UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from.....................to....................
Commission file number 0-684
GOULDS PUMPS, INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 15-0321120
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
300 WillowBrook Office Park, Fairport, New York 14450
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (716) 387-6600
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par Value Per Share
(Title of Class)
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. [ ]
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the last 90 days. Yes X No
As of February 28, 1995, 21,217,092 common shares were outstanding, and the
aggregate market value of the common shares of Goulds Pumps, Inc. held by
non-affiliates was approximately $447 million.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for Annual Meeting of Shareholders to be held on May 3, 1995
(Proxy Statement). See Part III of this Form 10-K Annual Report for portions
incorporated by reference.
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GOULDS PUMPS, INCORPORATED
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................. 3-10
Executive Officers................................... 11
Item 2. Properties........................................... 12
Item 3. Legal Proceedings.................................... 12-13
Item 4. Submission of Matters to a Vote of Security Holders.. 13
PART II
Item 5. Market for the Registrant's Common Equity Securities
and Related Stockholder Matters.................... 14
Item 6. Selected Financial Data.............................. 15-16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations................ 17-26
Item 8. Financial Statements and Supplementary Data.......... 27-49
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................ 50
PART III
Item 10. Directors and Executive Officers of the Registrant.... 50
Item 11. Executive Compensation................................ 50
Item 12. Security Ownership of Certain Beneficial Owners
and Management..................................... 50
Item 13. Certain Relationships and Related Transactions....... 50
PART IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K............................... 50-80
Signatures........................................ 81-82
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PART I
ITEM 1. BUSINESS
(A) General Development of Business
The Company started business in 1848 and was incorporated 20
years later in 1864 under the laws of New York State as Downs
& Co. Manufacturing Company. In 1869, the Company's name was
changed to The Goulds Manufacturing Company and in 1926 the
name was changed to Goulds Pumps, Incorporated. Effective
December 31, 1984, the Company was reincorporated under the
laws of the State of Delaware by virtue of a merger
transaction. In December 1994, the Company moved its
Corporate headquarters from Seneca Falls, New York, to
Fairport, a suburb of Rochester, New York.
Goulds Pumps, Incorporated designs, manufactures and services
pumps, motors and accessories for industrial, agricultural,
commercial and consumer markets. Industrial markets account
for approximately 55 percent of the Company's sales. These
include: chemical, petrochemical, energy, refining, pulp and
paper, utilities, mining and municipal, including waste water
treatment systems. The remaining sales, representing
approximately 45 percent of the Company's business, include
pumps, motors and accessories for home water and sewage
systems, agricultural irrigation and commercial uses.
1994 was a year of significant changes and transition at
Goulds Pumps, marked by challenges and accomplishments.
Goulds Pumps' 1994 sales were above 1993 levels and results
from group operations for the year, before 1994 unusual
charges improved over last year. Offsetting the increase in
group operational results were several significant and
unusual charges which resulted in an overall decline in
annual earnings per share from $1.12 (before accounting
change) in 1993 to $.86 in 1994. These charges included a
pre-tax, restructuring charge of $3.5 million to downsize and
consolidate domestic and overseas locations, which was
recorded in the fourth quarter, reducing reported earnings by
$.10 on an after-tax basis; a charge recorded earlier in the
year for environmental litigation fees ($3.5 million pre-
tax); and an accrual related to top-level management changes
recorded in June 1994 ($1.5 million pre-tax). A significant
decline in earnings from its former joint venture, Oil
Dynamics, Inc. (ODI) ($4.0 million pre-tax), a higher
effective tax rate due to one-time tax benefits ($2.4 million
after-tax) realized in 1993, and adjustments due to
accounting irregularities uncovered at the Company's Mexican
subsidiary (a $3.2 million pre-tax charge) were also
important factors reducing reported EPS. During the fourth
quarter, a pre-tax $4.2 million credit resulting from changes
in eligibility requirements for the Company's postretirement
medical and life insurance programs was recorded.
1994 highlights included:
In June 1994, Stephen V. Ardia, President and Chief Executive
Officer, resigned. The Board of Directors announced the
election of Thomas C. McDermott, as President and Chief
Executive Officer, succeeding Mr. Ardia. Mr. McDermott, 58,
has been a Director of the Company since 1988. He was
previously employed by Bausch & Lomb, Incorporated, Rochester,
New York, where he was a Director and served as President and
Chief Operating Officer from 1986 to 1993. In the second
quarter of 1994, the Company recognized a $1.5 million pre-tax
charge associated with this leadership change.
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In December 1994, the Company consummated the purchase of all
of the outstanding shares of Pumpenfabrik Ernst Vogel AG
(Vogel), a leading pump manufacturer in Austria for $17.8
million and also assumed debt in the amount of $34.5 million
which will be reflected in the Company's 1995 financial
statements. Vogel had sales of approximately $62.0 million in
1994. Established in 1909, Vogel has manufacturing facilities
in Austria and sales branches throughout Austria and in
Germany, Poland and Hungary. Strategically, this acquisition
will provide the Company with market leadership in Austria,
established access into Eastern European markets and other
growth opportunities and synergies with both business
segments.
In the fourth quarter of 1994, the Company adopted a
restructuring program involving the closure or downsizing of
several domestic and overseas locations, which is expected to
reduce costs, enhance operating efficiencies, and improve
profitability. The Company recorded a $3.5 million pre-tax
charge related to this program in 1994.
In 1994, a charge of $3.5 million pre-tax was recorded for
legal and other fees related to the Company's vigorous defense
of the lawsuits commenced in 1994 arising from the sales of
submersible pumps with brass or bronze components (see
"Environmental Considerations"). This charge includes the
establishment of a $2.2 million reserve to cover revised
estimates of future legal costs to pursue that defense. At
December 31, 1994, the remaining reserve was $1.9 million.
Although the Company believes the reserve is adequate based on
current estimates, it is possible that the range of such costs
and related expenses could exceed its reserve by as much as
$1.0 million. There has not been, nor does the Company
currently anticipate, any material impact on sales or
inventories resulting from these lawsuits.
The Company intends to vigorously defend all of the pending
litigation, as well as any additional lead-related litigation
that may be commenced, but no assurance can be given as to the
ultimate outcome of such litigation or its impact on the
Company. If the Company were ultimately determined to be
liable for the damages alleged in such litigation, the claims
against the Company could be substantial. The Company's
insurance carriers have presently disclaimed coverage for any
liability resulting from this litigation. However, all
pending lead-related litigation is at a preliminary stage and
it is not possible at this time for the Company to quantify
any potential civil penalties, damages and other relief sought
by the various plaintiffs or to determine the extent of its
liability, if any.
In December 1994, the Company moved its Corporate headquarters
from Seneca Falls, New York, to Fairport, a suburb of
Rochester, New York. The Company believes this move will
allow the Corporate function to focus more clearly on
strategic business issues.
(B) Financial Information About Industry/Market Segments
Financial information about market segments contained in Note
14 (Major Market Segment Information) on page 48 of this
Annual Report on Form 10-K.
(C) Narrative Description of Business
Overview
The Company designs, manufactures and services pumps for the
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industrial, agricultural, commercial and consumer markets.
The Company's pumps are manufactured for a broad range of uses
in the chemical, petrochemical, refining, pulp and paper,
utilities and mining industries, home water and sewage
systems, agricultural irrigation and office building and other
commercial applications.
The Company is organized into two groups: the Industrial
Products Group ("IPG") and the Water Technologies Group
("WTG").
Industrial Products Group
The Industrial Products Group represented approximately 55% of
the Company's sales and 47% of operating earnings for 1994.
The types of pumps manufactured for customers served by the
Industrial Products Group include end-suction, double-suction,
multistage, axial flow, vertical turbine, sump and slurry
pumps to meet a wide variety of needs in the industrial and
municipal markets including pumps designed for API and ANSI
standards. The Company manufactures pumps from nonmetallic
materials for applications where metal alloys are
unsatisfactory or prohibitively expensive. The Company's
vertical industrial turbine pumps are used throughout
industries where space limitations or unsatisfactory suction
conditions make the use of horizontal pumps impractical. The
Company's slurry pumps serve the alumina and phosphate mining
and minerals markets. Abrasion resistant pumps are
manufactured for mining, utility and steel mill applications.
The Company's Pump Repair and Overhaul (PRO) Service Centers
play a role in customer service by rebuilding and repairing
pumps and other rotating equipment produced by any
manufacturer. The Company currently operates five PRO Service
Centers domestically, three in Canada, and one in Thailand.
The Company has a repair parts service organization to assist
customers in its key industrial areas of the United States.
Service representatives provide emergency service and
technical advice on a 24-hour basis.
In 1994, IPG posted sales of $323.3 million, an increase of
$7.1 million or 2.3% compared to 1993 results. IPG sales
improvements were led by EPD which reported record annual net
sales in 1994, representing a 10.4% increase over 1993
results. IPG sales in the fourth quarter of 1994 were 10.7%
higher than the same quarter a year ago, which were impacted
by shipment delays due to the implementation of new business
systems at EPD during October 1993. In 1995, IPG expects
sales growth if higher capital spending trends and higher
operating activities continue in its core markets, especially
in the chemical and pulp and paper sectors. Market acceptance
of new products including the Environamics product lines which
began shipping in December 1994 should further increase sales
in 1995.
The Company's industrial sales organization markets pumps for
U.S. industrial users through direct sales offices, sales
representatives, and distributors. The services of the
independent representatives and distributors are used in
geographic areas where it is not economical to maintain a
direct branch office and in some of the large metropolitan
areas where they supplement branch personnel in servicing
specialized markets. The Company employs approximately 60
sales engineers nationwide in its branch sales offices and has
35 distributors and representatives.
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Water Technologies Group
The Water Technologies Group represented approximately 45% of
the Company's sales and 53% of operating earnings for 1994.
The Group manufactures and sells water pump systems, which
include pumps, motors, pressure tanks and related accessories,
used to supply water for farms, single and multiple family
residences, office buildings, restaurants and other commercial
uses, and municipal water supply and sewage treatment
facilities. Larger submersible pumps are used to supply water
for commercial and municipal customers. A commercial line of
pumps is manufactured and sold for light industrial
application. Submersible and deep-well turbine pumps are used
for irrigation and other agricultural services. The Company
believes it is the largest manufacturer of home water pump
systems in the world.
The home water systems market presently accounts for 52% of
Water Technologies Group sales. This market is cyclical,
however, because it is tied to general economic conditions and
the weather.
In 1994, WTG posted sales of $262.2 million, an increase of
$22.7 million or 9.5% above 1993 results. WTG sales were at
record levels for the year and for the fourth quarter of 1994.
Led by aggressive new product introductions and targeted sales
programs, all WTG operating units posted healthy sales
increases, with the Texas Turbine Division, in particular,
reporting a 35.3% sales improvement. WTG-America (WTG-A)
sales increased 10.0% for 1994 compared to 1993 as the new GS
series, introduced in May 1994, and continued commercial line
growth boosted sales. Sales at WTG-A in 1994 were not
materially impacted by the April 1994 EPA announcement
regarding pumps containing some bronze components. WTG-E
(Lowara) sales for 1994 were 3.8% above 1993 on a translated
basis. On a local currency basis, sales for the year
increased 9.8% over 1993 due to the shipment of new products
and increased sales presence throughout European markets. In
the U.S., WTG will continue to focus in 1995 on the
development and introduction of new products and expanding and
improving existing product lines. Internationally, WTG-E is
continuing to expand its European presence through the Vogel
acquisition which complements the broad range of Goulds and
Lowara products currently marketed in Europe with medium and
heavy-duty water systems and industrial application pumps.
Vogel has a leading market share in Austria, with annual sales
approximating $62.0 million.
The Company's agricultural pumps and domestic water systems
pumps manufactured by WTG are marketed in the United States
through the WTG-A sales force. The Company employs
approximately 50 WTG-A field sales force persons to call on
approximately 500 distributors throughout the country. These
distributors, primarily plumbing, heating and pump specialty
wholesalers, sell to and service nearly 8,000 Goulds Pumps
Dealers Association members.
Joint Ventures
In November 1994, the Company and Franklin Electric Co., Inc.
(Franklin) announced that control of ODI had been assumed by
Franklin. Previously, ODI was owned and controlled equally by
Goulds and Franklin. The change in control resulted from the
Company's election to receive a cash dividend in the amount of
$11.7 million in lieu of a stock dividend declared by ODI.
the Company continues to own 3% of ODI's voting stock.
Franklin's receipt of the stock dividend increased its
interest in ODI to 97%. The Company believes this action will
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allow it to better focus its resources on those businesses
more closely aligned to its strategic plan.
An international joint venture is discussed on page 8 of this
report under "International Operations".
(D) General
Competition
The Company is one of the largest manufacturers of pumps in
the United States. There are few competitors in the
industrial sector in the United States which carry a
diversified product line with a broad service network
comparable to that of the Company.
The Company competes principally on the basis of product
performance, quality, service and price. The Company enjoys
the reputation as a "quality" pump manufacturer with a
complete repair parts service. It believes it can maintain
and strengthen its present competitive position by continuing
to improve its customer service levels and manufacturing
equipment and processes, by designing and developing new and
improved products, by maintaining strategically located parts
distribution centers and PRO Service Centers and by promoting
the efforts of its sales force in the world market.
The pump industry is highly competitive with numerous
competitors in the field. Some competitors are divisions of
large corporations while others are companies with a limited
product line.
Product Development
The Company is committed to the ongoing development of new
products and improvement of existing products. Research and
development expenditures amounted to $10.6 million, $7.2
million, and $7.9 million for the years ended December 31,
1994, 1993, and 1992, respectively.
Research and development (R&D) expenses in 1994 increased
47.2% compared to 1993 spending levels. The higher level of
R&D expenses in 1994 relates primarily to Environamics which
began shipping in late 1994. In May 1994, the Company
introduced the Model GS stainless steel submersible pump,
produced by WTG, one month earlier than previously scheduled.
The GS pump has received strong market acceptance and sales to
date have been at expected levels. In 1995, the Company
anticipates that it will continue to invest in new product
development as well as in enhancements to existing products
but at a slightly lower percentage to sales than in 1994.
International Operations
The Company has manufacturing and assembly operations in
Italy, Austria, Canada, Mexico, Singapore, South Korea,
Venezuela, the Netherlands and the Philippines. Sales by
foreign affiliates were approximately $157 million, $152
million, and $161 million for 1994, 1993 and 1992,
respectively. The largest international subsidiary, Goulds
Pumps Europe has wholly-owned subsidiaries in Italy, the
United Kingdom, Austria, France, Belgium, Ireland, Slovenia,
and the Netherlands, and majority-owned subsidiaries in
Denmark, Portugal, and Germany. The Italian subsidiary,
Lowara S.p.A., fabricates stainless-steel pumps which are sold
worldwide and has recently introduced several key new products
with significant growth potential. Vogel, the Company's newly
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acquired Austrian operation, produces pumps for medium- and
heavy-duty water systems and industrial applications. The
Canadian operation includes a manufacturing facility in
Cambridge, Ontario, for water systems products and for
industrial products, as well as sales offices in Montreal and
Calgary. The Philippines subsidiary manufactures residential
and agricultural water systems pumps. The Mexican operation
manufactures various pumps for industrial and agricultural
applications. The Venezuelan subsidiary produces and markets
certain industrial and water systems pumps primarily in
Venezuelan markets. The Korean operation is an assembly and
testing facility to provide support to customers in the Asia-
Pacific region. The Netherlands operation is an assembly,
testing and distribution site for industrial products. The
Singapore operation is an assembly and distribution site for
both IPG and WTG products serving the Asia-Pacific region.
The international sales efforts of the Company's employees are
supplemented by local sales representatives. Offices to
support foreign sales have been established in Fort
Lauderdale, Florida; Singapore, Republic of Singapore; Cairo,
Egypt; Athens, Greece; IJmuiden, Netherlands; Dammam, Saudi
Arabia; Bombay, India; Santiago, Chile; Southhampton, England;
Beijing, China; Taipei, Taiwan; Lima, Peru and Seoul, South
Korea. In addition, the foreign operations maintain sales
personnel to market their respective products.
Export sales from the United States were $58 million in 1994,
$62 million in 1993, and $58 million in 1992. The Company's
export sales are distributed throughout the world without
concentration in any one geographic region.
The Company also has a joint venture agreement with Nanjing
Deep Well Pump Works of Nanjing, China to produce agricultural
vertical turbine pumps for sale worldwide.
Raw Materials
The principal raw materials essential to manufacturing pumps
are nickel, iron, bronze and stainless steel. These are used
more specifically in the manufacture of castings produced in
the Company's three foundries. These internal foundries
supply most stainless steel and hard iron castings to the
Company's machining locations, thus reducing the need to
purchase these products from external suppliers.
In addition, sheets of stainless steel are used in various
stamping processes. Other components such as drivers, ball
bearings and mechanical seals, along with bar stock for
shafts, are purchased from several suppliers.
Raw materials for the Company's products are in adequate
supply from a number of alternative suppliers and, at present,
the Company has the ability to select and apportion among
vendors based on price, quality and delivery capability. The
Company has entered into several quality alliances with
selected vendors in order to focus on improving the quality,
delivery and costs related to purchased material. This
emphasis on vendor performance will continue on an ongoing
basis.
The Company purchases motors for its domestic water systems
pumps primarily from Franklin Electric Company. The Company
expects that it will continue to purchase motors from
Franklin, but if the Company were required to establish a
relationship with another supplier, its manufacturing business
could be temporarily disrupted.
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Employee Relations
The Company presently employs approximately 4,200 people.
Approximately 1,160 employees are covered under union
contracts stipulating rates of pay, hours of employment and
other conditions of employment. During the second quarter of
1994, the Company successfully negotiated an early settlement
of a new three-year contract with the 300-member United
Steelworkers of America union located at the Slurry Pump
Division in Ashland, Pennsylvania. In July 1994, the Company
also successfully negotiated a new three-year contract with
approximately 60 union employees at the Vertical Products
Division, located in City of Industry, California. In
November 1995, the Company's contract with approximately 730
union employees at its two largest facilities located in
Seneca Falls, New York, expires.
Approximately 2,700 persons are employed domestically while
approximately 1,500 persons work at foreign affiliate
locations.
Seasonal Business
The Company operates at its lowest level during the first and
last quarter of each calendar year due primarily to
the Water Technologies Group market decline in winter
months. The Industrial Products Group of the Company is not
a seasonal business.
Environmental Considerations
On April 18, 1994, the Attorney General of California and two
environmental groups filed separate complaints in the Supreme
Court of the State of California for Alameda County against
the Company and certain other submersible pumps manufacturers
alleging the unlawful discharge of lead into sources of
drinking water through leaching from pumps manufactured by the
Company and such other manufacturers, as well as failure to
warn consumers of potential exposure to lead. The complaints
seek various remedies including civil penalties.
On April 28, 1994, a complaint was filed against the Company
and its then President in Federal Court for the Western
District of New York, alleging violation of U.S. securities
laws and common law fraud. The complaint seeks certification
of a class of plaintiffs consisting of all purchasers of the
Company's common stock during the period March 29, 1993
through April 20, 1994 inclusive. The complaint seeks, among
other remedies, damages in an unspecified amount, allegedly
suffered by the putative class from a decrease in the market
price of the Company's common stock on April 20, 1994, after
the filing of the litigation described above.
A fourth complaint, filed on May 3, 1994, in the Superior
Court of Washington for King County alleging a class action
against the Company was dismissed during 1994.
In 1994, a charge of $3.5 million pre-tax was recorded for
legal and other fees related to the Company's vigorous defense
of the lawsuits commenced in 1994 arising from the sales of
submersible pumps with brass or bronze components. This
charge includes the establishment of a $2.2 million reserve
to cover revised estimates of future legal costs to pursue
that defense. At December 31, 1994, the remaining reserve was
$1.9 million. Although the Company believes the reserve is
adequate based on current estimates, it is possible that the
range of such costs and related expenses could exceed its
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reserve by as much as $1.0 million. There has not been, nor
does the Company currently anticipate, any material impact on
sales or inventories resulting from these lawsuits.
