Secretary Since 1993
Associate General Counsel 1989 - 1993
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
The principal markets on which the Company's Common Stock is traded are the
New York Stock Exchange, Inc. and the Pacific Exchange, Inc.
"Unaudited Quarterly Financial Data - Common Stock Market Price" on page 25 of
the Annual Report to Shareholders for the year ended March 31, 1997 is
incorporated herein by reference.
Holders
At March 31, 1997, there were 4,993 holders of record of the Company's Common
Stock.
Dividends
"Unaudited Quarterly Financial Data - Common Stock Cash Dividends Declared" on
page 25 of the Annual Report to Shareholders for the year ended March 31, 1997
is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
"Five Year Consolidated Financial Summary - Operating Data," "Five Year
Consolidated Financial Summary - Financial Position at Year End - Total Assets
and Debt Obligations," and the footnote thereto on page 25 of the Annual
Report to Shareholders for the year ended March 31, 1997 are incorporated
herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
"Financial Review" on pages 22 through 24 of the Annual Report to Shareholders
for the year ended March 31, 1997 is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements and notes to consolidated financial
statements on pages 26 through 37 of the Annual Report to Shareholders for the
year ended March 31, 1997 are incorporated herein by reference.
"Unaudited Quarterly Financial Data" on page 25 of the Annual Report to
Shareholders for the year ended March 31, 1997 is incorporated herein by
reference.
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INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
Zurn Industries, Inc.
Erie, Pennsylvania
We have audited the consolidated financial statements and the financial
statement schedule of Zurn Industries, Inc. and subsidiaries listed in Item
14. 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 misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements listed in Item 14 present fairly,
in all material respects, the consolidated financial position of Zurn
Industries, Inc. and subsidiaries at March 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended March 31, 1997, 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 taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ Ernst & Young LLP
Erie, Pennsylvania
May 19, 1997
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
There has been no change in independent auditors within twenty-four months
prior to the date of the most recent financial statements.
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PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
"Nominees For a Term of Three Years Each" on page 1 and "Nominee For a Term of
Two Years", "Directors Whose Terms of Office Continue Until 1998", and
"Directors Whose Terms of Office Continue Until 1999" on page 2 of the Proxy
Statement dated June 27, 1997 are incorporated herein by reference.
Information with respect to executive officers is presented in Part I.
Based solely upon a review of Forms 3, 4, and 5, and amendments thereto,
furnished to the Company with respect to its most recent fiscal year, and
written representations that no Form 5 was required, no person who, at any
time during the fiscal year, was a director, officer, or beneficial owner of
more than 10% of any class of equity securities of the Company failed to file
on a timely basis reports required by Section 16(a) of the Securities Exchange
Act of 1934 during the most recent fiscal year or prior fiscal years.
ITEM 11 - EXECUTIVE COMPENSATION
"Summary Compensation Table" on page 5, "Stock Option Grants" and "Stock
Option Exercises And Fiscal Year End Option Values" on page 6, "Pension Plans"
on page 7, "Directors' Compensation" on page 8, "Management Development and
Compensation Committee Report" on pages 8 and 9, and "Performance Graph" on
page 10 of the Proxy Statement dated June 27, 1997 are incorporated herein by
reference.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
"Security Ownership Of Common Stock" on page 4 of the Proxy Statement dated
June 27, 1997 is incorporated herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
"Related-Party Transactions" on page 8 of the Proxy Statement dated June 27,
1997 is incorporated herein by reference.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Financial Statements
The following consolidated financial statements included in the Annual Report
to Shareholders for the year ended March 31, 1997 are incorporated herein by
reference:
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Consolidated Financial Position - March 31, 1997 and 1996
Consolidated Operations - Years Ended March 31, 1997, 1996, and 1995
Consolidated Cash Flows - Years ended March 31, 1997, 1996, and 1995
Industry Segment Data - Years ended March 31, 1997, 1996, and 1995
Notes to Consolidated Financial Statements
Financial Statement Schedules
The following consolidated financial statement schedule is included in this
Item:
Schedule II - Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable and, therefore, have been
omitted.
Exhibits
The exhibits listed in the Exhibit Index to this report are incorporated
herein by reference. Management contracts and compensatory plan arrangements
are preceded by an asterisk ("*") in the Exhibit Index.
Reports on Form 8-K
January 22, 1997, as amended on April 7, 1997, reporting the acquisition of
Eljer Industries, Inc.
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<TABLE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(Thousands)
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
Additions
Balance at (1) (2) Balance
Beginning of Charged to Costs Charged to Other Deductions- at End
Description Period and Expenses Accounts-Describe Describe of Period
<S> <C> <C> <C> <C> <C>
Year Ended March 31, 1997
Allowance for doubtful accounts $ 2,647 $ 874 $ 7,193 -A $ 660 -B
1,759 -C $ 8,295
$ 2,647 $ 874 $ 7,193 $2,419 $ 8,295
Reserves:
Plant closings $ 460 $ 270 -F $ 190
Warranties 1,389 $ 34 $ 1,393 -A 142 -G
1,281 -C 1,393
Environmental 1,025 14,640 -A 143 -E 15,522
$ 2,874 $ 34 $16,033 $1,836 $17,105
Year Ended March 31, 1996
Allowance for doubtful accounts $ 4,238 $ 487 $ 24 -A $ 694 -B
1,408 -C $ 2,647
$ 4,238 $ 487 $ 24 $2,102 $ 2,647
Reserves:
Plant closings $ 1,626 $ 581 -E
585 -F $ 460
Warranties 3,551 $(1,896) 200 -G
66 -C 1,389
$ 5,177 $(1,896) $1,432 $ 1,849
Year Ended March 31, 1995
Allowance for doubtful accounts $ 6,203 $ 1,062 $ 152 -D $3,179 -B $ 4,238
Reserves:
Plant closings $ 7,729 $ 283 -D
5,131 -E
689 -F $ 1,626
Warranties 4,382 $ 113 944 -G 3,551
$12,111 $ 113 $7,047 $ 5,177
<F1> <F4> <F7>
A-Purchase of business. D-Account transfers. G-Warranty claims allowed.
<F2> <F5>
B-Uncollectible accounts written off, net of recoveries. E-Costs incurred.
<F3> <F6>
C-Discontinued operations. F-Credit to costs and expenses.
-15-
/TABLE
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ZURN INDUSTRIES, INC.
(Registrant)
June 4, 1997 /s/ Robert R. Womack
Robert R. Womack
Chairman
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ Robert R. Womack Director, Chairman, and June 4, 1997
Robert R. Womack Chief Executive Officer
/s/ John R. Mellett Senior Vice President and June 4, 1997
John R. Mellett Chief Financial Officer
/s/ John E. Rutzler III Vice President-Controller June 4, 1997
John E. Rutzler III
/s/ Scott G. Arbuckle Director June 4, 1997
Scott G. Arbuckle
/s/ Zoe Baird Director June 4, 1997
Zoe Baird
/s/ M. K. Brown Director June 4, 1997
Michael K. Brown
/s/ William E. Butler Director June 4, 1997
William E. Butler
/s/ Edward J. Campbell Director June 4, 1997
Edward J. Campbell
/s/ Robert D. Neary Director June 4, 1997
Robert D. Neary
-16-<PAGE>
EXHIBIT INDEX
3 Articles Of Incorporation And By-laws
Restated Articles of Incorporation with Amendments through Incorporated
April 22, 1996 filed as Exhibit 3.1 to Form 10-K for the by reference
year ended March 31, 1996
By-laws as of August 1995 filed as Exhibit 3.1 to Form Incorporated
10-Q for the quarter ended September 30, 1995 by reference
4 Instruments Defining The Rights Of Security Holders,
Including Indentures
Description of Common Stock contained in the prospectus Incorporated
dated July 26, 1972 beginning on page 18 ("Description of by reference
Capital Stock") forming a part of Amendment No. 3 to the
Form S-1 Registration Statement No. 2-44631
Description of Common Stock as set forth in the Restated Included in
Articles of Incorporation with Amendments through Exhibit 3.1
April 22, 1996 filed as Exhibit 3.1 to Form 10-K for the
year ended March 31, 1996
Description of Preferred Share Purchase Rights contained Incorporated
in the Form 8-A Registration Statement dated May 17, 1996 by reference
10 Material Contracts
* 1986 Stock Option Plan filed as Exhibit 28A to Form S-8 Incorporated
Post-Effective Amendment No. 1 Registration Statement No. by reference
33-19103
* 1989 Directors Stock Option Plan filed as Exhibit 28 to Incorporated
Form S-8 Registration Statement No. 33-30383 by reference
* 1991 Stock Option Plan filed as Exhibit 28 to Form S-8 Incorporated
Registration Statement No. 33-49224 by reference
* 1995 Directors Stock Option Plan filed as Exhibit 99 to Incorporated
Form S-8 Registration Statement No. 33-65219 by reference
10.17* 1996 Employee Stock Plan
* Supplemental Executive Retirement Plan of Zurn Incorporated
Industries, Inc. filed as Exhibit 10.1 to Form 10-Q for by reference
the quarter ended December 31, 1994
* 1986 Retirement Plan for Outside Directors of Zurn Incorporated
Industries, Inc. filed as Exhibit 10.16 to Form 10-Q for by reference
the quarter ended December 31, 1996
-17-<PAGE>
* Agreements Relating to Employment dated June 5, 1989 Incorporated
with J.A. Zurn filed as Exhibit 10H to Form 10-Q for the by reference
the quarter ended June 30, 1989; dated October 17, 1994
with R.R. Womack filed as Exhibit 10.2 to Form 10-Q for
the quarter ended December 31, 1994; dated May 1,1995
with D.L. Butynski and July 1, 1995 with J.R. Mellett
filed as Exhibit 10.8 to Form 10-Q for the quarter ended
June 30, 1995; dated August 14, 1995 with F.E. Sheeder
filed as Exhibit 10.11 to Form 10-Q for the quarter
ended September 30, 1995
10.18* Agreements Relating to Employment dated April 21, 1997
with W.J. Durbin, D. Haines, J.A. Harris, and B.F.
Sherman
* Employment Agreement dated January 22, 1996 with R.R. Incorporated
Womack filed as Exhibit 10.13 to Form 10-Q for the by reference
quarter ended December 31, 1995
* Zurn Industries, Inc. Deferred Compensation Plan for Non- Incorporated
Employee Directors filed as Exhibit 19E to Form 10-Q for by reference
the quarter ended June 30, 1989
* Zurn Industries, Inc. Deferred Compensation Plan for Incorporated
Salaried Employees filed as Exhibit 10.3 to Form 10-Q for by reference
the quarter ended December 31, 1994
* Zurn Industries, Inc. Optional Deferment Plan for Incorporated
Incentive Compensation Plan Participants filed as Exhibit by reference
10.4 to Form 10-Q for the quarter ended December 31, 1994
* Zurn Supplemental Pension Plan filed as Exhibit 10.5 to Incorporated
Form 10-Q for the quarter ended December 31, 1994 by reference
* Indemnity Agreements dated August 14, 1986 with E.J. Incorporated
Campbell, and J.A. Zurn filed as Exhibit 19J to Form 10-Q by reference
for the quarter ended September 30, 1986; dated October
20, 1986 with J.E. Rutzler III filed as Exhibit 10B to
Form 10-Q for the quarter ended December 31, 1988; dated
January 25, 1993 with W.E. Butler, April 1, 1993 with
D. Haines, and August 6, 1993 with Z. Baird filed as
Exhibit 10A to Form 10-Q for the quarter ended June 30,
1993; dated October 17, 1994 with R.R. Womack filed as
Exhibit 10.6 to Form 10-Q for the quarter ended December
31, 1994; dated May 1, 1995 with D.L. Butynski, June 8,
1995 with R.D. Neary, and July 1, 1995 with J.R. Mellett
filed as Exhibit 10.9 to Form 10-Q for the quarter ended
June 30, 1995; dated August 14, 1995 with F.E. Sheeder
filed as Exhibit 10.12 to Form 10-Q for the quarter ended
September 30, 1995; dated October 30, 1995 with M.K. Brown
filed as Exhibit 10.14 to Form 10-Q for the quarter ended
December 31, 1995
-18-<PAGE>
10.19 *Indemnity Agreements dated October 28, 1996 with W.J.
Durbin, January 28, 1997 with S.G. Arbuckle, and June 4,
1997 with J.M. Sergey
* Irrevocable Trust Agreements for the Grantor's: 1986 Incorporated
Retirement Plan for Outside Directors of Zurn Industries, by reference
Inc.; Deferred Compensation Plan for Non-Employee
Directors; Supplemental Executive Retirement Plan for
Zurn Industries, Inc.; Zurn Industries, Inc. Supplemental
Pension Plan for Participants in the Deferred Compensation
Plan for Salaried Employees; Deferred Compensation Plan
for Salaried Employees; Optional Deferment Plan for
Incentive Compensation Plan Participants filed as Exhibit
19I to Form 10-Q for the quarter ended September 30, 1986
* Second Irrevocable Trust Agreement for the Grantor's Incorporated
Indemnity Agreements filed as Exhibit 10A to Form 10-Q by reference
for the quarter ended December 31, 1988
10.20* Zurn Industries, Inc. Executive Incentive Plan
Credit Agreement dated January 21, 1997 as amended and Incorporated
restated as of March 4, 1997 by an among Zurn Industries, by reference
Inc., Eljer Manufacturing, Inc., the lenders party thereto
from time to time, NationsBank, N.A., as Documentation
Agent and Bankers Trust Company, as Administrative Agent
filed April 7, 1997 as Exhibit 10 to Form 8-K/A Amendment
No. 1 dated January 22, 1997
11 Statement Re Computation Of Per Share Earnings
Computation of Earnings Per Share
13 Annual Report To Security Holders
Electronic Format of Pages of Annual Report to
Shareholders for the Year Ended March 31, 1997
Incorporated by Reference
21 Subsidiaries Of The Registrant
Subsidiaries
23 Consents Of Experts And Counsel
Consent of Independent Auditors
27 Financial Data Schedule
27.1 Financial Data Schedule Year Ended March 31, 1997 SEC Edgar
Filing Only
27.2 Restated Financial Data Schedule Year Ended SEC Edgar
March 31, 1997 Interim Quarters Filing Only
27.3 Restated Financial Data Schedule Year Ended SEC Edgar
March 31, 1996 Filing Only
-19-<PAGE>
27.4 Restated Financial Data Schedule Year Ended SEC Edgar
March 31, 1995 Filing Only
99 Additional Exhibits
99.1 Annual Report on Form 11-K of the Zurn Retirement Savings
Plan for the year ended December 31, 1996
99.2 Annual Report on Form 11-K of the Zurn/NEPCO Retirement
Savings Plan for the year ended December 31, 1996
* - Management contracts and compensatory plan arrangements.
-20-
EXHIBIT 10.17 - 1996 EMPLOYEE STOCK PLAN
Section 1. Purpose
The purpose of the Plan is to promote the long-term interests of the Company
by: (i) providing incentive compensation to executives and other key Employees
who contribute to the growth and success of the Company and its Subsidiaries;
(ii) attracting and retaining executives and other key Employees of
outstanding ability; and (iii) further aligning the interests of such
individuals with the interests of the Company's shareholders.
Section 2. Definitions
The following terms, as used herein, shall have the meaning specified:
a. "Award" means an award granted pursuant to Section 4.
b. "Award Agreement" means an agreement described in Section 6 entered
into between the Company and a Participant, setting forth the terms and
conditions applicable to the award granted to the Participant.
c. "Board of Directors" means the Board of Directors of the Company as it
may be comprised from time to time.
d. "Cause" means (i) a felony conviction of an Employee; (ii) the
commission by an Employee of an act of fraud or embezzlement against
the Company and/or a Subsidiary; (iii) the Employee's willful
misconduct or gross negligence materially detrimental to the Company
and/or a Subsidiary; (iv) the Employee's failure to perform his duties
and responsibilities in accordance with the standards and criteria
established by the Company therefor and communicated to the Employee;
(v) the Employee's wrongful dissemination or use of confidential or
proprietary information of the Company and/or Subsidiary or of
confidential or proprietary information of a third party in breach of a
contractual or other obligation of the Company and/or Subsidiary; or
(vi) the intentional and habitual neglect by the Employee of his duties
to the Company and/or a Subsidiary.
e. "Change in Control" means Change in Control as defined in Section 10.
f. "Code" means the Internal Revenue Code of 1986, and any successor
statute, as it or they may be amended from time to time.
g. "Committee" means the Committee as defined in Section 8.
h. "Common Stock" means shares of common stock of the Company, $.50 par
value, or any security of the Company issued in substitution, exchange
or in lieu thereof.
i. "Company" means Zurn Industries, Inc., and any successor company.
-1-<PAGE>
j. "Covered Employee" means a covered employee within the meaning of Code
section 162(m)(3).
k. "Disability" means (i) total disability within the meaning of the
Company's long-term disability plan as an in effect from time to time
or (ii) if there is no such plan at the applicable time, physical or
mental incapacity as determined solely by the Committee.
l. "Effective Date" means the Effective Date as defined in Section 11(k).
m. "Employee" means officers, executives and other key employees of the
Company or a Subsidiary.
n. "Exchange Act" means the Securities Exchange Act of 1934, and any
successor statute, as it or they may be amended from time to time.
o. "Fair Market Value" means the closing price of the Common Stock as
reported on the New York Stock Exchange Composite Tape for the relevant
date, or if no sale of such Common Stock is reported for such date, the
next preceding day for which there is a reported sale.
p. "Insider" means any person who is subject to Section 16 of the Exchange
Act, and any successor statutory provision, as it or they may be
amended from time to time.
q. "Participant" means any Employee who has been granted an award.
r. "Plan" means this 1996 Employee Stock Plan.
s. "Retirement" means retirement at or after age 65 or, with the advance
consent of the Committee, before age 65.
t. "Subsidiary" means any company in which the Company, directly or
indirectly, controls fifty percent (50%) or more of the total combined
voting power of all classes of such company's common stock.
u. "Ten-Percent Shareholder" means any person who owns, directly or
indirectly, on the relevant date securities having ten percent (10%) or
more of the combined voting power of all classes of the Company's
securities or the securities of its parent or subsidiaries. For
purposes of determining the foregoing ten percent (10%), the rules of
Code section 425(d) shall apply.
Section 3. Eligibility
Persons eligible for awards shall be Employees who contribute to the growth
and success of the Company and/or its Subsidiaries as the Committee may in its
sole discretion determine.
-2-<PAGE>
Section 4. Employee Awards
The Committee may grant Employees any of the following types of awards,
either singly, in tandem, or in combination with other types of awards, as the
Committee may in its sole discretion determine:
a. Nonqualified Stock Options. A Nonqualified Stock Option is an option
to purchase a specific number of shares of Common Stock exercisable
at such time or times six months after the grant date, and during
such specified time not to exceed ten years, as the Committee may
determine, at a price not less than one hundred percent (100%) of the
fair market value of the Common Stock on the date that the option is
granted. The purchase price of the Common Stock subject to the option
may be paid in cash, by the tender of Common Stock which has been
owned for more than six months (the value of such Common Stock shall
be its Fair Market Value on the date of exercise), or through a
combination of Common Stock and cash, or through such other means as
the Committee determines are consistent with the Plan's purpose and
applicable law. No fractional shares of Common Stock will be issued
or accepted.
b. Incentive Stock Options. An Incentive Stock Option is an award in the
form of an option to purchase a specified number of shares of Common
Stock that complies with the requirements of Code section 422, which
option shall, subject to the following provisions, be exercisable at
such time or times, and during such specified time, as the Committee
may determine. For the purposes of the plan, the term Incentive Stock
Option includes any option to purchase Common Stock that is granted
pursuant to any other plan of the Company or its Subsidiaries that
complies with Code section 422.
i. The aggregate Fair Market Value (determined at the time of the
grant of the award) of the shares of Common Stock subject to
Incentive Stock Options which are exercisable by one person for
the first time during a particular calendar year shall not
exceed $100,000.
ii. No Incentive Stock Option may be granted under the Plan on or
after the third anniversary of the effective date of the Plan.
iii. No Incentive Stock Option may be exercisable more than:
A) in the case of an Employee who is not a Ten-Percent
Shareholder on the date that the option is granted, ten
years after the date the option is granted; and
B) in the case of an Employee who is a Ten-Percent
Shareholder on the date the option is granted, five years
after the date the option is granted.