The Company intends to vigorously defend all of the pending
litigation, as well as any additional lead-related litigation
that may be commenced, but no assurance can be given as to the
ultimate outcome of such litigation or its impact on the
Company. If the Company were ultimately determined to be
liable for the damages alleged in such litigation, the claims
against the Company could be substantial. The Company's
insurance carriers have presently disclaimed coverage for any
liability resulting from this litigation. However, all
pending lead-related litigation is at a preliminary stage and
it is not possible at this time for the Company to quantify
any potential civil penalties, damages and other relief sought
by the various plaintiffs or to determine the extent of its
liability, if any.
As disclosed in previous SEC filings, the Company recorded a
$2.0 million provision in the fourth quarter of 1991 for
estimated costs to monitor and remediate an inactive Company
landfill site in Seneca Falls, New York. At December 31,
1994, the remaining reserve was $1.8 million. No third-party
recoveries have been included in the determination of this
reserve, nor are any expected. The remediation plan has been
approved by the New York State DEC and is expected to be
completed in 1995 or early 1996. The Company does not
currently expect any additional material costs in future years
associated with this site.
Although the Company is unable to predict what legislation or
regulations may be adopted or enacted in the future with
respect to environmental protection and waste disposal,
existing legislation and regulations have had no material
adverse effect on its capital expenditures, earnings or
competitive position. Capital expenditures for property,
plant and equipment for environmental control were not
material during 1994 and are not anticipated to be material in
1995 or 1996.
Patents and Trademarks
Although the Company owns several beneficial patents, none are
considered to be material to its operations. The Company
believes its trademark "Goulds" is of importance worldwide,
since its products have been sold and used for almost 150
years.
Backlog
Backlog is primarily in the Industrial Products Group as the
Water Technologies Group maintains minimal backlog levels
since their products are normally shipped within two weeks
from receipt of a customer order. The backlog of orders was
$121.7 million at February 28, 1995, an increase of $23.1
million from February 28, 1994 levels. This increase is due
to the strong orders trend experienced in the fourth quarter
of 1994 into early 1995.
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EXECUTIVE OFFICERS
Name Age Present Office and Experience
T. C. McDermott 58 President and Chief Executive Officer since June
1994. Director since 1988. Previously, a Director
and President and Chief Operating Officer of Bausch
& Lomb Inc. 1986-1993.
E. B. Bradshaw 56 Vice President since 1979; Secretary since 1974;
General Counsel since 1969.
M. A. Lambertsen 55 Vice President - Human Resources since December,
1991; Previously Vice President of Human Resources
of Fisher-Price, Inc., 1978-1991.
J. M. Morphy 47 Group Vice President - Industrial Products Group
since October 1992; Vice President and Chief
Financial Officer 1986-1993; Controller 1985-1986;
Previously Vice-President and Controller, Computer
Consoles, Inc., Rochester, NY.
J. P. Murphy 48 Vice President and Chief Financial Officer since
August 1993; Previously Executive Vice President
and Chief Financial Officer of Westcan Chromalox,
Inc., in Toronto, Canada, 1991-1993; Vice
President-Finance and Administration and Chief
Financial Officer of Hamilton Beach, Inc., of
Waterbury, CT, 1986-1991.
F. J. Zonarich 49 Group Vice President - Water Technologies Group
since December, 1989; Vice President Sales and
Marketing-Industrial Products Group 1986-1989;
Commercial Manager, Engineered Products Division
1985-1986; Director of Marketing 1982-1985.
No family relationship exists between any of the above executive officers. The
term of office for all executive officers listed above runs from one annual
meeting to the next, or approximately one year.
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ITEM 2. PROPERTIES
The Company's Corporate headquarters are leased in Fairport, New York. The two
largest manufacturing facilities are located in Seneca Falls, New York. Other
domestic manufacturing facilities are also located in Baldwinsville, New York;
Ashland, Pennsylvania; Lubbock, Texas; Hudson, New Hampshire; and City of
Industry, California. An assembly, shipping, and receiving facility for water
systems is maintained in Auburn, New York. International manufacturing
facilities are currently located in Italy, Austria, Canada, Mexico, Venezuela,
Singapore, South Korea and the Philippines. Goulds Pumps Europe maintains
subsidiaries which are located in Italy, Germany, Belgium, Denmark, Portugal,
France, Ireland, the Netherlands, and the United Kingdom.
Substantially all manufacturing sites are owned, and most sales offices,
warehouses and service facilities are leased. The Company maintains warehouses
or distribution centers in Chicago, Illinois; Houston, Texas; Baton Rouge,
Louisiana; and IJmuiden, the Netherlands, which carry inventories of pumps and
parts sold to industrial users. The Company maintains regional warehouses to
keep inventories of water pump systems and/or deep-well turbine components
readily available in the vicinities of Chicago, Illinois; Orlando, Florida;
Fresno, California; Memphis, Tennessee; Melbourne, Australia, and Singapore.
During the five years ended December 31, 1994, the Company invested
approximately $160 million in capital improvements, primarily relating to
upgrades in machinery and equipment. Management believes that the Company's
facilities are well maintained and adequate for its operations.
ITEM 3. LEGAL PROCEEDINGS
On April 18, 1994, the Attorney General of California and two environmental
groups filed separate complaints in the Supreme Court of the State of California
for Alameda County against the Company and certain other submersible pumps
manufacturers alleging the unlawful discharge of lead into sources of drinking
water through leaching from pumps manufactured by the Company and such other
manufacturers, as well as failure to warn consumers of potential exposure to
lead. The complaints seek various remedies including civil penalties.
On April 28, 1994, a complaint was filed against the Company and its then
President in Federal Court for the Western District of New York alleging
violation of U.S. Securities laws and common law fraud. The complaint seeks
certification of a class of plaintiffs consisting of all purchasers of the
Company's common stock during the period March 29, 1993 through April 20, 1994
inclusive. The complaint seeks, among other remedies, damages in an unspecified
amount, allegedly suffered by the putative class from a decrease in the market
price of the Company's common stock on April 20, 1994 after the filing of the
litigation described above.
A fourth complaint, filed on May 3, 1994, in the Superior Court of Washington
for King County alleging a class action against the Company was dismissed during
1994.
In 1994, a charge of $3.5 million pre-tax was recorded for legal and other fees
related to the Company's vigorous defense of the lawsuits commenced in 1994
arising from the sales of submersible pumps with brass or bronze components.
This charge includes the establishment of a $2.2 million reserve to cover
revised estimates of future legal costs to pursue that defense. At December 31,
1994, the remaining reserve was $1.9 million. Although the Company believes the
reserve is adequate based on current estimates, it is possible that the range of
such costs and related expenses could exceed its reserve by as much as $1.0
million. There has not been, nor does the Company currently anticipate, any
material impact on sales or inventories resulting from these lawsuits.
The Company intends to vigorously defend all of the pending litigation, as well
as any additional lead-related litigation that may be commenced, but no
assurance can be given as to the ultimate outcome of such litigation or its
impact on the Company. If the Company were ultimately determined to be liable
for the damages alleged in such litigation, the claims against the Company could
<F50>
be substantial. The Company's insurance carriers have presently disclaimed
coverage for any liability resulting from this litigation. However, all pending
lead-related litigation is at a preliminary stage and it is not possible at this
time for the Company to quantify any potential civil penalties, damages and
other relief sought by the various plaintiffs or to determine the extent of its
liability, if any.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter of
1994.
<F50>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY SECURITIES AND RELATED
STOCKHOLDER MATTERS
The Company's common stock is traded in the NASDAQ National Market System under
the symbol GULD. Quarterly high and low sales prices reported by NASDAQ
National Markets and related dividend information for the past two years is set
forth below:
Market value per share
1994 1993
Quarter High Low Quarter High Low
1st $26.50 $22.00 1st $25.75 $21.25
2nd $24.38 $19.38 2nd $25.63 $22.38
3rd $22.75 $19.38 3rd $26.50 $23.38
4th $23.38 $19.13 4th $26.75 $23.13
Year $26.50 $19.13 Year $26.75 $21.25
Dividend paid per common share
Quarter 1994 1993
1st $.20 $.20
2nd $.20 $.20
3rd $.20 $.20
4th $.20 $.20
Year $.80 $.80
The approximate number of record holders of the Company's common stock as of
February 28, 1995 was 5,234.
The Company's policy is to pay cash dividends quarterly. A quarterly cash
dividend has been paid without interruption since 1948. The amount of dividends
is within the discretion of the Board of Directors and depends, among other
factors, on earnings, capital requirements and the operating and financial
condition of the Company.
There are no dividend restrictions which materially limit the Company's current
ability to pay dividends.
<F50>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Five-Year Summary of Financial Data
Goulds Pumps, Incorporated
<CAPTION>
(Dollars in millions except per share data)
<S> <C> <C> <C> <C> <C> <C>
OPERATIONS: 1994 1993 1992 1991 1990
Net sales $585.5 555.7 $558.9 $566.6 $554.7
Gross profit 167.1 156.3 173.3 175.9 168.1
Interest expense 6.6 5.4 5.0 6.4 9.4
Earnings from continuing operations before
income taxes, extraordinary charge, and
cumulative effect of accounting changes 29.6 34.4 35.8 51.3 48.6
Earnings from continuing operations before
extraordinary charge and cumulative effect
of accounting changes 18.2 23.5 21.8 31.3 30.6
Extraordinary charge -- -- -- (.6) --
Cumulative effect of accounting changes -- (1.0) (29.7) -- --
Net earnings (loss) 18.2 22.5 (7.9) 30.7 30.6
Earnings from continuing operations before
extraordinary charge, cumulative effect
of accounting changes, and restructuring
charge 20.3 23.5 25.7 31.3 30.6
COMMON STOCK:
Number of shareholders at year-end 5,276 5,555 5,902 6,461 6,600
Average shares outstanding
(in thousands) 21,175 21,126 21,027 20,781 20,589
Net earnings (loss) per share:
Continuing operations before extraordinary
charge and cumulative effect of accounting
changes .86 1.12 1.04 1.51 1.49
Extraordinary charge -- -- -- (.03) --
Cumulative effect of accounting changes -- (.05) (1.42) -- --
Net earnings (loss) per share .86 1.07 (.38) 1.48 1.49
Net earnings per share from continuing
operations before extraordinary charge,
cumulative effect of accounting changes,
and restructuring charge .96 1.12 1.22 1.51 1.49
Dividends per share .80 .80 .80 .80 .76
Shareholders' equity per share 9.03 8.85 9.15 10.51 10.00
Market value per share-low 19.13 21.25 20.00 18.00 15.13
-high 26.50 26.75 29.38 26.00 28.50
</TABLE>
<F50>
<TABLE>
Five-Year Summary of Financial Data (Cont'd.)
Dollars in millions except per share data
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
FINANCIAL DATA: 1994 1993 1992 1991 1990
Capital additions 28.1 24.7 40.0 38.8 28.0
Depreciation 24.9 24.8 23.8 22.8 20.4
Property, plant and equipment-net 152.8 149.0 154.6 140.8 128.5
Working capital 116.8 109.7 122.1 122.1 127.3
Debt (including short-term) 89.1 87.4 65.3 64.2 96.6
Total assets 457.2 438.5 418.8 395.9 424.9
Shareholders' equity 191.3 187.2 192.8 219.3 206.5
Debt to equity % 46.6 46.7 33.9 29.3 46.8
Continuing operations before extraordinary
charge and cumulative effect of accounting
changes:
Return on average shareholders' equity % 9.5 12.4 9.6 14.6 15.8
Return on average capital % 7.6 9.7 8.0 11.2 11.3
Continuing operations before extraordinary
charge, cumulative effect of accounting
changes, and restructuring charge:
Return on average shareholders' equity % 10.6 12.4 11.1 14.6 15.8
Return on average capital % 8.3 9.7 9.1 11.2 11.3
Number of employees at year-end 4,200 4,100 4,300 4,350 4,300
</TABLE>
<F50>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management's discussion and analysis reviews the Company's operating
results for each of the three years in the period ended December 31, 1994, and
its financial condition at December 31, 1994. The focus of this review is on
underlying business reasons for significant changes and trends affecting sales,
net earnings, and financial condition. This review should be read in
conjunction with the accompanying consolidated financial statements, the related
Notes to Consolidated Financial Statements, and the Eleven-Year Summary of
Financial Data.
OVERVIEW
1994 was a year of significant changes and transition at Goulds Pumps,
marked by several challenges and accomplishments. Goulds Pumps' 1994 sales were
above 1993 levels, and results from group operations for the year, before 1994
unusual charges, improved over last year. Offsetting the increase in group
operational results were several significant and unusual charges which resulted
in an overall decline in annual earnings per share (E.P.S.) from $1.12 (before
accounting change) in 1993 to $.86 in 1994. These charges included a pre-tax,
restructuring charge of $3.5 million to downsize and consolidate domestic and
overseas locations, which was recorded in the fourth quarter, reducing reported
earnings by $.10 on an after-tax basis; a charge recorded earlier in the year
for environmental litigation fees ($3.5 million pre-tax); and an accrual related
to top-level management changes recorded in June 1994 ($1.5 million pre-tax). A
significant decline in earnings from its former joint venture, Oil Dynamics,
Inc. (ODI) ($4.0 million pre-tax), a higher effective tax rate due to one-time
tax benefits ($2.4 million after-tax) realized in 1993, and adjustments due to
accounting irregularities uncovered at the Company's Mexican subsidiary (a $3.2
million pre-tax charge) were also important factors reducing reported E.P.S.
During the fourth quarter, a pre-tax $4.2 million credit resulting from changes
in eligibility requirements for the Company's postretirement medical and life
insurance programs was recorded.
Record 1994 orders of $601.5 million were 7.7% above 1993 orders level of
$558.4 million. Industrial Products Group (IPG) orders increased 5.3% while
Water Technologies Group (WTG) orders increased 10.9%. Record fourth quarter
1994 order activity was 10.5% above 1993's fourth quarter, as both IPG and WTG
experienced significant order level upturns.
IPG experienced increases in both pump and repair order activity in 1994,
particularly in the third and fourth quarters. These increases reflect higher
capital spending and higher operating activities in core markets, especially in
the chemical and pulp and paper sectors, as well as market acceptance of new
products including the Environamics line, which began shipping in December
1994. Orders at nearly all IPG divisions increased over the fourth quarter of
1993, including the largest division, the Engineered Products Division (EPD),
where pump and repair orders were up 9.8% and 8.5%, respectively.
Within WTG, WTG-America's (WTG-A) 1994 orders levels increased 10.8%
compared with 1993, while orders at WTG-Europe (WTG-E) improved 3.8% on a
translated basis. On a local currency basis, WTG-E's 1994 orders increased 9.8%
over 1993, primarily due to the shipment of new product and increased sales
presence throughout European markets. Significant order increases in 1994 were
also experienced at the Texas Turbine Division, where orders improved 39.7% over
1993 levels. WTG-A orders increased due to the impact of new product
introductions and successful sales programs for all major product lines.
The year was highlighted by several events and accomplishments which will
have a lasting impact on Goulds management leadership, competitive position, and
future operational focus:
In June 1994, Stephen V. Ardia, President and Chief Executive Officer,
resigned. The Board of Directors announced the election of Thomas C.
McDermott, as President and Chief Executive Officer, succeeding Mr. Ardia.
Mr. McDermott, 58, has been a Director of the Company since 1988. He was
reviously employed by Bausch & Lomb, Incorporated, Rochester, New York,
<F50>
where he was a Director and served as President and Chief Operating
Officer from 1986 to 1993. In the second quarter of 1994, the Company
recognized a $1.5 million pre-tax charge associated with this leadership
change.
In December 1994, the Company consummated the purchase of all of the
outstanding shares of Pumpenfabrik Ernst Vogel AG (Vogel), a leading pump
manufacturer in Austria, for $17.8 million and also assumed debt in the
amount of $34.5 million, which will be reflected in the Company's 1995
consolidated financial statements. Vogel had sales of approximately $62.0
million in 1994. Established in 1909, Vogel has manufacturing facilities
in Austria and sales branches throughout Austria and in Germany, Poland
and Hungary. Strategically, this acquisition will provide the Company
with market leadership in Austria, established access into Eastern
European markets, and other growth opportunities and synergies with both
business segments.
In November 1994, the Company and Franklin Electric Co., Inc. (Franklin)
announced that control of ODI had been assumed by Franklin. Previously,
ODI was owned and controlled equally by Goulds and Franklin. The change
in control resulted from the Company's election to receive a cash dividend
in the amount of $11.7 million in lieu of a stock dividend declared by
ODI. Goulds continues to own 3% of ODI's voting stock. Franklin's
receipt of the stock dividend increased its interest in ODI to 97%.
Goulds believes this action will allow it to better focus its resources
on those businesses more closely aligned to its strategic plan.
In the fourth quarter of 1994, the Company adopted a restructuring program
involving the closure or downsizing of several domestic and overseas
locations, which is expected to reduce costs, enhance operating
efficiencies, and improve profitability. The Company recorded a $3.5
million pre-tax charge related to this program in 1994.
In 1994, a charge of $3.5 million pre-tax was recorded for legal and other
fees related to the Company's vigorous defense of the lawsuits commenced
in 1994 arising from the sales of submersible pumps with brass or bronze
components. (See "Environmental Matters," below.) This charge includes
the establishment of a $2.2 million reserve to cover revised estimates of
future legal costs to pursue that defense. At December 31, 1994, the
remaining reserve was $1.9 million. Although the Company believes the
reserve is adequate based on current estimates, it is possible that the
range of such costs and related expenses could exceed the reserve by as
much as $1.0 million. There has not been, nor does the Company currently
anticipate, any material impact on sales or inventories resulting from
these lawsuits.
The Company intends to vigorously defend all of the pending litigation,
as well as any additional lead-related litigation that may be commenced,
but no assurance can be given as to the ultimate outcome of such
litigation or its impact on the Company. If the Company were ultimately
determined to be liable for the damages alleged in such litigation, the
claims against the Company could be substantial. The Company's insurance
carriers have presently disclaimed coverage for any liability resulting
from this litigation. However, all pending lead-related litigation is at
a preliminary stage, and it is not possible at this time for the Company
to quantify any potential civil penalties, damages, and other relief
sought by the various plaintiffs or to determine the extent of its
liability, if any.
In December 1994, the Company moved its Corporate headquarters from Seneca
Falls, New York, to Fairport, a suburb of Rochester, New York. The
Company believes this move will allow the Corporate function to focus more
clearly on strategic business issues.
During 1994, the Company established a focused Asia-Pacific organization
to coordinate expansion of its presence in this region of the world for
both industrial and water systems products.
<F50>
Analysis of Operations
% Change
1994 vs. 1993 vs.
1994 1993 1992 1993 1992
Net sales $585.5 $555.7 $558.9 5.4% (0.6)%
Net Sales
The increase in total sales of $29.8 million in 1994 compared with 1993 is
primarily due to a $22.6 million or 9.4% increase in Water Technologies Group
(WTG) sales, while Industrial Products Group (IPG) sales increased $7.2 million
or 2.3%.
WTG sales were at record levels for the year and for the fourth quarter of
1994. Led by aggressive new product introductions and targeted sales programs,
all WTG operating units posted healthy sales increases, with the Texas Turbine
Division, in particular, reporting a 35.3% sales improvement. WTG-A sales
increased 10.0% for 1994 compared with 1993 as the new Model GS series,
introduced in May 1994, and continued commercial line growth boosted sales.
Sales at WTG-A in 1994 were not materially impacted by the April 1994 EPA
announcement regarding pumps containing some brass or bronze components. WTG-E
(Lowara) sales for 1994 were 3.8% above 1993 on a translated basis. On a local
currency basis, sales for the year increased 9.8% over 1993 due to the shipment
of new products and increased sales presence throughout European markets. In
the U.S., WTG will continue to focus in 1995 on the development and introduction
of new products and expanding and improving existing product lines.
Internationally, WTG-E is continuing to expand its European presence through the
Vogel acquisition, which complements the broad range of Goulds and Lowara
products currently marketed in Europe with medium- and heavy-duty water systems
and industrial application pumps. Vogel has a leading market share in Austria,
with annual sales approximating $62.0 million.
IPG sales improvements were led by EPD, which reported record annual net
sales in 1994, representing a 10.4% increase over 1993 results. IPG sales in
the fourth quarter of 1994 were 10.7% higher than the same quarter a year ago,
which were impacted by shipment delays due to the implementation of new business
systems at EPD during October 1993. In 1995, IPG expects sales growth if higher
capital spending trends and higher operating activities continue in its core
markets, especially in the chemical and pulp and paper sectors. Market
acceptance of new products, including the Environamics product lines which began
shipping in December 1994, should further increase sales in 1995.