-3-<PAGE>
iv. The exercise price of any Incentive Stock Option shall not be
less than:
A) in the case of an Employee who is not a Ten-Percent
Shareholder on the date that the option is granted, the
Fair Market Value of the Common Stock subject to the
option on such date; and
B) in the case of an Employee who is a Ten-Percent
Shareholder on the date that the option is granted, one
hundred ten percent of the Fair Market Value of the
Common Stock subject to the option on such date.
v. The Committee may provide that the option price under an
Incentive Stock Option may be paid by one or more of the
methods available for paying the option price of a Nonqualified
Stock Option.
c. Stock Equivalent Units. A Stock Equivalent Unit is an award based on
the Fair Market Value of one share of Common Stock. All or part of
any Stock Equivalent Units award may be subject to conditions and
restrictions established by the Committee, including, but not limited
to, achievement of specific business objectives, and other
measurements of individual, business unit, Company or Subsidiary
performance, including, but not limited to, earnings per share, net
after-tax income, total shareholder return, cash flow, return on
shareholders' equity, and cumulative return on net assets. Without
limiting the generality of the foregoing, it is intended that the
Committee, as and to the extent it deems advisable to ensure that
payments are deductible by the Corporation for federal income tax
purposes by reason of Code section 162(m), shall establish
performance goals applicable to Stock Equivalent Units granted to
Participants who, in the judgment of the Committee, may be Covered
Employees in such manner as shall permit payments with respect
thereto to qualify as "performance-based compensation" as described
in section 162(m)(4)(C) of the Code. The Committee also may provide
for automatic awards of additional Stock Equivalent Units on each
date that dividends are paid on the Common Stock in an amount equal
to (i) the product of the dividend per share on the Common Stock
times the total number of Stock Equivalent Units held by the
Participant as of the record date with respect to such dividend,
divided by (ii) the Fair Market Value of the Common Stock on the
dividend payment date. Stock Equivalent Units may be settled in
Common Stock or cash or both.
d. Performance Units. A Performance Unit is an award denominated in
cash, the amount of which may be based on the achievement of specific
business objectives, and other measures of individual, business unit,
Company or Subsidiary performance over a specified period of time
including, but not limited to, earnings per share, net after-tax
income, total shareholder return, cash flow, return on shareholders'
equity, and cumulative return on net assets. Without
-4-<PAGE>
limiting the generality of the foregoing, it is intended that the
Committee, as and to the extent it deems advisable to ensure that
payments are deductible by the Corporation for federal income tax
purposes by reason of Code section 162(m), shall establish
performance goals applicable to Performance Units granted to
Participants who, in the judgment of the Committee, may be Covered
Employees in such a manner as shall permit payments with respect
thereto to qualify as "performance-based compensation" as described
in section 162(m)(4)(C) of the Code and that the maximum amount of
such compensation that may be paid to any one Participant with
respect to any one year shall be $300,000. Performance Units may be
settled in Common Stock or cash or both.
e. Annual Incentive Stock Awards. The Committee may from time to time
grant Common Stock to Insiders in settlement of awards under the
Company's annual incentive plan.
Section 5. Shares of Common Stock Available Under Plan
a. Subject to the adjustment provisions of Section 9, the number of
shares of Common Stock with respect to which awards may be granted
under the Plan shall not exceed 500,000 shares. No single
Participant shall receive awards (i) in the form of options, whether
Nonqualified Stock Options or Incentive Stock Options, with respect
to more than 125,000 of the shares of Common Stock available under
the Plan in any twelve-month period, (ii) in the form of Stock
Equivalent Units, with respect to more than 15,000 shares of Common
Stock in any twelve-month period, and (iii) pursuant to Section 4(e),
for more than 30,000 shares of Common Stock in any twelve-month
period.
b. Shares of Common Stock with respect to the unexercised or
undistributed portion of any terminated or forfeited award and shares
of Common Stock tendered in payment of the purchase price of the
Common Stock subject to option shall be available for further awards
in addition to the 500,000 shares of Common Stock available under
Section 5(a). Additional rules for determining the number of shares
of Common Stock granted under the Plan may be adopted by the
Committee as it deems necessary and appropriate.
c. The Common Stock that may be issued pursuant to an award under the
Plan may be treasury or authorized but unissued Common Stock, or
Common Stock may be acquired, subsequently or in anticipation of the
transaction, in the open market to satisfy the requirements of the
Plan.
Section 6. Award Agreements
Each award under the Plan shall be evidenced by an Award Agreement. Each
Award Agreement shall set forth the number of shares of Common Stock, Stock
Equivalent Units, and/or Performance Units subject to the award and shall
include the terms set forth below and such other terms and conditions
applicable
-5-<PAGE>
to the award, as determined by the Committee, not inconsistent with the terms
of the Plan, including but not limited to the term of the award, vesting
provisions, any other restrictions or conditions (including performance
requirements) on the award and the method by which restrictions or conditions
lapse, provisions permitting the surrender of outstanding awards or securities
held by the Participant in order to exercise or realize rights under other
awards, or in exchange for the grant of new awards under similar or different
terms, the effect on the award of a Change in Control of the Company, the
price, amount or value of awards, and the terms, if any, pursuant to which a
Participant may elect to defer the receipt of cash or Common Stock under an
award. In the event of any conflict between an Award Agreement and the Plan,
the terms of the Plan shall govern.
a. Nonassignability. Except as and to the extent otherwise determined by
the Committee, a provision that no award shall be assignable or
transferable except by will or by the laws of descent and
distribution and that, during the lifetime of a participant, the
award shall be exercised only by such Participant or by his or her
guardian or legal representative.
b. Termination of Service.
i. A provision describing the treatment of an award in the event
of the Retirement, Disability, death or other termination of a
Participant's service with the Company or a Subsidiary,
including but not limited to terms relating to the vesting,
time for exercise, forfeiture or cancellation of an award in
such circumstances.
ii. A provision that for purposes of the Plan, (A) a transfer of an
Employee from the Company to a Subsidiary or affiliate of the
Company, whether or not incorporated, or visa versa, or from
one Subsidiary or affiliate of the Company to another, and (B)
a leave of absence, duly authorized in writing by the Company,
shall not be deemed a termination of service.
iii. A provision stating that in the event an Participant's service
is terminated for Cause, anything else in the Plan or the Award
Agreement to the contrary notwithstanding, all unvested awards
granted to such Participant and all unexercised options held by
such Participant, whether vested or unvested, shall immediately
terminate and be forfeited.
c. Rights as a Shareholder. A provision stating that a Participant shall
have no rights as a shareholder with respect to any Common Stock
covered by an award until the date the Participant becomes the holder
of record thereof. Except as provided in Section 9, no adjustment
shall be made for dividends or other rights, unless the Award
Agreement specifically requires or permits such adjustment.
d. Withholding. A provision requiring the withholding of applicable
taxes required by law from or with respect to all awards. A
-6-<PAGE>
participant may satisfy the withholding obligation by paying the
amount of any taxes in cash or, with the approval of the Committee,
shares of Common Stock may be deducted from the payment to satisfy
the obligation in full or in part. The amount of the withholding and
the number of shares of Common Stock to be deducted shall be
determined with reference to the Fair Market Value of the Common
Stock when the withholding is required to be made.
e. Execution. A provision stating that no award is enforceable until the
Award Agreement has been signed by the Participant and the Company.
By executing the Award Agreement, a Participant shall be deemed to
have accepted and consented to any action taken under the Plan by the
Committee, the Board of Directors or their delegates.
f. Holding Period. To the extent necessary to satisfy the applicable
requirements of rule 16b-3 under the Exchange Act, in the case of an
award to an Insider of: (i) an equity security, a provision stating
(or the effect of which is to require) that such security must be
held for at least six months (or such longer period as the Committee
it its discretion specifies) from the date of acquisition; or (ii) a
derivative security with a fixed exercise price within the meaning of
Section 16 of the Exchange Act, a provision stating (or the effect of
which is to require) that at least six months (or such longer period
as the Committee in its discretion specifies) must elapse from the
date of acquisition of such derivative security to the date of
disposition of the derivative security (other than upon exercise or
conversion) or its underlying equity security.
g. Treatment of Options. Each award of an option shall state whether it
will or will not be treated as an Incentive Stock Option.
Section 7. Amendment and Termination
The Board of Directors may at any time amend or terminate the Plan, in
whole or in part, or amend any or all Award Agreements under the Plan to the
extent permitted by law, but no such action shall impair the rights of any
holder of an award without the holder's consent, except to preserve the Plan's
qualification as a safe harbor plan under Section 16 of the Exchange Act.
Section 8. Administration
a. The Plan and all awards shall be administered by a Committee of the
Board of Directors, which Committee shall consist of not less than
three (3) members of the Board of Directors and shall be constituted
so as to permit the Plan to comply with the administration
requirements of rule 16b-3(c)(2)(I) of the Exchange Act and Code
section 162(m)(4)(C). The members of the Committee shall be
designated by the Board of Directors. A majority of the members of
the Committee shall constitute a quorum. The vote of a majority of a
quorum shall constitute action by the Committee.
-7-<PAGE>
b. The Committee shall have full and complete authority, in its sole and
absolute discretion, (i) to exercise all of the powers granted to it
under the Plan, (ii) to construe, interpret and implement the Plan
and any related document, (iii) to prescribe, amend and rescind rules
relating to the Plan, (iv) to make all determinations necessary or
advisable in administering the Plan, and (v) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan. The
actions and determinations of the Committee on all matters relating
to the Plan and any awards will be final and conclusive. The
Committee's determinations under the Plan need not be uniform and may
be made by it selectively among Employees who receive, or who are
eligible to receive, awards under the Plan, whether or not such
persons are similarly situated.
c. The Committee may appoint such accountants, counsel, and other
experts as it deems necessary or desirable in connection with the
administration of the Plan. The Committee may delegate to the
officers or employees of the Company and its Subsidiaries the
authority to execute and deliver such instruments and documents, to
do all such acts and things, and to take all such other steps deemed
necessary, advisable or convenient for the effective administration
of the Plan in accordance with its terms and purpose, except that the
Committee may not delegate any discretionary authority with respect
to substantive decisions or functions regarding the Plan or awards
thereunder as these relate to Insiders or Covered Employees,
including but not limited to decisions regarding the timing,
eligibility, pricing, amount or other material terms of such awards.
d. The Committee and others to whom the Committee has delegated such
duties shall keep a record of all their proceedings and actions and
shall maintain all such books of account, records and other data as
shall be necessary for the proper administration of the Plan.
e. The Company shall pay all reasonable expenses of administering the
Plan, including, but not limited to, the payment of professional
fees.
f. It is the intent of the Company that the Plan and awards thereunder
satisfy, and be interpreted in a manner that satisfy, in the case of
Participants who are or may be Insiders, the applicable requirements
of rule 16b-3 of the Exchange Act, so that such persons will be
entitled to the benefits of rule 16b-3, or other exemptive rules
under section 16 of the Exchange Act, and will not be subjected to
avoidable liability thereunder. If any provision of the Plan or of
any award would otherwise frustrate or conflict with the intent
expressed in this Section, that provision to the extent possible
shall be interpreted and deemed amended so as to avoid such conflict.
To the extent of any remaining irreconcilable conflict with such
intent, such provision shall be deemed void as applicable to
Insiders.
-8-<PAGE>
Section 9. Adjustment Provisions
If there shall occur any recapitalization, stock split (including a stock
split in the form of a stock dividend), reverse stock split, merger
combination, consolidation, or other reorganization or any extraordinary
dividend or other extraordinary distribution in respect of the Common Stock
(whether in the form of cash, Common Stock or other property), or any split-
up, spin-off, extraordinary redemption, or exchange of outstanding Common
Stock, or there shall occur any other similar corporate transaction or event
in respect of the Common Stock, or a sale of substantially all the assets of
the Company, then the Committee shall, in the manner and to the extent, if
any, as it deems appropriate and equitable to the Participants and consistent
with the terms of the Plan, and taking into consideration the effect of the
event on the holders of the Common Stock proportionately adjust any or all of:
(a) the number and type of shares of Common Stock and Stock Equivalent Units
which thereafter may be made the subject of awards (including the specific
maximums and numbers of shares of Common Stock or Stock Equivalent Units set
forth elsewhere in the Plan); (b) the number and type of shares of Common
Stock, other property, Stock Equivalent Units or cash subject to any or all
outstanding awards; (c) the grant, purchase or exercise price, or conversion
ratio of any or all outstanding awards, or of the Common Stock, other property
or Stock Equivalent Units underlying the awards; (d) the securities, cash or
other property deliverable upon exercise or conversion of any or all
outstanding awards; (e) subject to Sections 4(c) and (d), the performance
targets or standards applicable to any outstanding performance-based awards;
or (f) any other terms as are affected by the event.
Notwithstanding the foregoing, in the case of an Incentive Stock Option, no
adjustment shall be made which would cause the Plan to violate section 424(a)
of the Code or any successor provisions thereto, without the written consent
of the Participant adversely affected thereby. The Committee may act prior to
an event described in this Section (including at the time of an award by means
of more specific provisions in the Award Agreement) if deemed necessary or
appropriate to permit the Participant to realize the benefits intended to be
conveyed by an award in respect of the Common Stock.
Section 10. Change in Control
a. In the event of a Change in Control, in addition to any action
required or authorized by the terms of an Award Agreement, the
Committee may, in its sole discretion, take any of the following
actions as a result, or in anticipation, of any such event to assure
fair and equitable treatment of Participants:
i. accelerate time periods for purposes of vesting in, or
realizing gain from, any outstanding awards made pursuant to
the Plan;
ii. offer to purchase any outstanding awards made pursuant to the
Plan from the holder for their equivalent cash value, as
determined by the Committee, as of the date of the Change in
Control; or
-9-<PAGE>
iii. make adjustments or modifications to outstanding awards as the
Committee deems appropriate to maintain and protect the rights
and interests of Participants following such Change in Control.
Any such action approved by the Committee shall be conclusive and
binding on the Company and all participants.
b. A Change in Control shall be deemed to occur if (i) any "person" (as
such term is used in sections 13(d) and 14(d) of the Exchange Act )
other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
Company owned, directly or indirectly, by the shareholders of the
Company in substantially the same proportions as their ownership of
Common Stock of the Company), becomes the "beneficial owner" (as
defined in rule 13d-3 of the Exchange Act), directly or indirectly,
of securities of the Company representing twenty percent (20%) or
more of the combined voting power of the Company's then outstanding
securities; (ii) during any period of two consecutive years (not
including any period prior to the grant of an option or award),
individuals who at the beginning of such period constitute the Board
of Directors, and any new director (other than a director designated
by a person who has entered into an agreement with the Company to
effect a transaction described in clauses (i), (iii) or (iv) of this
paragraph) whose election by the Board of Directors or nomination for
election by the Company's shareholders was approved by a vote at
least two-thirds of the directors then still in office who either
were directors at the beginning of the period or whose election or
nomination for election was previously so approved cease for any
reason to constitute a majority thereof, (iii) the shareholders of
the Company approve (A) a merger or consolidation of the Company with
any other company, other than a merger or consolidation which would
result in the voting securities of the Company outstanding
immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into voting securities of
the surviving entity) more than fifty percent (50%) of the combined
voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation or (B) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which
no "person" (as herein above defined) acquires more than fifty
percent (50%) of the combined voting power of the Company's then
outstanding securities; or (iv) the shareholders of the Company
approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of all of substantially
all of the Company's assets.
Section 11. Miscellaneous
a. Other Payments or Awards. Nothing contained in the Plan shall be
deemed in any way to limit or restrict the Company or a Subsidiary
from making any award or payment to any person under any other plan,
-10-<PAGE>
arrangement or understanding, whether now existing or hereafter in
effect.
b. Payments to Other Persons. If payments are legally required to be
made to any person other than the person to whom any amount is made
available under the Plan, payments shall be made accordingly. Any
such payment shall be a complete discharge of the liability
hereunder.
c. Unfunded Plan. The Plan shall be unfunded. No provision of the Plan
or any Award Agreement shall require the Company or a Subsidiary, for
the purpose of satisfying any obligations under the Plan, to purchase
assets or place any assets in a trust or other entity to which
contributions are made or otherwise to segregate any assets, nor
shall the Company or a Subsidiary maintain separate bank accounts,
books, records or other evidence of the existence of a segregated or
separately maintained or administered fund for such purposes.
Participants shall have no rights under the Plan other than as
unsecured general creditors of the Company or a Subsidiary.
d. Limits of Liability. Any liability of the Company or a Subsidiary to
any Participant with respect to an award shall be based solely upon
contractual obligations created by the Plan and the Award Agreement.
Neither the Company or its Subsidiaries, nor any member of the Board
of Directors or of the Committee, nor any other person participating
in any determination of any question under the Plan, or in the
interpretation, administration or application of the Plan, shall have
any liability to any party for any action taken, or not taken, in
good faith under the Plan.
e. Rights of Employees. Status as an eligible Employee shall not be
construed as a commitment that any award shall be made under the Plan
to such Employee or to Employees generally. Nothing contained in the
Plan or in any Award Agreement shall confer upon any Employee any
right to continue in the service of the Company or a Subsidiary.
f. Section Headings. The section headings contained herein are for the
purpose of convenience only, and in the event of any conflict, the
text of the Plan, rather than the section headings, shall control.
g. Gender, Etc. In interpreting the Plan, the masculine gender shall
include the feminine, the neuter gender shall include the masculine
or feminine, and the singular shall include the plural unless the
context clearly indicates otherwise.
h. Validity. If any term or provision contained herein or in any Award
Agreement shall to any extent be invalid or unenforceable, such term
or provision shall be reformed so that it is valid, and such
invalidity or unenforceability shall not affect any other provision
or part thereof.
i. Applicable Law. The Plan, the Award Agreements and all actions taken
-11-<PAGE>
hereunder or thereunder shall be governed by, and construed in
accordance with, the laws of the Commonwealth of Pennsylvania without
regard to the conflict of law principles thereof.
j. Compliance with Laws. Notwithstanding anything contained herein or in
any Award Agreement to the contrary, the Company shall not be
required to sell or issue shares of Common Stock hereunder or
thereunder if the issuance thereof would constitute a violation by
the Participant or the Company of any provisions of any law or
regulation of any governmental authority or any national securities
exchange; and, as a condition of any sale or issuance, the Company
may require such agreements or undertakings, if any, as the Company
may deem necessary or advisable to assure compliance with any such
law or regulation.
k. Effective Date and Term. The Plan was adopted by the Board of
Directors effective as of August 5, 1996, subject to approval by the
Company's shareholders. The Plan shall remain in effect until all
awards under the Plan have been exercised or terminated under the
terms of the Plan and applicable Award Agreements, provided that
awards under the Plan may only be granted within three years from the
effective date.
-12-
EXHIBIT 10.18 - AGREEMENTS RELATING TO EMPLOYMENT
Agreements Relating to Employment in the form of the attached entered into
with the following Employees as of April 21, 1997:
W.J. Durbin
D. Haines
J.A. Harris
B.F. Sherman
<PAGE>
DATE
(Name)
One Zurn Place
Erie, PA 16502
RE: Agreement Relating To Employment
Dear Mr. :
ZURN INDUSTRIES, INC, (the "Company") considers it in the best interests of
its stockholders to foster the continuous employment of key management
personnel. In this connection, the Board of Directors of the Company (the
"Board") recognizes that, the possibility of a change in control may exist and
that such possibility, and the uncertainty and questions which it may arise
among management, may result in the departure or distraction of management
personnel to the detriment of the Company and its stockholders.
Therefore, in order to induce you to remain in the employment of the
Company, the Company agrees that you shall receive the severance benefits set
forth in this letter agreement ("Agreement") in the event your employment with
the Company 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, 1997; and each January 1,
thereafter, the term of this Agreement shall automatically be extended for one
additional year, provided, if a change in control of the Company shall have
occurred during the original or extended term of this Agreement, this
Agreement shall continue in effect for a period of thirty-six (36) months
beyond the month in which such change in control occurred.
2. CHANGE IN CONTROL. No benefits shall be payable hereunder unless
there shall have been a change in control of the Company, as set forth below.
For purposes of this Agreement, a "change in control of the Company" shall be
deemed to have occurred if:
(a) any "person" (as such term is used in Sections 13(d) and 14(d) of the
Securities Exchange Act of 1934, as amended [the "Exchange Act"],
other than the Company, any trustee or other fiduciary holding
securities under an employee benefit plan of the Company, or any
Company owned, directly or indirectly, by the stockholders of the
Company in substantially the same proportions as their ownership of
stock of the Company) becomes the "beneficial owner" (as defined in
Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of securities of the Company representing 20% or more of
the combined voting power of the Company's then outstanding
securities;
-1-<PAGE>
(b) during any period of two consecutive years (not including any period
prior to the execution of this Agreement), individuals who at the
beginning of such period constitute the Board, and any new director
(other than a director designated by a person who has entered into an
agreement with the Company to effect a transaction described in
clauses (a), (c) or (d) of this Section) whose election by the Board
or nomination for election by the Company's stockholders was approved
by a vote at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose
election or nomination for election was previously so approved cease
for any reason to constitute a majority thereof;
(c) the stockholders of the Company approve a merger or consolidation of
the Company with any other Company, other than (1) a merger or
consolidation which would result in the voting securities of the
Company outstanding immediately prior thereto continuing to represent
(either by remaining outstanding or by being converted into voting
securities of the surviving entity) more than 50% of the combined
voting power of the voting securities of the Company or such
surviving entity outstanding immediately after such merger or
consolidation or (2) a merger or consolidation effected to implement
a recapitalization of the Company (or similar transaction) in which
no "person" (as hereinabove defined) acquires more than 50% of the
combined voting power of the Company's then outstanding securities;
or
(d) the stockholders of the Company approve a plan of complete
liquidation of the Company or an agreement for the sale or
disposition by the Company of all of substantially all of the
Company's assets.