During 1993, net sales of $555.7 million represented a decrease of $3.2
million or (0.6)% compared with 1992. In 1993, IPG sales decreased $6.0
million due to fourth quarter activity resulting from EPD's new business systems
implementation, which caused shipment delays. WTG's 1993 sales increased $2.8
million compared with 1992 primarily due to the strong performance of WTG-A,
which was positively impacted by new products and favorable weather conditions.
Costs and Expenses
As a % of Net Sales
1994 1993 1992
Gross profit 28.5% 28.1% 31.0%
Selling, general and
administrative expenses 20.1% 20.7% 21.4%
Research and development expenses 1.8% 1.3% 1.4%
<F50>
Gross profit as a percentage of net sales was 28.5% for 1994, compared with
28.1% for 1993. IPG's gross profit percentage for 1994 increased to 27.5% from
26.9% a year ago. This increase is largely attributable to the very successful
implementation of new business systems and other operational improvements.
WTG's gross profit percentage improved slightly to 29.7% in 1994, compared with
29.4% for 1993. This increase in 1994 would have been somewhat greater had it
not been for approximately $0.6 million of additional costs incurred in
connection with the accelerated launch of the new stainless steel Model GS
submersible pump line.
Selling, general and administrative (SG&A) expenses were 20.1%, 20.7%, and
21.4% of net sales in 1994, 1993, and 1992, respectively. The decrease in 1994
was a result of cost-containment measures implemented by the Company, which
included domestic workforce reductions. SG&A reductions in 1994 would have been
even greater had it not been for a charge of $1.5 million recorded in June 1994,
related to both the resignation of Stephen V. Ardia as President and C.E.O. and
the subsequent election of Thomas C. McDermott to that position.
Research and development (R&D) expenses in 1994 increased 47.2% compared
with 1993 spending levels. The higher level of R&D expenses in 1994 relates
primarily to Environamics, whose patented, hermetically sealed pump line began
shipping in late 1994. In May 1994, the Company introduced the Model GS
stainless steel submersible pump, produced by WTG, one month earlier than
previously scheduled. The GS pump has received strong market acceptance, and
sales to date have been at expected levels. In 1995, the Company anticipates
that it will continue to invest in new product development, as well as in
enhancements to existing products, but at a slightly lower percentage of sales
than in 1994.
Unusual Charges
Provision for Environmental Litigation. In 1994, a charge of $3.5 million
pre-tax was recorded for legal and other fees related to the Company's
vigorous defense of the lawsuits commenced in 1994 arising from the sales
of submersible pumps with brass or bronze components. (See "Environmental
Matters," below.) This charge includes the establishment of a $2.2
million reserve to cover revised estimates of future legal costs to pursue
that defense. At December 31, 1994, the remaining reserve was $1.9
million. Although the Company believes the reserve is adequate based on
current estimates, it is possible that the range of such costs and related
expenses could exceed the reserve by as much as $1.0 million. There has
not been, nor does the Company currently anticipate, any material impact
on sales or inventories resulting from these lawsuits.
The Company intends to vigorously defend all of the pending litigation, as
well as any additional lead-related litigation that may be commenced, but
no assurance can be given as to the ultimate outcome of such litigation or
its impact on the Company. If the Company were ultimately determined to
be liable for the damages alleged in such litigation, the claims against
the Company could be substantial. The Company's insurance carriers have
presently disclaimed coverage for any liability resulting from this
litigation. However, all pending lead-related litigation is at a
preliminary stage, and it is not possible at this time for the Company to
quantify any potential civil penalties, damages, and other relief sought
by the various plaintiffs or to determine the extent of its liability, if
any.
Restructuring Charges. In the fourth quarter of 1994, the Company
executed a restructuring plan to align its continuing global operations
with management's long-term objectives. As a result, a restructuring
charge of $3.5 million pre-tax and a related liability for such costs were
recorded in the Company's consolidated financial statements in the fourth
quarter. The restructuring plan included the downsizing of the Company's
California, Netherlands, and Mexican based operations, and the
consolidation of sales offices, PRO Service Centers, and other Company
facilities. As a result, the related cost to exit owned and leased
facilities was $1.1 million. The restructuring included the termination
of 149 employees from manufacturing, selling, and general and
administrative departments. The related termination benefits included in
<F50>
the restructuring charge were $2.4 million. Although only a small portion
of these costs have been expended in 1994, the restructuring plan is
expected to be significantly completed by the end of 1995 and is
anticipated to result in savings in the range of $2.2 million pre-tax in
1995 with annual savings estimated to be $3.3 million pre-tax in 1996 and
beyond.
During 1992, the Company also recorded the impact of a restructuring
program designed to reduce costs, improve operating efficiencies, and
increase shareholder value. The program included $2.9 million related to
the early retirement of employees. In addition, $3.4 million resulted
from the relocation of certain product lines and the centralization of
contract engineering for high-specification products to better meet
customer requirements. The aggregate restructuring program costs are
shown as a separate line item in the accompanying consolidated statement
of earnings and resulted in a pre-tax charge of $6.3 million ($.19 per
share after-tax) in 1992. During 1993, the restructuring program was
substantially completed.
Mexican Accounting Irregularities. In late December 1994, the Company
uncovered $3.2 million (pre-tax) of accounting irregularities at its
Mexican subsidiary. The irregularities related to a manipulation of
accounting records by personnel at the location but involved little, if
any, misappropriation of funds. The Company has discharged those persons
responsible for the irregularities and has taken the appropriate steps to
help ensure that existing internal controls and procedures are
consistently followed.
Correction of these irregularities on a pre-tax basis decreased net sales
by $2.2 million and increased cost of goods sold by $1.0 million. The
portion of the irregularities that occurred in 1993 and prior years
combined with other prior year adjustments (totalling $1.1 million after-
tax) is immaterial and has been recognized as an adjustment to first
quarter 1994 reported results. Quarterly results for 1994 on an after-tax
basis have therefore been restated to reflect the following adjustments:
first quarter - a $1.5 million decrease to net earnings (E.P.S. $.07);
second quarter - a $0.8 million decrease to net earnings (E.P.S. $.04);
third quarter - a $0.1 million decrease to net earnings (E.P.S. $.01);
fourth quarter - a $2.4 million increase to net earnings (E.P.S. $.12),
reflecting the reversal of the total amount of the correction previously
recorded as a fourth quarter adjustment.
Other Income and Expenses
% Change
1994 vs. 1993 vs.
1994 1993 1992 1993 1992
Earnings from affiliates $(0.5) $(4.6) $(0.7) 89.1)% 557.1%
Interest expense 6.6 5.4 5.0 22.2% 8.0%
Interest income (3.0) (1.9) (1.4) 57.9% 35.7%
Other (income) expense-net (0.7) 0.6 0.6 N.M. --
N.M. = not meaningful
Earnings from affiliates decreased $4.1 million in 1994 compared with the
same period in 1993. This decrease is mainly due to a significant decline in
1994 earnings of ODI, the joint venture of which Goulds owned 50% in 1994 and
1993. Goulds' share of ODI's earnings in 1994 declined by $4.0 million due
mainly to a substantial decrease in ODI's 1994 sales to Russia, resulting from
a lack of financing availability in Russia, occurring near the end of the first
quarter 1994 and continuing throughout the year. Due to the shift in control of
ODI to Franklin, the Company's investment in ODI will be recorded under the
"cost" method of accounting in 1995, and therefore ODI's results will not be
included in the Company's future financial statements.
<F50>
During the second and third quarters of 1994, WTG-E entered into and
completed a short-term investment arrangement whereby 8.3 billion Italian lire
were invested in a Brazilian financial institution. The net effect of this
transaction was to charge WTG-E's Other (income) expense-net due to foreign
currency transaction losses on the foreign exchange of $1.7 million and increase
investment interest income by $1.4 million. This transaction, however, resulted
in increased profit after taxes due to tax credits available in Italy.
Excluding WTG-E investment interest income discussed above, interest income
in 1994 remained relatively constant with 1993. Interest expense increased $1.2
million in 1994 compared with 1993. This increase was largely anticipated and
resulted from the drawdown of a previously arranged long-term financing
agreement at a higher interest rate, higher short-term interest rates, and
overall higher debt levels.
Other (income) expense-net for 1994 reflected a pre-tax curtailment gain
of $4.2 million resulting from a revision to the Company's non-union eligibility
requirements for postretirement medical and life coverage. See Note 12 for a
detailed discussion of this revision. Offsetting this income in this financial
statement classification are exchange losses of $1.7 million associated with the
WTG-E Brazilian investment discussed above and $1.2 million of transaction
losses resulting from significant devaluations of the Venezuelan bolivar in
1994. Further Venezuelan currency devaluations may occur in 1995.
<F50>
Income Taxes
1994 1993 1992
Effective tax rate 38.6% 31.5% 39.0%
The provision for income taxes represents 38.6%, 31.5%, and 39.0% of
earnings before income taxes in 1994, 1993, and 1992, respectively. In 1993,
the effective tax rate decreased due to a third quarter non-recurring cumulative
adjustment associated with tax code changes, new accounting rules for income
taxes (SFAS No. 109), and the implementation of the corporate European tax
restructuring in the fourth quarter.
Return on Equity
The percentage return on average shareholders' equity in 1994 decreased to
9.5% from 12.4% in 1993. The decrease in 1994 reflects the reductions in the
level of after-tax earnings from operations, primarily due to restructuring
charges, environmental litigation charges, management changes, reduced ODI
earnings, and effective tax rate increases.
Liquidity and Capital Resources
As reflected in the Consolidated Statements of Cash Flows, the $61.0
million of cash generated by operating activities combined with a positive $0.9
million translation effect were utilized to fund $45.8 million of net investing
activities and $15.9 million of financing activities while increasing cash and
cash equivalents by $0.2 million.
Significant items impacting cash flow from operating activities in 1994
include a $6.3 million increase in trade receivables due to record fourth
quarter shipments at WTG combined with an increase in days sales outstanding at
WTG-E and a $4.6 million increase in inventories primarily at WTG divisions,
partly to support new product introductions such as the new stainless steel
Model GS submersible pump line. Since this new product introduction had been
planned, the Company has not experienced material losses on WTG-A inventory of
submersible pumps containing some brass or bronze parts, nor do they expect
material losses in the future. Trade payables and accrued expenses increases
largely resulted from the establishment of reserves in 1994 related to
environmental litigation and management changes. Also positively impacting cash
from operations was the cash dividend of $11.7 million received from ODI.
Capital additions in 1994 were $28.1 million, exceeding depreciation of
$24.9 million. Significant projects included investments in the new business
systems hardware and software upgrades at EPD, Texas, and Canada; equipment
additions at domestic locations and European expansion; and facilities
upgrades. In 1995, the Company expects to spend approximately $30-35 million in
capital additions. The 1995 spending level includes continued major investments
in upgrades of machinery and equipment, facilities improvements, and product
development related expenditures.
In the third quarter of 1993, WTG-Europe entered into an agreement whereby
10 billion Italian lire ($6.1 million) of proceeds from short-term loans were
invested in insurance certificates. The net effect of this transaction is to
increase WTG-E's interest expense and interest income, resulting in increased
profit after taxes due to tax rate differentials on these items.
Cash flows from investing activities in 1994 reflect $17.8 million invested
to acquire all of the outstanding common stock of Vogel. Additionally, cash
flows from investing activities were positively impacted by $3.0 million in cash
received in payment of a long-term note receivable not due to expire until June
1997 and the receipt of $2.0 million of cash from sinking funds previously
restricted and classified as other long-term assets related to Industrial
Revenue Bond Proceeds.
<F50>
Debt levels at the end of 1994 increased compared with those at December
31, 1993, primarily due to the acquisition of Vogel, consummated in December
1994. The debt assumed in connection with the Vogel acquisition of $34.5
million will be included in the debt classification on the consolidated balance
sheet in 1995 when the detailed balance sheet of Vogel is fully consolidated in
the Company's financial statements. The Company replaced its $30.0 million
Revolving Credit Agreement, which expired on October 31, 1994, with a $55.0
million Revolving Credit Agreement expiring October 31, 1999. The Company
believes cash from operations and the $95.3 million of available credit
facilities at December 31, 1994, will be sufficient to meet its liquidity needs
during 1995.
A natural hedge exists for the Company in relation to transactions
involving the Italian lira. To the extent that translated WTG-E earnings after
tax approximate purchases by U.S. WTG divisions of WTG-E inventory at the spot
rate, exchange rate impacts are neutralized.
In 1994, as a result of increased levels of U.S. intercompany purchases of
WTG-E product in excess of WTG-E after-tax earnings, foreign exchange contracts
were established to minimize the effects of unfavorable movements in the lira-
to-U.S. dollar exchange rate on this exposure.
Cumulative translation adjustments on the accompanying consolidated balance
sheets at December 31, 1994, went from $11.4 million on December 31, 1993, to
$9.2 million on December 31, 1994, reflecting strengthening of the Italian lira
against the U.S. dollar during 1994, which was offset, in part, by the impact of
the devaluation of the Mexican peso in December 1994.
Orders and Backlog
In 1994, orders received were a record $601.5 million, an increase of 7.7%
over the 1993 orders level of $558.4 million. Backlog levels at December 31,
1994, increased from 1993 by $13.8 million or 13.8% to $113.8 million, primarily
due to the record level of fourth quarter order activity at both IPG and WTG.
Backlog exists primarily at IPG, as WTG maintains small backlog levels since its
products are normally shipped within two weeks from receipt of a customer order.
Inflation
Generally, increases in material costs have been offset by productivity
improvements and pricing increases absorbed in the marketplace. The Company
continues to monitor the impact of inflation in order to minimize its effects in
future years through pricing strategies, productivity improvements, and cost
reductions.
Environmental Matters
On April 18, 1994, the Attorney General of California and two environmental
groups filed separate complaints in the Supreme Court of the State of California
for Alameda County against the Company and certain other submersible pump
manufacturers alleging the unlawful discharge of lead into sources of drinking
water through leaching from pumps manufactured by the Company and such other
manufacturers, as well as failure to warn consumers of potential exposure to
lead. The complaints seek various remedies including civil penalties.
On April 28, 1994, a complaint was filed against the Company and its then
President in Federal Court for the Western District of New York, alleging
violation of U.S. securities laws and common law fraud. The complaint seeks
certification of a class of plaintiffs consisting of all purchasers of the
Company's common stock during the period March 29, 1993 through April 20, 1994,
inclusive. The complaint seeks, among other remedies, damages in an unspecified
amount, allegedly suffered by the putative class from a decrease in the market
price of the Company's common stock on April 20, 1994, after the filing of the
litigation described above.
<F50>
A fourth complaint, filed on May 3, 1994, in the Superior Court of
Washington for King County alleging a class action against the Company was
dismissed during 1994.
In 1994, a charge of $3.5 million pre-tax was recorded for legal and other
fees related to the Company's vigorous defense of the lawsuits commenced in 1994
arising from the sales of submersible pumps with brass or bronze components.
This charge includes the establishment of a $2.2 million reserve to cover
revised estimates of future legal costs to pursue that defense. At December 31,
1994, the remaining reserve was $1.9 million. Although the Company believes the
reserve is adequate based on current estimates, it is possible that the range of
such costs and related expenses could exceed the reserve by as much as $1.0
million. There has not been, nor does the Company currently anticipate, any
material impact on sales or inventories resulting from these lawsuits.
The Company intends to vigorously defend all of the pending litigation, as
well as any additional lead-related litigation that may be commenced, but no
assurance can be given as to the ultimate outcome of such litigation or its
impact on the Company. If the Company were ultimately determined to be liable
for the damages alleged in such litigation, the claims against the Company could
be substantial. The Company's insurance carriers have presently disclaimed
coverage for any liability resulting from this litigation. However, all pending
lead-related litigation is at a preliminary stage, and it is not possible at
this time for the Company to quantify any potential civil penalties, damages,
and other relief sought by the various plaintiffs or to determine the extent of
its liability, if any.
As disclosed in previous SEC filings, the Company recorded a $2.0 million
provision in the fourth quarter of 1991 for estimated costs to monitor and
remediate an inactive Company landfill site in Seneca Falls, New York. At
December 31, 1994, the remaining reserve was $1.8 million. No third-party
recoveries have been included in the determination of this reserve, nor are any
expected. The remediation is expected to be completed in 1995 or early 1996,
and the Company does not currently expect any additional material costs in
future years associated with this site.
Apart from issues discussed above for which reserves have been established
in respect of environmental matters, the Company is not currently aware of other
environmental matters which would have any material impact on recurring costs,
capital expenditures, or mandated expenditures.
Other Matters
The significant devaluation of the Mexican peso in December 1994 has had
a minimal impact on the Company's Mexican subsidiary's translated earnings,
since it occurred in the last month of the subsidiary's fiscal year. Cumulative
translation adjustments on the consolidated balance sheet were impacted by $2.7
million as a result of this devaluation. The Company continues to evaluate
additional methods to minimize the future impact of this devaluation on
operations and translated results.
Events Impacting Future Operating Results
During the second quarter of 1994, the Company successfully negotiated an
early settlement of a new three-year contract with the 300-member United
Steelworkers Union located at the Slurry Pump Division in Ashland, Pennsylvania.
In July 1994, the Company also successfully negotiated a three-year contract
with approximately 60 union employees at the Vertical Products Division, located
in City of Industry, California. In November 1995, the Company's contract with
approximately 730 union employees at its two largest facilities located in
Seneca Falls, New York, expires.
Future currency devaluations could occur at several of the Company's
international locations, including Venezuela. The Company is currently
evaluating methods to minimize the impact of devaluations on operations and
reported operating results.
<F50>
Accounting Standards
Effective in 1994, the Company adopted SFAS No. 119, "Disclosure about
Derivative Financial Instruments and Fair Value of Financial Instruments." See
Note 9 for detailed disclosure. All other applicable standards issued in 1994
are not expected to have a significant impact on the Company's consolidated
financial statements.
Effective in the first quarter of 1993, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits." See Note 12 for a detailed
discussion of the impact of this change on the Company's consolidated financial
statements.
In Conclusion
The fourth quarter of 1994 reflected stronger orders, higher operating
earnings and several significant events which management believes help better
position the Company for the future. They include the Vogel acquisition; the
transfer of most of the Company's ODI ownership; the relocation of Corporate
offices to Fairport, near Rochester, New York; and the initial shipments of the
Environamics product line. The Company believes that these accomplishments, the
current strengthening of core markets, and a strong focus on the Company's
strategic imperatives of improving profitability, driving internal growth,
pursuing external growth, optimizing use of assets, and creating a new culture
should result in significantly improved earnings for the Company in 1995.
<F50>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements
Page
Independent Auditors' Report 28
Consolidated Statements of Earnings 29
Consolidated Balance Sheets 30
Consolidated Statements of Cash Flows 31
Consolidated Statements of Shareholders' Equity 32
Notes to Consolidated Financial Statements 33-48
Supplementary Data
Quarterly Financial Data 49
<F50>
Independent Auditors' Report
To the Board of Directors and Shareholders of Goulds Pumps, Incorporated:
We have audited the accompanying consolidated balance sheets of Goulds
Pumps, Incorporated, and its subsidiaries as of December 31, 1994 and 1993, and
the related consolidated statements of earnings, shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. 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
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, such consolidated financial statements present fairly, in
all material respects, the financial position of Goulds Pumps, Incorporated, and
its subsidiaries at December 31, 1994 and 1993, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1994, in conformity with generally accepted accounting principles.
As discussed in Note 12 to the consolidated financial statements, the
Company changed its methods of accounting for postretirement benefits other than
pensions (effective January 1, 1992) and postemployment benefits (effective
January 1, 1993).
DELOITTE & TOUCHE LLP
Rochester, New York
January 26, 1995
<F50>
<TABLE>
Consolidated Statements of Earnings
Goulds Pumps, Incorporated
<CAPTION>
(Dollars in thousands except per share data)
<S> <C> <C> <C> <C>
For the years ended December 31, 1994 1993 1992
Net sales $585,476 $555,692 $558,903
Costs and expenses
Cost of sales 418,386 399,374 385,567
Selling, general and administrative expenses 117,572 115,153 119,752
Research and development expenses 10,564 7,177 7,939
Restructuring charge 3,463 -- 6,300
Provision for environmental litigation 3,454 -- --
Earnings from affiliates (451) (4,569) (711)
Interest expense 6,553 5,403 4,998
Interest income (3,038) (1,909) (1,407)
Other (income) expense-net (670) 648 636
555,833 521,277 523,074
Earnings before income taxes and
cumulative effect of accounting
changes 29,643 34,415 35,829
Income taxes 11,442 10,841 13,976
Earnings before cumulative effect
of accounting changes 18,201 23,574 21,853
Cumulative effect of accounting changes,
net of income tax benefit:
Postretirement benefits -- -- (29,746)
Postemployment benefits -- (1,026) --
Net earnings (loss) $ 18,201 $ 22,548 $ (7,893)
Net earnings (loss) per common share
Earnings before cumulative effect of
accounting changes $ .86 $ 1.12 $ 1.04
Cumulative effect of accounting changes:
Postretirement benefits -- -- (1.42)
Postemployment benefits -- (.05) --
Net earnings (loss) per common share $ .86 $ 1.07 $ (.38)
<F54>
See Notes to Consolidated Financial Statements.
</TABLE>
<F50>
<TABLE>
Consolidated Balance Sheets
Goulds Pumps, Incorporated
<CAPTION>
(Dollars in thousands)
<S> <C> <C> <C>
December 31, 1994 1993
ASSETS
Current assets:
Cash and cash equivalents $ 7,374 $ 7,153
Receivables-net 113,777 109,637
Inventories 111,508 106,185
Deferred tax asset 12,494 13,557
Prepaid expenses and other current assets 10,898 11,115
Total current assets 256,051 247,647
Property, plant and equipment-net 152,789 148,973
Investment in Vogel 17,800 --
Investments in affiliates 1,178 12,774
Other investments 6,498 6,074
Deferred tax asset 8,125 5,031
Other assets 14,800 18,003
$457,241 $438,502
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 10,418 $ 41,571
Current portion of long-term debt 24,886 6,922
Trade payables 47,382 34,726
Compensation and commissions 17,552 16,519
Income taxes payable 266 21
Pension 2,228 6,191
Progress payments 3,170 2,443
Warranty reserves 3,937 3,947
Dividends payable 4,239 4,231
Deferred tax liability 391 1,257
Restructuring accrual 3,224 199
Other 21,510 19,906
Total current liabilities 139,203 137,933
Long-term debt 53,756 38,859
Pension 16,992 16,905
Other postretirement benefit obligation 51,681 53,418
Deferred tax liability and other 4,322 4,186
Shareholders' equity:
Preferred stock - $20.00 par value: shares-authorized:
750,000; issued and outstanding: none -- --
Common stock - $1.00 par value: shares-authorized:
90,000,000; issued and outstanding: 1994 - 21,193,054
1993-21,153,966 21,193 21,154
Additional paid-in capital 57,622 57,044
Retained earnings 121,671 120,415
Cumulative translation adjustments and other (9,199) (11,412)
Total shareholders' equity 191,287 187,201
$457,241 $438,502
<F54>See Notes to Consolidated Financial Statements.
</TABLE>
<F50>
<TABLE>
Consolidated Statements of Cash Flows
Goulds Pumps, Incorporated
<CAPTION>
(Dollars in thousands)
For the years ended December 31, 1994 1993 1992
Operating activities:
<S> <C> <S> <C> <C> <C>
Net earnings (loss) from operations $18,201 $22,548 $(7,893)
Adjustments to reconcile net earnings (loss) from operations
to net cash provided by operations:
Depreciation 24,925 24,788 23,819
Amortization 1,428 1,170 1,161
Cumulative effect of accounting changes -- 1,579 47,978
Restructuring charge 3,463 -- 6,300
Earnings from affiliates (451) (4,569) (711)
Dividends received from affiliates 11,622 4,425 1,197
Increase (decrease) in deferred tax liability (1,008) 1,110 (15,985)
Increase in deferred tax asset (1,852) (2,869) (7,607)
Decrease (increase) in receivables-net (6,295) (18,312) 217
Increase in inventories (4,566) (12,493) (12,583)
Increase in trade payables, accrued expenses, and other 10,808 4,939 7,145
Other-net 4,755 (2,474) 4,068
Net cash provided by operating activities 61,030 19,842 47,106
Investing activities:
Capital additions (28,080) (24,650) (40,004)
Investment in Vogel (17,800) -- --
Investment in insurance certificate -- (6,317) --
Collection of long-term note receivable 3,033 1,033 1,311
Decrease in investments of unexpended revenue bond
funds included in other assets 2,015 -- 6,045
Purchases of other assets (5,376) (5,340) (5,541)
Other-net 427 41 1,092
Net cash applied to investing activities (45,781) (35,233) (37,097)
Financing activities:
Proceeds from long-term debt 12,446 30,099 11,513
Payments on long-term debt (2,319) (13,172) (15,704)
Increase (decrease) in short-term borrowings (9,776) 9,752 6,713
Proceeds from issuance of common stock 617 1,334 3,588
Dividends paid (16,937) (17,106) (16,889)
Net cash provided by (applied to) financing activities (15,969) 10,907 (10,779)
Effect of exchange rate changes on cash 941 (2,044) (1,921)
Increase (decrease) in cash and cash equivalents 221 (6,528) (2,691)
Cash and cash equivalents, beginning of year 7,153 13,681 16,372
Cash and cash equivalents, end of year $ 7,374 $ 7,153 $13,681
Supplemental Cash Flow Information:
Interest paid $ 6,479 $ 4,721 $ 4,890
Income taxes paid 13,956 13,437 21,151
Noncash investing and financing activities:
Change in additional minimum pension liability (3,753) 5,005 125
<F54>
See Notes to Consolidated Financial Statements.
</TABLE>
<F50>
<TABLE>
Consolidated Statements of Shareholders' Equity
Goulds Pumps, Incorporated
<CAPTION>
(Dollars in thousands)
Cumulative
Additional Translation Total
Common Paid-In Retained Adjustments Shareholders'
Stock Capital Earnings and Other Equity
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $20,864 $52,412 $139,813 $6,166 $219,255
Net loss -- -- (7,893) -- (7,893)
Dividends declared -- -- (16,932) -- (16,932)
Common stock issued 216 3,372 -- -- 3,588
Foreign currency translation -- -- -- (5,192) (5,192)
Pension adjustment -- -- -- (41) (41)
Balance, December 31, 1992 21,080 55,784 114,988 933 192,785
Net earnings -- -- 22,548 -- 22,548
Dividends declared -- -- (17,121) -- (17,121)
Common stock issued 74 1,260 -- -- 1,334
Foreign currency translation -- -- -- (11,853) (11,853)
Pension adjustment -- -- -- (492) (492)
Balance, December 31, 1993 21,154 57,044 120,415 (11,412) 187,201
Net earnings -- -- 18,201 -- 18,201
Dividends declared -- -- (16,945) -- (16,945)
Common stock issued 39 578 -- -- 617
Foreign currency translation -- -- -- 1,758 1,758
Pension adjustment -- -- -- 455 455
Balance, December 31, 1994 $21,193 $57,622 $121,671 $ (9,199) $191,287
<F54>
See Notes to Consolidated Financial Statements.
</TABLE>
<F50>
Notes To Consolidated Financial Statements
(Dollars in thousands except per share data)
1. Summary of Significant Accounting Policies
Consolidation
The consolidated financial statements include the accounts of all wholly
owned and majority-owned subsidiaries after elimination of all significant
intercompany transactions with the exception of an advance of funds to the
Company's European subsidiary, which is more fully explained in Note 2.
Investments in affiliates, representing 20% to 50% of the ownership of such
companies, are accounted for under the equity method. Investments in
affiliates, representing less than 20% of the ownership of such companies, are
accounted for under the cost method.
The majority of the foreign subsidiaries have fiscal year-ends of October
31 or November 30 to facilitate consolidation of the subsidiaries' financial
statements.
Foreign Currency
The Company accounts for its foreign currency denominated transactions and
foreign operations in accordance with Statement of Financial Accounting
Standards (SFAS) No. 52, "Foreign Currency Translation." For subsidiaries where
the local currency is the functional currency, assets and liabilities are
translated at current exchange rates. Earnings and expense items are translated
using average exchange rates during the year. Translation adjustments are
accumulated and reported as a separate component of shareholders' equity.
For subsidiaries located in highly inflationary economies, balance sheet
items are translated using current exchange rates, and average exchange rates
are used for statement of earnings items except for inventory, property, and
their related statement of earnings accounts, which are translated using
historical exchange rates. Resultant translation gains and losses are included
in earnings.
Cash and Cash Equivalents
Cash and cash equivalents include all cash balances and highly liquid
investments with original maturities of three months or less.
Inventories
Domestic inventories are stated at the lower of cost or market, with cost
generally determined by the last-in, first-out (LIFO) method. Inventories of
foreign subsidiaries are stated at the lower of cost or market, with cost being
determined by the first-in, first-out (FIFO) method or the average cost method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost, less accumulated
depreciation. Depreciation is computed using the straight-line method over the
estimated useful lives of the assets ranging from 15 to 50 years for buildings
and 3 to 14 years for machinery and equipment.
Derivative Financial Instruments
The Company utilizes derivative financial instruments for purposes other
than trading and primarily to reduce its exposure to fluctuations in foreign
currency exchange rates. Gains and losses on hedges of existing foreign
currency denominated assets or liabilities are included in the carrying amounts
<F50>
of those assets or liabilities and are ultimately recognized in income as part
of those <PAGE>
carrying amounts. Gains and losses related currency denominated firm
commitments are deferred and are recognized into income or as adjustments of
carrying amounts when the hedged transaction occurs.
Environmental Policy
The Company's environmental expenditures that relate to current operations
are expensed or capitalized as appropriate. Expenditures that relate to an
existing condition caused by past operations, and that do not contribute to
current or future revenue generation, are expensed. Liabilities are recorded on
a gross basis when environmental assessments and/or remedial efforts become
probable and the costs can be reasonably estimated. Generally, the timing of
these accruals coincides with completion of a feasibility study or the Company's
commitment to a formal plan of action.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued SFAS No.
109, "Accounting for Income Taxes," which requires recognition of deferred tax
liabilities and assets for the expected future tax consequences of events that
have been included in the financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse.
The aggregate undistributed earnings of certain foreign subsidiaries which,
under existing law, will not be subject to U.S. tax until distributed as
dividends was $62,400 on December 31, 1994. Since the earnings have been or are
intended to be indefinitely reinvested in foreign operations, no provision has
been made for any U.S. taxes that may be applicable thereto. Any taxes paid to
foreign governments on those earnings may be used, in whole or in part, as
credits against U.S. tax on any dividends distributed from such earnings.
Net Earnings (Loss) Per Share
Net earnings (loss) per share of common stock is based upon the weighted
average number of shares of common stock outstanding during the year (21,175 in
1994, 21,126 in 1993, and 21,027 in 1992). No effect has been given to options
outstanding under the Company's Stock Option Plans since no material dilutive
effect would result from the exercise of these items.
Financial Presentation Changes
Certain prior year amounts have been reclassified to conform to the current
year presentation with no effect on net earnings or shareholders' equity.
2. Investment in Vogel
During December 1994, which is subsequent to the year-end of the Company's
subsidiary Goulds Pumps Europe, B.V. (GPE), all of the outstanding common stock
of Pumpenfabrik Ernst Vogel AG (Vogel) was acquired for $17,800. Bank and
capital lease debt of Vogel assumed in connection with this acquisition
totalling $34,548 will be included in the Company's consolidated balance sheet
in 1995 when the detail balance sheet of Vogel is consolidated in the financial
statements under the purchase accounting method. The Company borrowed $17,800
in December and loaned the funds to GPE for this purchase. For reporting
purposes, Vogel will have an October 31 year-end, like that of its direct
parent, GPE. Although this acquisition occurred subsequent to GPE's year-end,
the investment in Vogel has been recorded as a line item on the accompanying
consolidated balance sheet since the borrowing for the acquisition had been
completed, together with the corresponding advance to the Company's subsidiary.
The Company's preliminary proforma unaudited results of operations for the year
ended December 31, 1994, assuming acquisition of Vogel and related bank
<F50>
borrowings as of the beginning of the year, would have increased net sales by
approximately $62,000 and net earnings per share would have decreased by
approximately $.06. Adjustments made in arriving at preliminary pro forma
unaudited results of operations included additional interest expense of $801
related to the $17,800 of acquisition debt at 4.5%, related income tax
adjustments, and amortization of goodwill of $538 over 30 years.
Consolidating the preliminary purchase transaction amounts would
have affected the financial position of the Company at December 31, 1994 by
increasing total assets and liabilities by $59,711.
The unaudited pro forma results of operations are not necessarily
indicative of the results that would have been attained had the Vogel business
been acquired at the beginning of the period nor are they consistent with
management's expectations of performance in the future. Established in 1909 as
a family-owned business, Vogel has a leading market share of pump sales in
Austria, with established sales channels in Germany, Poland, and Hungary.
3. Inventories
Inventories are summarized as follows:
December 31, 1994 1993
Raw materials $ 40,608 $ 31,927
Work in process 39,895 49,062
Finished goods 61,895 55,863
Inventories valued at FIFO 142,398 136,852
LIFO allowance (30,890) (30,667)
$111,508 $106,185
Inventories of foreign subsidiaries, valued at FIFO or average cost, are
$58,018 and $49,252 at December 31, 1994 and 1993, respectively.
4. Investments in Affiliates
Investments in affiliates are summarized below:
December 31, 1994 1993
Investment in Oil Dynamics, Inc. $ 392 $11,706
Other investments 786 1,068
$ 1,178 $12,774
In November 1994, the Company announced that control of Oil Dynamics,
Inc. (ODI) had been assumed by Franklin Electric Co., Inc. (Franklin).
Previously, ODI was owned and controlled equally by the Company and Franklin.
The change in control resulted from the Company's election to receive a cash
dividend in the amount of $11,700 in lieu of a stock dividend declared by ODI,
without a gain or loss on the transaction to the Company or Franklin. The
Company will continue to own 3% of ODI's voting stock and will account for its
investment on a cost basis in 1995. ODI manufactures submersible pumps utilized
principally in secondary oil recovery. For 1994, 1993, and 1992, the Company
recognized earnings of $386, $4,385, and $558, respectively. Cash dividends
received were $11,700, $4,375, and $1,050, in 1994, 1993, and 1992,
respectively.
<F50>
Summarized financial information for Oil Dynamics, Inc., is as follows:
October 31, October 30,
1994 1993
Current assets $21,902 $26,579
Non-current assets 12,590 12,808
Total assets $34,492 $39,387
Current liabilities $ 8,713 $14,444
Non-current liabilities 1,765 1,497
Total shareholders' equity 24,014 23,446
Total liabilities and shareholders' equity $34,492 $39,387
For the years ended,
October 31, October 30, October 31,
1994 1993 1992
Net sales $44,043 $71,672 $30,424
Gross profit 10,735 25,408 10,176
Net earnings 773 8,770 1,115
5. Other Investments
In 1993, the Company's Italian subsidiary, Lowara S.p.A., entered into a
financial contract with a major Italian insurance company. The proceeds from
short-term loans were invested in four long-term insurance certificates to take
advantage of tax rate differentials. Subsequent to the 1994 year-end of Lowara,
the short-term loans were converted to long-term variable rate debt in order to
more closely match the maturity of the debt with that of the investments. The
financing for the investments was obtained from a related company of the major
Italian insurance company, and the certificates are guaranteed as collateral.
Although the certificates may be redeemed at any time, at carrying value plus
accrued interest, management has the ability and intends to hold the investment
until maturity. Two certificates mature in 1998 for $2,600, a third matures in
2003 for $1,949, and the fourth certificate matures in 2008 for $1,949.
6. Property, Plant and Equipment
Major classes of property, plant and equipment consist of the following:
December 31, 1994 1993
Land and buildings $ 55,168 $ 51,605
Machinery and equipment 330,008 310,460
385,176 362,065
Less accumulated depreciation 232,387 213,092
$152,789 $148,973
7. Stock Option Plans
The shareholders approved the 1994 Incentive Plan to Increase Shareholder
Value (1994 Incentive Plan) and the 1994 Incentive Plan for Non-Employee
Directors (1994 Plan) at the 1994 Annual Meeting.
The 1994 Incentive Plan provided an additional 1,000,000 shares for
options, as well as stock appreciation rights, restricted stock, and performance
units and/or shares to be granted to officers and other key employees of the
<F50>
Company until May 2004. The price for stock option grants may not be less than
100% of the fair market value of the shares on the date of grant. No options
were outstanding at December 31, 1994.
The 1994 Plan provides up to 175,000 shares to be granted to Directors of
the Company who are not employees of the Company or any affiliate until May
2004, or the day after the 2004 Annual Meeting. This Plan replaces the portion
of the 1988 Stock Incentive Plan that related to non-employee Directors.
Beginning in 1994, each non-employee Director will receive a Nonstatutory Option
of 1,500 shares, and the price will be 100% of the fair market value of the
shares on the date of grant. Grants for 13,500 shares were outstanding at
December 31, 1994, none of which were exercisable at that date.
The Company has one additional stock option plan, approved prior to 1994,
from which key employees may be granted options to purchase shares of the
Company's common stock at 100% of the market price on the date of grant.
A maximum of 1,500,000 shares was authorized to be granted under the 1988
Stock Incentive Plan during the period ending May 1998. Grants for 971,308
shares were outstanding at December 31, 1994, of which 326,305 shares were
exercisable at that date. An additional 217,900 shares were granted in January
1995.
A maximum of 1,000,000 shares was authorized to be granted under the 1981
Incentive Stock Option Plan during the period ended April 1992. Grants for
208,373 shares were outstanding at December 31, 1994, of which 195,157 were
exercisable at that date.
The following table summarizes stock option activity for the three years
ended December 31, 1994:
Price Range
Shares Per Share
Outstanding, January 1, 1992 899,244 $15.00 - 24.63
Granted 236,330 $23.25 - 24.63
Exercised (225,607) $15.00 - 24.63
Cancelled (34,972) $15.50 - 24.13
Outstanding, December 31, 1992 874,995 $15.00 - 24.63
Granted 233,579 $23.63 - 25.00
Exercised (78,740) $15.00 - 24.13
Cancelled (99,865) $18.13 - 24.88
Outstanding, December 31, 1993 929,969 $15.00 - 25.00
Granted 339,165 $20.50 - 24.88
Exercised (42,681) $15.00 - 24.13
Cancelled (33,272) $21.00 - 24.88
Outstanding, December 31, 1994 1,193,181 $15.50 - 25.00
<F50>
8. Debt and Credit Agreements
Debt consists of the following:
December 31, 1994 1993
Foreign unsecured short-term loans
9.44% weighted average
at December 31, 1994, due 1995 $ 9,859 $26,911
Unsecured committed lines of credit
Variable, due 1995, 6.35% at
December 31, 1994 559 9,520
Foreign unsecured long-term note payable
Variable, 8.0% at December 31, 1994 15,315 --
Foreign long-term notes payable
4.0%-11.55%, due 1995-2014 21,520 8,671
Industrial revenue bonds
5.0%, due 1995-2006 1,534 1,632
Variable, due 2009, 5.75%
at December 31, 1994 1,850 1,850
Revolving credit agreement
Variable, expires 1999 -- --
Variable, expires 1994 -- 5,000
Unsecured committed credit facilities
3.39%, due 1995 1996 10,000 7,869
3.54%, due 1996 8,083 --
Term loans
7.18%, due 1996-2000 20,000 20,000
Other borrowings
4.0%, due 1995-1998 82 5,447
Capital leases
9.35% weighted average at
December 31, 1994, due 1995-1997 258 452
89,060 87,352
Less payments due within one year 35,304 48,493
$53,756 $38,859
The Company has $59,441 of short- and long-term unused committed credit
lines available with U.S. banks at money market rates of interest. Foreign
subsidiaries have unused short-term credit lines available at prevailing
interest rates in the amount of $35,875.
Under the Company's short-term borrowing agreements with financial
institutions, the highest month-end balance was $38,741 and $42,651, the
weighted average month-end outstanding balance was $31,693 and $32,348, and the
weighted average interest rate was 8.49% and 6.41% for 1994 and 1993,
respectively. The weighted average interest rate on short-term borrowings at
December 31, 1994 and 1993 was 9.64% and 6.39%, respectively.