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
Subsection 4(iv) hereof upon the subsequent termination of your employment
during the term of this Agreement unless such termination is (a) because of
your death, Disability or Retirement, (b) by the Company for Cause, 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 the
full-time performance of your duties with the Company for six (6)
consecutive months, and within thirty (30) days after written notice
of termination is given you shall have not returned to the full-time
performance of your duties, your employment may be terminated for
"Disability". Termination by the Company or you of your employment
based on "Retirement" shall mean termination in accordance with the
Company's retirement policy at normal retirement age generally
applicable to its salaried employees or in accordance with any
retirement arrangement established with your consent with respect to
you.
-2-<PAGE>
(ii) CAUSE. Termination by the Company of your employment for "Cause"
shall mean termination upon (a) the willful and continued failure by
you to substantially perform your duties with the Company (other than
any such failure resulting from your incapacity due to physical or
mental illness or any such actual or anticipated failure after the
issuance of a Notice of Termination, as defined in Subsection 3(iv),
by you for Good Reason) after a written demand for substantial
performance is delivered to you by the Board, which demand
specifically identifies the manner in which the Board believes that
you have not substantially performed your duties, or (b) the willful
engaging by you in conduct which is demonstrably and materially
injurious to the Company, monetarily or otherwise. For purposes (of
this Subsection, no act, or failure to act, on your part shall be
deemed "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. You may be terminated for
Cause only after there shall have been delivered to you a copy of a
resolution duly adopted by the affirmative vote of not less then two
thirds (2/3) of the entire membership of the Board at a meeting of
the Board called and held for such 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 conduct set forth above in clauses (a)
or (b) of the first sentence of this Subsection and specifying the
particulars thereof in detail.
(iii) GOOD REASON. You shall be entitled to terminate your employment for
Good Reason. For purposes of this Agreement, "Good Reason" shall mean,
without your express written consent, any of the following:
(a) a substantial adverse 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;
(c) the failure of the Company, without your consent, to pay to you any
portion of your current compensation, or to pay to you any portion of
an installment of deferred compensation under any deferred
compensation program of the Company, within seven (7) days of the
date such compensation is due;
(d) the failure by the Company to continue in effect any compensation
plan in which you participate including but not limited to the
Company's Incentive Compensation Plan and the Company's Stock Option
Plan, or any substitute 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
-3-<PAGE>
by the Company to continue your participation therein on a basis not
materially less favorable, both in terms of the amount of benefits
provided and the level of your participation relative to other
participants, as existed at the time of the change in control;
(e) the failure by the Company to continue to provide you with benefits
substantially similar to those enjoyed by you under any of the
Company's pension, life insurance, medical, health and accident, or
disability plans in which you were participating at the time of a
change in control of the Company, the taking of any action by the
Company which would directly or indirectly materially reduce any of
such benefits or deprive you of any material fringe benefits enjoyed
by you at the time of the change in control of the Company, or the
failure by the Company 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 in accordance with the Company's normal
vacation policy 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, the requirements of
Subsection (ii) above); for purposes of this Agreement, no such
purported termination shall be effective.
(h) a determination by you in good faith that, following a change in
control, you are no longer able to perform your duties and
responsibilities with the Company.
Your right to terminate your employment pursuant to this Subsection shall be
affected by your incapacity due to physical or mental illness. Your continued
employment shall not constitute consent to, or a waiver of rights with respect
to, any circumstance constituting Good Reason hereunder.
(iv) NOTICE OF TERMINATION. Any purported termination of your employment
by the Company or by you shall be communicated by written Notice of
Termination to the other party hereto in accordance with Section 6
hereof. For purposes of this Agreement, a "Notice of Termination"
shall mean a notice which shall indicate the specific termination
provision in this Agreement relied upon and shall set forth in
reasonable detail the facts and circumstances claimed to provide a
basis for termination of your employment under the provision so
indicated.
(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 full-time performance of your duties during such
thirty (30) day period), and (b) if your employment is terminated
-4-<PAGE>
pursuant to Subsection (ii) and (iii) above or for any other reason
(other than Disability), the date specified in the Notice of
Termination which, in the case of a termination pursuant to
Subsection (ii) above shall not be less than thirty (30) days, and in
the case of a termination pursuant to Subsection (iii) above shall
not be less than thirty (30) nor more than sixty (60) days,
respectively, from the date such Notice of Termination is given);
provided that if within thirty (30) days after any Notice of
Termination is given the party receiving such Notice of Termination
notifies the other party that a dispute exists concerning the
termination, the Date of Termination shall be the date on which the
dispute is finally determined, either by mutual written agreement of
the parties, by a binding arbitration award, or by a final judgment,
order or decree of a court of competent jurisdiction (which is not
appealable or the time for appeal therefrom having expired and no
appeal having been perfected); provided further that the Date of
Termination shall be extended by a notice of dispute only if such
notice is given in good faith and the party giving such notice
pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Company will
continue to pay you your full compensation in effect when the notice
giving rise to the dispute was given (including, but not limited to,
base salary) and continue you as a participant in all compensation,
benefit and insurance plans in which you were participating when the
notice giving rise to the dispute was given, until the dispute is
finally resolved in accordance with this Subsection. Amounts paid
under this Subsection are in addition to all other amounts due under
this Agreement and shall not be offset against or reduce any other
amounts due under this Agreement except to the extent otherwise
provided in paragraph (c) of Subsection 4(iv).
4. COMPENSATION UPON TERMINATION OR DURING DISABILITY. Following a
change in Control of the Company, as defined by Section 2, upon
termination of your employment or during a period of disability you
shall be entitled to the following benefits:
(i) During any period that you fail to perform your full-time duties with
the Company as a result of incapacity due to physical or mental
illness, you shall continue to receive your base salary at the rate
in effect at the commencement of any such period, together with all
compensation payable to you under the Company's long-term disability
insurance program or other [plan during such period, until this
Agreement is terminated pursuant to Section 3(i) hereof. Thereafter,
your benefits shall be determined in accordance with the Company's
insurance and retirement programs then in effect.
(ii) If your employment shall be terminated by the Company for Cause or by
you other than for Good Reason, Disability, death or Retirement, 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, plus all other amounts to which you are entitled under any
compensation plan of the Company at the time such payments are due,
-5-<PAGE>
and the Company shall have no further obligations to you under this
Agreement.
(iii) if your employment shall be terminated by you for Retirement, or by
reason of your death, your benefits shall be determined in accordance
with the Company's retirement and insurance programs then in effect.
(iv) If your employment by the Company shall be terminated (a) by the
Company other than for Cause or Disability or (b) by you for Good
Reason or Retirement, then you shall be entitled to the benefits
provided below:
(A) 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, plus other amounts to which you are entitled
under any compensation plan of the Company, at the time such payments
are due except as otherwise provided below;
(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 a lump sum severance payment (together with
payments provided in paragraphs C, D, and E below, the "Severance
Payment") equal to 300% of the greater of (i,) your annual base
salary in effect on the Date of Termination or (ii) your annual base
salary in effect immediately prior to the change in control of the
Company and 300% of the average of the annual bonus paid to you for
the three full fiscal years preceding the termination.
(C) If any of the Severance Payments will be subject to the tax (the
"Excise Tax") imposed by section 4999 of the Internal Revenue Code,
(or any similar tax that may hereafter be imposed) the Company shall
pay to you at the time specified in Subsection (D), below, an
additional amount (the "Gross-Up Payment") such that the net amount
retained by you, after deduction of any Excise Tax on the Total
Payments (as hereinafter defined) and any federal, state and local
income tax and Excise Tax upon the payment provided for by this
subsection, shall be equal to the Total Severance Payments. For
purposes of determining whether any of the Severance Payments will be
subject to the Excise Tax and the amount of such Excise Tax, (a) any
other payments or benefits received or to be received by you in
connection with a change in control of the Company or your
termination of employment (whether pursuant to the terms of this
Agreement or any other plan, arrangement or agreement with the
Company, any person whose actions result in a change in control of
the Company or any person affiliated with the Company or such person)
(which together with the Severance Payments, constitute the "Total
Payments") shall be treated as "parachute payments" within the
meaning of section 28OG(b)(2) of the Code, and all "excess parachute
payments" within the meaning of section 28OG(b)(1) shall be treated
as subject to the Excise Tax, unless in the opinion of tax counsel
selected by the Company's independent auditors and acceptable to you
such other payments or benefits (in whole or in part) do not
-6-<PAGE>
constitute parachute payments, or such excess parachute payments (in
whole or in part) represent reasonable compensation for services
actually rendered within the meaning of section 28OG(b)(4) of the
Code in excess of the base amount within the meaning of section
28OG(b)(3) of the Code, or are otherwise not subject to the Excise
Tax, (b) the amount of the Total Payments which shall be treated as
subject to the Excise Tax shall be equal to the lesser of (1) the
total amount of the Total Payments of (2) the amount of excess
parachute payments within the meaning of section 28OG(b)(1) (after
applying clause (q) above, and (c) the value of any non-cash benefits
or any deferred payment or benefit shall be determined by the
Company's independent auditors in accordance with the principles of
section 28OG(d)(3) and (4) of the Code. For purposes of determining
the amount of the Gross-Up Payment, you shall be deemed to pay
federal income taxes at the highest marginal rate of federal income
taxation in the calendar year in which the Gross-Up Payment is to be
made and state and local income taxes at the highest marginal rate of
taxation in the state and locality of your residence on the Date of
Termination, net of the maximum reduction in federal income taxes
which could be obtained from deduction of such state and local taxes.
In the event that the Excise Tax is subsequently determined to be
less than the amount taken into account hereunder at the time of
termination of your employment, you shall repay to the Company at the
time that the amount of such reduction in Excise Tax is finally
determined the portion of the Gross-Up Payment attributable to such
reduction (plus the portion of the Gross-Up Payment attributable to
the Excise Tax and federal and state and local income tax imposed on
the Gross-Up Payment being repaid by you if such repayment results in
a reduction in Excise Tax and/or a federal and state and local income
tax deduction) plus interest on the amount of such repayment at the
rate provided in section 1274(b)(2)(B) of the Code. In the event that
the Excise Tax is determined to exceed the amount taken into account
hereunder at the time of the termination of your employment
(including by reason of any payment the existence or amount of which
cannot be determined at the time of the Gross-Up Payment), the
Company shall make an additional gross-up payment in respect of such
excess (plus any interest payable with respect to such excess) at the
time that the amount of such excess is finally determined.
(D) The payment provided for in paragraph (B), above, shall be made
not later than the fifth day following the Date of Termination,
provided, however, that if the amounts of such payments, and the
limitation on such payments set forth in paragraph (C), above, cannot
be finally determined on or before such day, the Company shall pay to
you on such day an estimate, as determined in good faith by the
Company, of the minimum amount of such payments and shall pay the
remainder of such payments (together with interest at the rate
provided in Section 1274(b)(2)(B) of the Code) as soon as the amount
thereof can be determined but in no event later than the thirtieth
day after the Date of Termination. In the event that the amount of
the estimated payments exceeds the amount subsequently determined to
have been due, such excess shall constitute a loan by the Company to
-7-<PAGE>
you, payable on the fifth day after demand by the Company (together
with interest at the rate provided in Section 1274(b)(2)(B) of the
Code).
(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 early right or
benefit provided by this Agreement).
(v) If your employment shall be terminated (a) by the Company other than
for Cause, Retirement or Disability or (b) by you for Good Reason,
then for a twenty-four (24) month period after such termination, the
Company shall arrange to provide you with life, disability, accident
and health insurance benefits substantially similar to those which
you are receiving immediately prior to the Notice of Termination.
(vi) 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, by retirement benefits,
by offset against any amount claimed to be owing by you to the
Company, or otherwise.
(vii) 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 Company's retirement programs.
5. 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 Reason following
a change in control of the Company, except for purposes of
implementing the foregoing, the date on which any 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,
-8-<PAGE>
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.
6. PRIOR AGREEMENT. This Agreement is in full and complete
substitution for any prior employment agreement including, if applicable, the
certain Employment Agreement dated December 1, 1981 and the certain agreement
dated October 20, 1988.
7. NOTICE. For the purpose of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by 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 notice 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 such waiver, modification or discharge is agreed
to 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 Commonwealth of Pennsylvania. All
reference to sections of the Exchange Act or the Code shall be deemed also to
refer to any successor provisions to such sections. Any payments provided for
hereunder shall be paid net of any applicable withholding required under
federal, state or local law. The obligations of the Company under Section 4
shall survive the expiration of the term of this Agreement.
9. VALIDITY. The invalidity or unenforceability of any provision of
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
11. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Erie, Pennsylvania in accordance with the rules of the American Arbitration
-9-<PAGE>
Association then in effect. Judgment may be entered on the arbitrator's award
in any court having jurisdiction; provided, however, that you shall be
entitled to seek specific performance of your right to be paid until the Date
of Termination during the pendency of any dispute or controversy arising under
or in connection with this Agreement.
Upon your acceptance of the terms set forth in this letter by signing and
returning a copy to the Secretary of the Company, this letter will then
constitute an agreement of the Company.
Very truly yours,
Chairman, Management Development and
Compensation Committee of the Board of Directors
AGREED TO this day
of 1997.
SIGNATURE
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EXHIBIT 10.19 - INDEMNITY AGREEMENTS
Indemnity Agreements in the form of the attached entered into with the
following Indemnitees as of the dates indicated:
W.J. Durbin - October 28, 1996
S.G. Arbuckle - January 28, 1997
J.M. Sergey - June 4, 1997
<PAGE>
INDEMNITY AGREEMENT
This Agreement is made as of the day of
, 1997, by and between ZURN INDUSTRIES, INC., a Pennsylvania
corporation (the "Corporation"), and
, ("Indemnitee"), a Director.
WHEREAS, it is essential to the Corporation to retain and attract as
Directors and Officers the most capable persons available, and
WHEREAS, the substantial increase in corporate litigation subjects
Directors and Officers to expensive litigation risks and Directors' and
Officers' liability insurance is expensive and contains many limitations,
deductibles, and exclusions, and
WHEREAS, it is now and has always been the express policy of the
Corporation to indemnify its Directors and Officers so as to provide them with
the maximum possible protection permitted by the Pennsylvania Business
Corporation Law (the "Law") and the Corporation's By-Laws, and
WHEREAS, the parties recognize the potential inadequacy of the protection
available under the Law, the Corporation's By-Laws, and by Directors' and
Officers' liability insurance, and
WHEREAS, such Law and By-Laws specifically provide that they are not
exclusive, and thereby contemplate that agreements may be entered into between
the Corporation and Directors and Officers with respect to indemnification of
such Directors and Officers, and
WHEREAS, in order to resolve such questions and thereby induce Directors
and Officers to serve in their respective capacities, the Corporation has
determined and agreed to enter into this Agreement with the Indemnitee.
NOW THEREFORE, in consideration of Indemnitee's continued service after the
date hereof, the Corporation and Indemnitee do hereby agree as follows:
1. Agreement to Serve.
Indemnitee agrees to serve as a Director or Officer (as applicable) of the
Corporation for so long as he is duly elected or appointed or until such time
as he tenders his resignation in writing.
2. Definitions.
As used in this Agreement:
(a) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought by or in the
right of the Corporation or otherwise and whether of a civil,
criminal, administrative or investigative nature, in which Indemnitee
may be or may have been involved as a party or otherwise, by reason
of the fact
-1-<PAGE>
that Indemnitee is or was a Director or Officer of the Corporation,
by reason of any action taken by his or of any inaction on his part
while acting as a Director or Officer, or by reason of the fact that
he is or was serving at the request of the Corporation as a director,
officer, employee, or agent of another corporation, partnership,
joint venture, trust, or other enterprise; in each case whether or
not he is acting or serving in any such capacity at the time any
liability or expense is incurred for which indemnification or
reimbursement can be provided under this Agreement.
(b) The term "Expenses" shall include, without limitation, expenses of
investigations, judicial or administrative proceedings, or appeals,
judgments, fines and penalties, amounts paid in settlement by or on
behalf of Indemnitee, attorneys' fees and disbursements, and any
expenses of establishing a right to indemnification under Paragraph
7.
3. Indemnity in Third-Party Proceedings.
The Corporation shall indemnify Indemnitee in accordance with the
provisions of this Paragraph 3 if Indemnitee is a party to or threatened to be
made a party to or otherwise involved in any Proceeding (other than a
Proceeding by or in the right of the Corporation) by reason of the fact that
Indemnitee is or was a Director or Officer of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee, or
agent of another corporation, partnership, joint venture, trust, or other
enterprise, against all Expenses actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of such Proceeding,
but only if Indemnitee acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation and,
in the case of a criminal proceeding, in addition, had no reasonable cause to
believe that his conduct was unlawful. The termination of any such Proceeding
by judgment, order of court, settlement, conviction, or upon a plea of nolo
contendere, or its equivalent, shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Corporation, and
with respect to any criminal proceeding, that such person had reasonable cause
to believe that his conduct was unlawful.
4. Indemnity in Proceedings by or in the Right of the Corporation.
(a) In the event the Corporation has purchased and has in effect policies
of Directors' and Officers' liability insurance at the time of
request by Indemnitee for indemnification thereunder, the Corporation
shall, subject to the provisions of Paragraph 4(c), indemnify
Indemnitee as follows: if Indemnitee is a party to or threatened to
be made a party to any Proceeding by or in the right of the
Corporation by reason of the fact that Indemnitee is or was a
Director or Officer of the Corporation, or is or was serving at the
request of the Corporation as a director, officer, employee, or agent
of another corporation, partnership, joint venture, trust, or other
enterprise, against all Expenses actually and reasonably incurred by
-2-<PAGE>
Indemnitee in connection with the defense or settlement of such
Proceeding, but only if he acted in good faith and in a manner which
he reasonably believed to be in or not opposed to the best interests
of the Corporation.
(b) In the event the Corporation is not covered by policies of Directors'
and Officers' Liability insurance which are applicable to the
indemnification claim being made by Indemnitee for indemnification
thereunder, the Corporation shall, subject to the provisions of
Paragraph 4(c), indemnify Indemnitee as follows: 1) to the fullest
extent of the coverage provided for the benefit of Directors and
Officers in the case of a Proceeding by or in the right of the
Corporation pursuant to the policy of insurance in effect on the date
of this Agreement; 2) if Indemnitee is a party to or threatened to be
made a party to any Proceeding by or in the right of the Corporation
by reason of the fact that Indemnitee is or was a Director or Officer
of the Corporation, or is or was serving at the request of the
Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise,
against all Expenses actually and reasonably incurred by Indemnitee
in connection with the defense or settlement of such Proceeding, but
only if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
Corporation; and 3) to the fullest extent as may be provided to
Indemnitee by the Corporation under the Agreement, the By-Laws of the
Corporation, and the Law. The foregoing provisions shall be taken
cumulatively and construed as being consistent with one another.
(c) No indemnification for Expenses shall be made under Paragraphs 4(a)
and 4(b):
(1) in respect to remuneration paid to Indemnitee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(2) on account of any suit in which judgment is rendered against
Indemnitee for an accounting of profits made from the purchase or
sale by Indemnitee of securities of Corporation pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934
and amendments thereto or similar provisions of any federal, state,
or local law;
(3) on account of Indemnitee's conduct which is finally adjudged to
have been knowingly fraudulent, deliberately dishonest, or willful
misconduct;
(4) if a final decision by a Court having jurisdiction in the matter
shall determine that such indemnification is not lawful.
-3-<PAGE>
5. Indemnification of Expenses of Successful Party.
Notwithstanding any other provision of this Agreement, to the extent that
Indemnitee has been successful on the merits or otherwise in defense of any
Proceeding or in defense of any claim, issue, or matter therein, including
dismissal without prejudice, Indemnitee shall be indemnified against all
Expenses incurred in connection therewith.
6. Advances of Expenses.
Expenses incurred by the Indemnitee pursuant to Paragraphs 3 and
4 shall be paid by the Corporation in advance upon the written request
of the Indemnitee if Indemnitee shall undertake to repay such amount to the
extent that it is ultimately determined that Indemnitee is not entitled to
indemnification.
7. Right of Indemnitee to Indemnification Upon Application.
Any indemnification under Paragraphs 3 and 4 shall be made no later than 45
days after receipt by the Corporation of the written request of Indemnitee,
unless a determination is made within said 45-day period by (1) the Board of
Directors by a majority vote of a quorum consisting of directors who are not
parties to such Proceeding or (2) independent legal counsel, which counsel
shall be appointed if the quorum of the Board of Directors specified in
Paragraph 7(1) is not obtainable, in a written opinion that the Indemnitee has
not met the relevant standards for indemnification set forth in Paragraphs 3
and 4.