The Company's Canadian subsidiary borrowed $15,315 in December 1994 from
a Canadian financial institution under an unsecured long-term agreement to
finance a portion of the purchase of Vogel. During January 1995, the Company
paid the balance of the borrowing mostly from available cash resources and a
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smaller portion from short-term committed credit lines; therefore, the balance
has been classified as a current portion of long-term debt in the accompanying
consolidated balance sheet.
Subsequent to the year-end of Lowara, S.p.A., two separate long-term
borrowing agreements were entered into. Short-term financing for the purchase
of an investment in insurance certificates was converted to long-term variable
rate debt, in the amount of $6,498 in order to more closely match the maturity
of the debt with that of the investment. The Company's subsidiary also obtained
$5,199 long-term variable rate debt for expansion of plant and equipment.
Short-term borrowings of $11,697 have been reclassified as long-term debt in the
accompanying consolidated balance sheet, and included in the balance of foreign
long-term notes payable.
The Company's European subsidiaries have $13,073 in long-term notes payable
for which certain of the subsidiaries' fixed assets are pledged as collateral.
The investment in insurance certificates is guaranteed as collateral for the
related debt financing the investment.
The Company's Industrial Development Revenue Bond financing is
collateralized by certain property.
On October 31, 1994, the Company's Revolving Credit Agreement expired. The
expired Revolving Credit Agreement permitted borrowings up to $30,000. In
October 1994, the Company entered into a new revolving credit agreement that
permits borrowings up to $55,000, at the Company's election, under several
interest rate options, which are reflective of current rates. Under the new
agreement, the highest level of revolving credit borrowings was $10,000,
averaged $7,657, with a weighted average interest rate of 5.31%. The highest
level of borrowing under the expired Revolving Credit Agreement during 1994 was
$30,000; 1993 - $30,000; 1992 - $27,500. Borrowings under the expired agreement
averaged $24,281 for 1994, with a weighted average interest rate of 4.33%;
1993 - $22,927, at 3.45%; 1992 - $16,000, at 4.10%.
During 1993 and 1994, the Company borrowed funds through a $10,000
unsecured committed credit facility. In 1994, the Company entered into another
$10,000 unsecured committed credit facility. The purpose of the facilities is
to finance the import of product from the Company's Italian subsidiary.
On August 3, 1993 the Company borrowed $20,000 on a long-term note, with
annual principal installments, commencing in 1996.
The Company's borrowing agreements impose certain financial restrictions
on the Company relative to leverage, interest coverage, working capital, and
tangible net worth. The Company was in compliance with these restrictions at
December 31, 1994.
Debt maturities during the next five years are $35,304 in 1995, $17,039 in
1996, $5,900 in 1997, $8,774 in 1998, and $5,781 in 1999.
9. Financial Instruments and Derivative Financial Instruments
Concentrations of Credit Risk. Financial instruments that potentially subject
the Company to concentrations of credit risk consist principally of temporary
cash investments and trade receivables. The Company places its temporary cash
investments with creditworthy financial institutions and limits the amount of
credit exposure to any one financial institution. The Company actively
evaluates the creditworthiness of the financial institutions with which it
invests. Concentrations of credit risk with respect to trade receivables are
limited due to the large number of customers constituting the Company's customer
base and their dispersion across different businesses and geographic areas.
Letters of credit are the principal security obtained to support lines of credit
or negotiated contracts when the financial strength of a customer is not
considered sufficient. At December 31, 1994 and 1993, the Company had no
significant concentrations of credit risks.
Letters of Credit. At December 31, 1994 and 1993, the Company had letters of
credit outstanding totalling $5,212 and $5,356, respectively, which guarantee
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various trade activities. The contract amount of the letters of credit is fixed
over the life of the commitment and is the amount at which settlement of the
obligation would occur with the counterparty. The Company recognizes losses on
these commitments as incurred. No material losses on these commitments have
been incurred, nor are any anticipated.
Foreign Exchange Risk Management. The Company operates internationally, giving
rise to significant exposure to market risks from changes in foreign exchange
rates. Foreign exchange forward contracts, with fixed dates of maturity and
exchange rates, are utilized by the Company to reduce this risk. The Company
does not hold or issue financial instruments for trading purposes and only
contracts with high quality financial institutions. If the counterparties to
the exchange contracts, investment grade foreign and domestic banks, do not
fulfill their obligations to deliver the contracted foreign currencies, the
Company could be at risk for fluctuations, if any, required to settle the
obligations.
The Company held foreign exchange forward contracts for the notional amounts as
follows:
December 31, 1994 1993
Buy Sell Buy Sell
Canadian dollars $15,729 $12,518 $ -- $9,744
Italian lire 10,071 274 -- --
Other 90 -- 253 150
$25,890 $12,792 $253 $9,894
Fair Value $25,501 $12,515 $248 $9,793
The Company entered into these foreign exchange forward contracts to hedge
certain firm purchase, sale, and financing commitments denominated in foreign
currencies. The term of the derivatives is less than or equal to one year.
At December 31, 1994 and 1993, the Company had deferred unrealized gains and
(losses) of $361 and $(472), and $137 and $(42), respectively, which are
amortized within one year. The Company had neither deferred realized gains or
(losses) at December 31, 1994 and 1993. At December 31, 1994 and 1993, the fair
value of the foreign exchange forward contracts are estimated based on dealer-
quoted prices.
Fair Value of Financial Instruments. The carrying amounts and estimated fair
values of the Company's financial instruments are summarized as follows:
December 31, 1994 1993
Estimated Estimated
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
Other investments $6,498 $6,498 $6,074 $6,074
Note receivable -- -- 4,000 4,000
Liabilities:
Short-term borrowings 10,418 10,418 41,571 41,571
Long-term debt 78,384 76,508 45,329 45,720
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The methods and assumptions used to estimate the fair values of financial
instruments are summarized as follows:
Other investments: The carrying value of the investments in insurance
certificates approximates fair value since the certificates are redeemable at
any time for carrying value, plus accrued interest.
Note receivable: At December 31, 1993, the Company held a note receivable from
Wheatley TXT Corporation for $4,000, with a variable interest rate. The non-
current portion of the note receivable, $3,000, was included in other assets.
During 1994, the note was paid in full.
Short-term borrowings: The carrying value of short-term borrowings approximates
fair value due to the short-term maturities of these instruments.
Long-term debt: The carrying value of long-term debt excludes $258 and $452 of
obligations under capital leases at December 31, 1994 and 1993, respectively.
The carrying values of credit facilities with variable rates of interest
approximates fair values. The fair value of fixed rate debt was estimated by
discounting cash flows using rates currently available for debt of similar terms
and remaining maturities.
10. Unusual Charges
Provision for Environmental Litigation. On April 18, 1994, the Attorney General
of California and two environmental groups filed separate complaints in the
Supreme Court of the State of California for Alameda County against the Company
and certain other submersible pump manufacturers alleging the unlawful discharge
of lead into sources of drinking water through leaching from pumps manufactured
by the Company and such other manufacturers, as well as failure to warn
consumers of potential exposure to lead. The complaints seek various remedies
including civil penalties.
On April 28, 1994, a complaint was filed against the Company and its then
President in Federal Court for the Western District of New York, alleging
violation of U.S. securities laws and common law fraud. The complaint seeks
certification of a class of plaintiffs consisting of all purchasers of the
Company's common stock during the period March 29, 1993 through April 20, 1994,
inclusive. The complaint seeks, among other remedies, damages in an unspecified
amount, allegedly suffered by the putative class from a decrease in the market
price of the Company's common stock on April 20, 1994 after the filing of the
litigation described above.
A fourth complaint, filed on May 3, 1994, in the Superior Court of
Washington for King County alleging a class action against the Company was
dismissed during 1994.
In 1994, a charge of $3,454 pre-tax was recorded for legal and other fees
related to the Company's vigorous defense of the lawsuits commenced in 1994
arising from the sales of submersible pumps with brass or bronze components.
This charge includes the establishment of a $2,200 reserve to cover revised
estimates of future legal costs to pursue that defense. At December 31, 1994,
the remaining reserve was $1,883. Although the Company believes the reserve is
adequate based on current estimates, it is possible that the range of such costs
and related expenses could exceed the reserve by as much as $1,000. There has
not been, nor does the Company currently anticipate, any material impact on
sales or inventories resulting from these lawsuits.
The Company intends to vigorously defend all of the pending litigation, as
well as any additional lead-related litigation that may be commenced, but no
assurance can be given as to the ultimate outcome of such litigation or its
impact on the Company. If the Company were ultimately determined to be liable
for the damages alleged in such litigation, the claims against the Company could
be substantial. The Company's insurance carriers have presently disclaimed
coverage for any liability resulting from this litigation. However, all pending
lead-related litigation is at a preliminary stage, and it is not possible at
this time for the Company to quantify any potential civil penalties, damages,
and other relief sought by the various plaintiffs or to determine the extent of
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its liability, if any.
Restructuring Charges. In the fourth quarter of 1994, the Company executed a
restructuring plan to align its continuing global operations with management's
long-term objectives. As a result, a restructuring charge of $3,463 and a
related liability for such costs were recorded in the Company's consolidated
financial statements in the fourth quarter. The restructuring plan included the
downsizing of the Company's California, Netherlands, and Mexican based
operations and the consolidation of sales offices, PRO Service Centers, and
other Company facilities. As a result, the related cost to exit owned and
leased facilities was $1,036. The restructuring included the termination of
149 employees from manufacturing, selling, and general and administrative
departments. The related termination benefits included in the restructuring
charge were $2,427. Although only a small portion of these costs have been
expended in 1994, the restructuring plan is expected to be significantly
completed by the end of 1995.
During 1992, the Company also recorded the impact of a restructuring program
that included $2,940 related to the early retirement of employees and $3,360 for
the relocation of certain product lines and the centralization of contract
engineering for high-specification products to better meet customer
requirements. The aggregate restructuring program costs are shown as a
separate line item in the accompanying consolidated statement of earnings and
resulted in a pre-tax charge of $6,300 ($.19 per share after-tax) in 1992.
During 1993, the restructuring program was substantially completed.
Mexican Accounting Irregularities. In late December 1994, the Company uncovered
$3,245 pre-tax of accounting irregularities at its Mexican subsidiary. These
amounts were included in fourth quarter results. The irregularities related to
a manipulation of accounting records by personnel at the location but involved
little, if any, misappropriation of funds. The Company has discharged those
persons responsible for the irregularities and has taken the appropriate steps
to help ensure that internal controls and procedures are consistently followed.
Correction of these irregularities on a pre-tax basis in 1994 decreased net
sales by $2,219, increased cost of goods sold by $1,002 and increased selling,
general and administrative expenses by $24. The portion of the irregularities
that occurred in 1993 and prior years combined with other prior year adjustments
(totalling $1,143 after-tax) is immaterial to the 1993 financial statements and
has been recognized as an adjustment to first quarter 1994 reported results.
Quarterly results for 1994 on an after-tax basis have been restated to reflect
the following adjustments:
First Second Third Fourth
Quarter Quarter Quarter Quarter
Net sales $(2,560) $ (63) $ 515 $ 2,108
Cost of sales (434) 754 606 (926)
Selling, general and
administrative expenses 68 -- -- (68)
Earnings before income taxes (2,194) (817) (91) 3,102
Income taxes (678) -- -- 678
Net earnings $(1,516) $(817) $ (91) $2,424
Net earnings (loss) per share $ (.07) $(.04) $(.01) $ .12
The fourth quarter adjustment reflects the reversal of the adjustments
previously recorded.
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11. Income Taxes
The components of the provision for income taxes are as follows:
1994 1993 1992
Current:
Federal (U.S.) $11,199 $ 6,049 $11,363
State 2,225 1,565 2,544
Foreign 3,658 4,825 6,375
Deferred:
Federal (U.S.) (4,700) (2,548) (6,119)
State (488) (5) (905)
Foreign (452) 955 718
Provision for income taxes $11,442 $10,841 $13,976
Reconciliations of the U.S. statutory tax rate with the effective tax rates
reported for continuing operations are as follows:
1994 1993 1992
U.S. statutory rate 35.0% 35.0% 34.0%
Foreign taxes in excess of U.S. statutory
rate, net of U.S. credits 4.5 2.0 7.6
State taxes-net 3.8 2.9 3.0
U.S. benefits of foreign sales corporation (2.3) (2.0) (1.5)
Deferred income tax rate changes -- (2.2) --
Other-net (2.4) (4.2) (4.1)
Effective tax rate 38.6% 31.5% 39.0%
The net deferred tax asset components under SFAS No. 109 are as follows:
December 31, 1994 1993 1992
Deferred tax assets:
Postretirement benefits other than pensions $18,870 $19,517 $17,986
Other nondeductible liabilities and reserves 4,502 4,054 3,195
Tax credit carryforwards 1,738 2,589 905
Workers' compensation and other claims 2,506 2,488 1,439
Accrued vacation pay 901 2,191 2,162
Deferrals under state jurisdictions-net 1,948 1,839 1,880
Deferrals under foreign jurisdictions 4,375 1,448 1,925
Pension benefits 1,729 1,240 1,326
Miscellaneous 366 384 662
Inventories 327 775 1,444
Gross deferred tax assets 37,262 36,525 32,924
Valuation allowance for deferred tax assets (2,955) (1,782) (905)
Deferred tax liabilities:
Property, plant and equipment (10,298) (10,895) (10,334)
Deferrals under foreign jurisdictions (5,112) (5,701) (6,951)
Other assets and miscellaneous (2,430) (4,111) (3,307)
Deferred gain on Wheatley Gaso transactions (561) (748) (909)
Gross deferred tax liabilities (18,401) (21,455) (21,501)
Net deferred tax asset $15,906 $13,288 $10,518
Earnings before income taxes resulting from non-U.S. operations for 1994,
1993, and 1992 are $1,315, $10,359, and $13,412, respectively.
As discussed in Note 1, the Company adopted SFAS No. 109 as of January 1,
1992. The cumulative effect of this accounting change for income taxes is not
significant and, hence, prior years' financial statements have not been restated
to apply the provisions of SFAS No. 109.
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The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. Such returns have been audited and settled through the year
1989.
The valuation allowance for deferred tax assets increased by $1,173 in
1994.
At December 31, 1994, the Company has foreign tax credit carryforwards of
$1,738 that will expire at the end of the following years if not otherwise
utilized: $281 - 1997 and $1,457 - 1998.
12. Employee Benefit Plans
Pension Plans
The Company has several defined benefit pension plans covering
substantially all domestic employees. Plans covering salaried exempt employees
provide pension benefits based upon final average salary and years of service.
Benefits to other employees are based on a fixed amount for each year of
service. During the fourth quarter of 1992, the Company offered an early
retirement program to employees meeting certain age and service requirements.
The additional expense has been recorded as part of the 1992 net pension cost
shown below. The cost of this program is included in the restructuring costs
recorded by the Company (see Note 10). The Company's funding policy is to
contribute annually an amount that falls within the range determined to be
deductible for federal income tax purposes. Plan assets consist primarily of
listed stocks and bonds.
Net pension cost includes the following components:
1994 1993 1992
Service cost $3,855 $3,668 $2,815
Interest cost 7,194 6,968 5,965
Actual return on plan assets 1,825 (11,447) (6,442)
Net amortization and deferral (9,854) 4,562 (128)
Early retirement plan -- -- 2,940
Net pension cost $3,020 $3,751 $5,150
<F50>
The following table sets forth the plans' funded status and the amounts
recognized in the Company's consolidated financial statements:
Plans where Plans where
assets exceed accumulated
accumulated benefits
benefits exceed assets
December 31, 1994 1993 1994 1993
Actuarial present value of
benefit obligations:
Vested benefit obligation $53,073 $43,344 $22,629 $38,196
Accumulated benefit obligation $54,182 $44,898 $22,855 $41,374
Projected benefit obligation $63,768 $56,012 $23,074 $42,343
Plan assets at fair value 65,070 52,019 21,038 35,608
Plan assets net of projected
benefit obligation (1,302) 3,993 2,036 6,735
Unrecognized net gain or (loss) 7,240 2,607 975 (2,746)
Unrecognized prior service cost (2,315) (534) (4,548) (5,976)
Unrecognized net asset 1,937 934 920 2,316
Adjustment required to recognize
minimum liability -- -- 2,657 6,410
Accrued pension liabilities $ 5,560 $ 7,000 2,040 $6,739
In determining the actuarial present value of the projected benefit
obligation, the weighted average discount rate was 9.0% and 7.5% as of December
31, 1994 and 1993, respectively; the rate of increase in future compensation
levels was 5% as of December 31, 1994 and 1993, and the expected long-term rate
of return on assets was 9% as of December 31, 1994 and 1993.
As is required by SFAS No. 87, "Employers' Accounting for Pensions," for
plans where the accumulated benefit obligation exceeds the fair value of plan
assets, the Company has recognized in the accompanying consolidated balance
sheets the minimum liability of the unfunded accumulated benefit obligation as
a long-term liability with an offsetting intangible asset and equity adjustment,
net of tax impact. As of December 31, 1994 and 1993, this minimum liability
amounted to $2,657 and $6,410, respectively. The adoption of these provisions
had no impact on net earnings or cash flow.
Lowara S.p.A. is required by Italian law to provide a lump sum severance
payment to personnel upon termination of employment. The amounts are subject to
annual revaluation on the basis of indices. The provision for employee
severance amounted to $1,898 in 1994, $1,873 in 1993, and $2,059 in 1992,
resulting in total reserve balances of $9,504 at December 31, 1994, $7,772 at
December 31, 1993, and $8,334 at December 31, 1992. This reserve reflects the
amounts accrued at year-end for each employee in accordance with the law and
labor contracts.
Postretirement Benefits Other Than Pensions
In addition to providing pension benefits, the Company and its subsidiaries
provide certain health care and life insurance benefits for retired employees.
Certain domestic employees may become eligible for these benefits if they retire
from the Company with 10 years of service and have reached age 55. The benefit
amount is determined based on the age and length of service of the employee at
retirement. The plan is currently unfunded, and the Company has the right to
modify or terminate the plan in the future.
<F50>
In the fourth quarter of 1992, the Company adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other than Pensions,"
requiring the accrual method of accounting for these benefits effective January
1, 1992. As permitted by SFAS No. 106, the Company elected to recognize the
transition obligation as of the adoption date. The Company restated 1992 first
quarter operations to record a pre-tax charge of $47,978 ($29,746 after-tax or
$1.42 per share) as a cumulative effect of an accounting change at that date.
Net postretirement benefit cost includes the following components:
1994 1993
Service cost on benefits earned during the period $1,335 $1,440
Interest cost on accumulated benefit obligation 3,819 4,026
Amortization of plan amendments (645) (598)
Net postretirement benefit cost $4,509 $4,868
Retirement medical costs decreased primarily due to cost reductions
resulting from amendments to Company-sponsored medical plans. The unamortized
amounts for plan amendments, set forth in the table below, represent the
accumulated cost reductions resulting from these amendments. The amortization
of these amounts will reduce retirement medical costs over the next 12 years.
The accumulated postretirement benefit obligation, included in the
accompanying consolidated balance sheets, is comprised of the following:
December 31, 1994 1993
Retirees $21,821 $25,869
Active, eligible employees 4,344 5,434
Active, non-eligible employees 11,925 19,132
Unrecognized gain (loss) 8,504 (3,007)
Unrecognized prior service cost 7,319 8,362
Accrued postretirement benefit obligation $53,913 $55,790
In determining the accrued postretirement benefit obligation as of December
31, 1994 and 1993, weighted average discount rates of 9.25% and 7.75% and
medical care cost trend rates of 11% and 12%, respectively, were used. The
medical care cost trend rates used in the actuarial computations were reduced by
1% per year to 5% by 2001 as of December 31, 1994 and 1993. The effect of a one
percentage point increase in the assumed medical care cost trend rate would have
increased the 1994 and 1993 service and interest components of the net
postretirement benefit cost by $713 and $925, respectively, and the accrued
postretirement benefit obligation at December 31, 1994 and 1993, by $6,563 and
$6,400, respectively.
In 1994, the Company revised the non-union eligibility requirements for
postretirement medical and life coverage from the attainment of age 55 and 10
years of service, to attainment of age 55 and 10 years of service after
attaining age 45. This change reduces the end of year accumulated
postretirement benefit obligation by $3,794.