The right to indemnification or advances as provided by this Agreement
shall be enforceable by Indemnitee in any court of competent jurisdiction. The
burden of proving that indemnification is not appropriate shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors or independent legal counsel) to have made a determination prior to
the commencement of such action that indemnification is proper in the
circumstances because Indemnitee has met the applicable standard of conduct,
nor an actual determination by the Corporation (including its Board of
Directors or independent legal counsel) that Indemnitee has not met such
applicable standard of conduct, shall bar the action or create an irrefutable
presumption that Indemnitee has not met the applicable standard of conduct.
Indemnitee's expenses reasonably incurred in connection with successfully
establishing his right to indemnification, in whole or in part, in any such
Proceeding shall also be indemnified by the Corporation.
8. Indemnification Thereunder Not Exclusive.
The indemnification provided by this Agreement shall not be deemed
exclusive of any other rights to which Indemnitee may be entitled under the
Bylaws, any agreement, any vote of shareholders or disinterested Directors,
Law, or otherwise, both as to action in his official capacity and as to action
in any capacity while holding such office.
The indemnification under this Agreement shall continue as to Indemnitee
even though Indemnitee may have ceased to be a Director or Officer.
-4-<PAGE>
9. Partial Indemnification.
If Indemnitee is entitled under any provision of this Agreement to
indemnification by the Corporation for a portion of the Expenses actually and
reasonably incurred by him in the investigation, defense, appeal, or
settlement of any Proceeding but not, however, for the total amount thereof,
the Corporation shall nevertheless indemnify Indemnitee for the portion of
such Expenses to which Indemnitee is entitled.
The Corporation shall not be liable to indemnify Indemnitee under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent. The Corporation shall not settle any action or
claim in any manner which would impose any penalty or limitation on Indemnitee
without Indemnitee's written consent. Neither the Corporation nor the
Indemnitee will unreasonably withhold their consent to any proposed
settlement.
10. Saving Clause.
If this Agreement or any portion thereof shall be invalidated on any ground
by any court of competent jurisdiction, the Corporation shall nevertheless
indemnify Indemnitee as to Expenses with respect to any Proceeding to the full
extent permitted by any applicable portion of this Agreement that shall not
have been invalidated or by any other applicable law.
11. Notice.
Indemnitee shall, as a condition precedent to his right to be indemnified
under this Agreement, give to the Corporation notice in writing as soon as
practicable of any claim for which indemnification will or could be sought
under this Agreement. Notice to the Corporation shall be directed to Zurn
Industries, Inc., One Zurn Place, P.O. Box 2000, Erie, PA 16514-2000,
Attention: President (or such other address as the Corporation shall designate
in writing to Indemnitee). Notice shall be deemed received three days after
the date postmarked if sent by prepaid mail properly addressed. In addition,
Indemnitee shall give the Corporation such information and cooperation as it
may reasonably require.
12. Counterparts.
This Agreement may be executed in any number of counterparts, each of which
shall constitute the original.
13. Applicable Law.
This Agreement shall be governed by and construed in accordance
with the laws of the Commonwealth of Pennsylvania.
14. Successors and Assigns.
This Agreement shall be binding upon the Indemnitee and upon the
Corporation, its successors and assigns, and shall inure to the benefit of the
Indemnitee's heirs, personal representatives, and assigns and to the benefit
of Corporation, its successors and assigns.
-5-<PAGE>
IN WITNESS WHEREOF, the parties thereby have caused this Agreement to be
duly executed and signed as of the day and year first above written.
ZURN INDUSTRIES, INC.
By:
Chairman, Management Development
and Compensation Committee
INDEMNITEE:
This Agreement was approved by stockholders of Zurn Industries, Inc. at the
Annual Meeting on August 1, 1986.
-6-
EXHIBIT 10.20 - ZURN INDUSTRIES, INC. EXECUTIVE INCENTIVE PLAN
ZURN INDUSTRIES, INC.
EXECUTIVE INCENTIVE PLAN
Effective April 1, 1996
Section 1: Purposes
The purposes of the Plan are to promote the profitability of the Company
thereby building Shareholder Value; to provide key Employees with an
opportunity to receive incentive compensation dependent upon that
profitability; and to attract, retain and motivate such individuals.
Section 2: Definitions
2.1 "Award" means an incentive award made pursuant to the Plan.
2.2 "Beneficiary" means the person(s) designated by the
Participant, in writing on the Company's life insurance
beneficiary form, to receive payments under the Plan in the
event of his/her death while a Participant or, in the
absence of such designation, the Participant's estate.
2.3 "Board of Directors" means the Board of Directors of the Company.
2.4 "Cause" means (i) a felony conviction of the Participant; (ii) the
commission by the Participant of an act of fraud or embezzlement
against the Company; (iii) the Participant's willful misconduct or
gross negligence materially detrimental to the Company; (iv) the
Participant's failure to perform his duties and responsibilities in
accordance with the standards and criteria established by the Company
therefor and communicated to the Participant; (v) the Participant's
wrongful dissemination or use of confidential or proprietary
information of the Company or of confidential or proprietary
information of a third party in breach of a contractual or other
obligation of the Company, where the Participant knew or had reason
to know of such obligation; or (vi) the intentional and habitual
neglect by the Participant of his duties to the Company.
2.5 "Change of Control" means the earliest to occur of the following
events:
(i) the date the stockholders of the Company approve a plan or other
arrangement pursuant to which the Company will be dissolved or
liquidated;
(ii) the date the stockholders of the Company approve a definitive
agreement to sell or otherwise dispose of fifty percent (50%) or
more of the assets of the Company; or
-1-<PAGE>
(iii) the date of approval by the stockholders of the Company and, if
required, by the stockholders of the other constituent corporation of
a definitive agreement to merge or consolidate the Company with or
into such other corporation, other than, in either case, a merger or
consolidation of the Company in which holders of shares of the
Company's common stock immediately prior to the merger or
consolidation will have at least a majority of the ownership of, or
voting control over, common stock of the surviving corporation (and,
if one class of common stock is not the only class of voting
securities entitled to vote for the election of directors of the
surviving corporation, a majority of the voting power of, or voting
control over, the surviving corporations voting securities)
immediately after the merger or consolidation.
2.6 "CEO" means the Chief Executive Officer of the Company.
2.7 "Committee" means the Management Development and Compensation
Committee of the Board of Directors.
2.8 "Company" means Zurn Industries, Inc. and its successors and shall
include any wholly-owned subsidiaries of the Company, except where
the context indicates otherwise.
2.9 "Disability" means (i) total disability within the meaning of the
Company's long-term disability plan as in effect from time to time or
(ii) if there is no such plan at the applicable time, physical or
mental incapacity as determined solely by the Committee.
2.10 "Earnings" means the Company's profit before tax (PBT) income or net
income (NI), as the case may be, for the Plan Year determined in
accordance with generally accepted accounting principles consistently
applied by the Company, but excluding, in the Committee's discretion,
unusual or extraordinary items, discontinued operations, and the
cumulative effect of accounting changes.
2.11 "Earnings Threshold" means the level of Earnings for the Plan Year
below which no Awards based on PBT or NI will be payable. The
Earnings Threshold may vary from Plan Year to Plan Year and from
business entity to business entity.
2.12 "Employee" means an employee of the Company.
2.13 "Good Reason" means, except where the Participant has given his/her
prior written consent, (i) a material adverse change in the nature or
scope of the Participant's responsibilities, authorities, duties
and/or position other than by reason of Cause or Disability; (ii) the
failure of the Company to pay the Participant any amounts otherwise
vested and due hereunder; (iii) the termination of this Plan; (iv) a
reduction in the Participant's base salary in effect immediately
prior to the Change of Control; (v) the failure of the Company to
provide the Participant with benefits which are substantially similar
in the aggregate to those enjoyed by the Participant under the
-2-<PAGE>
Company's pension, life insurance, medical, health and accident,
disability, deferred compensation or savings or similar plans and
fringe benefit programs (including vacation) in which the Participant
was participating immediately prior to the Change of Control; or
(vi) the relocation of the Participant's office outside of a 50-mile
radius of its location immediately prior to the Change of Control.
The Company shall have thirty (30) days from the date of receipt of
notice from the Participant to effect a cure of an event described
therein, and upon cure thereof by the Company to the Participant's
reasonable satisfaction, such event shall no longer constitute Good
Reason.
2.14 "Material Transaction" means acquisitions and/or divestitures of
business operations by the Company which in the aggregate, as
reasonably determined by the Committee, have the effect of increasing
or decreasing by 20% or more the sales volume of the continuing
business operations of the Company (on a consolidated basis) compared
to those which existed on the first day of the Plan Year but which
do not result in a Change of Control.
2.15 "Maximum Award" means 200% of the participant's target award as
approved by the Committee.
2.16 "Other Performance Goals" means any goals (other than Earnings) to
measure corporate, group, subsidiary, division, unit and/or
individual performance for a Plan Year. Other Performance Goals may
vary from Participant to Participant and Plan Year to Plan Year.
2.17 "Participant" means an Employee designated by the CEO from time to
time and approved by the Committee pursuant to Section 3 to
participate in the Plan.
2.18 "Payout Factor" means, with respect to Earnings and each of the
Other Performance Goals, a percentage from 0% to 200%, used for
purposes of determining Awards based on the extent to which the
applicable Performance Goal has been achieved.
2.19 "Performance Goal" means the level of performance established as the
Performance Goal with respect to Earnings and any Other Performance
Goals. Performance Goals may vary from Plan Year to Plan Year.
Performance Goals may also vary, with respect to other Performance
Goals, from Participant to Participant, and, with respect to
Earnings, among one or more of the Company's subsidiaries, divisions
or units.
2.20 "Plan" means the Zurn Industries, Inc. Executive Incentive Plan.
2.21 "Plan Year" means the fiscal year of the Company.
2.22 "Profit Before Taxes" means, with respect to any subsidiary, division
or unit of the Company, such subsidiary's, division's or unit's
income (including external interest income [expense], other external
-3-<PAGE>
investment earnings [losses], and an investment return charge) for
the Plan Year before income taxes.
2.23 "Retirement" means retirement from the employ of the Company (other
than for Cause) at or after pension Normal Retirement Age or, with
the advance consent of the Committee, at or after age 55.
2.24 "Salary" means the base annual salary in effect at April 1st of the
same fiscal year.
2.25 "Target Award" means an amount recommended by the CEO and approved by
the Committee as a Participant's Target Award for purposes of the
Plan. Target Awards may vary from Participant to Participant and Plan
Year to Plan Year.
2.26 "Weighting" means the percentage that Earnings and Other Performance
Goals are weighted for purposes of determining Awards. Weightings
may vary from Plan Year to Plan Year and Participant to Participant.
The Weighting of Earnings cannot be less than seventy percent (70%)
and the Weightings of Other Performance Goals cannot exceed a total
of thirty percent (30%).
Section 3: Participation
3.1 Participants shall be selected by the Committee from among those
executive and other management Employees recommended by the senior
management of the Company and approved by the CEO who, in the opinion
of the Committee, are in a position to make significant contributions
to the profitability of the Company. If, due to hiring, promotion,
or demotion, the Committee determines that an Employee becomes
eligible to participate in the Plan for a Plan Year, or that a
Participant ceases to be so eligible, then the Committee shall have
the discretion to provide that such individual shall be eligible for
a prorated Award, as and to the extent it may determine. The
selection of an Employee as a Participant for a Plan Year shall not
entitle such individual to be selected as a Participant with respect
to any other Plan Year.
Section 4: Awards
4.1. Target Awards and Performance Goals.
(a) For each Plan Year, the Committee shall approve (i) an earnings
target and earnings threshold and weighting and, (ii) two or more
Performance Goals and weightings for each Participant.
(b) For each Plan Year, the CEO will approve the Performance Goals and
Weightings with respect to two or more other Performance Goals for
each Participant, other than the CEO. For the CEO, the Committee
will establish appropriate Performance Goals. In establishing such
items, the CEO will take into account such factors as he deems
advisable, including the recommendations of other senior management
-4-<PAGE>
Employees of the Company (and of the Company's subsidiaries,
divisions and units, as appropriate).
(c) Once established for a Plan Year, a Participant's Target Award,
Performance Goals and Weightings may not be amended or otherwise
modified in any manner that may adversely affect the Participant
without CEO approval and written notification, except as provided in
Section 6.2.
4.2 Determination of Awards. The actual Award payable to a Participant
will be determined in accordance with the following formula:
The sum of (T x P) for each of the goals.
T is the Participant's Target Award for Earnings or other
Performance Goals.
P is the Performance Accomplishment (expressed in a percent)
with respect to Earnings and each other Performance Goal by the
Weighting established therefor.
Notwithstanding the foregoing, no Awards based on PBT or NI will be
payable for a Plan Year unless the Earnings Threshold for such Plan
Year has been achieved. All determinations regarding the achievement
of the Earnings Threshold will be made by the CEO and approved by the
Committee. If the Earnings Threshold is not achieved, a participant
may still be awarded an incentive compensation payout for achieving
other Performance Goals.
4.3. Payment of Awards. Awards will be paid in a lump sum payment as soon
as practicable after the close of the Plan Year for which they are
made but in no event prior to completion of an audit of the Company's
financial statements. Except as otherwise provided in Sections 5 and
6, no Award will be payable to any Participant who is not an Employee
on the day the awards are made. The Committee may, subject to such
terms and conditions and within such limits as it may from time to
time establish, permit one or more Participants to defer the receipt
of amounts due under the Plan.
Section 5: Termination of Employment
5.1 Death, Disability, Retirement and Other Than Cause. If a
Participant's employment with the Company terminates due to death,
Disability or Retirement, or is terminated by the Company other than
for Cause, the Participant or his Beneficiary, as the case may be,
will be paid a prorated Award provided the participant worked at
least six (6) months during the Plan Year.
5.2 Cause. If a Participant's employment with the Company is terminated
for Cause, his right to the payment of an Award and all other rights
under this Plan will be forfeited, and no amount will be paid or
payable hereunder to or in respect of such Participant.
-5-<PAGE>
Section 6: Change of Control and Material Transactions
6.1 Change of Control. If within one (1) year after the date of a
Change of Control of the Company, a Participant's employment with the
Company is terminated (i) by the Company other than for Cause, or
(ii) upon notice to the Company, by the Participant for Good Reason,
the Participant will, within ten (10) days after such termination of
employment, be paid a prorated Award in cash with respect to the Plan
Year in which his employment is terminated, as determined in
accordance with Section 5.1.
6.2 Material Transactions. Anything in this Plan to the contrary
notwithstanding, in the event of a Material Transaction prior to a
Change of Control, the Committee may, within thirty (30) days
following such transaction, take one or more of the following
actions:
(a) with respect to an acquisition, exclude from the calculation of
the Earnings Threshold, Earnings, and any Other Performance
Criteria, the post-transaction operations of the acquired
business operation;
(b) with respect to a divestiture, adjust the Earnings Threshold,
and any Other Performance Criteria and any Performance Goal to
account for such divestiture and exclude from the calculation
of the Earnings Threshold, Earnings, and any Other Performance
Criteria, the pre-transaction operations of the divested
business operation; or
(c) treat any Participant who terminates employment as the result
of a divestiture of a business operation by Company as an
Employee for purposes of the Plan; or
(d) take such other actions in respect of such acquisition or
divestiture, in lieu of or in addition to those set forth in
(a) or (b) or (c) above, as the Committee shall reasonably
consider necessary or desirable to accomplish the purposes of
the Plan.
Any Committee action pursuant to this Section shall be promptly
communicated to Participants, and the Board of Directors shall amend
the Plan to the extent necessary to implement the Committee's
actions.
Section 7: Administration
7.1. In General. Except as otherwise provided in the Plan, the Committee
will have full and complete authority, in its sole and absolute
discretion, (i) to exercise all of the powers granted to it under the
Plan, (ii) to construe, interpret and implement the Plan and any
related document, (iii) to prescribe, amend and rescind rules
relating to the Plan, (iv) to make all determinations necessary or
-6-<PAGE>
advisable in administering the Plan, and (v) to correct any defect,
supply any omission and reconcile any inconsistency in the Plan.
7.2 Determinations. The actions and determinations of the Committee or
its designee on all matters relating to the Plan and any Awards will
be final and conclusive. Such determinations need not be uniform and
may be made by it selectively among persons who receive, or are
eligible to receive, Awards under the Plan, whether or not such
persons are similarly situated.
7.3 Appointment of Experts. The Committee may appoint such accountants,
counsel, and other experts as it deems necessary or desirable in
connection with the administration of the Plan.
7.4 Delegation. The Committee may delegate to Employees the authority
to execute and deliver such instruments and documents, to do all such
acts and things, and to take all such other steps deemed necessary,
advisable or convenient for the effective administration of the Plan
in accordance with its terms and purposes.
7.5 Books and Records. The Committee and others to whom the Committee has
delegated such duties shall keep a record of all their proceedings
and actions and shall maintain all such books of account, records and
other data as shall be necessary for the proper administration of the
Plan.
7.6 Payment of Expenses. The Company shall pay all reasonable expenses of
administering the Plan, including, but not limited to, the payment of
professional and expert fees.
Section 8: Miscellaneous
8.1. Nonassignability. No Award will be assignable or transferable
(including pursuant to a pledge or security interest) other than by
will or by laws of descent and distribution.
8.2 Withholding Taxes. Whenever payments under the Plan are to be made or
deferred, the Company will withhold therefrom, or from any other
amounts payable to or in respect of the Participant, an amount
sufficient to satisfy any applicable governmental withholding tax
requirements related thereto.
8.3 Amendment or Termination of the Plan. The Plan may be amended or
terminated by the Board of Directors in any respect except that no
amendment may be made after the date on which an Employee is selected
as a Participant for a Plan Year which would adversely affect the
rights of such Participant with respect to such Plan Year, except as
provided in Section 6.2 and, in addition, following any Change in
Control, no such amendment may be made which would adversely affect
the rights of a Participant in the event of a termination of his
employment for Good Reason (including, without limitation, the
definition of what constitutes "Good Reason.")
-7-<PAGE>
8.4 Other Payments or Awards. Nothing contained in the Plan will be
deemed in any way to limit or restrict the Company from making any
award or payment to any person under any other plan, arrangement or
understanding, whether now existing or hereafter in effect.
8.5 Payments to Other Persons. If payments are legally required to be
made to any person other than the person to whom any amount is
payable under the Plan, such payments will be made accordingly. Any
such payment will be a complete discharge of the liability of the
Company under the Plan.
8.6 Unfunded Plan. Nothing in this Plan will require the Company to
purchase assets or place assets in a trust or other entity to which
contributions are made or otherwise to segregate any assets for the
purpose of satisfying any obligations under the Plan. Participants
will have no rights under the Plan other than as unsecured general
creditors of the Company.
8.7 Limits of Liability. Neither the Company nor any other person
participating in any determination of any question under the Plan, or
in the interpretation, administration or application of the Plan,
will have any liability to any party for any action taken or not
taken in good faith under the Plan.
8.8 No Right of Employment. Nothing in this Plan will be construed as
creating any contract of employment or conferring upon any Employee
or Participant any right to continue in the employ or other service
of the Company or limit in any way the right of the Company to change
such person's compensation or other benefits or to terminate the
employment or other service of such person with or without Cause.
8.9 Section Headings. The section headings contained herein are for
convenience only, and in the event of any conflict, the text of the
Plan, rather than the section headings, will control.
8.10 Invalidity. If any term or provision contained herein is to any
extent invalid or unenforceable, such term or provision will be
reformed so that it is valid, and such invalidity or unenforceability
will not affect any other provision or part hereof.
8.11 Applicable Law. The Plan will be governed by the laws of the
Commonwealth of Pennsylvania as determined without regard to the
conflict of law principles thereof.