The plan amendment also meets the definition of a curtailment because non-
union employees under age 45 are not considered active plan participants. This
results in a curtailment gain of $4,191 that is determined by accelerating the
recognition of the remaining unrecognized prior service cost related to those
employees' future years of service. This curtailment gain is reflected in the
consolidated statement of earnings as a component of Other (income) expense-net.
<F50>
Postemployment Benefits
In the fourth quarter of 1993, the Company adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," requiring the accrual
method of accounting for certain of these benefits effective January 1, 1993.
The Company restated 1993 first quarter operations to record a pre-tax charge of
$1,579 ($1,026 after-tax or $.05 per share) as a cumulative effect of accounting
change at that date. Previously, the Company recognized postemployment benefit
costs when paid. The annual incremental cost of adopting SFAS No. 112 is
immaterial on an on-going basis.
13. Commitments and Contingencies
During 1991, the Company recorded a $2,000 provision for estimated
environmental costs. This charge reflects anticipated costs to monitor and
remediate an inactive Company landfill site in Seneca Falls, New York. At
December 31, 1994, the remaining reserve, classified as a current liability, was
$1,795. No third-party recoveries have been included in the determination of
this reserve, nor are any expected. The remediation is expected to be completed
in 1995 or early 1996, and the Company does not currently expect any additional
material costs in future years associated with this site.
The Company has various noncancellable lease agreements for sales offices,
warehouses, computers, and other equipment. Total rental expense for the years
ended December 31, 1994, 1993, and 1992 was $5,088, $5,010, and $4,913,
respectively. Future minimum rental payments at December 31, 1994, are as
follows:
1995 $3,430 1998 $1,260
1996 2,165 1999 1,098
1997 1,601 2000 and after 1,372
<F50>
14. Major Market Segment Information
<TABLE>
<CAPTION>
The Company operates in two major market segments, Industrial Products and Water Technologies. The Industrial Products
segment produces and sells pumps used in various industries including pulp and paper, chemical processing, petrochemical,
food and beverage, oil, mining, municipal, and electric utility and provides parts and repair services for various types of
pumps and other rotating equipment. The Water Technologies segment produces and sells pumps for residential, farm,
irrigation, and commercial/light industrial use. Intersegment sales and sales between geographic areas are not material.
1994 19931 1992
Net sales:
<S> <C> <C> <C>
Industrial Products $323,254 $316,125 $337,317
Water Technologies 262,222 239,567 221,586
Total net sales $585,476 $555,692 $558,903
Operating earnings:
Industrial Products $ 18,224 2 $ 18,497 $ 23,847
Water Technologies 20,896 2 21,122 21,369
Total operating earnings 39,120 39,619 45,216
General corporate expenses 7,083 5,631 5,871
Interest expense-net 3,515 3,494 3,591
Other (income)-net (1,121) (3,921) (75)
Earnings before income taxes
and cumulative effect of
accounting changes $ 29,643 $ 34,415 $ 35,829
Identifiable assets:
Industrial Products $205,079 $219,129 $223,533
Water Technologies 214,356 186,991 161,720
Investments in affiliates 1,178 12,774 12,735
Investment in Vogel 17,800 -- --
General corporate assets 18,828 19,608 20,769
Total assets $457,241 $438,502 $418,757
Geographic Areas
Net sales:
United States $428,002 $404,014 $398,252
Europe 99,613 95,569 105,642
Other foreign 57,861 56,109 55,009
Total net sales $585,476 $555,692 $558,903
Operating earnings:
United States $ 36,181 $ 28,575 $ 29,101
Europe 5,390 7,196 9,273
Other foreign (2,451) 3,848 6,842
Total operating earnings 39,120 39,619 45,216
General corporate expenses 7,083 5,631 5,871
Interest expense-net 3,515 3,494 3,591
Other (income)-net (1,121) (3,921) (75)
Earnings before income taxes
and cumulative effect of
accounting changes $ 29,643 $ 34,415 $ 35,829
Identifiable assets:
United States $243,220 $258,780 $238,879
Europe 137,540 108,918 107,717
Other foreign 38,675 38,422 38,657
Investments in affiliates 1,178 12,774 12,735
Investment in Vogel 17,800 -- --
General corporate assets 18,828 19,608 20,769
Total assets $457,241 $438,502 $418,757
</TABLE>
<TABLE>
<CAPTION>
Other Information Depreciation Property Additions Export Sales
1994 1993 1 1992 1994 1993 1 1992 1994 1993 1 1992
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Industrial Products $14,901 $14,474 $14,630 $11,893 $11,414 $25,818 $45,328 $51,894 $48,290
Water Technologies 9,698 9,952 8,842 15,456 13,100 13,433 12,851 10,316 9,914
Corporate 326 362 347 731 136 753 -- -- --
$24,925 $24,788 $23,819 $28,080 $24,650 $40,004 $58,179 3 $62,210 $58,204
<F54>
1 Prior to 1993, the Ag Turbine portion of the Vertical Products Division in Texas was part of the In
Group. In 1993, it became part of the Water Technologies Group.
2 Includes the impact of the restructuring charge (IPG - $3,332; WTG - $127) and the provision for en
litigation (WTG - $3,454).
3 Represents sales from the United States to external customers in Europe, the Middle East, and Afric
America of $19,354; Asia Pacific of $20,449; and other foreign locations of $963.
</TABLE>
<F50>
15. Quarterly Financial Data
(Unaudited)
Quarter ending 3/31/94 * 6/30/94 * 9/30/94 * 12/31/94 * Year
Net sales $136,645 $150,128 $154,858 $143,845 $585,476
Gross profit 37,848 44,289 44,359 40,594 167,090
Net earnings 3,817 5,497 5,139 3,748 18,201
Net earnings per share .18 .26 .24 .18 .86
Dividends per share .20 .20 .20 .20 .80
Quarter ending 3/31/93 6/30/93 9/30/93 12/31/93 Year
Net sales $124,402 $152,424 $149,895 $128,971 $555,692
Gross profit 35,568 44,524 43,161 33,065 156,318
Earnings before
cumulative effect
of accounting
change 3,406 8,208 8,591 3,369 23,574
Cumulative effect of
accounting change (1,026) -- -- -- (1,026)
Net earnings 2,380 8,208 8,591 3,369 22,548
Net earnings (loss) per share:
Earnings before cumulative
effect of accounting
change .16 .39 .41 .16 1.12
Cumulative effect of
accounting change (.05) -- -- -- (.05)
Net earnings per share .11 .39 .41 .16 1.07
Dividends per share .20 .20 .20 .20 .80
* Reflects the restatement for the adjustment of accounting irregularities
at the Company's Mexican subsidiary of $2,567 after-tax. See Note 10 for
detailed information.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pages 1 through 3 of the Proxy Statement contain information
concerning directors which is incorporated herein by reference.
Information concerning executive officers is included in Part I of
this Form 10-K Annual Report, following Item 1.
ITEM 11. EXECUTIVE COMPENSATION
Pages 3, and 7 through 15 of the Proxy Statement contain
information concerning executive compensation which is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Page 5 of the Proxy Statement contain information concerning
ownership of the Company's common stock which is incorporated
herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pages 6 and 12 of the Proxy Statement contain information
concerning transactions with directors and others which is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) (1) Financial Statements:
The financial statements of the Company are included in Part
II, Item 8.
Page in
Form 10-K
(2) Independent Auditors' Report on Financial
Statement Schedules 54
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The following schedules are included in this
Form 10-K Annual Report:
VIII - Valuation and Qualifying Accounts 55
All other Financial Statement Schedules are omitted because
they are not applicable or the required information is shown
in the Consolidated Financial Statements.
(b) Reports on Form 8-K:
Two reports on Form 8-K were filed during the fourth quarter
of the year ended December 31, 1994:
* Report on Transfer of Control of Oil Dynamics, Inc. dated
November 28, 1994
* Report on Purchase of Pumpenfabrik Ernst Vogel, AG dated
December 5, 1994 and amended on February 17, 1995.
(c) Exhibits:
Exhibit Number Description of Exhibits
(3) Articles of Incorporation and By-Laws:
* Restated Certificate of Incorporation filed May 6, 1985
(Exhibit 19 to Form 10-Q for the period ending June 30,
1985).
* Amendment to the Certificate of Incorporation, (the
Company's definitive Proxy Statement for its Annual
Meeting of Stockholders held on May 4, 1988, copies of
which were filed with the Commission on April 11, 1988,
wherein said amendment is identified as exhibit (B)).
* Amendment to the Certificate of Incorporation as filed by
the Delaware Secretary of State on May 31, 1989 (Exhibit
(a), Form 10-Q for the quarter ended June 30, 1989).
* By-Laws (Appendix C of the 1984 Proxy Statement).
* Amendment to the Company's By-Laws (Proxy Statement for
its Annual Meeting of Stockholders held on May 4, 1988,
copies of which were filed with the Commission on April
11, 1988, wherein said amendment is identified as exhibit
(C)).
(10) Material Contracts:
(iii) Compensatory Plans for Officers and Directors:
Severance Agreement dated August 23, 1994 between Goulds
Pumps, Incorporated, and Stephen V. Ardia (see index to
exhibits on page 56 of this report on Form 10-K).
Memorandum of Understanding dated June 27, 1994 between
Goulds Pumps, Incorporated, and Thomas C. McDermott (see
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index to exhibits on page 56 of this report on Form 10-
K).
Goulds Pumps, Incorporated Supplemental Benefit Plan for
Non-Employee Directors and Goulds Pumps, Incorporated
Retirement Plan for Non-employee Directors, both
effective June 21, 1994 (see index to exhibits on page 56
of this report on Form 10-K).
* Goulds Pumps, Incorporated 1994 Incentive Plan to
Increase Stockholder Value, effective on May 4, 1994
(filed as Exhibit A on page 19 of Proxy Statement dated
March 31, 1994).
* Goulds Pumps, Incorporated 1994 Stock Option Plan for
Non-Employee Directors, effective on date May 4, 1994
(filed as Exhibit B on page 35 of Proxy Statement dated
March 31, 1994).
* Goulds Pumps, Incorporated Supplemental Executive Pension
Plan, effective January 1, 1992 (filed as Exhibit 10 on
page 29 of Form 10-K for year ended December 31, 1991).
* Goulds Pumps, Incorporated Senior Executive Severance
Agreement, effective May 12, 1983 (Exhibit 19, Form 10-Q
for quarter ended June 30, 1983).
* Goulds Pumps, Incorporated Investment and Stock Ownership
Plan (filed on May 8, 1984, Form S-8, Registration
Statement No. 2-90969).
* Goulds Pumps, Incorporated Revised Incentive Stock Option
Plan, effective March 19, 1987 (Form S-8 Registration
Statement No. 2-78145, filed on June 25, 1982.
Appendices No. 1 and No. 2 to the prospectus filed with
SEC on June 8, 1983 and May 8, 1987 respectively).
* Goulds Pumps, Incorporated Stock Purchase Plan for
Employees (Form S-8 Registration Statement No. 2-64530,
filed on May 21, 1979).
* Goulds Pumps, Incorporated 1988 Stock Incentive Plan
(Form S-8 Registration Statement No. 33-22902 filed on
July 5, 1988).
(11) Computation of Earnings Per Share:
See page 78 of this Annual Report on Form 10-K.
(22) Subsidiaries of the Registrant:
See page 79 of this Annual Report on Form 10-K.
(23) Consents of Experts and Counsel:
For Consent of Independent Auditors see page 80 of this
Annual Report on Form 10-K.
(27) Financial Data Schedule (filed electronically only).
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All other exhibits are omitted because they are not
applicable or the required information is shown
elsewhere in this Annual Report on Form 10-K.
* Incorporated herein by reference to the filed document
indicated in parenthesis.
UNDERTAKINGS
The Company, being the registrant under Registration Statement
Nos. 2-64847, 2-64530, 2-78145, 2-90969, 33-22902, 33-54419, and
33-54437 on Form S-8, currently on file with the Securities and
Exchange Commission, hereby undertakes as follows, which
undertaking shall be incorporated by reference into such
Registration Statements:
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant, the registrant has
been advised that, in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
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INDEPENDENT AUDITORS' REPORT
Goulds Pumps, Incorporated:
We have audited the consolidated balance sheets of Goulds Pumps,
Incorporated and its subsidiaries as of December 31, 1994 and 1993
and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period
ended December 31, 1994, and have issued our report thereon dated
January 26, 1995; such report is included elsewhere in this Form
10-K. Our audits also included the financial statement schedule of
Goulds Pumps, Incorporated and its subsidiaries, listed in
Item 14(a)2. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is
to express an opinion based on our audits. In our opinion, such
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/Deloitte & Touche LLP
Deloitte & Touche LLP
Rochester, New York
January 26, 1995
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Schedule VIII
GOULDS PUMPS, INCORPORATED AND CONSOLIDATED SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS)
BALANCE ADDITIONS BALANCE
AT BEGINNING CHARGED TO DEDUCTIONS AT END
OF YEAR INCOME (2) (1) OF YEAR
Allowance for Doubtful
Accounts, Deducted from
Trade Receivables:
1994........... $2,177 $1,172 $ 956 $2,393
1993........... $2,408 $ 814 $1,045 $2,177
1992........... $3,009 $ 472 $1,073 $2,408
(1) Accounts written off, less recoveries.
(2) Includes impact of foreign currency translations.
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EXHIBIT 10
A) Severance Agreement dated August 23, 1994 between Goulds
Pumps, Inc. and Stephen V. Ardia (pages 57 through 60)
B) Memorandum of Understanding dated June 27, 1994 between Goulds
Pumps, Inc. and Thomas C. McDermott (pages 61 through 63)
C) GOULDS PUMPS, INC.
Supplemental Benefit Plan for Non-Employee Directors (pages 64
through 70)
D) GOULDS PUMPS, INC.
Retirement Plan for Non-Employee Directors (pages 71 through
77)
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SEVERANCE AGREEMENT
AGREEMENT made as of the 23rd day of August, 1994, between
GOULDS PUMPS, INC., a Delaware Corporation with its principal
office at Seneca Falls, New York ("Goulds") , and STEPHEN V. ARDIA,
residing at 3 West Lake Street, Skaneateles, New York ("SVA").
WHEREAS, SVA has been employed by Goulds as President and
Chief Executive Officer and has served as a Director of Goulds, and
WHEREAS, SVA is desirous of relinquishing his duties and
responsibilities as an Officer and Director of Goulds, and
WHEREAS, Goulds is desirous of retaining the services of SVA
as an employee in another capacity.
NOW, THEREFORE, in consideration of the promises and the
mutual covenants contained herein, it is mutually agreed as
follows:
1. SVA has resigned as an Officer and Director of Goulds,
effective June 22, 1994, provided that SVA's base salary shall be
paid until June 30, 1994. After June 23, 1994, SVA shall remain as
an employee of Goulds on Leave of Absence status without any break
in service until August 31, 1996.
2. Goulds shall pay a monthly salary to SVA at the rate of
$35,084.62 on a semi-monthly basis, beginning July 1, 1994 and
continuing, contingent on compliance by SVA with the conditions
listed below, through August 31, 1996.
3. The foregoing salary obligation of Goulds shall be offset
by the amount of any salary that SVA may receive from another
employer during the Leave of Absence period, it being understood
that, subject to Section 4 below, SVA is free to seek and accept
other employment during the Leave of Absence period.
4. The foregoing salary obligation of Goulds shall cease in
the event that SVA commences employment with or performs consulting
services for a competitor of Goulds. SVA agrees to inform Goulds
of any such prospective employment or consultation in advance and
the decision of Goulds' Board of Directors shall be final as to
whether or not such employment or consultation will activate this
provision.
5. Subject to the provisions of this Section, the foregoing
salary obligation of Goulds is contingent upon Goulds' receipt of
SVA's continued cooperation until the conclusion of all matters,
such as litigation, that are now pending or may reasonably arise in
the future from circumstances occurring during SVA's employment as
President and Chief Executive Officer of Goulds. In the event that
Goulds reasonably believes that SVA is not cooperating in such
matters, Goulds shall promptly give SVA notice of such non-
cooperation specifying in reasonable detail the manner in which
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Goulds believes SVA is not cooperating. SVA shall then have a
period of thirty (30) days to cure the default which Goulds has
detailed. If at the end of said thirty (30) day period SVA has not
cured the said default, Goulds shall have the right to terminate
said payments.
6. SVA will be eligible for 50% of a 1994 Executive
Incentive Plan award based on actual 1994 results that is computed
in the same manner as the awards for the other senior corporate
officers qualified to receive such an award. Payment of the award,
if any, will be made during the first quarter of 1995. SVA will
not be eligible for any other Executive Incentive Plan awards
during the term of this Agreement.
7. Basic Medical, Dental and Executive Health Care
Supplement benefits will continue through the Leave of Absence
period provided the required employee contributions are made. SVA
will be eligible to participate in the Goulds' Retiree Medical Plan
as it may exist on September 1, 1996, provided SVA's employment
does not terminate prior to that date for the reasons set forth in
Sections 4 and 5 above.
8. Coverage under the Executive Security Plan will continue
through the Leave of Absence period and into retirement, as per the
terms of the Plan, provided SVA'S employment does not terminate
prior to September 1, 1996.
9. Existing stock options will continue to vest during the
Leave of Absence period and may be exercised in accordance with the
terms of the applicable Plan provisions. All options that are not
then vested, shall become vested on September 1, 1996, SVA's date
of retirement. The provisions of the 1981 Incentive Stock Plan and
the 1988 Stock Incentive Plan shall apply to said options. SVA
shall not be eligible for any future stock option awards.
10. Upon retirement at age 55, SVA shall be entitled to
receive a total retirement benefit of $13,154.06 per month,
comprised of payments from Pension Plan III and the Supplemental
Executive Pension Plan, based on his selection of the 50% joint and
survivor's annuity benefit. Goulds shall also pay the sum of
$1,461.56 each month to SVA for the rest of his life as an
additional benefit. SVA shall have the right to select a joint and
survivor annuity benefit different than 50%, but such selection
shall not increase the additional monthly payment obligation of
Goulds. Goulds agrees that benefit payable from the SEPP will not
be reduced, provided SVA remains in compliance, during the Leave of
Absence period, with the provisions of the SEPP in effect on June
22, 1994. Notwithstanding the foregoing, in the event that SVA
becomes employed elsewhere, there will be no effect upon the
payments required under this Section, provided only that SVA shall
forfeit any future payments under the SEPP should he become
employed by or consult with a competitor (as determined pursuant to
Section 4 herein), prior to September 1, 1996.
11. Goulds shall also make a monthly "bridge payment" of
$330.14 to SVA commencing on September 1, 1996 and continuing
through August 2003, or the date of his death, whichever occurs
earlier.
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12. The parties agree that SVA's coverage under the Short and
Long-Term Disability Plans and Executive Severance Agreement was
terminated on June 23, 1994.
13. SVA may continue to make contributions to his 401(k)
account and participate in the Tax Preparation and Financial
Planning arrangement during the Leave of Absence period.
14. The payment of SVA's Director's fees that have been
deferred will be made according to SVA's election.
15. SVA may select an Outplacement firm from a list of three
attached hereto as Exhibit "A". Goulds will pay outplacement fees
directly and SVA shall be reimbursed for reasonable expenses such
as travel and telephone that he incurs during the use of the
outplacement services.
16. SVA shall continue to be covered under the applicable
polices of insurance carried by Goulds for circumstances arising
during the period that SVA was employed as the President and Chief
Executive Officer of Goulds.
17. All Country Club of Rochester and car phone charges
billed after July 31, 1994 shall be for the account of SVA. The
American Airlines Airpass membership and miles will be transferred
from SVA to another employee of Goulds' choice. Any outstanding
amounts owed to Goulds in SVA's Personal and Sundry Account as of
August 1, 1994 will be deducted from the next salary payment.
18. As additional consideration for the foregoing obligations
to be performed by Goulds, SVA agrees as follows:
A. Technical and Business Information made known by
Goulds to SVA or discovered by SVA during the course of his
employment is confidential and of substantial value to Goulds.
B. All Technical and Business Information made known or
discovered by SVA shall be held in confidence by SVA until
September 1, 1996.
C. SVA shall not disclose Technical and Business
Information to anyone prior to September 1, 1996, unless he has
received advance written authorization from Goulds.
D. The preceding obligations of SVA shall not apply to
Technical and Business Information generally available to the
public before Goulds' first disclosure to SVA or which subsequently
becomes generally available except by an act of SVA or such
Information that was in SVA's possession prior to its receipt by
Goulds.
19. SVA also agrees and hereby does release Goulds, and its
successors, subsidiaries, affiliates and assigns, and their present
and former officers, directors, agents and employees from all
actions, causes of action, including but not limited to suits,
debts, sums of money, accounts, reckonings, bonds, executions,
claims and demands which SVA, his heirs, successors or assigns ever
had, or has, or hereafter may have against Goulds from the
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beginning of the world to the date of this Agreement including, but
not limited to, all claims for attorney's fees, costs and expenses,
and other actions or claims arising out of or related to SVA's past
employment with Goulds, including liabilities and arising under any
Federal and state employment discrimination laws, but specifically
excluding obligations pursuant to this Agreement.
20. In exchange for a portion of the severance benefits
described herein which are provided as additional consideration,
SVA hereby waives his rights or claims under the Age Discrimination
in Employment Act of 1967 as amended. SVA is hereby advised to
consult with an attorney prior to executing this Agreement. SVA
has at least seven days following the execution of the Agreement
during which SVA may revoke the Agreement and the Agreement will
not become effective or enforceable until the revocation period has
expired.
This Agreement shall be interpreted pursuant to the laws of
the State of New York.
Date: August 25, 1994 /s/ Stephen V. Ardia
Stephen V. Ardia
Date: August 23,1994 Goulds Pumps, Inc.
By: /s/ Thomas C. McDermott
Thomas C. McDermott
President
STATE OF NEW YORK)
COUNTY OF ONONDAGA) ss.:
On the 25th day of August, 1994 before me personally came Stephen
V. Ardia, to me known to be the individual described in and who
executed the foregoing instrument, and acknowledged that he
executed the same.
/s/Lionel R. Whittingham
Notary Public
STATE OF NEW YORK)
COUNTY OF SENECA) ss.:
On the 23rd day of August, 1994 before me personally came Thomas C.
McDermott, to me known who, being by me duly sworn, did depose and
say that he resides at 10 Woods Cove Road, East Orleans, MA, that
he is the President of Goulds Pumps, Inc., the corporation
described in and which executed the foregoing instrument; that he
knows the seal of said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order
of the board of directors of said corporation and that he signed
his name thereto by like order.
/s/ Donna M. Short
Notary Public
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MEMORANDUM OF UNDERSTANDING
June 27, 1994
This Memorandum of Understanding described the compensation and benefit
arrangements for Thomas C. McDermott ("TCM") as President and Chief Executive
Officer for Goulds Pumps, Inc. ("Goulds") effective June 28, 1994.
1. Base Salary
$500,000 annual salary with a review January 1, 1996.
2. Executive Incentive Plan
Participation in the current plan at the current CEO target rate of 55% of
base salary; 1994 goals remain the same as previously approved by the
Board of Directors. 1994 participation is to be judged against full
calendar year 1994 plans. Payment will be prorated per the 1994 EIP Plan
document provision related to time in the job. The prorated payment will
be guaranteed at the higher of the target rate at actual plan results or
the target rate at on-plan (standard) results.
3. Relocation
Relocation of the McDermott residence from Massachusetts to the Rochester,
NY area shall be according to Goulds' relocation policy for transferred
employees. In addition, Goulds will reimburse and gross-up temporary
living expenses from June 28, 1994 through October 31, 1994. Goulds also
agrees to pay 75% of the tax due on the gain resulting from the sale of
the Lincoln, MA house.
4. Club Memberships
Goulds will pay initiation fees and monthly dues for memberships at the
Country Club of Rochester and the Genesee Valley Club.
5. Car
There will be no Company car provided.
6. Stock Options
TCM will be awarded a non-qualified stock option (NSO) to purchase 75,000
shares of Goulds stock at a price equal to the closing price of the stock
on June 27, 1994. The option will be granted under the 1988 Stock
Incentive Plan, and will vest in 25% increments on each anniversary date
of the option. Per the terms of the Plan document, the option may be
exercised for two years following retirement.
TCM will also participate in any ongoing stock option program. Any
options not vested at the time of his retirement will become fully vested
upon retirement.
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7. Retirement Plans
a. Non-Employee Director Retirement Plan
TCM will be 100% vested in the Non-Employee Director Retirement Plan
as of June 27, 1994.
b. Supplemental Executive Pension Plan (SEPP)
TCM will be a participant in the SEPP according to its provisions,
including graduated vesting of 20% per year. If changes are made to
the SEPP in the future to increase its benefits, TCM will
participate in those changes in the same way as current
participants.
c. Pension Plan III (Exempt Pension Plan)
TCM will be a participant in Pension Plan III according to its
terms.
8. Severance
If TCM is removed involuntarily from the position of President and Chief
Executive Officer for reasons other than for cause, he will receive an
amount equal to his prior 12 months' compensation (base salary plus any
Executive Incentive Plan bonus paid). This amount may be paid as a lump
sum or over time, at his discretion.
9. Title
In addition to his title as President and Chief Executive Officer, TCM
will be elected Chairman of the Board of Directors upon the retirement of
Robert L. Tarnow from that position effective with the Annual Meeting of
Stockholders in 1995.
10. Tax Preparation and Financial Counseling
Goulds will reimburse TCM up to $15,000 annually for these expenses.
11. Other Executive Benefits
TCM will also be eligible for participation in these benefits:
a. Medical Insurance
Blue Cross/Blue Shield Comprehensive Plan.
Executive and Company share in the premium cost.
b. Dental Insurance
Goulds Pumps Dental Plan, administered by Blue Shield of Rochester,
NY. Company pays the entire premium for Plan A.
c. Executive Health Care Supplement Plan
Pays up to $5,000 in a year for uninsured health care expenses.
Company pays the entire premium.
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d. Executive Security Plan
Life Insurance Plan. Provides death benefit before age 65 equal to
base salary continuation for 12 months, plus 50% of base salary
until insured would have turned 65; death benefit after age 65 is
150% of base salary; retirees receive continued coverage. Company
pays entire premium. Health questionnaire and physical examination
required by insurance carrier.
e. Supplemental Life Insurance Plan (optional)
Maximum coverage level of $300,000. Executive pays the entire
premium.
f. Executive Long-Term Disability Plan
2/3 of base salary. Company pays the entire premium.
g. Goulds Pumps, Inc. Retirement Savings and Investment Plan [401(k)]
Quarterly enrollment for new employees.
h. Senior Executive Severance Agreement
Change of Control protection per Plan document.
Memorandum of Understanding Amended October 26, 1994 as Follows:
This Memorandum of Understanding amends the Memorandum of Understanding
dated June 27, 1994, and effective June 28, 1994, describing the compensation
and benefit arrangements for Thomas C. McDermott as President and Chief
Executive Officer of Goulds Pumps, Inc. ("Goulds").
Paragraph 2. Executive Incentive Plan ("EIP") is deleted and fully
restated as follows:
Participation in the current plan at the current CEO target rate of 55% of
base salary; 1994 goals remain the same as previously approved by the Board of
Directors. 1994 participation is to be judged against full calendar year 1994
plans. Payment will be prorated per the 1994 EIP plan document provision
related to time in the job. The prorated payment will be guaranteed at the
higher of the target rate at actual plan results or target rate at on-plan (at
standard) results.
/s/Thomas C. McDermott /s/Robert L. Tarnow, Chairman
Thomas C. McDermott Goulds Pumps, Inc.
/s/Arthur M. Richardson, Chairman
Revised: 10/26/94 Human Resources Committee
<F50>
GOULDS PUMPS, INC.
SUPPLEMENTAL BENEFIT PLAN FOR NON-EMPLOYEE DIRECTORS
Effective June 21, 1994
ARTICLE I
INTRODUCTION
The Supplemental Benefit Plan for Non-Employee Directors was established
June 21, 1994 by Goulds Pumps, Inc., a Delaware Corporation, for the benefit of
certain Non-Employee Directors of the Corporation.
The Plan is to be maintained according to the terms of this document. The
Committee on Directors of the Board of Directors of Goulds Pumps, Inc. shall
have the sole authority to manage and administer this plan.
ARTICLE II
DEFINITIONS
2.1 Annual Retainer Fee shall mean the annual fee paid to or accrued by a
Non-Employee Director for serving on the Board of Directors and exclusive of any
other payments made by the Company of any of its subsidiaries or affiliates to
the Non-Employee Director such as fees or other compensation paid to or accrued
by a Non-Employee Director for attending meetings or serving on a committee of
the Board of Directors, serving a Chairman of the Board, or for serving as a
consultant to the Company.
2.2 Board of Directors means the Board of Directors of Goulds Pumps, Inc.
2.3 Board Membership means the period of time during which an individual
serves as a Non-Employee Director, regardless of whether occurring before or
after June 21, 1994, but excluding any period during which he or she is not a
Non-Employee Director. Board Membership shall be cumulative for periods of
service on the Board of Directors which are not consecutive.
2.4 Change of Control means a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such change in control shall be
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deemed to have occurred if:
(i) the Company shall cease to be publicly owned corporation having at
least 1,000 stockholders; or
(ii) any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the Beneficial Owner (as defined in Rule 13d-3 under
the Exchange Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) of more of the combined voting power of the
Company's then outstanding securities; or
(iii) during any period of two (2) consecutive years (not including any
period prior to the adoption of this Plan) there shall cease to be a majority of
the Board comprised as follows: individuals who at the beginning of such period
constitute the Board and any new Director(s) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds (2/3) 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; or
(iv) the Committee determines that the sale of all or substantially all
of the Company's assets, a merger or other business combination, a liquidation,
or any combination of foregoing constitutes a "Change of Control" for the
purposes of this Plan.
2.5 Company means Goulds Pumps, Inc., a Delaware Corporation and any
successor thereto.
2.6 Committee on Directors means the group of members of the Board of
Directors, who have the sole authority to manage and administer the Plan.
2.7 Non-Employee Director means any member of the Board of Directors
who is not an employee of the Company or any of its subsidiaries or affiliates.
2.8 Normal Retirement Age means the date of the first Shareholder's Meeting
on or after the date on which the Participant attains age 70.
2.9 Participant means an individual who is participating in this Plan under
Article III.
2.10 Payment Period means the period of time equal to the Non-Employee
Director's Years of Service as a Non-Employee Director.
2.11 Plan means the Goulds Pumps, Inc. Retirement Plan for Non-Employee
Directors set forth in this document and as amended by the Company from time-to-
time.
2.12 Vested Percentage means the percentage that a Participant has earned
based on his or her Years of Service as outlined in Section 3.3.
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2.13 Years of Service means the actual years and months of service as a
Non-Employee Director, rounded up to the next full year.
ARTICLE III
PARTICIPATION
3.1 Eligibility to Participate. Any Non-Employee Director who is
designated by the Committee on Directors shall be a Participant in the Plan.
3.2 Vesting Rule. All Participants shall vest in accordance with the
following vesting schedule, except as noted below, based on the Participant's
Years of Service as a Non-Employee Director:
Years of Vested Percentage
Service of Participant's Benefit
Less than 5 Years None
5 Years, but less than 6 50%
6 Years, but less than 7 60%
7 Years, but less than 8 70%
8 Years, but less than 9 80%
9 Years, but less than 10 90%
10 Years or more 100%
In the event of the Participant's death, disability, or of a Change of Control,
the Participant will immediately achieve the Vested Percentage he or she would
have achieved if he or she had continued Board Membership until Normal
Retirement Age. In the event the Non-Employee Director becomes an Employee of
the Company, the Vested Percentage will immediately be 100%.
ARTICLE IV
RETIREMENT BENEFIT
4.1 Retirement Benefit. A Participant may elect to retire at any time
after satisfying five (5) Years of Service. The benefit shall be an annual
retirement benefit in an amount equal to the Participant's Vested Percentage of
the Annual Retainer Fee in effect immediately prior to such Participant's
retirement from Board Membership.
4.2 Disability Retirement Benefit. In the event a Participant retires from
the Board due to disability (as defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended), he or she will be entitled to an annual
retirement benefit in an amount equal to the Participant's Vested Percentage,
as though he or she had continued Board Membership until Normal Retirement Age,
of the Annual Retainer Fee in effect immediately prior to such Participant's
retirement from Board Membership.
4.3 Duration of Payments. Payments under this Plan will be payable
<F50>
quarterly, on or about the first day of the month of each calendar quarter,
commencing with the quarter after the Non-Employee Director retires. Payments
will continue until the earlier of the end of the Payment Period or the Non-
Employee Director's death. If a married Non-Employee Director dies before the
end of the Payment Period, the surviving spouse will receive 50% of the amount
the Non-Employee Director had been receiving for the balance of the Payment
Period or the surviving spouse's life, whichever is shorter. If the Non-
Employee Director is not married, there will be no continuing payments.
4.4 Retired Board Member Rejoins the Board. In the event that a retired
Participant who has commenced payments again becomes a Non-Employee Director,
such payments shall be suspended. Notwithstanding the foregoing, upon the Non-
Employee's subsequent retirement from the Board, his or her retirement benefit
under this Article IV shall recommence; provided, however, that the amount of
such benefit shall be based on the Annual Retainer Fee in effect at the time of
his or her subsequent retirement from Board Membership. The Payment Period will
be based on the Participant's Board Membership reduced for the Payment Period
already expired prior to re-joining the Board.
ARTICLE V
DEATH PRIOR TO RETIREMENT
5.1 Death Benefits for Married Participants. In the event of a married
Participant's death prior to retirement from the Board, the surviving spouse
shall be entitled to receive 50% of the Annual Director Fee in effect
immediately preceding the Participant's death. The Payment Period will be equal
to the Non-Employee Director's Years of Service or the spouse's lifetime,
whichever is shorter.
5.2 Death Benefits for Unmarried Participants. No death benefits shall be
payable in the event of the death of an unmarried Participant.
ARTICLE VI
PAYMENT OF BENEFITS
6.3 Forfeiture of Benefits. Notwithstanding anything herein contained to
the contrary, no payment of any unpaid installments of retirement benefits
hereunder shall be made and all rights under this Plan shall be forfeited if
the Committee on Directors unanimously determines that any of the following
events occur:
(a) It is determined that the Participant has made any unauthorized
disclosure to any person, firm, or entity of confidential information or trade
secrets of the Company; or
(b) The Participant has committed or participated in an act or fraud
of dishonesty against the Company; or
<F50>
(c) The Participant has willfully and intentionally engaged in any
activity or conduct which is adverse to the best interests of the Company and
could result in a material loss to the Company or its business.
(d) The Participant has been terminated from Board Membership for
cause.
6.4 Facility of Payment. Whenever, in the Committee on Directors' option,
an individual entitled to receive any payment of a benefit or installment
hereunder is under a legal disability or is incapacitated in any way so as to
be unable to manage his or her financial affairs, the Company may make payments
to the legal representative of such person for his or her benefit or apply the
payment for the benefit of such individual as the Committee on Directors deems
advisable.
6.5 Change of Control.
(a) In the event there is a Change of Control, all Participants who
are Board members on the day before the Change of Control will immediately be
vested as though Board Membership continued to Normal Retirement Age.
(b) In the event there is a Change of Control which causes the
Participant's Board Membership to be terminated within two (2) years following
the Change of Control, the following benefits shall become immediately due and
payable in a single sum amount.
(i) With respect to each Participant who is an active Board
Member on the day before the Change of Control, the present value of the
Participant's vested benefit multiplied by the Years of Service.
(ii) With respect to each Participant to whom benefits
under the Plan have commenced on or prior to the date of a Change of Control,
the present value of the benefits payable to the Participant.
(c) For purposes of this Section 6.5 and for Section 7.2, present
value shall be determined on the basis of the UP 1984 mortality table and an
interest assumption equal to the Pension Benefit Guaranty Corporation (PBGC)
interest rate for calculating the lump sum cash out value of an immediate
annuity, in effect for the month of the Change of Control.
(d) As of the date of a Change of Control, the provisions of Article
VI shall be of no effect with respect to events that occur after the Change of
Control, and shall not cause the forfeiture of any benefits under the Plan.
ARTICLE VII
AMENDMENTS, TERMINATION AND OTHER RIGHTS OF THE COMPANY
7.1 Amendments Generally. The Company reserves the right to make any
<F50>
amendment or amendments to this Plan from time to time which do not cause any
reduction in a Participant's Accrued Benefit at the time the amendment is
adopted or the effective date of the amendment, whichever is earlier. As of
the effective date of this Plan, the Company has delegated this
responsibility to the Committee on Directors.
7.2 Right to Terminate. The Company may terminate the Plan at any time in
whole or in part. In the event of termination, the Company may, at its option,
pay each Participant the present value (as defined in Section 6.5) of the
Participant's Vested Percentage of the Annual Director Fee at the time of
termination of the Plan and make such payments in a lump sum. In addition, the
Company may, at its option, refrain from making payments to any Participant
until such time and in such manner as he or she would have been entitled to
receive his or her benefit under the terms of the Plan as in effect on the
date of termination. No termination of the Plan shall reduce a
Participant's benefit as of the date of termination. As of the effective date
of this Plan, the Company has delegated this responsibility to the Committee on
Directors.
7.3 No Funding Obligation. The obligation of the Company to pay any
benefits under this Plan shall be unfunded and unsecured; any payments under
this Plan shall be made from the general assets of the Company. The Company,
however, in its discretion, may set aside assets or purchase an annuity or life
insurance contract to discharge all or part of its obligations under this Plan.
The assets set aside or the annuity or life insurance contract shall remain in
the name of the Company; this Plan is not intended to be subject to the Employee
Retirement Income Security Act (ERISA); and it is not intended that any trust is
to be created (by setting aside the assets or purchasing an annuity or life
insurance contract) that would create a funded trust under Employment
Retirement Income Security Act (ERISA) or Internal Revenue Service (IRS) rules.
ARTICLE VIII
MISCELLANEOUS
8.1 Nonguarantee of Board Membership. Nothing contained in this Plan
shall be construed to confer upon any Non-Employee Director the right to remain
a member of the Board of Directors.
8.2 Nonalienation of Benefits.
(a) Benefits payable under this Plan shall not be assigned or
alienated, except as provided by law.
(b) Notwithstanding Section 8.2(a), if the Participant is indebted to
the Company at any time when payments are required to be made under the
provision of this Plan, the Company shall have the right to reduce the amount of
payments remaining to be made to the Participant or his or her beneficiary under
the Plan to the extent of such indebtedness. An election by the Company not to
reduce such payments shall not constitute a waiver of its claim for such
indebtedness.
<F50>
8.3 Claims Procedure. All claims for benefits under the Plan will be
directed to the attention of the Committee on Directors. If the Committee on
Directors determines that any individual who has claimed a right to receive
benefits under the Plan is not entitled to receive all or any part of the
benefits claimed, it will inform the claimant by certified mail of its
determination and the reasons therefor in laymen's terms, with the specific
reference to pertinent Plan provisions and with a description of the review
procedures set forth below. The claimant may within 60 days thereafter
submit to the Committee on Directors by certified or registered mail such
further information as will, in the claimant's opinion, establish his or her
right to such benefits. If, upon receipt of this further information, the
Committee on Directors determines that the claimant is not entitled to the
benefits claimed, it will afford the claimant or his or her representative a
reasonable opportunity to appear personally before it, issues and comments in
writing, and to review pertinent documents. The Committee on Directors will
render its final decision with specific reasons therefor in writing and
will transmit to the claimant by certified mail within 60 days of any such
appearance.
8.4 Applicable Law. This Plan shall be construed and enforced in
accordance with the laws of the State of Delaware.
IN WITNESS HEREOF, the Company has caused this document to be executed by
its duly authorized officer on this 23rd day of November, 1994.
/s/John P. Murphy
Goulds Pumps, Inc.
/s/Sally Fanning
Attest
<F50>
GOULDS PUMPS, INC.
RETIREMENT PLAN FOR NON-EMPLOYEE DIRECTORS
Effective June 21, 1994
ARTICLE I
INTRODUCTION
The Retirement Plan for Non-Employee Directors was established June 21, 1994
by Goulds Pumps, Inc., a Delaware Corporation, for the benefit of the Non-
Employee Directors of the Corporation. The plan was adopted to attract and
retain competent directors by providing such directors with retirement income
upon the terms and conditions set forth in this Plan.