8.12 Effective Date. The Plan shall be effective as of April 1, 1996.
APPROVED BY BOARD OF DIRECTORS: April 22, 1996
-8-
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
(Thousands Except Per Share Amounts)
Year Ended March 31
1997 1996 1995
Primary Earnings Per Share
Net income $ 5,300 $16,670 $ 9,324
Preferred stock dividends 2 2 3
$ 5,298 $16,668 $ 9,321
Shares outstanding
Weighted average common shares 12,347 12,341 12,354
Net common shares issuable on
exercise of stock options 84 37 1
Average common shares outstanding
as adjusted 12,431 12,378 12,355
Primary earnings per share $ .43 $ 1.35 $ .76
Fully Diluted Earnings Per Share
Net income $ 5,300 $16,670 $ 9,324
Interest on convertible debentures,
net of applicable income taxes 8
$ 5,300 $16,670 $ 9,332
Shares outstanding
Average common shares as adjusted
for primary computation 12,431 12,378 12,355
Common shares issuable if the
preferred stock and convertible
debentures were converted at
the beginning of the year 4 5 32
Additional common shares issuable
on exercise of stock options 19 13 1
Average common shares outstanding
as adjusted 12,454 12,396 12,388
Fully diluted earnings per share $ .43 $ 1.35 $ .75
EXHIBIT 13
ELECTRONIC FORMAT OF PAGES OF ANNUAL REPORT TO SHAREHOLDERS
FOR THE YEAR ENDED MARCH 31, 1997 INCORPORATED BY REFERENCE
ANNUAL REPORT PAGE 22
FINANCIAL REVIEW
Business Restructuring
Decisions were made to sell the Lynx Golf and Mechanical Power Transmission
segments and the Power Systems segment businesses in the fourth quarter of
fiscal 1996 and second quarter of fiscal 1997, respectively. In January 1997
the Company acquired Eljer Industries, Inc., a manufacturer and marketer of
plumbing and heating, ventilating and air conditioning (HVAC) building
products. Following these events, the Company's operations are now
categorized in two industry segments: Building Products and Water Resource
Construction.
The consolidated financial statements include Eljer since the date of
acquisition following the purchase method of accounting. The three former
segments are reported as discontinued operations. Their assets and
liabilities have been removed from the consolidated accounts and are presented
in the statement of financial position as a single net asset. The statements
of consolidated operations and cash flows, industry segment data, and
quarterly financial data have been restated to present separately for all
periods the continuing operations of the Building Products and Water Resource
Construction segments and the discontinued operations.
Sales And Earnings
Sales of Building Products increased $90.4 million, with $59.5 million coming
from Eljer's operations during the 68 days of fiscal 1997 it was owned by the
Company. Zurn Plumbing Products and Fire Protection Systems achieved sales
increases of 17% and 19%. Revenues in fiscal 1996 increased $24.1 million,
with 82% being derived from Zurn Plumbing Products. Water Resource
Construction revenues were off $22.1 million as the result of a low beginning-
of-the-year backlog and the sale of one of the segment's two businesses while
its revenues increased $26.7 million in fiscal 1996. The pro forma results of
operations presented in the notes to consolidated financial statements for
comparative purposes indicate the Company's total sales might have been in the
$660 to $670 million range in each of the last two years if Eljer had been
acquired at the beginning of that two-year period.
The overall gross profit margin percentage increase in fiscal 1997 was
attributable to a greater percentage of the Company's sales being derived from
Building Products. That segment's margin percentage was lower, however, as
the products of businesses acquired in the last two years generally are sold
at lower margins. While marketing and administration expenses, which include
sales commissions, have averaged 19% of sales over the last three years, their
dollar amount has increased in each of those years as a result of the Building
-1-<PAGE>
ANNUAL REPORT PAGE 22 CONTINUED
Products sales growth and new product introduction costs and, in the last two
years, the acquisition of businesses. Inflation's effect on the Company's
costs over the last three years has not been as great as the consumer price
index change due to cost containment measures and outsourcing programs which
reduced the costs of many manufactured products. Most cost increases have
been recovered currently.
Interest expense was greater as a consequence of the Company's borrowings
to finance the purchase of Eljer and the debt obligations assumed in the
transaction. Goodwill amortization is primarily attributable to the
acquisition of Eljer. The higher interest income level in fiscal 1995 came
from interest on federal income tax refunds. The greater amount of other
income in fiscal 1996 is attributable to sales of an investment and
underutilized assets which contributed $.07 per share to earnings while a
somewhat smaller amount was recognized in fiscal 1997 from the sale of a Water
Resource Construction business.
Goodwill amortization, which is not deductible, increased the fiscal 1997
effective tax rate compared to the prior two years when tax exempt investment
income, which was a larger percentage of pretax income, had a greater impact
on the effective tax rate. Settlement of prior year state tax assessments
significantly reduced the effective tax rate in fiscal 1995 and increased
earnings by $.04 per share.
Discontinued operations reduced net income by $1.34, $.39, and $.76 per
share in each of the three years. The losses were less in fiscal 1996
primarily as the result of actions taken to lower operating expenses being
incurred by the Lynx Golf segment. In fiscal 1997, the Power Systems segment
incurred significant costs as it worked toward completion of two foreign power
plant projects and it continued to seek resolution of the effects of the March
1996 repeal of the State of Illinois Retail Rate Law of 1987 which affected
the construction of two power plants for one of its customers.
Pro forma income from continuing operations for fiscal 1997 assuming Eljer
had been included for the entire year was $24.5 million, or $1.97 per share,
compared to the reported earnings of $22.0 million, or $1.77 per share.
Included in the pro forma earnings is a $.25 per share litigation settlement
gain recognized by Eljer prior to the acquisition.
ANNUAL REPORT PAGE 23
Oral and written comments by the Company's management and Board of
Directors in this annual report and elsewhere about the results of operations
reported in the financial statements and the Company's future are made based
on assumptions and estimates in light of the information available at the
time. Actual results could differ from the estimates and future operations
may be affected by a variety of factors including: changes in objectives,
plans, and strategies; competitive pricing and new product offerings by the
Company and its competitors; and product cost changes.
-2-<PAGE>
ANNUAL REPORT PAGE 23 CONTINUED
Backlog 1997 1996 1995
(Millions)
Building Products $ 50 $30 $ 26
Water Resource
Construction 81 68 96
$131 $98 $122
Completion after fiscal 1998 is expected for 41% of the Water Resource
Construction amount at March 31, 1997.
Building Products
Sales of Zurn Plumbing Products had year-over-year increases of 17% and 16% in
the last two years. Sanitary-Dash, a maker of brass and plastic plumbing
fittings and hardware which was acquired in fiscal 1996's third quarter,
contributed about 5 of those percentage points and $.09 per share to fiscal
1997's earnings. Other sales increase contributors in both years were higher
volumes, new products introduced over the last several years, and market
increases. Revenues from the installation of Fire Protection Systems were up
19% in fiscal 1997 and 11% in 1996 after declining in each of the two previous
years as the result of a depressed West Coast commercial construction market.
The Eljer Plumbingware and Selkirk HVAC businesses contributed $59.5
million to the segment's sales following their acquisition in fiscal 1997's
fourth quarter. Their annual revenues for the calendar year prior to being
purchased were $216.0 and $156.9 million, respectively, after adjustment to
conform with the Company's accounting for product delivery costs.
The segment's operating profits increased $7.8 and $5.7 million in fiscal
1997 and 1996, but those amounts are a smaller percentage of sales primarily
because Eljer and Sanitary-Dash obtain lower margins in the remodeling,
repair, and do-it-yourself markets. As a result of increased revenues and
cost reduction efforts, the Fire Protection Systems businesses' operating
profit in 1997 was 58% greater than the fiscal 1995 level.
For the short period between the acquisition date and the Company's fiscal
year end, Eljer reduced continuing operations earnings per share by $.08 as
its income for that seasonally soft period was not sufficient to offset the
interest expense and goodwill amortization arising from the acquisition.
Looking to the future, marketing and manufacturing synergies should boost the
segment's sales and, over time, reduce costs as a percentage of sales.
Traditionally Zurn Plumbing Products have been sold primarily in the United
States nonresidential construction market while Eljer Plumbingware and Selkirk
HVAC have focused on the wholesale and retail markets and Selkirk HVAC also
has had a substantial presence in Europe. Selective introduction of each
unit's products into the other's markets has already begun.
Water Resource Construction
Advanco Constructors, a builder of water infrastructure projects in southern
-3-<PAGE>
ANNUAL REPORT PAGE 23 CONTINUED
California with revenues of $69.1, $84.2, and $58.8 million in each of the
last three years, is the segment's sole business following the sale of Gary
Concrete in fiscal 1997. An operating loss was incurred in 1997 and the
Company's income from continuing operations was $.07 per share lower as a
result of Advanco Constructors' loss which was attributable primarily to
subcontractor performance deficiencies on several projects. Margins on water
resource construction projects were low in the prior two years due to the
effects of unanticipated contract costs in 1996 and delays experienced in
1995's fourth quarter caused by severe flooding in California.
Many of the segment's water resource construction projects span several
fiscal years and its year-to-year success is highly dependent on the backlog
level. Because the southern California market it serves has a continuing need
to expand and upgrade its water and wastewater infrastructure, there should be
new projects that can be bid successfully and managed profitably.
Corporate
Compared to earlier years, the fiscal 1997 expense was greater as a result of
the interest expense associated with the purchase of Eljer. In fiscal 1996,
Corporate expense was reduced by the gain from selling a minority interest
investment in another company.
ANNUAL REPORT PAGE 24
Financial Condition
The business restructuring in fiscal 1997 significantly changed the Company's
financial position and cash flows. The purchase of Eljer involved cash
expenditures of $178.5 million, net of $16.7 million in unrestricted cash
obtained in the acquisition. The total purchase price, including $303.2
million of assumed liabilities, was $479.5 million. Funds for the
expenditures were obtained from long-term and revolving loan borrowings of
$106.8 million, net of $3.3 million in loan origination costs, sales of
discontinued operations, and cash provided by continuing operations and
investing activities. In addition to the borrowings to finance the
acquisition, additional amounts were obtained to refinance $64.7 million of
Eljer's debt which carried higher interest rates. Based on preliminary
purchase price allocations, the fair values of the Eljer assets acquired
include $200.6 million in current assets, $70.4 million in property, plant,
and equipment, and $193.4 of goodwill. Among the other liabilities assumed
were those for litigation, insurance, and environmental obligations.
During the year, the Company sold the Lynx Golf and Mechanical Power
Transmission segments, certain units of the Power Systems segment, and Gary
Concrete. The remainder of the Power Systems segment is expected to be sold
in fiscal 1998.
The greater amount of cash from continuing operations in fiscal 1997 is
attributable to increased sales, the offset of currently payable taxes and tax
refund from the utilization of the discontinued operations' losses, and the
-4-<PAGE>
ANNUAL REPORT PAGE 24 CONTINUED
reduction in receivables, 44% of which resulted from the collection of long-
term trade notes. Only a minor deferred tax asset valuation allowance has
been provided in the financial statements as management has determined it is
more likely than not that the benefits of tax loss carryforwards of acquired
businesses and the temporary differences between financial and tax reporting
will be realized by offsetting future taxable income from continuing
operations. The current income tax liability assumed in the Eljer acquisition
relates to potential adverse tax consequences arising from pre-acquisition
transactions.
Cash provided by continuing operations in fiscal 1996 was adversely
affected by receivable increases in the Water Resource Construction and Fire
Protection Systems businesses. In addition to supplementing the cash used by
discontinued operations in fiscal 1996, the marketable securities reduction
was the source of the increase in cash and equivalents and provided funds for
capital expenditures, the Sanitary-Dash acquisition, and the payment of
dividends to shareholders. The greater amount of capital expenditures in 1996
was for two new Zurn Plumbing Products facilities. In fiscal 1995, the cash
from investing activities provided 51% of the funds needed to pay dividends.
As described in the commitments and contingencies note to the consolidated
financial statements, United States Brass Corporation, an Eljer indirect
wholly-owned subsidiary, has sought bankruptcy court protection while
attempting to resolve significant litigation. The assets, liabilities, and
operations of US Brass are included in the financial statements as management
believes the litigation and bankruptcy will be satisfactorily resolved. The
amounts provided for such resolution should preclude any material effect on
the Company's financial position; however, if US Brass is liquidated, the
loss of its earnings would significantly affect the Company's future results
of operations. Part of the term loan commitment mentioned in the debt and
lines of credit note to the financial statements is designated for payment of
US Brass litigation liabilities and 53% of the amount accrued for the
environmental obligations described in the financial statement commitments and
contingencies note has been set aside in trusts.
Total capital employed at March 31, 1997 amounted to $426.2 million which
includes $230.7 million ($18.67 per share of common stock) of shareholders'
equity.
-5-<PAGE>
ANNUAL REPORT PAGE 25
FIVE YEAR CONSOLIDATED FINANCIAL SUMMARY
Year Ended March 31 1997 1996 1995 1994 1993
(Thousands of Dollars Except Per Share Amounts)
OPERATING DATA
Net sales $353,018 $284,683 $233,852 $247,177 $244,444
Continuing operations
income 22,002 21,527 18,842 13,416 20,384
Per share 1.77 1.74 1.52 1.08 1.63
Common stock cash dividends
declared per share .40 .40 .88 .88 .88
FINANCIAL POSITION AT YEAR END
Liquid assets $ 20,892 $ 30,031 $ 54,838 $ 65,433 $ 90,643
Working capital 108,220 173,836 155,535 160,516 183,778
Property, plant,
and equipment 105,180 42,054 56,162 57,003 70,423
Total assets 726,357 394,647 414,696 447,893 490,178
Debt obligations 195,505 7,549 11,553 13,806 20,934
Shareholders' equity 230,718 230,955 218,930 221,583 249,098
Per share of
common stock 18.67 18.71 17.73 17.86 20.03
GENERAL STATISTICS
Capital expenditures $ 6,297 $ 9,155 $ 5,513 $ 4,147 $ 5,015
Depreciation 6,588 5,202 4,700 4,376 4,230
Shareholders of record 5,023 4,822 5,355 6,277 6,278
Average common shares
outstanding (thousands) 12,431 12,378 12,355 12,438 12,521
Common stock price range:
High 29 26 23 3/8 39 1/2 40 3/4
Low 18 1/2 18 3/8 16 3/4 22 3/4 27 3/4
Fiscal 1997 includes Eljer Industries, Inc. since the date of its acquisition.
Data has been restated for the effects of decisions to discontinue the Lynx
Golf, Mechanical Power Transmission, and Power Systems segments.
-6-<PAGE>
<TABLE>
ANNUAL REPORT PAGE 25 CONTINUED
UNAUDITED QUARTERLY FINANCIAL DATA
<CAPTION>
Year Ended March 31, 1997 Year Ended March 31, 1996
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
(Thousands Except Per Share Amounts)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $82,235 $81,229 $65,686 $123,868 $60,156 $70,187 $76,399 $77,941
Gross profit 22,637 22,340 19,795 37,803 18,836 19,732 18,997 21,813
Continuing operations income 6,521 5,534 4,877 5,070 4,928 4,565 4,430 7,604
Discontinued operations (4,309) (4,255) 2,164 (10,302) (279) (490) (936) (3,152)
Net income (loss) 2,212 1,279 7,041 (5,232) 4,649 4,075 3,494 4,452
Earnings per share:
Continuing operations .53 .44 .39 .41 .40 .37 .36 .61
Net income (loss) .18 .10 .57 (.42) .38 .33 .28 .36
Common stock:
Cash dividends declared .10 .10 .10 .10 .10 .10 .10 .10
Market price:
High 21 5/8 22 1/2 29 26 1/4 20 7/8 26 25 5/8 23 1/4
Low 19 1/2 18 1/2 22 1/8 23 3/8 18 3/8 19 7/8 20 1/4 19 3/8
Fiscal 1997 includes Eljer Industries, Inc. since its acquisition on January 22, 1997 (sales - $59,507; pretax
income - $1,152). Fiscal 1996 fourth quarter includes gains of $1,337 ($.07 per share) from sales of an
investment and underutilized assets and benefited from an unusually low effective tax rate.
Data has been restated for the effects of the fiscal 1997 second quarter decision to discontinue the Power
Systems segment and, for the first nine months of 1997, to conform the Company-wide accounting for product
delivery costs by reducing both sales and marketing expenses with no effect on net income.
Common stock market prices as reported in The Wall Street Journal.
-7-
/TABLE
<PAGE>
ANNUAL REPORT PAGE 26
CONSOLIDATED FINANCIAL POSITION
March 31 1997 1996
(Thousands)
ASSETS
Current Assets
Cash and equivalents $ 12,403 $ 16,195
Restricted cash 10,505
Marketable securities 8,489 13,836
Accounts receivable 110,194 93,713
Inventories and contracts in progress 134,266 69,753
Income taxes 59,551 32,340
Discontinued operations' net assets 4,313 57,253
Other assets 8,323 3,904
Total Current Assets 348,044 286,994
Property, Plant, And Equipment 105,180 42,054
Goodwill 194,064 1,957
Investments 38,524 37,611
Other Assets 40,545 26,031
$726,357 $394,647
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Trade accounts payable $ 49,243 $ 48,441
Litigation 57,471
Debt obligations 34,548 838
Insurance 33,180 14,200
Salaries, wages, and payroll items 18,974 10,404
Income taxes 17,402 1,796
Advance billings on contracts in progress 4,151 13,787
Other liabilities 24,855 23,692
Total Current Liabilities 239,824 113,158
Debt Obligations 160,957 6,711
Retirement Obligations 68,346 43,823
Other Liabilities 26,512
Shareholders' Equity
Common stock, $.50 par value per share
100,000 authorized - 12,570 issued 6,285 6,285
Capital in excess of par value 35,525 35,617
Retained earnings 193,935 194,418
Treasury stock - 218 and 229 shares (5,027) (5,365)
230,718 230,955
Commitments And Contingencies
$726,357 $394,647
See notes to consolidated financial statements.
-8-<PAGE>
ANNUAL REPORT PAGE 27
CONSOLIDATED OPERATIONS
Year Ended March 31 1997 1996 1995
(Thousands Except Per Share Amounts)
Net Sales $353,018 $284,683 $233,852
Cost of sales 250,443 205,305 166,854
Marketing and administration 68,519 51,719 46,210
Interest expense 4,340 1,147 1,132
Goodwill amortization 1,248
Interest income (3,308) (3,081) (5,035)
Other income (3,626) (4,212) (2,841)
Continuing Operations Income
Before Income Taxes 35,402 33,805 27,532
Income taxes 13,400 12,278 8,690
Continuing Operations Income 22,002 21,527 18,842
Discontinued operations:
Loss from operations (9,164) (4,257) (9,518)
Loss on disposal (7,538) (600)
Net Income $ 5,300 $ 16,670 $ 9,324
Earnings Per Share
Continuing operations $1.77 $1.74 $1.52
Discontinued operations (1.34) (.39) (.76)
Net income $ .43 $1.35 $ .76
See notes to consolidated financial statements.
-9-<PAGE>
ANNUAL REPORT PAGE 28
CONSOLIDATED CASH FLOWS
Year Ended March 31 1997 1996 1995
(Thousands)
OPERATIONS
Net income $ 5,300 $ 16,670 $ 9,324
Items not affecting cash from
continuing operations:
Discontinued operations 16,702 4,857 9,518
Depreciation and amortization 7,836 5,202 4,700
Deferred income taxes 3,540 2,810 1,600
Miscellaneous (3,248) (5,251) (1,196)
Changes in operating assets and liabilities:
Receivables 9,795 (17,554) 6,703
Inventories and prepaid expenses (9,032) (6,967) (5,640)
Trade accounts payable and accrued expenses (2,527) 6,820 (7,584)
Income taxes and interest 16,543 (2,393) (886)
Total continuing operations 44,909 4,194 16,539
Discontinued operations (38,121) (8,247) (4,952)
Total From (Used By) Operations 6,788 (4,053) 11,587
INVESTING
Purchases of businesses (178,476) (5,967)
Capital expenditures (6,297) (8,055) (5,513)
Marketable securities 6,087 34,868 14,679
Sales of operations 4,628 1,391 521
Property, plant, and equipment disposals 2,424 80 270
Long-term investments 2,039 1,900 (1,463)
Discontinued operations 68,306 (1,444) (2,981)
Total (Used For) From Investing (101,289) 22,773 5,513
FINANCING
Borrowings 106,801
Debt payments (8,627) (1,408) (1,035)
Dividends paid (4,919) (6,415) (10,888)
Treasury stock purchased (1,926)
Stock options exercised 160 33
Discontinued operations (2,250) (1,062) (1,061)
Total From (Used For) Financing 91,165 (8,885) (14,877)
CASH AND EQUIVALENTS
(Decrease) increase (3,336) 9,835 2,223
Foreign exchange rate effect (456)
Beginning of year 16,195 6,360 4,137
End Of Year $ 12,403 $ 16,195 $ 6,360
See notes to consolidated financial statements.
-10-<PAGE>
ANNUAL REPORT PAGE 29
INDUSTRY SEGMENT DATA
Water
Building Resource Corporate
Products Construction and Others Total
(Thousands)
Year Ended March 31, 1997
Net sales $271,200 $81,818 $353,018
Operating profit (loss) 40,183 (877) 39,306
Corporate expense 3,904
Income before income taxes 35,402
Identifiable assets:
Continuing operations 601,984 33,168 $ 76,022
Discontinued operations
and total 15,183 726,357
Capital expenditures 4,523 816 958 6,297
Depreciation 4,531 1,307 750 6,588
Year Ended March 31, 1996
Net sales $180,790 $103,893 $284,683
Operating profit 32,358 2,347 34,705
Corporate expense 900
Income before income taxes 33,805
Identifiable assets:
Continuing operations 111,098 44,231 $ 91,204
Discontinued operations
and total 148,114 394,647
Capital expenditures 6,115 2,908 132 9,155
Depreciation 3,159 1,366 677 5,202
Year Ended March 31, 1995
Net sales $156,664 $77,188 $233,852
Operating profit 26,663 1,905 $ 283 28,851
Corporate expense 1,319
Income before income taxes 27,532
Identifiable assets:
Continuing operations 91,130 37,419 110,337
Discontinued operations
and total 175,810 414,696
Capital expenditures 4,422 980 111 5,513
Depreciation 2,779 1,222 699 4,700
See notes to consolidated financial statements.
-11-<PAGE>
ANNUAL REPORT PAGE 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BUSINESS DESCRIPTION
The Company and its subsidiaries operate in two industry segments. Its
products and services are marketed by the Company's sales organizations and
through factory sales offices and independent representatives and agents.
Generally credit is extended based on evaluations of customers' financial
condition.
The Building Products segment manufactures and distributes plumbing and
heating, ventilating and air conditioning (HVAC) products for the construction
and remodeling markets in the United States, Canada, and Europe, with
significant suppliers being located in China and the Pacific Rim. It also
designs and installs fire sprinkler systems in the states of California,
Hawaii, Texas, Utah, and Washington.
The Water Resource Construction segment constructs a wide variety of
systems to control and treat water and wastewater principally for government
agencies in southern California.
In January 1997 the Company purchased Eljer Industries, Inc., a
manufacturer and marketer of plumbing and HVAC building products. The
decisions to sell the Lynx Golf and Mechanical Power Transmission segments and
the Power Systems segment were made in the fiscal 1996 fourth quarter and
fiscal 1997 second quarter, respectively.
SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation The financial statements include the accounts of the
Company and its subsidiaries, including Eljer following purchase accounting
since January 22, 1997, after elimination of significant intercompany
transactions. They have been restated for the decisions to discontinue three
industry segments with certain reclassifications in prior years to conform to
the current presentation. The reporting of amounts in the financial
statements and related disclosures in conformity with generally accepted
accounting principles requires management to make assumptions and estimates.
Actual results could differ from the estimates.
Investments Marketable and irrevocable trust securities are available-for-
sale and are carried at their estimated fair values with unrealized gains and
losses included in shareholders' equity as a component of retained earnings.
Debt securities maturing within three months of purchase are cash equivalents.
Notes receivable are carried at cost with interest recognized as it accrues.
The sales-type lease represents the present value of future minimum rental
payments. Business ventures are accounted for by the equity method, or
carried at cost if less than 20% of the stock is owned.
Financial Instrument Fair Values No class of instrument has a significant
difference between its carrying value and estimated fair value based on market
quotations, projected cash flows, and other estimating methods.
Engineering and Construction Contracts Revenue and costs on long-term
contracts are recognized by the cost-to-cost percentage-of-completion method,
-12-<PAGE>
ANNUAL REPORT PAGE 30 CONTINUED
commencing when progress is sufficient to determine earnings with reasonable
accuracy, based on estimates of total sales value and cost at completion.
Earnings adjustments arising from changes in estimates are recognized
currently. Estimated losses are recorded when identified.
Inventories Inventories are valued at the lower of cost, which includes
material, labor, and manufacturing overhead, or market.
Properties Property, plant, and equipment are stated at cost with
depreciation being provided over their estimated useful lives by the straight-
line method.
Goodwill The excess of the purchase price over the fair value of acquired
businesses' net assets is amortized by the straight-line method principally
over thirty years (accumulated amortization: 1997 - $1,351,000; 1996 -
$103,000).
Foreign Currency Translation Translation adjustments of foreign
subsidiaries, whose local currencies are their functional currencies, are
included in shareholders' equity as a component of retained earnings.
Stock-Based Compensation The expense recognized in connection with stock
options is based on Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees" and its Interpretations.
Earnings Per Share Earnings per share are based on income and the average
shares of common stock and dilutive stock options outstanding during the year
(1997 - 12,431,000; 1996 - 12,378,000; 1995 - 12,355,000). Statement of
Financial Accounting Standards No. 128, "Earnings per Share," becomes
retroactively effective in the Company's fiscal 1998 third quarter and is
expected to marginally increase amounts reported herein.
Industry Segment Data Operating profit is net sales less operating costs and
certain corporate administrative expenses, allocated to the segments in
relation to their sales, payrolls, and assets, and excludes interest expense.
Corporate amounts include gains from sales of businesses, investment income,
interest expense, and administrative expenses allocated to discontinued
operations and unallocated. Corporate assets consist principally of cash and
equivalents, short-term marketable securities, long-term investments, and
corporate headquarters and rental properties.
ANNUAL REPORT PAGE 31
ACQUISITIONS
All the outstanding common stock of Eljer Industries, Inc. was purchased in
January 1997 for $171.7 million and transaction expenses of $4.6 million.
Concurrent with the purchase, a substantial portion of Eljer's debt was
refinanced. Presented below are the fair values of the assets acquired and
liabilities assumed after preliminary allocation of the purchase price. Also
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ANNUAL REPORT PAGE 31 CONTINUED
presented are unaudited pro forma results of operations for the Company giving
effect to the purchase as if it had occurred at the beginning of each of the
1997 and 1996 fiscal years. These pro forma results are for comparative
purposes only and do not purport to be indicative of the results which
actually would have resulted or may result in the future. They include pre-
acquisition litigation amounts for Eljer (1997 pro forma - $.25 per share
settlement gain; 1996 - $.41 per share in expenses).
ASSET AND LIABILITY FAIR VALUES
(Thousands)
Current assets $200,572
Property, plant, and equipment 70,351
Goodwill 193,369
Other assets 15,252
Current liabilities (190,483)
Long-term liabilities (112,755)
$176,306
PRO FORMA RESULTS OF OPERATIONS
Year Ended March 31 1997 1996
(Thousands Except Per Share Amounts)
Net sales $666,400 $660,100
Continuing operations income 24,500 15,500
Net income 7,798 10,643
Earnings per share:
Continuing operations 1.97 1.25
Net income .63 .86
The Building Products segment purchased a plumbing products business (fiscal
1995: sales - $14.2 million; net income $.8 million) in fiscal 1996's third
quarter.
FINANCIAL INSTRUMENTS
(Thousands)
Restricted cash supports letters of credit securing certain long-term debt.
The marketable securities at March 31, 1997 were pledged in lieu of customers
holding construction contract retainage. Irrevocable trust securities include
mortgage-backed instruments maturing from 1997 to 2023 carried at a fair value
of $6,559 which was $2,300 less than their cost at March 31, 1997.
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ANNUAL REPORT PAGE 31 CONTINUED
ACCOUNTS RECEIVABLE
(Thousands)
At March 31, 1997 accounts receivable include retainage on long-term contracts
expected to be collected in fiscal 1998 - $4,312, 1999 - $961, and 2000 -
$1,055. Allowances deducted are: 1997 - $8,295; 1996 - $2,647.
INVENTORIES AND CONTRACTS IN PROGRESS
March 31 1997 1996
(Thousands)
Finished products $ 80,473 $ 45,386
Work in process 13,722 3,708
Raw materials and supplies 28,604 5,430
Contracts in progress 11,467 15,229
$134,266 $ 69,753
Last-in, first-out (LIFO) method 85% 77%
First-in, first-out (FIFO) method 15 23
Inventory increase if only the FIFO method, which
approximates replacement costs, had been used $ 6,474 $ 7,104
PROPERTY, PLANT, AND EQUIPMENT
March 31 1997 1996
(Thousands)
Land and land improvements $ 7,963 $ 6,621
Buildings and leasehold improvements 50,483 31,183
Machinery and equipment 95,903 64,491
154,349 102,295
Depreciation 49,169 60,241
$105,180 $ 42,054
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ANNUAL REPORT PAGE 31 CONTINUED
INVESTMENTS
March 31 1997 1996
(Thousands)
Irrevocable trust securities for:
Nonqualified pension, deferred compensation,
and other employee plans $ 9,838 $ 15,403
Environmental obligations 8,178
Notes receivable 8,779 11,690
Sales-type lease 7,186 7,441
Business ventures 4,543 3,058
Other 19
$ 38,524 $ 37,611
ANNUAL REPORT PAGE 32
DEBT AND LINES OF CREDIT
The Company entered into a $250 million credit agreement in January 1997 with
a group of banks for revolving loans and letters of credit up to $50 million
and up to $200 million in term loans to acquire Eljer, refinance existing debt
of Eljer subsidiaries, and fund a proposed trust in connection with the US
Brass bankruptcy settlement. Interest is at prime or Eurodollar rates plus 0%
to 1.5% and .75% to 2.5%, respectively, based on the defined ratio of debt to
earnings before interest, taxes, depreciation, and amortization. Fees up to
.375% are payable on unutilized loan commitments. Outstanding letters of
credit ($20 million at March 31, 1997) may not exceed the lesser of the
available revolving loan commitment and $40 million prior to 1998 and $30
million thereafter. All amounts become due if there is a change in control,
as defined (generally if 20% or more of the Company's common stock is
acquired), and scheduled term loan payments are required to be reduced by
annual excess cash flow, as defined and, in inverse order, by proceeds from
sales of specified assets and investments. As required by the credit
agreement, the Company entered into two-year 8.78% fixed interest rate swaps
for $105 million and a 10.5% interest rate cap for $20 million.
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ANNUAL REPORT PAGE 32 CONTINUED
DEBT OBLIGATIONS
March 31 1997 1996
(Thousands)
Current
Industrial revenue bonds due in 1997 -
10.24% and 14% interest $ 9,700
US Brass revolving loan due in 1998 6,780
German bank credit line 780
Current portion of long-term obligations 17,288 $ 838
$ 34,548 $ 838
Long-Term
Term loans due 1997-2002, net of $3,278
discount - 8.44% effective rate $149,807
Revolving loans due 2002 17,250
Unsecured note - 8.46% interest 6,364 $6,805
Foreign bank term loan due 1997-1999 4,197
Capital lease obligations 627 685
Other 59
178,245 7,549
Current portion 17,288 838
$160,957 $6,711
Long-term debt obligation principal payments due in future fiscal years: 1998
- -$17,288; 1999 - $22,384; 2000 - $26,597; 2001 - $38,077; 2002 - $51,983;
thereafter - $25,194. Operating lease rental payments due in future years:
1998 - $4,569; 1999 - $3,433; 2000 - $1,320; 2001 - $681; 2002 - $461;
thereafter - $3,907.
Year Ended March 31 1997 1996 1995
(Thousands)
Interest incurred $4,340 $1,147 $1,132
Interest paid 3,780 2,155 750
The industrial revenue bonds are secured by letters of credit supported by
cash subject to withdrawal restrictions until the debt is repaid ($8.7 million
was repaid in April 1997 and $9.4 million of restricted cash was released). A
subsidiary in Germany has unsecured bank credit lines approximating $5
million, without scheduled maturity, which the banks review annually for
renewal, with a year-end interest rate of 7%.
The US Brass revolving loan is debtor-in-possession financing for up to $20
million based on a percentage of accounts receivable and inventories with
interest at the prime rate plus 1.75%. A subsidiary in the United Kingdom has
a bank agreement for British pound sterling or German deutsche mark revolving
loans equivalent to approximately $4 million until September 1997 and for a
term loan, both with LIBOR interest plus 1.5% to 1.75% based on the
subsidiary's operating cash flow to debt servicing ratios. Payment of the
unsecured note is guaranteed by the lessee under a sales-type lease.
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ANNUAL REPORT PAGE 32 CONTINUED
Substantially all assets and the Company's investments in domestic
subsidiaries, other than those comprising discontinued operations, are pledged
as security under the loan agreements. Restrictive covenants imposed by the
agreements include maintenance of specified capitalization, net worth,
interest expense, and fixed charge ratios. Also, they limit: annual capital
expenditures to $22 million, decreasing to $18 million in fiscal 2000; common
stock dividends, redemptions and purchases to $6 million per year; incurrence
of additional debt; and acquisitions.
Certain facilities and equipment are subject to operating leases, none of
which contain significant contingent rent or renewal options or impose
material restrictions on the Company.
ANNUAL REPORT PAGE 33
RETIREMENT OBLIGATIONS
Substantially all employees are covered by noncontributory Company sponsored
or multiemployer defined benefit plans. Benefits of stated amounts for each
year of service are provided by the multiemployer plans and to 33% of the
participants in the Company's domestic plans, while benefits for others are
based on years of service and compensation. The compensation base for 63% of
active participants in domestic plans has been frozen at 1995 levels and those
under age 50 at that time do not receive future service credit. Funding of
Company sponsored plans, invested primarily in listed stocks and bonds and
cash equivalents, is the minimum required by law and additional amounts as
deemed appropriate from time to time. Contributions to multiemployer plans
are related to hours worked or compensation levels.
The Company also sponsors defined contribution plans for certain domestic
employees and matches their contributions in cash or common stock of
equivalent value up to 3% or 6% of their compensation, with those whose
pension benefits have been frozen receiving and additional 2% to 9% of
compensation based on years of service.
Postretirement medical and death benefits for certain domestic retirees and
their spouses are provided by the Company from unfunded plans. Employees
eligible for these benefits are those participating in the Company's pension
plans prior to specified dates in the 1986-1989 period and certain employees
of businesses acquired after 1995, with their retirees required to contribute
toward the plan's costs.
The accumulated medical and life plan obligation is attributable to:
retirees - 83%; fully-eligible employees - 7%; other active employees - 10%.
The assumed health care cost trend rate declines 1/2% each year to 5% in 2005.
A 1% greater rate would increase the accumulated obligation by $3.2 million
and the annual expense, which would have been $4.1 million if Eljer were
included for a full year, by $343,000.
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ANNUAL REPORT PAGE 33 CONTINUED
The fiscal 1997 changes in the actuarial present values of projected
benefits generally are attributable to overfunded plan curtailments associated
with discontinued operations and underfunded plans assumed in the acquisition
of Eljer. The increase in the plans' assets is attributable to the Eljer
acquisition and the assets' earnings which increased the net unrecognized gain
to the extent they exceeded the assumed return rate.
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ANNUAL REPORT PAGE 33 CONTINUED
FUNDING STATUS
March 31 1997 1996
Pension Plans Medical Pension Plans Medical
Over Under And Life Over Under And Life
Funded Funded Plans Funded Funded Plans
(Thousands)
Actuarial present value
of benefits:
Vested $ 90,476 $ 30,269 $40,608 $ 89,766 $ 10,863 $21,606
Nonvested 1,328 2,518 4,405 1,319 63 5,256
Accumulated 91,804 32,787 45,013 91,085 10,926 26,862
Salary
increases 6,558 3,038 9,356 18
Projected 98,362 35,825 45,013 100,441 10,944 26,862
Plans' assets 181,494 23,586 160,611 1,063
Asset excess
(deficiency) 83,132 (12,239) (45,013) 60,170 (9,881) (26,862)
Unrecognized:
Net (gain) loss (55,593) 1,595 (10,802) (37,536) 1,575 (4,743)
Initial (asset)
obligation (1,787) (1,311) 463
Prior service cost (1,275) 349 (2,724) (1)
Minimum liability (68) (2,158)
Prepaid
(accrued) cost $ 24,477 $(10,363) $(55,815) $ 18,599 $(10,002) $(31,605)
CONTINUING OPERATIONS' COSTS
Company Defined Benefit Plans
Pension Medical and Life
Year Ended March 31 1997 1996 1995 1997 1996 1995
(Thousands)
Service cost $ 1,541 $ 874 $ 1,180 $ 345 $ 268 $ 459
Interest 8,383 7,990 7,644 2,245 2,075 2,103
Curtailment gain (34)
(Return) loss on
assets (27,238) (38,165) 3,764
Other 14,592 26,405 (14,991) (185) (309)
(Income) expense $(2,756) $(2,896) $(2,403) $2,405 $2,034 $2,562
Other Plans
Year Ended March 31 1997 1996 1995
(Thousands)
Multiemployer $2,398 $2,157 $1,841
Defined contribution 576 18
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ANNUAL REPORT PAGE 33 CONTINUED
ACTUARIAL ASSUMPTIONS
Year Ended March 31 1997 1996 1995
Obligation discount 7.5% 7.25% 8.5%
Compensation increase 4.6 to 7.75 4.35 to 7.5 4.85 to 8.0
Asset long-term return 9.0 9.0 9.0
Health care cost trend rate 9.0 12.0 12.5
ANNUAL REPORT PAGE 34
SHAREHOLDERS' EQUITY
There are 1.5 million shares of unreserved authorized preferred stock and 2
million shares of common stock are reserved for stock and option grants and
the exercise of outstanding stock options.
Second Series Junior Participating Preferred Stock (3.5 million shares,
$1.00 par value, $2.00 liquidation preference to common stock, aggregate
liquidation payment of four times common stock payment, redeemable at the
greater of $360 or four times the current common stock market price) is
reserved for issuance on exercise of rights attached to outstanding common
stock. The rights may be redeemed at $.01 per right and expire in May 2006.
If 15% or more of the Company's common stock becomes beneficially owned by a
person or group (subject to the Board of Directors' authority to defer
distribution and exercise of the rights until 20% is acquired), or if an
exchange or tender offer which would result in 15% or more ownership is
commenced, the rightholders, except such beneficial owners, may purchase one-
quarter share of the preferred stock for $90 or, for $90, they may purchase
shares of the Company's common stock at one-half their market value. If other
change in control events occur, the same rightholders may, for $90, purchase
shares of the acquirer's common stock at one-half their market value.
The Company's 1996 Employee Stock Plan provides for awarding no more than
500,000 shares of common stock (485,000 available at March 31, 1997), with
maximum award limits for each participant during any twelve month period, in
the form of: nonqualified and incentive stock options to purchase common stock
at its market value on the award date (125,000 share limit); stock equivalent
units based on common stock fair market values with settlement in common stock
or cash on the achievement of established performance goals (15,000 share
limit); performance units denominated in cash with settlement in common stock
or cash not exceeding $300,000 per participant per year on the achievement of
specific business objectives; and annual incentive stock awards (30,000 share
limit) to insiders, as defined, in settlement of incentive compensation plan
awards. Under previous stock option plans, nonqualified stock options were
granted to key employees to purchase shares of common stock at its market
value on the grant date.
Another plan provides to each director who is not employed by the Company
an annual award of 500 shares of common stock ($52,000 total fair value in
fiscal 1997) restricted as to sale for five years or, if earlier, until the
director attains age 65 and completes five years of service as a director or
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ANNUAL REPORT PAGE 34 CONTINUED
the occurrence of a change in control or other events. The plan also provides
for the annual distribution of a nonqualified option for 2,000 shares of
common stock at its market value on the distribution date. In fiscal 1997,
1,649 shares of restricted common stock ($34,000 fair value) were issued to
directors for their unvested accrued pension benefits upon the termination of
future service accruals under the directors pension plan.
STOCK OPTIONS
March 31, 1997 Outstanding
Weighted Average Exercisable
Remaining Weighted
Exercise Contractual Exercise Average
Price Range Shares Life (Years) Price Shares Price
(Thousands of Shares)
$18.25 - $25.25 764 7.8 $20.50 105 $20.93
28.75 - 35.00 398 2.9 32.82 398 32.82
36.75 - 45.375 253 3.6 39.58 171 40.70
$18.25 - $45.375 1,415 5.7 $27.37 674 $32.96
Weighted Average
Exercise Price
Shares Or Price Range
(Thousands of Shares)
Year Ended March 31, 1997
Granted 316 $20.45
Exercised 7 20.75
Forfeited 52 30.59
At year end:
Outstanding 1,415 27.37
Exercisable 674 32.96
Year Ended March 31, 1996
Granted 220 $21.10
Forfeited 10 27.17
At year end:
Outstanding 1,158 29.37
Exercisable 547 34.78
Year Ended March 31, 1995
Granted 262 $18.25 - $22.00
Exercised 2 21.125
Forfeited 15 21.125 - 21.25
The estimated fair value of options granted and pro forma net income and
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ANNUAL REPORT PAGE 34 CONTINUED
earnings per share that would have been reported if Statement of Financial
Accounting Standards No. 123, "Accounting for Stock-Based Compensation," had
been followed in the accounting for stock options granted since April 1, 1995
are presented below. These estimates were computed using the Black-Scholes
option pricing model with weighted-average assumptions of: risk-free interest
rate - 6.6%; dividend yield - 1.9%; expected option life - 7.1 years; expected
common stock volatility - 25.5%.