The Plan is to be maintained according to the terms of this document. The
Committee on Directors of the Board of Directors of Goulds Pumps, Inc. shall
have the sole authority to manage and administer this plan.
ARTICLE II
DEFINITIONS
2.1 Annual Retainer Fee shall mean the annual fee paid to or accrued by a
Non-Employee Director for serving on the Board of Directors and exclusive of any
other payments made by the Company of any of its subsidiaries or affiliates to
the Non-Employee Director such as fees or other compensation paid to or accrued
by a Non-Employee Director for attending meetings or serving on a committee of
the Board of Directors, serving a Chairman of the Board, or for serving as a
consultant to the Company.
2.2 Board of Directors means the Board of Directors of Goulds Pumps, Inc.
2.3 Board Membership means the period of time during which an individual
serves as a Non-Employee Director, regardless of whether occurring before or
after June 21, 1994, but excluding any period during which he or she is not a
Non-Employee Director. Board Membership shall be cumulative for periods of
service on the Board of Directors which are not consecutive.
2.4 Change of Control means a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation
14A promulgated under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is then subject to such reporting
requirement; provided that, without limitation, such change in control shall be
deemed to have occurred if:
<F50>
(i) the Company shall cease to be publicly owned corporation having at
least 1,000 stockholders; or
(ii) any "person" (as defined in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the Beneficial Owner (as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the Company
representing twenty percent (20%) of more of the combined voting power of the
Company's then outstanding securities; or
(iii) during any period of two (2) consecutive years (not including any
period prior to the adoption of this Plan) there shall cease to be a majority of
the Board comprised as follows: individuals who at the beginning of such period
constitute the Board and any new Director(s) whose election by the Board or
nomination for election by the Company's stockholders was approved by a vote
of at least two-thirds (2/3) 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; or
(iv) the Committee determines that the sale of all or substantially all
of the Company's assets, a merger or other business combination, a liquidation,
or any combination of foregoing constitutes a "Change of Control" for the
purposes of this Plan.
2.5 Company means Goulds Pumps, Inc., a Delaware Corporation and any
successor thereto.
2.6 Committee on Directors means the group of members of the Board of
Directors, who have the sole authority to manage and administer the Plan.
2.7 Non-Employee Director means any member of the Board of Directors
who is not an employee of the Company or any of its subsidiaries or affiliates.
2.8 Normal Retirement Age means the date of the first Shareholder's Meeting
on or after the date on which the Participant attains age 70.
2.9 Participant means an individual who is participating in this Plan under
Article III.
2.10 Payment Period means the period of time equal to the Non-Employee
Director's Years of Service as a Non-Employee Director.
2.11 Plan means the Goulds Pumps, Inc. Retirement Plan for Non-Employee
Directors set forth in this document and as amended by the Company from time-to-
time.
2.12 Vested Percentage means the percentage that a Participant has earned
based on his or her Years of Service as outlined in Section 3.3.
2.13 Years of Service means the actual years and months of service as a
<F50>
Non-Employee Director, rounded up to the next full year.
ARTICLE III
PARTICIPATION
3.1 Eligibility to Participate. Each Non-Employee Director who is serving
on the Board of Directors on June 21, 1994 shall become a Participant on June
21, 1994.
3.2 Commencement of Participation. Each individual who has not satisfied
the requirements of Section 3.1 shall commence participation in the Plan on the
date he or she becomes a Non-Employee Director.
3.3 Vesting Rule. All Participants shall vest in accordance with the
following vesting schedule, except as noted below, based on the Participant's
Years of Service as a Non-Employee Director:
Years of Vested Percentage
Service of Participant's Benefit
Less than 5 Years None
5 Years, but less than 6 50%
6 Years, but less than 7 60%
7 Years, but less than 8 70%
8 Years, but less than 9 80%
9 Years, but less than 10 90%
10 Years or more 100%
In the event of the Participant's death, disability, or of a Change of Control,
the Participant will immediately achieve the Vested Percentage he or she would
have achieved if he or she had continued Board Membership until Normal
Retirement Age. In the event the Non-Employee Director becomes an Employee of
the Company, the Vested Percentage will immediately be 100%.
ARTICLE IV
RETIREMENT BENEFIT
4.1 Retirement Benefit. A Participant may elect to retire at any time
after satisfying five (5) Years of Service. The benefit shall be an annual
retirement benefit in an amount equal to the Participant's Vested Percentage
of the Annual Retainer Fee in effect immediately prior to such Participant's
retirement from Board Membership.
4.2 Disability Retirement Benefit. In the event a Participant retires from
the Board due to disability (as defined in Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended), he or she will be entitled to an annual
retirement benefit in an amount equal to the Participant's Vested Percentage,
as though he or she had continued Board Membership until Normal Retirement Age,
of the Annual Retainer Fee in effect immediately prior to such Participant's
retirement from Board Membership.
<F50>
4.3 Duration of Payments. Payments under this Plan will be payable
quarterly, on or about the first day of the month of each calendar quarter,
commencing with the quarter after the Non-Employee Director retires. Payments
will continue until the earlier of the end of the Payment Period or the Non-
Employee Director's death. If a married Non-Employee Director dies before the
end of the Payment Period, the surviving spouse will receive 50% of the amount
the Non-Employee Director had been receiving for the balance of the Payment
Period or the surviving spouse's life, whichever is shorter. If the Non-
Employee Director is not married, there will be no continuing payments.
4.4 Retired Board Member Rejoins the Board. In the event that a retired
Participant who has commenced payments again becomes a Non-Employee Director,
such payments shall be suspended. Notwithstanding the foregoing, upon the Non-
Employee's subsequent retirement from the Board, his or her retirement benefit
under this Article IV shall recommence; provided, however, that the amount of
such benefit shall be based on the Annual Retainer Fee in effect at the time of
his or her subsequent retirement from Board Membership. The Payment Period will
be based on the Participant's Board Membership reduced for the Payment Period
already expired prior to re-joining the Board.
ARTICLE V
DEATH PRIOR TO RETIREMENT
5.1 Death Benefits for Married Participants. In the event of a married
Participant's death prior to retirement from the Board, the surviving spouse
shall be entitled to receive 50% of the Annual Director Fee in effect
immediately preceding the Participant's death. The Payment Period will be
equal to the Non-Employee Director's Years of Service or the spouse's lifetime,
whichever is shorter.
5.2 Death Benefits for Unmarried Participants. No death benefits shall be
payable in the event of the death of an unmarried Participant.
ARTICLE VI
PAYMENT OF BENEFITS
6.3 Forfeiture of Benefits. Notwithstanding anything herein contained to
the contrary, no payment of any unpaid installments of retirement benefits
hereunder shall be made and all rights under this Plan shall be forfeited if
the Committee on Directors unanimously determines that any of the following
events occur:
(a) It is determined that the Participant has made any unauthorized
disclosure to any person, firm, or entity of confidential information or trade
secrets of the Company; or
<F50>
(b) The Participant has committed or participated in an act or fraud
of dishonesty against the Company; or
(c) The Participant has willfully and intentionally engaged in any
activity or conduct which is adverse to the best interests of the Company and
could result in a material loss to the Company or its business.
(d) The Participant has been terminated from Board Membership for
cause.
6.4 Facility of Payment. Whenever, in the Committee on Directors' option,
an individual entitled to receive any payment of a benefit or installment
hereunder is under a legal disability or is incapacitated in any way so as to
be unable to manage his or her financial affairs, the Company may make payments
to the legal representative of such person for his or her benefit or apply the
payment for the benefit of such individual as the Committee on Directors deems
advisable.
6.5 Change of Control.
(a) In the event there is a Change of Control, all Participants who
are Board members on the day before the Change of Control will immediately be
vested as though Board Membership continued to Normal Retirement Age.
(b) In the event there is a Change of Control which causes the
Participant's Board Membership to be terminated within two (2) years following
the Change of Control, the following benefits shall become immediately due and
payable in a single sum amount.
(i) With respect to each Participant who is an active Board
Member on the day before the Change of Control, the present value of the
Participant's vested benefit multiplied by the Years of Service.
(ii) With respect to each Participant to whom benefits
under the Plan have commenced on or prior to the date of a Change of Control,
the present value of the benefits payable to the Participant.
(c) For purposes of this Section 6.5 and for Section 7.2, present
value shall be determined on the basis of the UP 1984 mortality table and an
interest assumption equal to the Pension Benefit Guaranty Corporation (PBGC)
interest rate for calculating the lump sum cash out value of an immediate
annuity, in effect for the month of the Change of Control.
(d) As of the date of a Change of Control, the provisions of Article
VI shall be of no effect with respect to events that occur after the Change of
Control, and shall not cause the forfeiture of any benefits under the Plan.
<F50>
ARTICLE VII
AMENDMENTS, TERMINATION AND OTHER RIGHTS OF THE COMPANY
7.1 Amendments Generally. The Company reserves the right to make any
amendment or amendments to this Plan from time to time which do not cause any
reduction in a Participant's Accrued Benefit at the time the amendment is
adopted or the effective date of the amendment, whichever is earlier. As of the
effective date of this Plan, the Company has delegated this responsibility to
the Committee on Directors.
7.2 Right to Terminate. The Company may terminate the Plan at any time in
whole or in part. In the event of termination, the Company may, at its option,
pay each Participant the present value (as defined in Section 6.5) of the
Participant's Vested Percentage of the Annual Director Fee at the time of
termination of the Plan and make such payments in a lump sum. In addition, the
Company may, at its option, refrain from making payments to any Participant
until such time and in such manner as he or she would have been entitled to
receive his or her benefit under the terms of the Plan as in effect on the
date of termination. No termination of the Plan shall reduce a
Participant's benefit as of the date of termination. As of the effective date
of this Plan, the Company has delegated this responsibility to the Committee on
Directors.
7.3 No Funding Obligation. The obligation of the Company to pay any
benefits under this Plan shall be unfunded and unsecured; any payments under
this Plan shall be made from the general assets of the Company. The Company,
however, in its discretion, may set aside assets or purchase an annuity or life
insurance contract to discharge all or part of its obligations under this Plan.
The assets set aside or the annuity or life insurance contract shall remain in
the name of the Company; this Plan is not intended to be subject to the Employee
Retirement Income Security Act (ERISA); and it is not intended that any trust is
to be created (by setting aside the assets or purchasing an annuity or life
insurance contract) that would create a funded trust under Employment
Retirement Income Security Act (ERISA) or Internal Revenue Service (IRS) rules.
ARTICLE VIII
MISCELLANEOUS
8.1 Nonguarantee of Board Membership. Nothing contained in this Plan
shall be construed to confer upon any Non-Employee Director the right to remain
a member of the Board of Directors.
8.2 Nonalienation of Benefits.
(a) Benefits payable under this Plan shall not be assigned or
alienated, except as provided by law.
<F50>
(b) Notwithstanding Section 8.2(a), if the Participant is indebted to
the Company at any time when payments are required to be made under the
provision of this Plan, the Company shall have the right to reduce the amount of
payments remaining to be made to the Participant or his or her beneficiary under
the Plan to the extent of such indebtedness. An election by the Company not to
reduce such payments shall not constitute a waiver of its claim for such
indebtedness.
8.3 Claims Procedure. All claims for benefits under the Plan will be
directed to the attention of the Committee on Directors. If the Committee on
Directors determines that any individual who has claimed a right to receive
benefits under the Plan is not entitled to receive all or any part of the
benefits claimed, it will inform the claimant by certified mail of its
determination and the reasons therefor in laymen's terms, with the specific
reference to pertinent Plan provisions and with a description of the review
procedures set forth below. The claimant may within 60 days thereafter
submit to the Committee on Directors by certified or registered mail such
further information as will, in the claimant's opinion, establish his or her
right to such benefits. If, upon receipt of this further information, the
Committee on Directors determines that the claimant is not entitled to the
benefits claimed, it will afford the claimant or his or her representative a
reasonable opportunity to appear personally before it, issues and comments in
writing, and to review pertinent documents. The Committee on Directors will
on Directors will render its final decision with specific reasons therefor in
writing and will transmit to the claimant by certified mail within 60 days of
any such appearance.
8.4 Applicable Law. This Plan shall be construed and enforced in
accordance with the laws of the State of Delaware.
IN WITNESS HEREOF, the Company has caused this document to be executed by
its duly authorized officer on this 23rd day of November, 1994.
/s/John P. Murphy
Goulds Pumps, Inc.
/s/Sally Fanning
Attest
<F50>
EXHIBIT 11
GOULDS PUMPS, INCORPORATED AND CONSOLIDATED SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <S> <C> <C> <C> <C>
a. Net earnings (loss) - as reported...................................... $18,201 $22,548 $(7,893)
b. Decrease in interest expense (net of tax benefit) based upon issuance
of all shares of common stock under Deferred Common Stock Agreement.... $ -- $ -- $ --
c. Restated net earnings (loss) (a + b)................................... $18,201 $22,548 $(7,893)
d. Actual weighted average number of shares outstanding................... 21,175 21,126 21,027
e. Primary earnings (loss) per share based on actual average shares
outstanding (c / d) (1)................................................ $ .86 $ 1.07 $ (.38)
f. Shares exercisable under outstanding dilutive options.................. 423 925 495
g. Proceeds assuming exercise of outstanding dilutive options............. $ 8,073 $20,164 $ 9,070
Reinvestment of proceeds under "Treasury Stock Method":
h. Average market price per share during each year or market price at
year-end (whichever is higher)......................................... $ 22.34 $ 24.88 $ 24.63
i. Shares to be acquired (g / h).......................................... 361 810 368
j. Net increase in outstanding shares relative to stock options (f - i)... 62 115 127
k. Adjusted weighted average shares outstanding (d + j)................... 21,237 21,241 21,154
l. Earnings (loss) per share assuming exercise of
outstanding options (c / k)............................................ $ .86 $ 1.06 $ (.37)
m. Dilutive (Anti-dilutive) effect on earnings (loss) per share (e - l) (2) $ -- $ .01 $ (.01)
<F54>
(1) Earnings per share information is based on weighted average number of shares of common stock outstanding during
each year. No effect has been given to options outstanding under the Company's Stock Option Plans as no material
dilutive effect would result from the exercise of these options.
(2) This calculation is submitted in accordance with Securities Exchange Act of 1934 Release No. 9038 although not
required by APB Opinion No. 15 since no material dilutive effect would result from the exercise of these options.
</TABLE>
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EXHIBIT 22
All subsidiaries of Goulds Pumps, Incorporated listed below are included in the
consolidated financial statements.
State or Country
Ownership Incorporated
Subsidiary Percentage or Organized
A. J. Moreira Lda........................... 75 Portugal
AVIS Werbung Gmbh........................... 100 Austria
Bombas Goulds de Mexico, S.A. de C.V........ 100 Mexico
Bombas Goulds de Venezuela, C.A............. 100 Venezuela
Environamics Corp........................... 100 Delaware
Ernst Vogel Gmbh............................ 100 Austria
Errell Srl.................................. 100 Italy
GP Investments, Inc......................... 100 Canada
Goulds Pumps (Asia), Ltd.................... 100 Hong Kong
Goulds Pumps Australia...................... 100 Australia
Goulds Pumps B.V............................ 100 Netherlands
Goulds Pumps (Barbados) Ltd................. 100 Barbados
Goulds Pumps Canada, Inc.................... 100 Canada
Goulds Pumps DISC, Inc...................... 100 New York
Goulds Pumps Delaware, Inc.................. 100 Delaware
Goulds Pumps Europe B.V..................... 100 Netherlands
Goulds Pumps Financial Services............. 100 Ireland
Goulds Pumps Gmbh........................... 100 Austria
Goulds Pumps Korea Co. Ltd.................. 100 South Korea
Goulds Pumps (Delaware)..................... 100 Delaware
Goulds Pumps (N.Y.), Inc.................... 100 New York
Goulds Pumps (Phil.), Inc................... 100 Philippines
Goulds Pumps Ltd............................ 100 United Kingdom
Goulds Pumps (Singapore) PTE, Ltd........... 100 Singapore
Goulds Pumps (Taiwan) Co. Ltd............... 100 Taiwan
Goulds Pumps Trading Corp................... 100 Delaware
Goulds Pumps World Sales, Ltd. (a FSC)...... 100 Guam
Goulds Pumps World Sales (V.I.) Ltd......... 100 U.S. Virgin Islands
Lowara B.V.................................. 100 Netherlands
Lowara Belgium, S.A......................... 100 Belgium
Lowara Denmark AS........................... 80 Denmark
Lowara France S.A........................... 100 France
Lowara, Gmbh................................ 90 Germany
Lowara Ireland Ltd.......................... 100 Ireland
Lowara S.p.A................................ 100 Italy
Morris Pumps International, Inc. (a DISC)... 100 New York
Ochsner Gas and Compressor Gmbh............. 100 Austria
Ochsner Prozebtechnik Gmbh.................. 100 Austria
Ochsner Prozebtechnik KG.................... 76 Austria
Ochsner Pumpen Gmbh......................... 100 Germany
Pantucek Gmbh............................... 100 Austria
V. Umweiltechnik Gmbh....................... 100 Austria
Vogel Export KG............................. 100 Austria
Vogelpumpen DRV Gmbh........................ 33 Hungary
World Pump, Srl............................. 100 Italy
World Pump Slovenia DoO..................... 100 Slovenia
The Company also has equity investments in Nanjing Goulds Pumps Limited Co., of
China, a 45 percent owned joint venture. Lowara Co., Ltd. of Osaka, Japan is a
54.8% owned joint venture which Lowara S.p.A. maintains with Tsurumi Company of
Japan. The Company owns a 3% interest in Oil Dynamics, Inc., of Oklahoma, which
is currently carried on the cost method of accounting.
<F50>
EXHIBIT 23
Independent Auditors' Consent
Goulds Pumps, Incorporated:
We consent to the incorporation by reference in Registration Statement No.s'
2-64847, 2-64530, 2-78145, 2-90969, 33-22902, 33-54419, and 33-54437 of Goulds
Pumps, Incorporated and its subsidiaries on Forms S-8 of our reports dated
January 26, 1995, appearing in this Annual Report on Form 10-K of Goulds Pumps,
Incorporated and its subsidiaries for the year ended December 31, 1994.
s/Deloitte & Touche LLP
Deloitte & Touche LLP
Rochester, New York
March 15, 1995
<F50>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Goulds Pumps, Inc., has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
GOULDS PUMPS, INCORPORATED
By: /s/Thomas C. McDermott
Thomas C. McDermott
(President, Chief Executive Officer
and Director)
Date: March 7, 1995
<F50>
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 indicated.
/s/Thomas C. McDermott March 7, 1995
Thomas C. McDermott Date
(President, Chief Executive Officer
and Director)
/s/John P. Murphy March 7, 1995
John P. Murphy Date
(Vice President and
Chief Financial Officer)
/s/Peter Oddleifson March 7, 1995
Peter Oddleifson Date
(Director)
/s/Melvin Howard March 7, 1995
Melvin Howard Date
(Director)
/s/Arthur M. Richardson March 7, 1995
Arthur M. Richardson Date
(Director)
/s/James C. Miller March 7, 1995
James C. Miller Date
(Director)
Listed below are those directors not mentioned above:
William W. Goessel
Barbara B. Lucas
Robert L. Tarnow
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
Article 5 Fin. Data Schedule for 1994 Form 10-K
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> $7,374
<SECURITIES> 0
<RECEIVABLES> 113,777
<ALLOWANCES> 0
<INVENTORY> 111,508
<CURRENT-ASSETS> 256,051
<PP&E> 152,789
<DEPRECIATION> 0
<TOTAL-ASSETS> 457,241
<CURRENT-LIABILITIES> 139,203
<BONDS> 0
<COMMON> 21,193
0
0
<OTHER-SE> 170,094
<TOTAL-LIABILITY-AND-EQUITY> 457,241
<SALES> 585,476
<TOTAL-REVENUES> 585,476
<CGS> 418,386
<TOTAL-COSTS> 418,386
<OTHER-EXPENSES> 128,316
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,515
<INCOME-PRETAX> 29,643
<INCOME-TAX> 11,442
<INCOME-CONTINUING> 18,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,201
<EPS-PRIMARY> .86
<EPS-DILUTED> .80
</TABLE>