Year Ended March 31 1997 1996
(Thousands Except Per Share Amounts)
Options Granted
Estimated weighted-average fair value per share $ 6.99 $ 7.18
Net Income
Reported $5,300 $16,670
Per share .43 1.35
Pro forma 4,760 16,443
Per share .38 1.33
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ANNUAL REPORT PAGE 35
CONSOLIDATED SHAREHOLDERS' EQUITY
Capital in
Common Excess of Retained Treasury
Stock Par Value Earnings Stock Total
(Thousands)
Balance April 1, 1994 $6,285 $36,226 $183,670 $(4,598) $221,583
Net income 9,324 9,324
Cash dividends declared -
$.88 per common share (10,870) (10,870)
Treasury stock purchased -
103 shares (1,926) (1,926)
Conversion of debentures -
37 shares (577) 1,095 518
Stock options - 2 shares (12) 44 32
Investment unrealized loss (823) (823)
Pension minimum liability 716 716
Currency translation 376 376
Balance March 31, 1995 6,285 35,637 182,393 (5,385) 218,930
Net income 16,670 16,670
Cash dividends declared -
$.40 per common share (4,938) (4,938)
Conversion of preferred
stock - 1 shares (20) 20
Investment unrealized gain 1,255 1,255
Pension minimum liability (773) (773)
Currency translation (189) (189)
Balance March 31, 1996 6,285 35,617 194,418 (5,365) 230,955
Net income 5,300 5,300
Cash dividends declared -
$.40 per common share (4,942) (4,942)
Stock options and
awards - 11 shares (92) 338 246
Investment unrealized loss (631) (631)
Pension minimum liability 1,025 1,025
Currency translation (1,235) (1,235)
Balance March 31, 1997 $6,285 $35,525 $193,935 $(5,027) $230,718
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ANNUAL REPORT PAGE 35 CONTINUED
RETAINED EARNINGS COMPONENTS
March 31 1997 1996 1995
(Thousands)
Investment unrealized loss $ (1,440) $ (809) $ (2,064)
Pension minimum liability (39) (1,064) (291)
Currency translation (2,336) (1,101) (912)
Retained earnings 197,750 197,392 185,660
ANNUAL REPORT PAGE 36
INCOME TAXES
NET DEFERRED TAX ASSET COMPONENTS
March 31 1997 1996
(Thousands)
Litigation $25,370 $ 270
Retirement obligations 21,800 12,700
Insurance 8,840 4,830
Discontinued operations 5,650 4,280
Environmental obligations 5,440 420
Deferred compensation 4,780 1,530
Tax carryforward benefits 4,700 560
Engineering and construction contracts 3,240 5,980
Miscellaneous 3,000 4,840
82,820 35,410
Inventories (5,110)
Depreciation (13,810) (4,950)
$63,900 $30,460
Tax carryforward benefits are amounts recognized in the financial statements
for $8.3 million of net operating loss carryforwards of acquired businesses
expiring in 2011 and 2012 and $1.4 million of minimum tax credit carryforwards
with no expiration which will be realized when they are used to reduce future
federal taxable income and income taxes, respectively. No federal or state
income taxes have been provided on $5.3 million of foreign subsidiaries'
undistributed earnings as the Company intends to indefinitely reinvest the
earnings in foreign operations, or to repatriate them only when doing so would
be tax effective, and it is not practicable to determine the amount of such
deferred taxes.
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ANNUAL REPORT PAGE 36 CONTINUED
PRETAX INCOME AND TAX PROVISIONS
Year Ended March 31 1997 1996 1995
(Thousands)
Income Before Income Taxes
Domestic $35,182 $33,795 $24,942
Foreign 220 10 (70)
$35,402 $33,805 $24,872
Tax Provisions
Current federal $ 8,750 $ 9,340 $ 7,260
Current state 960 120 550
Current foreign 150 8 10
Prior year state tax settlement (730)
9,860 9,468 7,090
Deferred federal 5,580 2,130 1,370
Deferred state 240 680 230
Deferred foreign 30
Loss carryforward benefit (2,310)
3,540 2,810 1,600
$13,400 $12,278 $8,690
TAX RATE RECONCILEMENT
Year Ended March 31 1997 1996 1995
Federal statutory rate 35.0% 35.0% 35.0%
State income taxes, net
of federal tax benefit 2.2 1.6 2.0
Goodwill amortization 1.2
Tax exempt investment income (1.1) (1.8) (3.0)
Prior year state tax settlement (1.7)
Miscellaneous .6 1.5 (.7)
Effective rate 37.9% 36.3% 31.6%
TAXES PAID
Year Ended March 31 1997 1996 1995
(Thousands)
$1,296 $4,473 $3,525
ANNUAL REPORT PAGE 37
COMMITMENTS AND CONTINGENCIES
United States Brass Corporation, an Eljer indirect wholly-owned subsidiary,
filed in 1994 a voluntary petition for reorganization under Chapter 11 of the
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ANNUAL REPORT PAGE 37 CONTINUED
United States Bankruptcy Code for the purpose of systematically resolving
issues resulting from sales of polybutylene plumbing systems and related
litigation. US Brass has proposed a reorganization plan which provides for
payment, satisfaction, and discharge of all claims involving the polybutylene
systems and, currently, it operates as a debtor-in-possession under Section
1108 of the Bankruptcy Code subject to the supervision and orders of the
bankruptcy court.
The polybutylene system lawsuits allege the systems leaked and seek
recovery based on negligence, breach of warranty, strict tort liability and,
in some cases, fraud or misrepresentation. Defendants in various of the cases
among others include: US Brass; Eljer and its wholly-owned subsidiary Eljer
Manufacturing, Inc. (EMI), neither of which ever manufactured or sold the
systems; Shell Chemical Company, the polybutylene resin manufacturer; and
Hoechst Celanese Corporation, the manufacturer of a resin for system fittings.
Data is not currently available to permit estimating the number of
installations that have failed or the number of claims that have been settled
by parties other than US Brass. Until July 1991, US Brass, Shell, and Hoechst
Celanese shared the costs of system repairs and replacements with insurance
carriers reimbursing substantial portions of the amounts paid by US Brass.
Some reimbursement of insurance payments may be required under reservations of
rights, retrospective premium adjustments, or indemnification agreements.
The polybutylene claimants committee in the bankruptcy proceeding has filed
a motion to convert the case from Chapter 11 to Chapter 7 of the Bankruptcy
Code which, if granted, would cause US Brass to be liquidated. In connection
with settlements by various parties in two national class actions dealing with
polybutylene plumbing systems, Eljer, EMI, and US Brass have entered into a
tentative settlement, contingent on confirmation of a bankruptcy plan
embodying the tentative settlement terms, which would require contribution to
a settlement fund of insurance proceeds, $53.4 million in cash, and a $20
million noninterest bearing note payable over ten years. In consideration for
such contribution, which has been provided for in the statement of
consolidated financial position, Eljer, EMI, and US Brass would receive relief
from polybutylene claims satisfactory to them and US Brass would remain an
indirect, wholly-owned operating subsidiary.
The Company operates plants that generate hazardous and nonhazardous wastes
which are subject to federal and state disposal laws and believes it is in
material compliance with such laws and related regulations. Several of the
Eljer facilities have implemented required remediation programs to remedy the
effects of past waste disposal and others have not undergone comprehensive
environmental studies. Included in the statement of financial position is a
$15.5 million reserve for environmental, health, and safety matters which
management believes is adequate and expects payments of substantial portions
to be made over the next three years. Environmental trusts amounting to $8.2
million have been funded to secure obligations with respect to specified
sites.
In the normal course of business, financial and performance guarantees are
made in connection with major engineering and construction contracts and a
liability is recognized when a probable loss occurs. Also, there are various
other claims, legal, and environmental proceedings which management believes
will have no material effect on the Company's financial position or results of
operations when they are resolved.
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ANNUAL REPORT PAGE 37 CONTINUED
DISCONTINUED OPERATIONS
In fiscal 1997, the Lynx Golf and Mechanical Power Transmission segments, and
portions of the Power Systems segment, were sold. The remainder of the Power
Systems segment is expected to be disposed of in fiscal 1998. The net sales
and loss from operations of the three segments prior to the dates of the
decisions to discontinue them, the net assets of the two segments discontinued
as of March 1996 and the remaining net assets at March 31, 1997, and the
components of the disposal net losses were:
Year Ended March 31 1997 1996 1995
(Thousands)
Net sales $181,243 $221,330 $227,733
Loss from operations
before income taxes (14,364) (7,337) (14,148)
Income tax benefit 5,200 3,080 4,630
Net loss $ (9,164) $ (4,257) $ (9,518)
Loss on disposal
before income taxes $ (9,138) $ (1,700)
Income tax benefit 1,600 1,100
Net loss $ (7,538) $ (600)
Receivables $ 46,591 $ 24,224
Inventories and other assets 2,458 30,498
Property, plant, and equipment 2,109 16,537
Trade accounts payable (16,227) (6,763)
Contract advance billings (14,403)
Other liabilities (16,215) (7,243)
Net assets $ 4,313 $ 57,253
The Company has agreed to reimburse a third party for all payments it might be
required to make to the issuer of a $27.6 million letter of credit provided to
secure the payment of potential liquidated damages in connection with a power
plant construction project recently begun in Pakistan.
-28-
EXHIBIT 21 - SUBSIDIARIES
State or Other
Jurisdiction
Subsidiary of Incorporation
Cosco Fire Protection, Inc. -A California
Eljer Industries, Inc. Delaware
Eljer Industries, Limited -B United Kingdom
Eljer Manufacturing Canada, Inc. -C Canada
Eljer Manufacturing, Inc. -B Delaware
Environmental Energy Company California
Firetrol Protection Systems, Inc. Utah
HL Capital Corp. California
Industrias Eljer de Mexico, S.A. de C.V. -D Mexico
National Energy Production Corporation Washington
Operational Energy Corp. -E California
Sanitary-Dash Manufacturing Co., Inc. Delaware
Selkirk Canada U.S.A., Inc. -B Delaware
Selkirk Europe U.S.A., Inc. -B Delaware
Selkirk Manufacturing France S.A.R.L. -F France
Selkirk Manufacturing Limited -G United Kingdom
Selkirk Schornsteintechnik GmbH -H Germany
Selkirk S.R.L. -I Italy
Sharyn Steam, Inc. California
United States Brass Corporation -J Delaware
Zurco, Inc. Delaware
Zurn Constructors, Inc. California
Zurn Export, Inc. U.S. Virgin Islands
Zurn Industries Limited Canada
A-Subsidiary of Zurn Constructors, Inc.
B-Subsidiary of Eljer Industries, Inc.
C-Subsidiary of Selkirk Canada U.S.A., Inc.
D-Subsidiary of Eljer Manufacturing, Inc. and Selkirk Canada U.S.A., Inc.
E-Subsidiary of National Energy Production Corporation
F-Subsidiary of Selkirk Europe U.S.A., Inc. and Eljer Industries Limited
G-Subsidiary of Eljer Industries Limited
H-Subsidiary of Selkirk Europe U.S.A., Inc.
I-Subsidiary of Selkirk Europe U.S.A., Inc. and Selkirk Manufacturing Limited
J-Subsidiary of Eljer Manufacturing, Inc.
EXHIBIT 23 - CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 No. 33-19103 pertaining to the 1986 Stock Option Plan, the
Registration Statement on Form S-8 No. 33-30383 pertaining to the 1989
Directors Stock Option Plan, the Registration Statement on Form S-8 No. 33-
49224 pertaining to the 1991 Stock Option Plan, and the Registration Statement
on Form S-8 No. 033-65219 pertaining to the 1995 Directors Stock Option Plan
of Zurn Industries, Inc., in Registration Statement on Form S-8 No. 333-00823
pertaining to the Zurn Retirement Savings Plan, and in Registration Statement
on Form S-8 No. 333-00813 pertaining to the Zurn/NEPCO Retirement Savings Plan
of our report dated May 19, 1997 included in Item 8 with respect to the
consolidated financial statements and financial statement schedule
incorporated by reference or included in the Annual Report on Form 10-K of
Zurn Industries, Inc.
/s/ Ernst & Young LLP
Erie, Pennsylvania
June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE STATEMENTS OF CONSOLIDATED FINANCIAL
POSITION AND CONSOLIDATED OPERATIONS LISTED IN ITEM 14 OF
THIS REPORT ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> MAR-31-1997
<PERIOD-TYPE> YEAR
<CASH> 22,908
<SECURITIES> 8,489
<RECEIVABLES> 118,489
<ALLOWANCES> 8,295
<INVENTORY> 134,266
<CURRENT-ASSETS> 348,044
<PP&E> 154,349
<DEPRECIATION> 49,169
<TOTAL-ASSETS> 726,357
<CURRENT-LIABILITIES> 239,824
<BONDS> 160,957
0
0
<COMMON> 6,285
<OTHER-SE> 224,433
<TOTAL-LIABILITY-AND-EQUITY> 726,357
<SALES> 353,018
<TOTAL-REVENUES> 0
<CGS> 250,443
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,340
<INCOME-PRETAX> 35,402
<INCOME-TAX> 13,400
<INCOME-CONTINUING> 22,002
<DISCONTINUED> (16,702)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,300
<EPS-PRIMARY> .43
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE RESTATED STATEMENTS OF CONSOLIDATED
FINANCIAL POSITION AND CONSOLIDATED OPERATIONS FOR THE
INTERIM QUARTERS OF THE YEAR ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997 MAR-31-1997
<PERIOD-END> JUN-30-1996 SEP-30-1996 DEC-31-1996
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<CASH> 6,596 11,938 49,636
<SECURITIES> 24,143 30,340 39,815
<RECEIVABLES> 97,084 60,046 56,402
<ALLOWANCES> 0 0 0
<INVENTORY> 67,580 58,093 56,398
<CURRENT-ASSETS> 281,950 238,978 245,063
<PP&E> 102,551 86,947 82,705
<DEPRECIATION> 61,521 49,336 47,065
<TOTAL-ASSETS> 389,479 341,195 344,549
<CURRENT-LIABILITIES> 106,673 58,781 56,689
<BONDS> 6,606 6,403 6,304
0 0 0
0 0 0
<COMMON> 6,285 6,285 6,285
<OTHER-SE> 225,833 232,142 232,165
<TOTAL-LIABILITY-AND-EQUITY> 389,479 341,195 344,549
<SALES> 82,235 163,464 229,150
<TOTAL-REVENUES> 0 0 0
<CGS> 59,598 118,487 164,378
<TOTAL-COSTS> 0 0 0
<OTHER-EXPENSES> 0 0 0
<LOSS-PROVISION> 0 0 0
<INTEREST-EXPENSE> 317 651 1,092
<INCOME-PRETAX> 10,411 19,145 27,232
<INCOME-TAX> 3,890 7,090 10,300
<INCOME-CONTINUING> 6,521 12,055 16,932
<DISCONTINUED> (4,309) (8,564) (6,400)
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 2,212 3,491 10,532
<EPS-PRIMARY> .18 .28 .85
<EPS-DILUTED> 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE RESTATED STATEMENTS OF CONSOLIDATED
FINANCIAL POSITION AND CONSOLIDATED OPERATIONS FOR THE
YEAR ENDED MARCH 31, 1996 LISTED IN ITEM 14 OF THIS REPORT
ON FORM 10-K AND FOR INTERIM QUARTERS OF FISCAL 1996 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<FISCAL-YEAR-END> MAR-31-1996 MAR-31-1996 MAR-31-1996 MAR-31-1996
<PERIOD-END> JUN-30-1995 SEP-30-1995 DEC-31-1995 MAR-31-1996
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS YEAR
<CASH> 11,282 5,348 13,507 16,195
<SECURITIES> 41,941 44,333 16,225 13,836
<RECEIVABLES> 115,420 108,819 105,204 96,360
<ALLOWANCES> 0 0 0 2,647
<INVENTORY> 88,960 96,638 108,133 69,753
<CURRENT-ASSETS> 300,188 296,483 283,821 286,994
<PP&E> 146,157 149,859 152,282 102,295
<DEPRECIATION> 89,630 91,345 92,468 60,241
<TOTAL-ASSETS> 417,395 417,051 411,467 394,647
<CURRENT-LIABILITIES> 141,547 138,227 130,506 113,158
<BONDS> 9,089 9,002 8,400 6,711
0 0 0 0
0 0 0 0
<COMMON> 6,285 6,285 6,285 6,285
<OTHER-SE> 216,754 219,858 222,314 224,670
<TOTAL-LIABILITY-AND-EQUITY> 417,395 417,051 411,467 394,647
<SALES> 60,156 130,343 206,742 284,683
<TOTAL-REVENUES> 0 0 0 0
<CGS> 41,320 91,775 149,177 205,305
<TOTAL-COSTS> 0 0 0 0
<OTHER-EXPENSES> 0 0 0 0
<LOSS-PROVISION> 0 0 0 0
<INTEREST-EXPENSE> 343 669 962 1,147
<INCOME-PRETAX> 8,118 15,463 22,583 33,805
<INCOME-TAX> 3,190 5,970 8,660 12,278
<INCOME-CONTINUING> 4,928 9,493 13,923 21,527
<DISCONTINUED> (279) (769) (1,705) (4,857)
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 4,649 8,724 12,218 16,670
<EPS-PRIMARY> .38 .71 .99 1.35
<EPS-DILUTED> 0 0 0 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE RESTATED STATEMENTS OF CONSOLIDATED
FINANCIAL POSITION AND CONSOLIDATED OPERATIONS FOR THE
YEAR ENDED MARCH 31, 1995 LISTED IN ITEM 14 OF THIS REPORT
ON FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> MAR-31-1995
<PERIOD-END> MAR-31-1995
<PERIOD-TYPE> YEAR
<CASH> 6,360
<SECURITIES> 48,478
<RECEIVABLES> 119,611
<ALLOWANCES> 4,238
<INVENTORY> 84,264
<CURRENT-ASSETS> 298,379
<PP&E> 143,606
<DEPRECIATION> 87,444
<TOTAL-ASSETS> 414,696
<CURRENT-LIABILITIES> 142,844
<BONDS> 9,525
0
0
<COMMON> 6,285
<OTHER-SE> 212,645
<TOTAL-LIABILITY-AND-EQUITY> 414,696
<SALES> 233,852
<TOTAL-REVENUES> 0
<CGS> 166,854
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,132
<INCOME-PRETAX> 27,532
<INCOME-TAX> 8,690
<INCOME-CONTINUING> 18,842
<DISCONTINUED> (9,518)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,324
<EPS-PRIMARY> .76
<EPS-DILUTED> 0
</TABLE>
EXHIBIT 99.1
FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
X Annual Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1996
___ Transition Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the Transition Period From ___________ To __________
Commission File Number 1-5502
ZURN RETIREMENT SAVINGS PLAN
(Full title of the Plan)
ZURN INDUSTRIES, INC.
One Zurn Place, Erie, Pennsylvania 16505
(Name and address of issuer of securities held pursuant to the Plan)
-1-<PAGE>
Pension Committee
Zurn Industries, Inc.
Erie, Pennsylvania
We have audited the accompanying statements of net assets available for
benefits of the Zurn Retirement Savings Plan as of December 31, 1996 and 1995,
and the related statements of changes in net assets available for benefits for
the years then ended. These financial statements are the responsibility of
the Plan's administrator. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the administrator, 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 net assets available for benefits of the Zurn
Retirement Savings Plan as of December 31, 1996 and 1995, and the changes in
its net assets available for benefits for the years then ended, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of expressing an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes at December 31, 1996, and loans or fixed income
obligations for the year then ended, are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Pashke Twargowski & Lee
Erie, Pennsylvania
June 26, 1997
-2-<PAGE>
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
ZURN RETIREMENT SAVINGS PLAN
December 31
1996 1995
ASSETS
Investments in T. Rowe Price Funds:
U.S. Treasury Money $ 2,458,129 $2,608,541
U.S. Treasury Intermediate 99,049 69,515
New Income 712,818 658,843
Balanced 355,925 223,059
Capital Appreciation 3,294,948 2,871,205
Equity Index 3,534,246 2,582,553
International Stock 546,469 424,092
Small-Cap Stock 588,538 205,270
Zurn Stock Fund 50,718
11,640,840 9,643,078
Contributions receivable 31,537 24,080
Participants' loans 258,072 210,856
NET ASSETS AVAILABLE FOR BENEFITS $11,930,449 $9,878,014
See notes to financial statements.
-3-<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
ZURN RETIREMENT SAVINGS PLAN
Year Ended December 31, 1996
<CAPTION>
T. Rowe Price Funds
U.S. Treasury New Capital
Money Intermediate Income Balanced Appreciation
<S> <C> <C> <C> <C> <C>
ADDITIONS
Investment income:
Dividends $ 116,946 $ 5,162 $ 45,589 $ 13,808 $ 309,502
Net appreciation (depreciation)
in value of investments (2,713) (28,403) 24,903 168,524
116,946 2,449 17,186 38,711 478,026
Participants' contributions 433,845 35,603 147,238 113,200 482,575
Participants' loan interest 3,279 1,304 677 1,983 4,098
TOTAL ADDITIONS 554,070 39,356 165,101 153,894 964,699
BENEFITS PAID TO PARTICIPANTS 431,483 542 73,789 61,938 348,733
NET ADDITIONS 122,587 38,814 91,312 91,956 615,966
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 2,608,541 69,515 658,843 223,059 2,871,205
Transfers (272,999) (9,280) (37,337) 40,910 (192,223)
End of year $2,458,129 $99,049 $712,818 $355,925 $3,294,948
See notes to financial statements.
-4-
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - Continued
ZURN RETIREMENT SAVINGS PLAN
Year Ended December 31, 1996
<CAPTION>
T. Rowe Price Funds Zurn
Equity International Small-Cap Stock
Index Stock Stock Fund Other Total
<S> <C> <C> <C> <C> <C> <C>
ADDITIONS
Investment income:
Dividends $ 119,082 $ 14,639 $ 49,750 $ 674,478
Net appreciation in
value of investments 517,788 54,199 19,899 $ 4,341 758,538
636,870 68,838 69,649 4,341 1,433,016
Participants' contributions 448,986 129,052 118,209 11,740 $ 7,457 1,927,905
Participants' loan interest 5,833 577 341 18,092
TOTAL ADDITIONS 1,091,689 198,467 188,199 16,081 7,457 3,379,013
BENEFITS PAID TO PARTICIPANTS 286,908 79,704 13,538 29,943 1,326,578
NET ADDITIONS (DEDUCTIONS) 804,781 118,763 174,661 16,081 (22,486) 2,052,435
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 2,582,553 424,092 205,270 234,936 9,878,014
Transfers 146,912 3,614 208,607 34,637 77,159
End of year $3,534,246 $546,469 $588,538 $50,718 $289,609 $11,930,449
See notes to financial statements.
-5-
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
ZURN RETIREMENT SAVINGS PLAN
Year Ended December 31, 1995
<CAPTION>
T. Rowe Price Funds
U.S. Treasury New Capital
Money Intermediate Income Balanced Appreciation
<S> <C> <C> <C> <C> <C>
ADDITIONS
Investment income:
Dividends $ 125,150 $ 3,260 $ 36,488 $ 7,590 $ 224,572
Net appreciation in
value of investments 4,035 53,407 21,570 270,135
125,150 7,295 89,895 29,160 494,707
Participants' contributions 538,334 80,697 161,506 76,928 508,542
Participants' loan interest 2,972 1,006 577 1,036 3,788
TOTAL ADDITIONS 666,456 88,998 251,978 107,124 1,007,037
BENEFITS PAID TO PARTICIPANTS 275,850 764 52,008 3,998 128,003
NET ADDITIONS 390,606 88,234 199,970 103,126 879,034
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 2,232,858 26,922 445,518 58,186 2,070,228
Transfers (14,923) (45,641) 13,355 61,747 (78,057)
End of year $2,608,541 $ 69,515 $658,843 $223,059 $2,871,205
See notes to financial statements.
-6-
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - Continued
ZURN RETIREMENT SAVINGS PLAN
Year Ended December 31, 1995
<CAPTION>
T. Rowe Price Funds
Equity International Small-Cap
Index Stock Stock Other Total
<S> <C> <C> <C> <C> <C>
ADDITIONS
Investment income:
Dividends $ 99,425 $ 12,780 $ 23,671 $ 532,936
Net appreciation in
value of investments 553,875 25,783 14,782 943,587
653,300 38,563 38,453 1,476,523
Participants' contributions 444,790 120,500 53,309 $ (6,289) 1,978,317
Participants' loan interest 4,871 530 55 14,835
TOTAL ADDITIONS 1,102,961 159,593 91,817 (6,289) 3,469,675
BENEFITS PAID TO PARTICIPANTS 117,529 3,424 1,476 1,729 584,781
NET ADDITIONS (DEDUCTIONS) 985,432 156,169 90,341 (8,018) 2,884,894
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 1,611,665 306,343 84,488 156,912 6,993,120
Transfers (14,544) (38,420) 30,441 86,042
End of year $2,582,553 $424,092 $205,270 $234,936 $9,878,014
See notes to financial statements.
-7-
/TABLE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ZURN RETIREMENT SAVINGS PLAN
December 31, 1996
PLAN DESCRIPTION
The Zurn Retirement Savings Plan is a defined contribution plan providing
retirement benefits through participant-directed investments to participants
in the Zurn Industries Retirement Plan and Cosco Fire Protection Plan for
Salaried Employees. It is subject to the provisions of the Employee
Retirement Income Security Act of 1974 (ERISA).
The Company has agreed to contribute participants' elective deferrals of up to
20% of eligible compensation. Participants also may contribute non-taxed
distributions from other employers' qualified plans and they may borrow from
their accounts subject to specified limitations.
Information about the Plan agreement and the benefit provisions is contained
in the "Summary Plan Description" which may be obtained from Zurn Industries,
Inc., the Plan Administrator.
SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Investments The investments are stated at market value as
determined by the funds.
Zurn Stock Fund Zurn Industries, Inc. common stock (1,893 shares) is stated
at its quoted market value. A percentage of the Fund is invested in the T.
Rowe Price Prime Reserve Fund ($1,076) for investment diversification
liquidity. Dividend income from these investments is included in investment
income as a component of the net appreciation in the value of investments.
Investment Transactions Investment transactions are recorded as of the date
the order to buy or sell is executed with realized gains and losses being
included in investment income as a component of the net appreciation
(depreciation) in the value of investments.
Participants' Loans Participants' loans are stated at the principal amount
due from the participants.
Dividends Dividend income is recognized on the ex-dividend date.
Expenses Administrative expenses are paid by the Plan Administrator.
-8-<PAGE>
INCOME TAX STATUS
The Internal Revenue Service has ruled that the Plan qualifies under Section
401(a) of the Internal Revenue Code and is, therefore, not subject to tax
under present income tax law. Once qualified, the Plan is required to operate
in conformity with the Code to maintain its qualification. The Plan
Administrator is not aware of any course of action or series of events that
might adversely affect the Plan's qualified status.
-9-<PAGE>
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
ZURN RETIREMENT SAVINGS PLAN
December 31, 1996
ASSETS OWNED AT YEAR-END
Cost Current Value
T. Rowe Price Funds:
U.S. Treasury Money $2,458,129 $2,458,129
U.S. Treasury Intermediate 99,100 99,049
New Income 717,891 712,818
Balanced 317,794 355,925
Capital Appreciation 2,962,705 3,294,948
Equity Index 2,533,257 3,534,246
International Stock 499,914 546,469
Small-Cap Stock 566,351 588,538
Zurn Stock Fund 46,377 50,718
Participants' loans - 7% to 10% interest -0- 258,072
-10-<PAGE>
SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
ZURN RETIREMENT SAVINGS PLAN
Year Ended December 31, 1996
Amount Received
Original During The Year Unpaid Amount Overdue
Amount Principal Interest Balance Principal Interest
Michael P. Higgins $6,000 $ 40 $16 $-0- $5,109 $-0-
2766 Rippling Participant loan - 8.25%
Brook Place Distributed to participant
Ontario, CA 91761
Robert V. Seibel 6,000 170 16 -0- 2,483 -0-
5650 Gardner Drive Participant loan - 7%
Erie, PA 16509 3,000 120 18 -0- 2,065 -0-
Participant loan - 10%
Distributed to participant
James M. Wittmaak 3,000 93 28 -0- 2,078 -0-
5973 Buman Road Participant loan - 7.75%
McKean, PA 16426 Distributed to participant
-11-<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Pension Committee of Zurn Industries, Inc. has duly caused this
annual report to be signed on its behalf by the undersigned thereunto duly
authorized.
ZURN RETIREMENT SAVINGS PLAN
(Plan)
June 26, 1997 /s/ James A. Zurn
James A. Zurn, Chairman
Pension Committee of
Zurn Industries, Inc.
-12-<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 No. 333-00823 pertaining to the Zurn Retirement Savings Plan of our
report dated June 26, 1997 with respect to the financial statements and
supplemental schedules included in the Annual Report on Form 11-K of the Zurn
Retirement Savings Plan.
/s/ Pashke Twargowski & Lee
Erie, Pennsylvania
June 27, 1997
-13-
EXHIBIT 99.2
FORM 11-K
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
X Annual Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1996
___ Transition Report Pursuant to Section 15(d) of the
Securities Exchange Act of 1934 [No Fee Required]
For the Transition Period From ___________ To __________
Commission File Number 1-5502
ZURN/NEPCO RETIREMENT SAVINGS PLAN
(Full title of the Plan)
ZURN INDUSTRIES, INC.
One Zurn Place, Erie, Pennsylvania 16505
(Name and address of issuer of securities held pursuant to the Plan)
-1-<PAGE>
Pension Committee
Zurn Industries, Inc.
Erie, Pennsylvania
We have audited the accompanying statements of net assets available for
benefits of the Zurn/NEPCO Retirement Savings Plan as of December 31, 1996 and
1995, and the related statements of changes in net assets available for
benefits for the years then ended. These financial statements are the
responsibility of the Plan's administrator. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by the administrator, 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 net assets available for benefits of the Zurn/NEPCO
Retirement Savings Plan as of December 31, 1996 and 1995, and the changes in
its net assets available for benefits for the years then ended, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of expressing an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes at December 31, 1996, and loans or fixed income
obligations for the year then ended, are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements but are supplementary information required by the Department of
Labor's Rules and Regulations for Reporting and Disclosure under the Employee
Retirement Income Security Act of 1974. The supplemental schedules have been
subjected to the auditing procedures applied in the audit of the basic
financial statements and, in our opinion, are fairly stated in all material
respects in relation to the basic financial statements taken as a whole.
/s/ Pashke Twargowski & Lee
Erie, Pennsylvania
June 26, 1997
-2-<PAGE>
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
ZURN/NEPCO RETIREMENT SAVINGS PLAN
December 31
1996 1995
ASSETS
Investments in T. Rowe Price Funds:
U.S. Treasury Money $1,097,515 $1,034,694
U.S. Treasury Intermediate 59,212 29,088
New Income 391,234 329,704
Balanced 206,872 156,206
Capital Appreciation 2,992,055 2,549,859
Equity Index 2,731,746 2,019,045
International Stock 768,724 514,214
Small-Cap Stock 491,591 201,807
Zurn Stock Fund 48,676
8,787,625 6,834,617
Participants' loans 352,036 373,881
Contributions receivable:
Participants' 40,779 41,905
Employers' 10,366 10,171
TOTAL ASSETS 9,190,806 7,260,574
FORFEITED EMPLOYERS' CONTRIBUTIONS 70,043 24,151
NET ASSETS AVAILABLE FOR BENEFITS $9,120,763 $7,236,423
See notes to financial statements.
-3-<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
ZURN/NEPCO RETIREMENT SAVINGS PLAN
Year Ended December 31, 1996
<CAPTION>
T. Rowe Price Funds
U.S. Treasury New Capital
Money Intermediate Income Balanced Appreciation
<S> <C> <C> <C> <C> <C>
ADDITIONS
Investment income:
Dividends $ 50,081 $ 2,897 $ 23,249 $ 9,074 $ 280,414
Net appreciation (depreciation)
in value of investments (1,405) (14,584) 18,522 152,518
50,081 1,492 8,665 27,596 432,932
Contributions:
Participants' 164,317 17,258 83,278 70,588 419,462
Employers' 41,852 2,911 19,835 13,042 88,590
Participants' loan interest 3,939 44 991 1,258 6,397
TOTAL ADDITIONS 260,189 21,705 112,769 112,484 947,381
DEDUCTIONS
Benefits paid to participants 203,155 3,113 20,870 47,233 242,645
Forfeited employers' contributions (32,101) 1,053 7,529 1,915 22,767
TOTAL DEDUCTIONS 171,054 4,166 28,399 49,148 265.412
NET ADDITIONS 89,135 17,539 84,370 63,336 681,969
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 1,034,694 29,088 329,704 156,206 2,549,859
Transfers (26,314) 12,585 (22,840) (12,670) (239,773)
End of year $1,097,515 $59,212 $391,234 $206,872 $2,992,055
See notes to financial statements.
-4-
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - Continued
ZURN/NEPCO RETIREMENT SAVINGS PLAN
Year Ended December 31, 1996
<CAPTION>
T. Rowe Price Funds Zurn
Equity International Small-Cap Stock
Index Stock Stock Fund Other Total
<S> <C> <C> <C> <C> <C>
ADDITIONS
Investment income:
Dividends $ 91,593 $ 20,401 $ 41,555 $ 519,264
Net appreciation in
value of investments 397,387 76,109 19,417 $ 1,916 649,880
488,980 96,510 60,972 1,916 1,169,144
Contributions:
Participants' 321,986 138,597 98,944 704 $ (1,126) 1,314,008
Employers' 76,201 30,997 20,302 71 195 293,996
Participants' loan interest 8,154 2,252 1,220 24,255
TOTAL ADDITIONS 895,321 268,356 181,438 2,691 (931) 2,801,403
DEDUCTIONS
Benefits paid to participants 242,550 29,558 7,864 46,075 843,063
Forfeited employers' contributions 20,984 4,355 1,607 45,891 74,000
TOTAL DEDUCTIONS 263,534 33,913 9,471 91,966 917,063
NET ADDITIONS (DEDUCTIONS) 631,787 234,443 171,967 2,691 (92,897) 1,884,340
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 2,019,045 514,214 201,807 401,806 7,236,423
Transfers 80,914 20,067 117,817 45,985 24,229
End of year $2,731,746 $768,724 $491,591 $48,676 $333,138 $9,120,763
See notes to financial statements.
-5-
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS
ZURN/NEPCO RETIREMENT SAVINGS PLAN
Year Ended December 31, 1995
<CAPTION>
T. Rowe Price Funds
U.S. Treasury New Capital
Money Intermediate Income Balanced Appreciation
<S> <C> <C> <C> <C> <C>
ADDITIONS
Investment income:
Dividends $ 52,207 $ 1,620 $ 19,015 $ 6,319 $ 199,497
Net appreciation in
value of investments 2,014 27,427 18,772 239,574
52,207 3,634 46,442 25,091 439,071
Contributions:
Participants' 194,690 14,071 94,624 53,638 468,247
Employers' 53,980 2,633 20,382 8,441 99,679
Participants' loan interest 4,004 27 533 583 5,991
TOTAL ADDITIONS 304,881 20,365 161,981 87,753 1,012,988
DEDUCTIONS
Benefits paid to participants 153,935 607 36,475 5,179 175,464
Forfeited employers' contributions 3,244 12 4,416 397 8,261
TOTAL DEDUCTIONS 157,179 619 40,891 5,576 183,725
NET ADDITIONS 147,702 19,746 121,090 82,177 829,263
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 960,357 14,646 219,579 77,858 1,757,743
Transfers (73,365) (5,304) (10,965) (3,829) (37,147)
End of year $1,034,694 $29,088 $329,704 $156,206 $2,549,859
See notes to financial statements.
-6-
/TABLE
<PAGE>
<TABLE>
STATEMENTS OF CHANGES IN NET ASSETS AVAILABLE FOR BENEFITS - Continued
ZURN/NEPCO RETIREMENT SAVINGS PLAN
Year Ended December 31, 1995
<CAPTION>
T. Rowe Price Funds
Equity International Small-Cap
Index Stock Stock Other Total
<S> <C> <C> <C> <C> <C>
ADDITIONS
Investment income:
Dividends $ 78,000 $ 15,496 $ 23,271 $ 395,425
Net appreciation in
value of investments 430,321 32,551 11,687 762,346
508,321 48,047 34,958 1,157,771
Contributions:
Participants' 348,541 164,940 69,919 $ 3,721 1,412,391
Employers' 71,042 33,642 11,256 (300) 300,755
Participants' loan interest 7,267 1,776 326 20,507
TOTAL ADDITIONS 935,171 248,405 116,459 3,421 2,891,424
DEDUCTIONS
Benefits paid to participants 141,596 13,080 7,141 15,613 549,090
Forfeited employers' contributions 4,052 2,569 1,834 589 25,374
TOTAL DEDUCTIONS 145,648 15,649 8,975 16,202 574,464
NET ADDITIONS (DEDUCTIONS) 789,523 232,756 107,484 (12,781) 2,316,960
NET ASSETS AVAILABLE FOR BENEFITS
Beginning of year 1,226,294 360,970 55,369 246,647 4,919,463
Transfers 3,228 (79,512) 38,954 167,940
End of year $2,019,045 $514,214 $201,807 $401,806 $7,236,423
See notes to financial statements.
-7-
/TABLE
<PAGE>
NOTES TO FINANCIAL STATEMENTS
ZURN/NEPCO RETIREMENT SAVINGS PLAN
December 31, 1996
PLAN DESCRIPTION
The Zurn/NEPCO Retirement Savings Plan is a defined contribution plan
providing retirement benefits through participant-directed investments to
participants in the National Energy Production Corporation Pension Plan. It
is subject to the provisions of the Employee Retirement Income Security Act of
1974 (ERISA).
The Company has agreed to contribute participants' elective deferrals of up to
18% of eligible compensation plus one-half of such amounts up to 2% of
eligible compensation. Participants also may contribute non-taxed
distributions from other employers' qualified plans and they may borrow from
their accounts subject to specified limitations.
Information about the Plan agreement and the benefit provisions is contained
in the "Summary Plan Description" which may be obtained from Zurn Industries,
Inc., the Plan Administrator.
SIGNIFICANT ACCOUNTING POLICIES
T. Rowe Price Investments The investments are stated at market value as
determined by the funds.
Zurn Stock Fund Zurn Industries, Inc. common stock (1,817 shares) is stated
at its quoted market value. A percentage of the Fund is invested in the T.
Rowe Price Prime Reserve Fund ($1,032) for investment diversification
liquidity. Dividend income from these investments is included in investment
income as a component of the net appreciation in the value of investments.
Investment Transactions Investment transactions are recorded as of the date
the order to buy or sell is executed with realized gains and losses being
included in investment income as a component of the net appreciation
(depreciation) in the value of investments.
Participants' Loans Participants' loans are stated at the principal amount
due from the participants.
Dividends Dividend income is recognized on the ex-dividend date.
Expenses Administrative expenses are paid by the Plan Administrator.
-8-<PAGE>
INCOME TAX STATUS
The Internal Revenue Service has ruled that the Plan qualifies under Section
401(a) of the Internal Revenue Code and is, therefore, not subject to tax
under present income tax law. Once qualified, the Plan is required to operate
in conformity with the Code to maintain its qualification. The Plan
Administrator is not aware of any course of action or series of events that
might adversely affect the Plan's qualified status.
-9-<PAGE>
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
ZURN/NEPCO RETIREMENT SAVINGS PLAN
December 31, 1996
ASSETS OWNED AT YEAR-END
Cost Current Value
T. Rowe Price Funds:
U.S. Treasury Money $1,097,515 $1,097,515
U.S. Treasury Intermediate 59,667 59,212
New Income 393,057 391,234
Balanced 184,211 206,872
Capital Appreciation 2,718,449 2,992,055
Equity Index 1,986,108 2,731,746
International Stock 691,930 768,724
Small-Cap Stock 473,762 491,591
Zurn Stock Fund 46,761 48,676
Participants' loans - 7% to 10% interest -0- 352,036
-10-<PAGE>
SCHEDULE OF LOANS OR FIXED INCOME OBLIGATIONS
ZURN/NEPCO RETIREMENT SAVINGS PLAN
Year Ended December 31, 1995
Amount Received
Original During The Year Unpaid Amount Overdue
Amount Principal Interest Balance Principal Interest
Oscar E. Daubenspeck $7,447 $-0- $-0- $-0- $7,336 $-0-
P.O. Box 471 Participant loan - 10%
Wallingford, VT 05773 Distributed to participant
Charles W. Nelson 8,000 -0- -0- -0- 7,881 -0-
17490 Olinda Road Participant loan - 10%
Anderson, CA 96007 Distributed to participant
William F. Walker 2,000 -0- -0- -0- 1,889 -0-
2440 Lawndale Road Participant loan - 8.75%
Lakeland, FL 33803 Distributed to participant
David T. Wolford 7,500 -0- -0- -0- 6,889 -0-
1713 Arbogast #O-D Participant loan - 8.75%
Griffith, IN 46319 Distributed to participant
-11- <PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Pension Committee of Zurn Industries, Inc. has duly caused this
annual report to be signed on its behalf by the undersigned thereunto duly
authorized.
ZURN/NEPCO RETIREMENT SAVINGS PLAN
(Plan)
June 26, 1997 /s/ James A. Zurn
James A. Zurn, Chairman
Pension Committee of
Zurn Industries, Inc.
-12-<PAGE>
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-8 No. 333-00813 pertaining to the Zurn/NEPCO Retirement Savings Plan of
our report dated June 26, 1997 with respect to the financial statements and
supplemental schedules included in the Annual Report on Form 11-K of the
Zurn/NEPCO Retirement Savings Plan.
/s/ Pashke Twargowski & Lee
Erie, Pennsylvania
June 27, 1997
-13-
